Africa’s Role in a Time of Geopolitical Turmoil: A Conversation with Control Risks
Extract from The Africa Debate 2022 Report
With the Russia-Ukraine war compounding international supply chain issues and driving up inflation, the global economy has emerged from the pandemic into what is beginning to feel like an endemic crisis. We sat down with Nick Allan, CEO of Control Risks, after the Africa Debate to discuss his assessment of how Africa will be impacted by these global trends, which political and economic headwinds businesses should prepare for in the region, and where he sees strategic opportunities on the continent over the medium to long term.
Navigating Elevated Global Risk
“It is hard to remember a time when there has been so much political and security turmoil” Allan begins. “If you look at everything that’s going on globally, none of it is positive and Africa will be affected” he explains. Even though the Russia-Ukraine war doesn’t present a direct conflict risk on the continent, Africa is nonetheless already feeling the spillover effect as it once again finds itself buffeted by external shocks. It is not just rising fuel prices that will pose a challenge for Africa, Allan expands, but also, in a region where up to half of household spending is on food, rising prices of fertilizer, grain and cooking oil will have a very real impact. Hence the President of Senegal and Chair of the African Union, Macky Sall’s, recent visit to Moscow to discuss the importance of reopening grain exports. It remains to be seen whether the deal struck between Ukraine and Russia to reopen Ukraine’s ports will alleviate pressure in the short term.
“So many of the solutions that the planet needs are to be found on the African continent.”
With little sign that the macro-economic environment will improve in the short term, however, inflation and food insecurity are likely to “flow into political unrest and populism” closer to home. Over the last 18 months, the continent has already experienced elevated political insecurity with coups in Sudan, Chad, Mali and Guinea. Elevated debt burdens coming out of the pandemic have left governments with limited options to cushion the cost of living crisis and, while economic growth struggles to keep pace with population growth, there is strong potential for mounting frustration. As governments come under pressure from these social consequences of economic downturn, there is a risk that they will seek new sources of revenue from the private sector, Allan warns. With key elections taking place against this challenging backdrop in Kenya, Nigeria and Angola, investors and businesses will need to monitor these trends closely.
Capitalising on Long-Term Opportunities
Despite these short-term challenges, however, Allan sees a “world of opportunity for investors in Africa” over the medium to long term with those companies already experienced operating in the region best placed to capitalise. Whether it’s rebooting global growth or confronting the climate emergency, for Allan “so many of the solutions that the planet needs are to be found on the African continent”. The demographic transformation in the region is “both Africa’s greatest strategic challenge and its greatest strategic opportunity”. The continent’s population is set to boom to over 2 billion people over the next thirty years with Nigeria’s population alone projected to double to 400 million, more than the USA today. Given that typically economic growth is found where there is a growing population, Allan suggests, Africa should be focused on harnessing its young population as a structural advantage.
This will call for accelerated investment in a challenging environment making improving access to capital the central challenge facing Africa’s leaders. Realignments in the global economy as countries look to mitigate supply chain and reduce emissions could play in Africa’s favour. “In theory,” says Allan, “trends of near-shoring and shorter supply chains should present great economic opportunity in Africa”. BioNTech’s investment in vaccine production in Rwanda demonstrates that there is a real opportunity for the continent to expand its local manufacturing capacity. Another sector with strong potential in this respect is mining with demand for so called “green minerals” set to increase dramatically as the world seeks to expand battery storage capacity for renewables. The recent cooperation agreement between the DRC and Zambia to capture the value chain in electric batteries and clean energy is a sign of how mineral-rich countries are approaching the green energy opportunity. On the global energy transition, Allan feels that “there is a real opportunity for Africa to be part of the solution” and to harness this in a way which serves the continent’s interests calls for a strong focus on “fair and equitable transition” going into COP27.
African Unity vs Global Fragmentation
It is clear that the solutions to the challenges that hamper Africa’s ability to harness these opportunities “are going to have to come from the continent itself as the rest of the world is increasingly disengaged and distracted by issues closer to home.” The fact that Africa has bucked the global trend and come together in an era of global fragmentation should stand in its favour. Allan points to their response to the pandemic, an increasing willingness to engage with security challenges at a regional and sub-regional level and the ongoing efforts to push through the AfCFTA as demonstrations of the power of African unity. One of the positive trends of previous decades, he suggests, is the expansion of the remit of African multilaterals as “people take real comfort in being able to invest alongside the likes of the African Development Bank, Afreximbank and the Africa Finance Corporation.” In the midst of an extremely challenging immediate environment, it is crucial for governments to continue to have a strategy to secure the continent’s long-term future and double down on efforts to improve on the governance frameworks that attract investment.
