POLITICAL risk will remain a major concern for deal-makers in Africa in 2018. According to a recent report, Resourceful Deal-making: Outlook for M&A in Africa, published by Mergermarket in collaboration with London-based global risk and strategic consulting firm specialising in political, security and integrity risk, Control Risks, there has been a dramatic fall in M&A (mergers and acquisitions) activity, with declines of 25% in volume and 26% in value in the first half of 2017, compared with a relatively buoyant 2016.
Imad Mesdoua, senior political risk consultant at Control Risks, said: “The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets. Specifically, political risk and transparency concerns have become the principal obstacles to successful acquisition in Africa.
Ethical and compliance considerations are another major factor clouding the outlook for potential investors.”
However, political uncertainty and weak macroeconomic situation that accounted for fewer deals in Africa’s largest markets in 2017 look set to ease over the coming year.
Key findings of the report:
- Political uncertainty and relatively weak economic fundamentals have negatively affected M&A activity in Africa. A fall-off in deals was seen in the first half of 2017 compared with a relatively buoyant 2016;
- Political risk will be a major obstacle to dealmaking in Africa over the next 12 months, according to 84% of respondents. Other risk factors include transparency concerns and completeness of information, which ranked joint first alongside political risk (84%), as well as compliance and integrity issues (80%); and
- Almost three-quarters (72%) of respondents say that getting caught up in a regulatory or criminal investigation is one of the highest risks in relation to a target company’s ethics and compliance standards.
Mesdoua continues: “Political risk will continue to pose a major challenge to M&A activity on the continent as several large markets such as Nigeria undertake difficult elections and unpopular reforms to improve their economic outlooks.”
But the good news though for South Africa, Zimbabwe and Angola: greater political stability and a more favourable economic and business environment are expected to boost M&A activity and investment in the coming year. At least 72% of respondents are pursuing co-investment strategies in Africa as a means of risk management.
Political uncertainty and weak macroeconomic situation that accounted for lower investments in Africa’s largest markets in 2017 look set to ease over the coming year as countries such as South Africa, Zimbabwe and Angola begin to stabilise.
Zimbabwe needs to take advantage of the current positive sentiments around it to resolve the political stability and risk issues through free, fair, transparent and credible elections. It does not matter who wins the elections, but results have to be acceptable to citizens and stakeholders, especially the international community, to ensure legitimacy. This is what President Emmerson Mnangagwa and his administration has to deal with to take the country forward.