The global risk map is forever changing
“2011 will be marked as a year of increasing national self-interest, both politically and economically, as the world’s emerging economies use their economic strength and resilience to project global power and influence,” says Control Risks, a leading business risk consultancy. They were commenting at the launch of their RiskMap 2011, an annual review and forecast of business risk for the year ahead. The group identified Iraq, Pakistan, Turkey, Nigeria and Sudan as possible flashpoints through the year. The risk map is a useful tool for multinational companies expanding operations into developing markets.
Control Risks identifies four trends likely to play out in the 2011 risk universe. These include persistent political, operational and security risks in Africa; massive competition for “power” around valuable commodities deposits; political and security risks linked to poor socio-economic conditions and spiralling food prices; and increasing red-tape, bureaucracy, nationalisation and political interference across the continent. In today’s newsletter we’ll focus on the Africa section of their report, before turning to issues relevant to South African businesses.
Elections or not – the people will hold sway in Africa
Recent developments in Tunisia and Egypt must have sent shivers down the spines of more than one Africa dictator. Control Risks begins their summary of risk in Africa with the line: Sub-Saharan Africa faces a ‘year of elections’ in 2011, with at least 20 countries going to the polls in what will be an important litmus test of the continent’s political development. Unfortunately Africa’s entrenched leaders struggle to let go, as in the case of President Robert Mugabe (Zimbabwe) and President Goodluck Jonathan (Nigeria). Opposition parties in each of these countries were forced into power sharing arrangements after winning elections, only to find their “power” eroded over time.
The Egyptian people recently forced President Mubarak out – and Control Risks warns of massive destabilisation across North Africa and the Middle East as a result. “Analysts are debating which state will be next to fall to the rapidly accelerating ripple of the Tunisian revolution,” they say. By 14 February 2011 civil unrest had spread to Algeria, Yemen and Jordan. Two weeks later the news wires were buzzing with news of demonstrations and strong-arm state responses in Bahrain, Libya and Iran!
South Africa scores a rather unwelcome mention in Control Risks’ Africa regional overview. As they discuss the likely outcome in a number of key African states they lament “the rapid dissolution of a national movement’s moral authority once generational change severs the direct links between a party and its historical foundations.” They refer here to recent developments around nationalisation and the narrow focus of black economic empowerment policy.
Measuring South Africa’s risk
Control Risk rates 173 countries according to their respective political and security risks. They define political risk as “the likelihood of state or non-state political actors negatively affecting business operations in a country through regime instability or direct/indirect interference, [with reference to] the influence of societal and structure factors on business.” Security risk refers to “the likelihood of state or non-state actors engaging in actions that harm the financial, physical and human assets of a company, and the extent to which the state is willing and able to protect those assets.”
How do we fare on the Risk Rating Forecast for 2011? Control Risks gives South Africa an M (Medium Risk) in the political risk field. There are enough societal and structure factors influencing business – most notably the large gap between rich and poor, compounded by high levels of unemployment – for concern. Although South Africa is relatively stable there are significant challenges to business due to influential lobbying groups such as the Congress of South African Trade Unions and the SA Communist Party having government’s “ear” where policy formulation is concerned. We’re also experiencing massive resistance to positive change – with taxi industries protesting bus rapid transit solutions – and provincial governments resisting tolling systems implemented at the national government’s behest.
We rate as Medium Risk to High Risk against the security risk measure. The high risk refers specifically to deprived urban areas and exhibited recently in the political unrest in the suffering Mpumalanga town, Wesselton, near Ermelo. Police stepped in quickly to quell the three-day-long unrest, which claimed one life and resulted in at least R350 000 worth of damage to local municipality assets.
Editor’s thoughts: Businesses plying their trade in Africa are faced with numerous political and security risks. As government stubbornly refuses to come clean on its nationalisation plans large multinationals are passing over investment opportunities in favour of other African markets. That’s why Rio Tinto recently committed $3.5 billion to a coal project in Mozambique despite dozens of top opportunities in South Africa. Do you think government will push ahead with nationalisation regardless of the warning signs? Add your comment below, or send it to [email protected]
Comments