A sharp rise in political violence and resource nationalism in Somalia, Sudan, South Sudan and Ethiopia means that east Africa has overtaken central Africa as the highest risk region for investors in sub-Saharan Africa, according to risk analysis firm Maplecroft's latest 2014 political risk atlas. The atlas, which assesses political risk across 197 countries globally, found that deteriorating political stability across a number of east African countries, including Mozambique and Kenya, means that the region has shifted from a ‘medium’ to a ‘high risk’ location for investors.
Forced regime change within several countries in the Middle East and North Africa (MENA), following the ‘Arab Spring’ uprisings, which began in late 2010, means that political risk has significantly increased in 63% of the countries in the region. While MENA as a whole is characterised as a ‘high risk’ region, Iraq, Syria, Yemen, Libya, Egypt and Palestinian are the most acutely affected areas due to a rise in conflict and terrorism.
While Somalia is the most ‘extreme risk’ country in the 2014 political risk atlas, it is Syria that has experienced the most destabilising effect on its investor climate. In last year's atlas, the country was ranked the 42nd most risky country for investors, while this year it climbed to second place.
Increased terrorist activity in the Sinai Peninsula, where attacks rose from 20 incidents of terrorism between 2011 and 2012, to 105 between 2012 and 2013, coupled with a growth in violence following the ousting of former president Mohammed Morsi means that Egypt has, for the first time, become categorised as an ‘extreme risk’ country. It was ranked 15th this year, up from 27th in 2013.
A “vicious circle” of poor governance, continued conflict, high corruption levels and persistent regime instability in countries such as Afghanistan, Sudan, the Democratic Republic of the Congo and Central African Republic means they were placed at third, fourth, fifth and sixth place, respectively on the atlas. In addition, businesses operating in Kenya and Mozambique, which are ranked 41st and 43rd, face significant operational challenges because discoveries of substantial oil and gas reserves in both countries has coincided with a rise in resource nationalism. Kenya has imposed a substantial increase in mining royalties on foreign and local companies, while Mozambique is expected to impose a higher level of taxation on firms’ capital gains.
While frontier and developing countries continue to present investors with some of the most significant opportunities, according to Maplecroft more than 20% of these countries, including Cote d’Ivoire, Guinea and Mali, have experienced a significant increase in structural political risks in the past four years. As a result, investors operating in emerging markets face an added risk of complicity with oppressive regimes in the short term. Countries such as Cambodia and China were also highlighted as posing investors this added risk, as both were also ranked as ‘extreme’ and ‘high’ risk countries in Maplecroft’s 2014 oppressive regimes index.