Will security risks threaten investments into West Africa?


West Africa’s political environment has traditionally been a volatile one, characterised by instability, conflict, weak democratic institutions and military coups.  Socio–economic disparities and political tensions, overlaid with an abundance of natural resources, have ensured that the region struggles with issues of conflict and instability. These conflicts are often hinged on several factors including poverty, human rights violations, bad governance and corruption, ethnic marginalization and small arms proliferation.

The region has now come sharply into the spotlight for investors amidst growing questions around rising political and security risks. Amongst the key themes investors are grappling with are the mounting threats of Islamic extremism, the prospects of destabilising election-related violence, the growing issue of piracy as well as the potential spill over of ethnic, religious tensions into widespread unrest. Consequently, the impact of these fundamental factors on the economic stability of countries has become critically important.

The region’s three major economies, in particular, have caught the eye of investors in recent times. With elections scheduled next year in Nigeria and Cote D’Ivoire, and Ghana still dealing with the economic hangover from its 2012 election, there is lingering uncertainty as to what kind of trajectory the political risk in each of these countries in likely to assume.


Politics will be the dominant theme for the next 12 to 24 months in Nigeria, with 2015 national elections creeping up and the political climate becoming increasing heated. The electioneering process has already kicked off, even earlier than usual, and will serve as a major test of Nigeria’s institutional and political maturity.

Meanwhile, questions are increasingly being asked of the current government’s ability to tackle outstanding economic, social and security challenges, while the ruling People’s Democratic Party (PDP) is beset with internal disputes and personality battles, and a very unpopular president.

The strength of the opposition will depend on the cohesion of the newly-formed All Progressives Congress alliance, which comprises the main opposition parties that competed in the 2011 election. However, the PDP will be difficult to depose, given the strength of its incumbency and its current predominance within the National Assembly.

The security crisis in the north, which could turn the region even more decisively against president Goodluck Jonathan, together with the bruising power struggle between the executive and governors, suggest that an economic downturn could take root as the elections draw nearer.

The peaceful way in which the country dealt with a legal challenge to the 2012 presidential election was widely lauded and underlined the strength of Ghana’s democratic and judicial institutions. However, the first year in office of the president, John Mahama, and the National Democratic Congress (NDC) was plagued by an underperforming economy, which dented government’s popularity.

Whilst the reaffirmation of Ghana’s stable democracy may not have tangible short-term benefits, it is nonetheless a positive for the country. Peaceful transitions are a source of national strength and pride but they also make governments more vulnerable to voter sentiment. The next election is not until 2016 but austerity is unpopular with voters, especially given expectations of a bonanza when oil came onstream in 2010.

Following the closely contested elections in 2012, the usual themes of a fiscal hangover, currency weakness and rampant inflation again manifested themselves. The cedi has lost over a quarter of its value against the US dollar over the past year, making it Africa’s worst-performing currency. Ghana’s reliance on imports helped push inflation up to 15% in June, prompting serious rethinking in government about backing local production.

There is also doubt as to how much more “belt tightening” the Ghanaian consumer will be able to stomach. Already, the consumer has borne the brunt of the interest rate hikes, currency depreciation, double-digit inflation, petrol price, Vat and power price increases. Thus far there has been very limited industrial action; however, Mahama will find it increasingly difficult to contain expenditure.

Growth in French-speaking Africa’s biggest economy stagnated as rebels controlled the north of the country for almost a decade following a failed coup in 2002. In late 2010, former president Laurent Gbagbo’s refusal to hand over power after losing a presidential vote sparked five months of violence in which at least  3 000 people died and a bond default was triggered. The failed overthrow led to an eight-year civil war that split the country.

Côte d’Ivoire is now recovering rapidly and the authorities have, over the last three years, made considerable headway toward their objective of boosting medium-term growth to raise living standards and transform the economy into an emerging market by 2020.

The next presidential elections are set for October 2015. Even in the absence of Gbagbo, historically one of the major players in this political equation, the stakes remain high. Personal rivalries, combined with the fear of missing out on the power and resources of the presidential office, will ensure that country’s democracy will again be tested. Whilst the 2015 election will be divisive, with protests and riots probable in the run-up and aftermath of a poll that is unlikely to be seen as fair by an opposition, state security forces will prevent the outbreak of large-scale violence and the country will continue on a positive trajectory over the medium term.  

With a credible opposition challenge yet to emerge, many see business-friendly Alassane Ouattara as a safe bet to win a second term, but there is less clarity further down the road. The crisis stifled the emergence of a new generation of leaders prepared to take over the running of the country.

The cessation of hostilities and the implementation of a peace agreement, backed by the international community, are proving vital to Côte d’Ivoire’s economic revival in the near and medium term. It will help ease transportation and trade bottlenecks through the country, rebuild government institutions and stabilise the country’s ailing cocoa sector. Foreign investors, who once limited their contributions to oil and mining activities, are returning.

Ghana and Nigeria offer investors significant opportunities by virtue of their status as the leading members of the Economic Community for West African States (ECOWAS), whilst Cote d’Ivoire, as the locomotive of francophone West Africa presents major growth prospects as the country continues to rebuild  its economy after years of stagnation.

However, the outlook for the countries mentioned is mixed in this regard. Whilst Ghana is politically mature, its macroeconomic governance and structural reforms have been known to suffer from political budget cycles: the 1996, 2000 and 2008 and 2012 elections were noted for high unplanned expenditures by governing parties to renew their mandate, which put fiscal consolidation at risk.

This has led to the expectation of an election cycle impact on the economy, requiring an adjustment in the years preceding an election in order to maintain macroeconomic stability. Uncertainty will be a dominant theme as Cote D’Ivoire and Nigeria go to the polls next year, with their respective elections placing severe tests on the institutional and political maturity of each country.

Whilst Cote D’Ivoire is looking to deliver free, fair and peaceful elections for the first time in decades, Nigeria will aim to consolidate the gains of 15 years of democracy by ensuring that political governance and economic management are able to find a stable equilibrium. 

Both elections will again spark fresh concerns about the conduct of voters and the poll’s likely outcome. Any unanticipated changes could put the brakes on economic growth and fuel negative sentiment.