By George Otieno
Elections have historically been a source of unpredictability in Africa. The perceptions are fueled by images of burning buildings and scenes of carnage on urban streets screened on TV screens around the world. Perhaps this was the case several decades ago but today, in most African countries, this reality is changing.
In fact, over the past three years in nearly every region in Africa there have been peaceful transitions of power – from the most recent in Ghana and Senegal in West Africa to those in Tanzania and Uganda in East Africa to Zambia in Southern Africa. The upcoming national elections in Kenya will be closely watched but there is no reason that they should impact on the country’s investments.
From a business perspective, the biggest fear in these periods, outside of damage to property, is that a government may decide to act illegally to seize companies’ assets, change laws arbitrarily and overturn contracts agreed to in previous administrations – just to name a few. While these fears may be realised in a few instances, it is important to take a step back and look objectively at some key reasons for optimism.
First, many African countries now have access to guarantees that protect financiers and investors regardless of the political environment. Specifically, since 2001, several countries have had access to the home-grown and internationally respected financial protection products offered by ATI.
These products can help our countries tremendously by deflating the so-called “election-cycle financing syndrome”, which ensures that the cost of financing is hiked to an unreasonable level or worse, that there is no financing available during an election period.
These protections also benefit banks during election cycles. Traditionally, banks have had to build their lending cycles around the election period to control the expected higher rates of payment defaults. However, with insurance and guarantees in place, banks can now continue lending and put an end to their cyclical approach to financing.
The second cause for optimism is that Africans are now starting to see themselves as “the future”. The statistics that have been tossed around over the last few years are beginning to take root in the form of renewed confidence within the continent. The fact that Africa is now seen as one of the most attractive business destinations is no accident. Home to seven of the 10 fastest growing economies in the world and with a population of over 1 billion, a combined GDP of close to $2trillion, Africa’s dynamism cannot be denied.
With the ongoing financial crisis in many regions that have been our traditional export destinations, Africa is increasingly looking inside its own borders for opportunities. From our vantage point, we’ve seen companies cutting back on their business with European and North American markets in favour of expansion in neighbouring African countries, increasing regional integration.
To round out the optimism, the explosion of public-private sector investments made in the continent’s infrastructure signals a serious commitment to growth and development that should not be dismissed. This is an indication that governments are serious about building environments that are attractive to foreign investors and where businesses can thrive.
This trend is supported by what we’ve seen on the ground. In the past 12 months, in Kenya alone we supported $1 billion worth of projects that helped to attract investments, build infrastructure and facilitate trade between East African countries.
While Kenya represented one of our biggest portfolios last year, I believe this speaks to a much larger trend – that business in countries that have access to financial protections no longer have to be held hostage to an election cycle. In Kenya, Zambia, Tanzania and other countries where we operate that have also recently held national elections, this has been proven. In these countries business continued in all phases of the election cycle.
This is good news for economic development. And even more importantly, this is good news for Africa’s future growth prospects.
(George Otieno is the Chief Executive Officer of the African Trade Insurance Agency)