Many African governments will feel the pinch in 2016 as shifting global economic conditions place further pressure on revenue and investment streams in the region. Already challenging socio-economic conditions will likely worsen in light of these economic headwinds, while other domestic factors including anticipated drought conditions and power shortages further complicate this picture. Although we don’t anticipate any sweeping political change across the continent in response to these dynamics, the risk of political volatility is heightened and certain African leaders face stiff tests of their leadership in the year ahead. In 'The African year in 2016' we look at the political, economic and commercial outlook for sub-Saharan Africa in the year ahead.

1. africapractice
January 2016
The African year in 2016
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africapracticeThe African year in 2016 - January 2016
Political outlook – standing against the tide of change
Africa’s macro-economic challenges will draw much
attention in 2016 as a stuttering China creates further
headwinds in an already sluggish global economy. The
frontier and emerging markets of Africa will suffer
acutely from the impact of lower commodity prices,
shifting global capital market trends and drought linked
to the El Niño phenomenon. Partly because of these
challenging economic conditions, volatility in national
politics is also likely to be a prominent feature of the
year ahead. Economic travails – particularly in resource
dependent states – will further frustrate a young and
expectant citizenry angered by perceived government
underperformance and corruption. Several states
already face widening fiscal and budgetary deficits. And
where painful tax and spending readjustments have
to be made, business will suffer and rumbling popular
discontent risks sparking unrest.
Popular unrest and political volatility have long
punctuated Africa’s political landscape. But in the last
few years, the continent’s increasingly urbanised and
©IssoufSanogo/AFP/GettyImages
networked societies all the way from Johannesburg
to Kinshasa have been forcing greater accountability
on their governments, calling on them to deliver
on their development commitments and improve
standards of governance. These dynamics have
undoubtedly played into recent landmark political
upsets such as last year’s opposition electoral victory
in Nigeria and the popular uprising against the long-
standing government of Blaise Compaoré in Burkina
Faso. They have also influenced the rise in populist
policy-making and the emergence of some more
radical political groupings, notably in South Africa.
Although in 2016 we will continue to see the
impact that rising popular frustrations over tough
socio-economic conditions and the slow pace of
political reforms can have on urban societies, we
are also likely to see the limitations of popular
mobilisation in countries with entrenched elites.
Opposition political forces competing in elections
or challenging long-standing rulers will inevitably
seek to replicate what happened in Nigeria or even
Burkina Faso. But in truth, these political upheavals
were fairly unique. Certainly, in the continent’s
more vibrant democracies like Ghana and Zambia,
elections next year could see incumbents defeated
if their respective opposition parties are able to
overcome internal differences and take advantage
of frustrated popular expectations and economic
stagnation to unseat the ruling administration.
But in the vast majority of African countries facing
elections in 2016, we are likely to see incumbents
dominate, regardless of their record in office.
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africapractice
For example, for all the popular discontent around slow
development and patchy government performance in a
number of states heading to the polls in 2016 such as Gabon,
Equatorial Guinea, Uganda, Chad, the Gambia and Congo-
Brazzaville, we anticipate relatively comfortably re-elections
for the incumbents. This underlines the often uneven nature
of political competition, where incumbent parties can draw
oncontrolofthestateapparatus,co-optkeypolitical,religious
and commercial stakeholders, and suppress or limit the
opposition voice. As such, although some of the continent’s
more vibrant opposition groupings will run vocal campaigns
such as that of former African Union president Jean Ping in
Gabon or Ugandan opposition leader Kissa Begiye, they will
generally make only limited headway.
As a further sign of the continued strength of entrenched
elites, the theme of ‘third-termitis’ will also feature
prominently on the bill in 2016. With Congolese President
Denis Sassou Nguesso, Rwandan President Paul Kagame and
Burundian President Pierre Nkurunziza all tinkering with the
constitution to pursue controversial third terms in office, all
eyes will turn to DRCongo where president Joseph Kabila is
sizing up a contested bid to prolong his rule. Congo faces a
particularly volatile year, such is the country’s recent history
and the extent of resistance to Kabila’s continued political
ambitions. Kabila will continue to drag his heels in the
coming months, raising prospects of a looming constitutional
crisis in the latter stages of 2016 as it becomes increasingly
apparent that the elections cannot take place within a
shrinking window. This is likely to trigger mass street protests
and could prompt more serious forms of political violence,
creating significant unease within the investor community –
particularly given current instability in neighbouring Burundi
in response to Nkurunziza’s decision to hang onto power.
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africapracticeafricapractice
A number of the ‘dinosaur generation’ of leaders
who have been in power for over two decades
won’t face tests at the ballot this year, but serious
questions remain over the succession of these ageing
strongmen, several of whom preside over increasingly
factionalised ruling elites, squabbling over the share
of their spoils. Improved constitutional structures
to manage a forced succession or recent moves to
place an heir-apparent in a politically advantageous
position have created a clearer platform for steering
a transition in several countries such as Angola,
Cameroon, Zimbabwe and even Equatorial Guinea.
But the departure of such overbearing rulers in these
regimes will undoubtedly leave a vacuum that will
be hard to fill. Factional divisions bubbling under
the surface combined with growing pressures from
a burgeoning youth population will therefore create
greater scope for volatility in 2016 and beyond,
particularly when the issue of succession is eventually
forced by a president’s death.
Lastly, a word on South Africa which faces mounting
uncertainties in 2016. Public and investor confidence
in President Jacob Zuma has hit new lows after his
bungled handling of the finance ministry portfolio in
December. The move to replace competent finance
minister Nhlanhla Nene and replace him with a
party stalwart sent shockwaves through the political
elite and wider economy, forcing Zuma into a swift
back-down in which he re-instated his former
long-serving and respected finance minister Pravin
Gordhan. The president’s lack of consultation and
communication on such an important decision
has clearly dented trust even amongst the most
committed ANC cadres. Perhaps of greater concern
for business, is the fact that a weakening Zuma
may lean on more populist and unpredictable
policy-making to sure up his base.
Although the ice under Zuma’s feet is thinning, a
concerted leadership contest is unlikely in the short
term. Nevertheless, throughout 2016 we are likely to
see a rise both in external criticism of his leadership
and internal challenges to it from prominent ANC
factions. As the ANC’s post-apartheid dividend is
further eroded by Zuma’s wayward leadership and the
ruling party’s stuttering performance more broadly,
the ANC will struggle to preserve its still-considerable
voting margins in municipal elections held between
May and August. Beyond the municipals, all eyes
will turn to the 2017 five-yearly ANC leadership
congress, where Zuma is likely to face a stiffer test
to his incumbency. The daggers are not yet out, but
we anticipate a determined bid to unseat the South
African president at the congress. Meanwhile, South
Africa’s economy will remain buffeted by tough
external conditions, drought and a debilitating power
crisis, further undermining investor confidence.
Conflict in Africa in 2016
In a positive sign of Africa’s long-term
trajectory, the last decade has seen fewer
conflicts on the continent than in the
preceding post-independence decades.
Nevertheless, the intractable crisis in South
Sudan is likely to persist in 2016 while the
risk of further violence in Burundi and the
CAR will persist.
One conflict area we will be watching
particularly closely in 2016 is the Niger delta.
The Nigerian government has ambitions to
scale back the amnesty programme this year
butfacesstiffresistancefromformermilitants
who have grown used to government
largesse under the scheme. The curtailing of
allowances is likely to be a contentious issue,
particularly coming from a government that
lacks heavy-hitting representation from the
delta region. We feel a return to coordinated
regionalinsurgencyisunlikelyin2016butan
uptick in unrest and localised militancy will
pose resurgent challenges for the government
and the oil and gas industry.
The African year in 2016 - January 2016
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Macro-economic outlook – buckling up for the ride
The African economic year is likely to be dominated by two key phenomena; the subdued commodities
market and gradual shifts in global capital flows linked to successive US rate-hikes and broader
uncertainties around emerging markets.
While some governments which faced debilitating subsidy bills in their bid to keep domestic fuel prices
low have welcomed the reprieve brought about by the slump in many key commodity prices, the majority
of African governments have suffered from their excessive dependence on these natural resources. Low
commodity prices will continue to weigh heavily on public finances not just in oil-dependent states
like Nigeria and Angola, but also in more diversified economies like Ghana and South Africa. We also
anticipate that continued pressures on some local currencies will see political efforts to prop up their
value flounder, resulting in further devaluations – particularly in Nigeria and Angola. While devaluations
will provide a boost for export-oriented businesses, Africa as a whole remains heavily import-dependent
and the inflationary impact will therefore be acutely felt.
Adding to government woes, analysts are predicting that the US rate hike in December – the first in
almost a decade – will be followed by at least one further hike in 2016. This will further complicate
the picture for public finances and investment trends across Africa. The rise in interest rates is likely to
impact the flow of foreign capital seeking better returns in higher risk emerging and frontier markets,
which has been a strong feature of the investment landscape in the last six years. It will also drive up the
cost of borrowing for African governments, with concerns already re-emerging over the sustainability
of African debt on its current trajectory after a decade in which donors and international financial
institutions have worked to reduce the continent’s debt burden and instil more robust macro-economic
management. Ongoing credit crunches and rising fiscal and budgetary deficits in some of the continent’s
larger economies like Kenya, Ghana and Nigeria are unlikely to alleviate significantly in the year ahead.
In fact, they will more likely worsen in the face of political inertia and difficult economic fundamentals.
Pre-electoral politics in Ghana and Kenya risk worsening the situation in this respect also.
Several governments running on empty since the oil price drop
will look to international capital markets to raise debt in 2016
amid lower fiscal inflows. Nigeria and Angola appear primed to
do so. But the money won’t come as cheaply. We also anticipate
additional efforts from both sending and receiving countries
to stem illicit flows of capital, including introduction of more
double taxation agreements and anti-money laundering laws. It is
estimated that Africa loses over $60billion annually to illicit capital
flows. Domestically, regulatory and tax risks are also likely to rise
as the authorities seek to raise more taxes and enforce more
strictly against what can often be an opaque or ambiguous legal
framework.
With early signs of drought already appearing in parts of East
and Southern Africa, the El Niño phenomenon is likely to impact
agricultural productivity and local food markets significantly in
2016. Governments and aid agencies will be forced to increase
staple imports in markets from Ethiopia to Zambia, while even
agricultural powerhouses like South Africa will suffer. The risk of
food price spikes will be important to monitor, especially given its
ability to act as a trigger for civil unrest.
“The New year is a journey.
Adjust your sails. Overcome your
fears. See the shore”.
Akinwumi Adesina, President of the African Development Bank
The African year in 2016 - January 2016
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africapracticeafricapractice
Despite these challenges, the picture is not all bleak in the year ahead. The ‘Africa rising’
narrative was not a flash in the pan but was rather underpinned by strong long-term
economic fundamentals, supported by a drive by African governments and their international
development partners to improve the environment for foreign investment. A number of
countries, notably Ethiopia, Mozambique, Tanzania, Rwanda and Kenya have demonstrated
real credentials in this respect, and will continue to attract interest. Meanwhile, although it
faces a tough economic year which will be further complicated by its already challenging risk
environment, Nigeria remains a market of enormous potential – and not just when it comes
to resources. Recent drives to improve governance under Nigeria’s new leadership also
augur well for the long-term business outlook, even if significant turbulence in the country’s
business landscape is likely during President Muhammadu Buhari’s first term.
Goldman Sachs Credit Suisse JP Morgan
Oil (Brent) per barrel $45 [lowest $20] <$55 till Q4: $64 $54.75
Copper per tonne $4,500 $4,400 $4,400
Gold per ounce <$1000 $1,100 -$1,150 <$1000
Zambia
Angola
Namibia
Uganda
Tanzania
Ghana
Nigeria
Ivory Coast
Senegal
Congo (RC)
Gabon
Kenya
Rwanda
Ethiopia
Sources: Bloomberg, Deutsche Bank
-50% -40% -30% -20% -10% 0%
USD/LC, % yoy, as of 7/11/2015
The African year in 2016 - January 2016
Investment banks’ 2016 commodity price forecasts Plunging currencies
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africapracticeafricapractice
Business outlook – down but not out
The African year in 2016 - January 2016
Private sector dynamism will continue to thrive in Africa in 2016 despite the challenges
and complexities of the business environment in some jurisdictions. We continue to see
opportunity in the region’s strong demographics, growing economies, and improving legal
and institutional frameworks. Furthermore, the convergence of industries to form new
technologies and services in some markets has demonstrated that Africa can also be a hub
for innovation. The continued growth of the telecoms industry and the associated growing
access to internet and banking services are at the forefront of this story. Vodafone recently
launched its own M-Pesa mobile banking service in Ghana, and it is only a matter of time
before this service makes further headway beyond its core market base in East Africa.
Interestingly, we are seeing telecoms, banking and retail firms now competing in similar
spaces, underlining the extent to which convergence between technologies and industries
is driving competition and ultimately improving the lives of many Africans. And with the
likes of Uber, AirBnB and Whatsapp entering African markets to challenge established
industries, we anticipate both fiercer competition and more turbulence in the regulatory
space – especially since we also anticipate the emergence on new indigenous technology
firms in a space that is beginning to heat up.
Chinese investment in Africa dropped by as much as 40% in the first half of 2015, according
to the Chinese Ministry of Commerce. Real questions have been raised about China’s
appetite for African investment in a subdued commodities market and with a cooling
domestic economy. Yet President Xi Jinping’s pledge of $60bn in loans and investment on
the continent during the China-Africa summit hosted in South Africa in December 2015
signalled a renewed commitment to supporting African growth. China may not prove as
voracious in its pursuit of resources in Africa in 2016, but we anticipate that China will
remain a highly strategic partner for many African governments. Although some pledged
multimillion dollar investments will fail to materialise, with non-binding MoUs providing
an investment framework with plenty of wiggle room, China will remain at the table as far
as strategic projects and future license awards are concerned.
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africapracticeafricapracticeThe African year in 2016 - January 2016
The US has proven a more cautious player in Africa over
the last decade, generally losing ground to more bullish
international partners from Asia and the EU. Yet US
attitudes appear to be changing amid greater political
engagement with the continent, and with momentum
gathering behind the US Power Africa initiative,
we anticipate a greater strategic push towards the
continenteveniftheUSelectionsinNovember2016will
likely provide a significant political distraction and some
uncertainties around future US engagement strategies.
More generally, power will be a key focus in 2016 amid
a growing drive to tackle the power deficit across the
continentandunlockpotentialandproductivityinunder-
performing or near non-existent parts of the economy.
Although appetite for major deals and licensing
processes in the extractives sector may be weaker than
it has been in previous years, Africa will still have its fair
share of high-profile investor activity. In Nigeria’s oil
and gas sector, there is a growing need to recapitalise
certain businesses, potentially diluting current equity
stakes to the benefit of outside investors. East Africa
will also remain a priority region for many energy
companies despite the low oil price environment,
with Kenya, Uganda, Tanzania and Mozambique all
witnessing a continued development of their nascent
industries.
Meanwhile, retrenchments and scaled back
investments in the mining sector will contribute to
challenging engagements with local stakeholders
as local governments and communities push back
against decisions being driven by the new commercial
realities prevailing in the sector. The slump in mineral
prices has eased nationalist pressures to drive up fiscal
terms. But in line with government funding pressures,
there will still be a strong push for mining companies
to demonstrate value and continued commitment to
supporting development. So mining companies face an
even tougher year ahead, both in terms of the returns
that they stand to make, and the issues they face in
maintaining the support of key stakeholders around
their project.
Away from the extractives sector, one global deal
that is likely to prove particularly thorny at the Africa-
end is AB InBev’s ongoing acquisition of SABMiller to
create a mega-brewer. AB InBev’s secondary listing on
the Johannesburg stock exchange will go some way
towards appeasing South African regulators, but the
deal is likely to attract significant scrutiny from South
African political actors and trade unions, potentially
resulting in complications. South African efforts to
protect public interest are likely to creep beyond
purely anti-trust concerns to encompass a wider range
of considerations. Zuma’s recent mishandling of the
finance ministry saga also underlines the extent to
which narrow interests can over-ride common sense
approach in the local context. While unlikely to block
the global deal, the government’s handling of the
regulatory approval will have a bearing on some of the
deal terms, as well as impacting broader perceptions of
the investment environment in South Africa.
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About africapractice
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them to understand complex political and commercial dynamics
and manage challenging relationships with demanding and critical
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10. africapractice
Contact
Roddy Barclay
Head of Intelligence and Analysis
rbarclay@africapractice.com/ +447585 808 883
africapractice - www.africapractice.com
The African year in 2016 - January 2016
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