The operational risk landscape in Africa presents a complex picture as we move into the second half of 2023. Recent assessments by the Economist Intelligence Unit (EIU) have revealed both promising and concerning trends across the continent.
One of the overarching concerns continues to be the persistence of high inflationary pressures in several African countries. These pressures, coupled with elevated interest rates, threaten to cast a shadow over economic growth and investor confidence throughout the 2023-24 forecast period. Adding to these challenges are rising instability and militancy in the Sahel region, Sudan, and the Democratic Republic of Congo (DRC). These security risks heighten the prospects of violent crime and unrest, further complicating the operational environment.
Political instability has become a recurring theme in Africa, manifesting in coups, civil wars, and prolonged conflicts. These situations disrupt businesses, deter investment, and hinder economic growth, ultimately leading to uncertain operating conditions.
While there is a growing focus on building regional markets and value chains, progress on the African Continental Free Trade Area (AfCFTA) remains sluggish. Setting up effective trading arrangements and addressing non-tariff barriers, such as inadequate regional infrastructure connectivity, remains a challenge. Corruption in public services, bureaucratic obstacles, a lack of accountability among civil servants, and limited government control beyond major urban centers persist as impediments to Africa’s operational risk environment.
Several factors continue to hinder Africa’s operational risk environment in the medium term. These include a lack of judicial independence, excessive state authority, infrastructural deficiencies, underdeveloped financial markets, and a shortage of skilled labor.
As of mid-2023, the five best-rated African countries for operational risk are Mauritius, Cape Verde, Botswana, South Africa, and Morocco. These countries are recognized for their business-friendly tax and trade policies, as well as relative political stability and effective governance.
On the flip side, the five worst-rated African countries in terms of operational risk are Sudan, Somalia, Guinea, Eritrea, and the Central African Republic. These nations grapple with deep-rooted political instability, pervasive corruption, and uncertain government policies regarding foreign businesses, with a high risk of pivoting towards resource nationalism.
The operational risk landscape in Africa in 2023 remains challenging, with a mix of positive and negative indicators. Addressing these challenges will require concerted efforts from governments, international organizations, and the business community to foster stability, transparency, and sustainable economic growth across the continent.
