Perceived strategic and political risk continues to constrain some investment flows into sub-Saharan Africa despite general acknowledgement that the region has been well insulated from global financial shocks while institutions such as the IMF predict continued growth of more than 5% in 2012 and 2013.
Shaking negative perceptions obviously takes more than impressive growth numbers. After all, the relatively rosy IMF estimates of Africa’s upside come at a time when many European nations face recession and the US prepares for long and slow recovery.
In recent months, three non-financial indicators also support the investment case for sub-Saharan Africa. Each indicator is dramatic in its own way. Taken together they represent a powerful signal that significant shifts are taking place and international investors would do well to pay attention.
Each indicator involves the death of a long-time African leader … followed by peaceful succession and commitments to continuity or positive reforms.
The signals indicate there is economic life after a presidential death in those African states that are moving toward democracy.
These positive signs come from Ethiopia, Ghana and Malawi.
In the past, the death of an African leader might have left a power vacuum, followed by a violent power struggle. In contrast, we see peaceful transition, constitutional processes and proper succession.
Ethiopian Prime Minister Meles Zenawi died after 21 years in power. Yet there was no upheaval, no disturbances and no panic.
The ruling Ethiopian People’s Revolutionary Democratic Front simply confirmed the appointment of his successor Hailemariam Desalegn as acting prime minister with a mandate to continue in office until the next elections (scheduled for 2015).
In the meantime, Hailemariam made a commitment to maintain his predecessor’s policies. This was reassuring for most Ethiopians as economic growth has averaged 11% in recent years.
Smooth transition was also evident in Ghana on the death of President John Atta Mills. He won power in democratic elections in 2008 and was about to seek a second term. His death was unexpected, but death in office was provided for in the country’s constitution and Vice President John Dramani Mahama was sworn in at an emergency session of parliament.
The new president will serve out the remainder of the presidential term. He pledged peace, unity and stability. New elections are expected at the end of the year.
Ghana has enjoyed growth of between 5 and 7% for two decades. Large-scale oil production came on stream in 2010, creating potential for double-digit growth in the years to come.
In Malawi, something other than ‘continuity’ is the hope following the death of President Bingu wa Mutharika. He ruled for eight years, but had showed increasingly autocratic tendencies and faced criticism over his human rights record.
Donors withheld funds and cash-strapped Malawi – already one of the world’s poorest nations – faced the risk of further decline.
Mr Mutharika was succeeded, in accordance with the nation’s constitution, by Vice-President Joyce Banda. She took the oath of office before parliament in the capital, Lilongwe, becoming southern Africa’s first female head of state.
The succession has prompted hopes that significant donor funding will again come on stream, that chronic economic mismanagement will come to an end, fuel shortages will ease, foreign currency will again be available and that sensible, democratic reforms will be put in place.
Those who take Africa’s investment case to international financial centres have been heartened by these developments.
Since debt forgiveness and implementation of democratic reform, numerous African markets have made substantial progress and we have begun to see a re-rating of Africa by international investors.
The minimal impact of the global financial crisis on many sub-Saharan markets has demonstrated just how resilient African nations have become.
Major corporations deliver dividend yields of 20% – sometimes more – thanks to their dominate positions in African markets. Local capital markets continue to grow and reforms in areas such as pension administration create potential for continued development.
Meanwhile, spending by African consumers continues to rise while the aspirations of a burgeoning middle class underpin the growth of many markets.
These factors convince more and more international investors that Africa is a worthwhile investment destination. Yet some potential investors still hold back. The reason? Perceived political risk.
A track record for consistent high returns cannot overturn those perceptions, but a track record for peaceful transition can.
That track record is now being bedded down. Peaceful succession after peaceful succession will put to bed the fears of those cautious investors who don’t quite trust Africa’s new dawn.
We’re witnessing a transition in more than just Ethiopia, Ghana and Malawi and it’s a highly positive one.
Mark Tunmer is Group CEO of Imara, the pan-African financial services group that promotes African investment opportunities