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Political risk remains the key consideration for dealmaking in Africa
The political uncertainty and weak macroeconomic situation that accounted for fewer deals in Africa’s largest markets in 2017 look set to ease over the coming year
The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets
Political risk will remain a major concern for dealmakers in Africa in 2018. According to a recent report, Resourceful dealmaking: Outlook for M&A in Africa, published by Mergermarket in collaboration with specialist risk consultancy Control Risks (www.ControlRisks.com), there has been a dramatic fall in M&A activity, with declines of 25% in volume and 26% in value in the first half of 2017, compared with a relatively buoyant 2016.
Imad Mesdoua, senior political risk consultant at Control Risks, comments: “The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets. Specifically, political risk and transparency concerns have become the principal obstacles to successful acquisition in Africa. Ethical and compliance considerations are another major factor clouding the outlook for potential investors.”
Key findings of the report:
- Political uncertainty and relatively weak economic fundamentals have negatively affected M&A activity in Africa. A fall-off in deals was seen in the first half of 2017 compared with a relatively buoyant 2016.
- Political risk will be a major obstacle to dealmaking in Africa over the next 12 months, according to 84% of respondents. Other risk factors include transparency concerns and completeness of information, which ranked joint first alongside political risk (84%), as well as compliance and integrity issues (80%).
- Almost three-quarters (72%) of respondents say that getting caught up in a regulatory or criminal investigation is one of the highest risks in relation to a target company’s ethics and compliance standards.
- Good news though for South Africa, Zimbabwe and Angola: greater political stability and a more favourable economic and business environment are expected to boost M&A activity in the coming year.
- 72% of respondents are pursuing co-investment strategies in Africa as a means of allocating risk more effectively.
Mesdoua continues: “Political risk will continue to pose a major challenge to M&A activity on the continent as several large markets such as Nigeria undertake difficult elections and unpopular reforms to improve their economic outlooks. However, the political uncertainty and weak macroeconomic situation that accounted for fewer deals in Africa’s largest markets in 2017 look set to ease over the coming year as countries such as South Africa, Zimbabwe and Angola begin to stabilise.”
Distributed by APO Group on behalf of Control Risks Group Holdings Ltd.
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About Control Risks
Control Risks (www.ControlRisks.com) is a specialist global risk consultancy that helps to create secure, compliant and resilient organisations in an age of ever-changing risk. Working across disciplines, technologies and geographies, everything we do is based on our belief that taking risks is essential to our clients’ success. We provide our clients with the insight to focus resources and ensure they are prepared to resolve the issues and crises that occur in any ambitious global organisation. We go beyond problem-solving, and provide the insight and intelligence needed to realise opportunities and grow.
About the report
The report Resourceful dealmaking: Outlook for M&A in Africa highlights the key challenges for M&A in Africa and the outlook for 2018 and beyond. The report surveyed senior-level investors about their dealmaking plans, risks and previous dealmaking experience.