“The crisis the world wasn’t ready for”: managing risk through the pandemic with Nick Allan, CEO, Control Risks

Nick Allan, CEO, Control Risks

Even as positive news emerges from vaccine trials, the deep impact of the Covid-19 pandemic continues to be felt across the globe. No region has been spared the economic upheaval and public health threat posed by the outbreak, forcing many businesses and investors to overhaul strategies and recalibrate how they approach risk. Invest Africa Insights sat down with Nick Allan, CEO of Control Risks, to discuss the outlook for Africa and the findings of Control Risks’ Africa Risk-Reward Index 2020, which seeks to assign a scores to both the level of risk and the potential reward in each African market.

“From a health point of view, Africa has escaped the impact compared to others,” Allan begins. It is certainly true that the region seems to have been spared the worst predictions of the spring with 34,348 deaths across the continent compared to over 250,000 in both Europe and United States. In many ways, Allan points out, this success in managing the crisis should not have come as such a surprise as many African governments had previous experience managing public health crises, including the recent outbreaks of Ebola. Africa’s young population, co-morbidity profile and warm climate have likely also played a role though, as Nick Allan highlights, “there is still a lot to be understood about this virus.”

Economically however, the region “will be hit and hit hard”. Mounting debt and fiscal constraints have hampered governments’ room to manoeuvre, unable to spend their way out of the crisis like many wealthier economies. Though creditors have agreed debt forgiveness to the tune of $20 billion across 76 of the world’s poorest countries, 40 of which are in Africa, this pales in comparison to the sums that European governments have already spent supporting their economies through the disruption.

Those countries that are dependent on oil and gas exports will be particularly hard hit and the falling reward scores in this year’s index reflect that fact with previous high scorers like Egypt and Ethiopia seeing sharp declines in their scores. It is important to understand these dynamics in a global context, Allan explains, where the trend over the last five years has been towards “mounting nationalism and non-cooperation”. Though the election of Joe Biden may change some of these geopolitical dynamics, tensions with China will continue as the US political class increasingly views relations in terms of two spheres of influence. Meanwhile, domestically the US and Europe will be largely focused on their own recovery. “Covid-19 is the crisis the world wasn’t ready for,” he concludes, and Africa is not insulated against these cold headwinds.

However, despite this challenging backdrop, “there are many things Africa has on its side”. Not least amongst them, the sheer size of the potential market and policy momentum building around harnessing this potential. The key story of 2019’s risk-reward index were the promises of reform agendas aimed at promoting diversification and tackling corruption in large markets like Angola and Ethiopia. Nick Allan reminds investors to remember that “despite the global context, there is real change happening and there are opportunities”.

There may even be an acceleration of these positive policy rends across the Continent. “If you believe necessity to be the mother of invention, you will see an acceleration of countries diversifying their economies” he predicts. Similar movement can be seen in the formalisation of economies as the precarity of informal workers is exposed and governments seek to capitalise on their proximity to the European market through manufacturing. Perhaps most importantly, the general trend towards “more African integration and more trade amongst African countries” offers “an impetus for more far-sighted investors”.

In tech there is also the potential for accelerated growth, though Allan warns against some of the more superficial buzz around the ‘African tech’ story. “The pandemic has increased the tech uptake everywhere and Africa is no exception, [we will see] tech being used to deal with some of the business challenges that are distinctly African”. Pointing to Jumia’s bumpy first listing, Allan warns that rooting such solutions in a local context is key to their success. “The poster child for this MPesa,” he explains, “which has been successful largely because it doesn’t need to work on a smartphone”.

Rapid change in the tech sector also serves as a reminder to investors and businesses that Covid-19 is not the only risk to consider. “We sometimes feel that because tech is not quite so prevalent, investors overlook that cybersecurity and misinformation remain a significant risk in Africa”. Much like local dynamics define the success of tech companies, the use of technology for misinformation is not a carbon copy of the dynamics playing out in Western countries. Such risks are likely to increase as youth driven social movements, such as the End SARS protest, gain momentum and Covid-19 public health campaigns place a premium on reliable information. “Economic decline is a transmitter of political risk,” Allan warns, calling 2020 the year of social unrest, a trend Control Risks anticipates will continue into 2021.

For investors, Allan advises looking for those countries that do recognise the need for reform, even though pushing it through will take courage against a backdrop of potential social instability. “One has to think that over the next few years investors will be relatively choosy about where they invest” he says, adding that those governments that understand the need to push business reforms through will likely reap the benefits. Even in those countries facing civil unrest, Control Risks advises looking closely at local dynamics. In a country like Mozambique, for example, the risk profile in urban areas may be significantly lower than in rural ones. Overall, the African consumer market represents a huge opportunity with sectors like tech, financial services and formal retail on the rise. “Risk appetite will come back,” he concludes, “because ultimately investors are looking for returns”.

Click here to read the full Africa Risk-Reward Index.

For more information about Control Risks please contact:
Tom Griffin
Senior Partner, Middle East and Africa
tom.griffin@controlrisks.com
+ 971 (0) 549983452