THE 2023 Africa Risk Index (ARI) by research firms Control Risks and Oxford Economics Africa has classified Zimbabwe as Africa’s riskiest country to do business in, while trailing regional neighbours.
NATHAN GUMA
The index, which scans the political and macro-economic conditions of 54 African nations, measures country risk in detail, to caution against pitfalls while guiding investors towards economic opportunities.
The South African-based think-tank, Oxford Economics Africa, is a majority-owned subsidiary of UK-based Oxford Economics that specialises in political and macro-economic research across the continent.
“The risk scores for each country stem from the Economic and Political Risk Evaluator (EPRE), a joint subscription platform of Control Risks Oxford Economics Africa. Control Risks and Oxford Economics analysts rate a series of political and economic risk factors on a scale from 1 to 10, with 10 representing the highest level of risk,” reads the index.
“Each political and economic rating is assigned a default weight, based on its significance in the country context and its potential impact on business. The individual political and economic risk variables are then combined – multiplying rating by weighting – into the overall risk rating of a country,” reads the index.”
According to the report, Zimbabwe has a risk score of 7.65 points and a low reward score of 2.53, tallying with Nigeria with a similar risk score, but with a reward score of 5.5. Ethiopia comes second with a high risk score of 7.64 respectively.
In the Southern African Development Community (Sadc), Mauritius has the lowest risk of doing business with 3.52 out of 10 points, followed by Botswana with 4.06 points, while Namibia has a fair score of 4.42 points.
South Africa also has a lower risk score of 5.06, followed by Malawi with 5.67 and Zambia with 5.73 points. Mozambique with 6.62 points trails the Democratic Republic of Congo (DRC), while Zimbabwe has the highest score.
“The reward scores incorporate medium-term economic growth forecasts, economic size, economic structure and demographics.
“The economic growth outlook has the biggest weight in the reward score, as investment opportunities multiply where economic growth is strong. But the absolute size of the economy makes a difference, too: the 3.2% real GDP growth in Nigeria in 2022, for example, represented extra value added of nearly US$44bn, while 8.2% growth in Rwanda translated into just under US$2.3bn in new value added.
“So our score also incorporates a weight for economy size. The economic structure indicator derives from the “economic structure risk” component of Oxford Economics Africa’s country risk assessment model, which takes into account debt metrics, the current account, financial structure (including banking sector stability) and investment.
“Demographics are incorporated through the formulation of a demographic dividend, which incorporates population size, urbanisation and dependency ratios.”
According to the index, a wave of discontent is likely to be the highest challenge the continent’s food and energy crisis.
“Agriculture and trade infrastructure sectors are at the centre of debates on solutions. They will open up new opportunities – and risks – for investors in the coming years. Political stability will likely be the biggest challenge in realising the continents energy transition and food security ambitions,” reads the report.
Southern Africa’s economic growth has been predicted to decline.
In May, the African Development Bank (AfDB) forecast a 1.1 percentage point slump in Sadc’s economic growth, from an estimated 2.7% in 2022 to 1.6% in 2023, largely owing to the continual weakness of South Africa, the region’s largest economy and trading partner.
South Africa, Sadc’s largest economy (60% of the region’s GDP) and main trading partner, recorded a 2% real GDP growth in 2022, less than half the growth rate in 2021 (4.9%), due to subdued global demand, power outages, and devastating floods that affected industrial production.
“A build-up in inflationary pressures also affected household consumption spending, a key driver of growth in South Africa. South Africa’s close trade ties with other countries in Southern Africa means that shocks buffeting the country are transmitted to the rest of the region. Countries in the Common Monetary Area and the Southern African Customs Union experience near-symmetrical shocks to those affecting South Africa.
“Protracted delays in addressing South Africa’s worsening energy crisis, coupled with operational and financial weaknesses in state-owned entities and slow progress in implementing reforms, will keep the country’s growth below emerging market peers. Growth in the region will thus remain subdued, with real output projected to decelerate to 1.6% in 2023 before rising to 2.7% in 2024,” AfDB says.
