Managing political risk in a volatile environment - African Business Magazine
Managing political risk in a volatile environment

Managing political risk in a volatile environment

Africa has found itself a welcome beneficiary of the unsettled global economy in recent years. Amid dwindling financial returns in established Western economies and slowing growth in the core emerging markets, foreign capital has increasingly turned to Africa as ‘the next frontier’. Foreign businesses are similarly expanding their footprint in Africa, recognising that for all the challenges it presents, there remain compelling cases for business growth. Historically seen as the domain of extractives giants, hardened risk-takers and cowboy opportunists, Africa is now drawing a broader range of companies and investors across diversified sectors.

Yet despite many notable improvements in the long-term trajectory of strategic risks on the continent, by global standards Africa remains one of the most complex environments in which to do business. As well as evaluating strategic risks at market-entry and managing the day-to-day operational challenges that form a prominent feature of many African markets, businesses need to ensure a level of institutional resilience in the event of a crisis.

A quick scan of recent Africa headlines in the international media provides a stark reminder of how vulnerable parts of the continent remain to crisis. Whether it is the Ebola outbreak in West Africa, a major terrorist attack in Kenya or the death or toppling of a longstanding president, the ripple effect on businesses can be significant.

It is generally hard to generalise when exploring risk trends across Africa given the continent’s diverse make-up. But looking at why the region has proven particularly crisis-prone, a few structural factors stand out. Firstly, politics are often still dominated by identity over policy, and individuals frequently trump the institution, hampering the strengthening of state structures and their ability to respond to crisis or volatility. Secondly, at the grass-roots level, burgeoning demographics in a context of limited development creates strong upwards pressures on these dysfunctional state systems. Perhaps most importantly, in all areas, a lack of resources hampers the ability of governments to both prevent crises from occurring and respond effectively when one does unfold.

Against this backdrop, there is a pressing need for robust planning to ensure business resilience when adapting to fast-changing situations on the ground. An unfolding crisis provides a hugely challenging situation to adapt to. Nevertheless, businesses which have assigned responsibilities, tested presumptions and practicalities, and prepared their internal structures and processes to respond will likely fare better than those that lack adequate policies and measures or simply haven’t considered how these might be practically implemented on the ground. Such companies will typically find themselves overwhelmed by events as internal dysfunction undermines their ability to adapt and respond to fast-paced change.

Taking the example of the recent Ebola outbreak in West Africa, companies were faced with a rapidly deteriorating situation which was unnerving staff and preventing business as usual. Many smaller companies which either lacked an ability to respond or lacked the commercial incentive to remain simply declared force majeure and withdrew their staff. For those companies which remained, they faced service gaps, disruption to travel and supply chains, and security concerns for remaining staff. Yet even in this state of turmoil, some businesses were able to adapt relatively well by ensuring strong communication lines between corporate and in-country teams, effectively allocating responsibilities to ensure that business continuity and crisis management plans became a reality, not just a paper policy sitting on file.

In other countries like Mali or Burkina Faso which have recently witnessed instability, the government’s overthrow created both immediate needs to ensure the safety of staff, and broader requirements to manage the fallout of turbulent political change. Much of the effort centred on external communications to manage investor unease and avert a breakdown in government relations. In such situations, politically-connected companies can become heavily exposed to scrutiny or sanction. But those which have developed broad-based institutional relations can actually play a part in restoring business normality by helping to preserve industry interests through constructive engagement with incoming authorities.

We remain enthusiastic about Africa’s economic prospects, even taking into account challenging global conditions in the extractives sector. Yet businesses looking to develop their footprint in the region will need to make crisis planning a key ingredient of the broader risk management approach. Planning for the worst and hoping for the best is probably a sound approach in any market. But in the African context where crisis is a more routine feature of the operating environment and there are fewer safety nets to catch you when you fall, it will likely prove a cherished safeguard from organisational mismanagement which can resonate negatively across the business.

By Roddy Barclay Senior Consultant, Africa, Control Risks


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Written by African Business Magazine

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