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African Political Strife Threatens Aussie Investments:

The newly launched report discusses the emerging political risks in Africa and examines a range of underlying political and social trends.


Lewes, DE -- (SBWIRE) -- 03/11/2014 -- Up to $50bn of investment in Africa is at risk, much of it from Australia, as the continent struggles with increasing political uncertainty that threatens its recent emergence as a positive force in the global economy. These are the findings of a report released today by political risk firm Political Monitor examining the political trends confronting investors in Africa.

The Battle for Africa report identifies four broad political risks confronting investors in Africa: - extremism, weak borders, inter-state and ethnic conflict, and governance. Each of these is a result of a political culture across the continent that has failed to institutionalise strong governance and has allowed sectarian rivalries to threaten national harmony.

For investors the potential lost opportunity is enormous with an economy once forecast to reach US$2.6tn by 2020 fuelled in large part by its resources and a rapidly growing middle class. Australian firms are particularly leveraged to Africa’s upside and its emerging political risk with one in 20 firms on the ASX holding an investment in Arica comprised in part of 700 mining projects across 37 different countries. Furthermore, Australian foreign direct investment in Africa has grown 75 percent over the last 6 years.

The report argues that the recent terrorist attack in Kenya was just the most visible example of increasing risk across the continent. Countries across the north of Africa and in Mali, Nigeria and Somalia are confronted with rising religious extremism, which is assisted by weak borders that allow the easy movement of people and weapons, a factor that contributed to the attacks in Kenya that were perpetrated by terrorists funded and armed by Somali based extremists.

An additional risk is the re-emergence of ethnic conflict across the continent with Sudan the most recent example of a country ravaged by civil war. While that conflict eventually ended with the emergence of South Sudan as a country in its own right it has cost the economy billions and ethnic tensions continue to hamper efforts to restore cross-border economic relations.

Each of these political risks are exacerbated by the fourth political risk; governance. Corruption is endemic in many countries and public office is viewed as an opportunity for personal enrichment rather than service. As a result international investors are exposed to delays, obstruction and bribery.

Political Monitor has recommended clients place African investments under closer scrutiny and pay particular attention to underlying social tensions that may fuel a rise in religious or ethnic violence. The firm has also recommended clients monitor company officers on the ground to ensure the risk of succumbing to corruption is minimised.

Analyst believes that while Africa recently promised great opportunities for Australian investors the current environment means close attention must be paid if opportunities are to realise their full potential.

“The macro economic outlook for Africa remains promising”, said analyst. “However, this obscures a range of political risks at a country level that expose investors to the potential for significant loss.

“Politics is the primary cause of this risk. Over the last decade the political resolution of a number of disputes allowed African countries to focus their energies on economic and social development. As a result Africa began to emerge as a source of optimism for the global economy. However, now politics is putting that prospect at risk.”

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