Report lists political risk as top concern for deal-making in Africa

Report lists political risk as top concern for deal-making in Africa

By Tunde Osho

Political risk will remain a major concern for dealmakers in Africa in 2018. This is according to a new report, Resourceful Dealmaking: Outlook for M&A in Africa published by Mergermarket in collaboration with specialist risk consultancy, Control Risks.

According to the statement released Tuesday on the report, there has been a dramatic fall in M&A activity in Africa, with declines of 25 percent in volume and 26 percent in value in the first half of 2017, compared with a relatively buoyant 2016.

“The drop-off signifies growing investor anxiety surrounding governance issues and weaker economic signals across key African markets,” said Imad Mesduoa, senior political risk consultant at Control Risks. “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.”

The report also finds other risks to dealmaking in Africa to include transparency concerns and completeness of information, which ranked joint-first with political risk (84%), as well as compliance and integrity issues (80%).

In the survey for the report, almost three-quarters (72%) of respondents said 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.

However, greater political stability and a more favourable economic and business environment are expected to boost M&A activity this year in South Africa, Zimbabwe and Angola.

72 percent of respondents to the survey said they were 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.”