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Political Risk, Transparency May Hinder Dealmaking in Africa

By Dipo Olowookere

A new report published by Mergermarket in partnership with specialist risk consultancy, Control Risks, has expressed concerns that political risk will remain a major concern for dealmakers in Africa in 2018.

According to the report titled ‘Resourceful dealmaking: Outlook for M&A in Africa,’ there has been a dramatic fall in M&A activity, with declines of 25 percent in volume and 26 percent in value in the first half of 2017, compared with a relatively buoyant 2016.

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

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“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 stressed that political uncertainty and relatively weak economic fundamentals have negatively affected M&A activity in Africa. A fall-off in deals was seen in the first half of 2017 compared with a relatively buoyant 2016.

It added that political risk will be a major obstacle to dealmaking in Africa over the next 12 months, according to 84 percent of respondents.

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Other risk factors include transparency concerns and completeness of information, which ranked joint first alongside political risk (84 percent), as well as compliance and integrity issues (80 percent).

The reports said further that, almost three-quarters (72 percent) of respondents say 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.

It said good news though for South Africa, Zimbabwe and Angola: greater political stability and a more favourable economic and business environment are expected to boost M&A activity in the coming year.

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According to the report, 72 percent of respondents are pursuing co-investment strategies in Africa as a means of allocating risk more effectively.

Mesdoua continued that, “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.”

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Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

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