WEST AFRICA FORECAST FOR 2014

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This week, I had the privilege of providing interested investors and avid followers of African development with insight and analysis as part of Reuters Trading Africa Forum. Discussions centred on West Africa, one of the world’s most exciting emerging markets. Below were some of the highlights:

An Investor ‘Hot Spot’

With a population of more than 340 million (2013 estimates) and still growing, West Africa is predicted to be a hot spot for investors in 2014, thanks in part to its rising demographics, resource riches and keen interest from major international powers, including China. On the economic front, the Economic Community of West African States (ECOWAS) is expected to incur an average GDP growth rate of 7.1%. This is the highest of any region in the continent outside of northern Africa. Positives aside, those looking to gain a foothold in the region should fully understand the risks. In addition to external threats, such as the continued spillover from the Mali / Sahel crisis and regional aftermath of the Libyan uprising, the risks facing West Africa are also attributed to controversial policies from local and state governments. Government Accountability In West Africa, questionable governance and allegations of corruption will continue to present challenges to the region in 2014. Countries most assessed to be at risk for corruption and incidents of graft are Nigeria, Ghana and Liberia.

A Problem of Corruption

Nigeria’s corruption problem is assessed to be particularly endemic, and will likely complicate progression in 2014. To that end, The Inkerman Group has noted a rise in reports regarding the link between some unsavoury individuals in Nigeria’s State Security Service (SSS) and militants affiliated with the northern-based Islamic extremist group, Boko Haram. In the south, meanwhile, some officials have been accused of profiting from oil siphoning, a process also known as ‘bunkering’, along the Niger Delta. Bunkering has frightened foreign investors, including those tied to powerful international energy, such as Royal Dutch Shell, which constantly suffer attacks on their pipelines. Bunkering has grown so prevalent that officials believe the country is now losing US$1 billion per month in capital flight, a situation which Nigerian President Goodluck Jonathan in 2012 publicly called “embarrassing”. Indeed, oil banditry has only exacerbated Nigeria’s general downward trend of hydrocarbon production. According to a June 2013 report by the International Energy Agency (EA), Nigeria’s output of crude oil dipped to 1.96 million bpd from its previous rate of 2.567 million barrels per day (bpd). This equates to a total loss of 607,000 bpd, of which 30% is attributed to bunkering. Given that the 2014 national budget (expected to be passed in January 2014) will be based largely on oil projections, this could create even more problems for President Jonathan, who will attempt to garner support from an increasingly distrustful public ahead of his re-election bid in 2015.

Piracy and Radicalism Threat Grows

In addition to domestic-borne risks, external threats, such as militancy and piracy, are also expected to present the greatest challenge to ECOWAS states. Whilst piracy off the coast of Somalia is expected to decline over the coming year – thanks in part to international intervention – the hijacking of vessels near the Gulf of Guinea is expected to rise. Since 2011, the shoreline by Côte d’Ivoire, Ghana, Togo, Benin and Nigeria appears to have become a haven of sorts for buccaneers. In 2012, the Gulf of Guinea incurred sixty-two attacks, with most assailants specifically targeting fuel cargo, which they then sell on the black market. In an effort to prevent pirates from causing further harm to Nigeria’s already damaged oil shipping trade, the West African nation has increased its maritime patrols, a move which has, in turn, is expected to force pirates to increase their attacks against vessels lying westward near Ghana and Côte d’Ivoire.

With regard to militancy, areas that were once believed to be relatively free from radicalism are expected to see a decline in security in 2013. The fallout from the French-led “Operation Serval” in Mali is not yet over. Whilst in some ways beneficial, the French intervention has incurred negative ramifications for the region. In particular, The Inkerman Group has seen the emergence of a “balloon effect” – this to say, applied pressure from French and other interventionist forces toward militant groups has led extremists to take up locations elsewhere, including Niger. Meanwhile, rising income disparity, combined with poor education and a lack of effective governance could also increase the threat of jihadist movements. A rise in recruitment efforts led by radical Islamist groups is conceivable in 2014, particularly in nations where income inequality and political marginalisation are greatest. Areas most assessed to be at risk for an increase in recruiting include: Benin, Chad, Côte d’Ivoire, Ghana, Senegal and Togo. In northern Ghana and Cameroon (a non-ECOWAS state), followers of Islam are often economically-deprived, a key ingredient in Nigeria’s Boko Haram insurgency.

Drug trafficking has also added to the region’s security problems. Aside from localised gang clashes, in Guinea-Bissau, for example, analysts have long noted that financial gains made from the selling of narcotics have buoyed militant groups. Some affiliates with Al Qaeda in the Islamic Maghreb (AQIM) are also partially supported by money garnered from the sale of drugs. With more financial backing comes more weapons and more recruits – a cyclical problem of violence for West Africa. Meanwhile, the full ramifications of the crises in the Central African Republic (CAR) and South Sudan are also expected to emerge in 2014. Whilst neither nation is a member of the ECOWAS, a lack of security in both countries could increase the risk of civil unrest and clashes elsewhere in West Africa, as refugees seek haven in comparatively safer West African states.

The Way Ahead

Foreign investors and others looking to capitalise on one of the world’s fastest growing regions should carefully weigh the benefits and drawbacks. Whilst West Africa has been described as the next great emerging market, the region still has a long way to go with regard to political and security improvements.

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