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With the shift in global dynamics turning attention to emerging markets, Africa has come into the spotlight for its dramatic growth and improvements in investment attractiveness. Once written off as politically unstable, corrupt and conflict-ridden, the continent has gradually shaken off these negative labels as the rest of the world awakens to its abundant potential. In the last twenty years, democratization has contributed to better governance, a positive shift in investment climate, and the rapid economic growth experienced by many African countries. Regionally, the Southern African Development Community (SADC), an economic union of 15 southern African countries, endowed with a wealth of natural resources and young, innovative populations, has grown to be regarded as one of the continent’s most stable regions, SADCs mission includes promoting sustainable and equitable economic growth, good governance and socio-economic development so that the region can emerge as a competitive and effective player in both international relations and the world economy.
Political risk remains a leading challenge as SADC looks to attract foreign capital. This is particularly so election time as incumbents and challengers often rely on populist and nationalist language to appeal to electorates grappling with high levels of unemployment and inequality. Talk of the nationalization of industry or of restrictions on foreign investment is a common theme heard from candidates seeking office, but one which might only play a superficial role in post-election policy. Therefore when assessing the investment climate and growth opportunities in the region, it is critical to understand not only a country’s political landscape, but the specific interests of its leaders and opposition as well as the social and economic issues facing its population and the strategies that each might have to employ, both as candidates and as elected officials.
This brief will focus on the political environment of the five SADC countries holding general elections in 2014. It will outline the main political players and issues influencing election outcomes, as well as highlight factors impacting the democratization process. In addition it will show how these factors might shape the social and economic landscapes, fiscal policies and business and investment prospects of each country. Although successful democratic elections are not sufficient to sustain economic growth, democratic principles promote transparency, accountability and rule of law, all factors that encourage FDI. In addition, democracy’s tendency to move politics off of the street and into the chambers of state can serve to limit political conflict and promote long-term stability. As a result, moments of contestation such as multi-party elections can serve to highlight the challenges threatening sustainable democracy and provide insight into the extent to which a population is willing to demand accountable, transparent and effective leadership.
The Growing Potential of the Southern African Development Community Region
Of the 15 SADC states, a third, namely South Africa, Malawi, Mozambique, Botswana and Namibia will hold general elections in 2014. In each case, the presidents and political parties elected in will set the agenda for the next five years and will be influenced to varying degrees by opposition politics, socio-economic concerns of the population and private sector pressures. With high poverty and unemployment rates a concern across the region, balancing the economic need to attract capital with the social and political needs to improve the plight of the poor and working classes will remain a key key dynamic in southern African politics.
Each of the five countries addressed face considerable challenges. However, they also enjoy unique opportunities for investment, growth and development. In the case of South Africa – the newest member of the Brazil, Russia, India, China, South Africa (BRICS) grouping and the largest economy in the SADC region – a solid judicial and financial framework, coupled with continually developing infrastructure and human resources, make it a secure financial hub and gateway to other African economies. To South Africa’s east, Mozambique recently piqued the interest of investors with the discovery of what is believed to be the world’s largest natural gas reserves. This is likely to further drive investment into infrastructure, construction and tourism. Namibia’s increased investment in infrastructure and its growing tourism and mining sectors have similarly boosted its profile, while stability and a reputation as the least corrupt country on the continent will work in Botswana’s favor as it looks to diversify its economy and decrease reliance on the diamond industry. Opportunities created by economic diversification also hold immense potential for growth and employment in Malawi’s agricultural and tourism sectors. Collectively these five countries also hold vast potential for growth in renewable energy – particularly in wind, solar and hydro projects – which have and will continue to draw the attention of global investors. It will be in the hands of elected leaders to adopt the robust governance, sound financial management systems and effective planning and implementation in a way that ensures that these opportunities supported and not squandered.
General Elections in 2014 in the Southern African Development Community
African general elections are accompanied by considerable nervousness and uncertainty. For foreign investors and private sector stakeholders, the pre-election period is a time of increased headline risk, a situation exacerbated by the lack of accurate reporting and local, context-based analysis. In order to minimize this uncertainity, SADC member states have collectively adopted guidelines promoting free and fair elections and have agreed to SADC Electoral Observer Missions (SEOM) to monitor their adoption. Histories of colonialism, civil conflict, ethnically divisive policies and exclusionary legal and social structures, coupled with the pervasive problems of poverty and unemployment, deterine many of the issues that will take center stage during election time.
Focus Issue: Election Violence
For both investors and local populations, the fear of election-related violence and intimidation ranks high amongst election risks. While incidents of widespread violence have generally declined over the years, smaller-scale incidents, as experienced during both South Africa and Malawi’s elections remain. In fewer instances, more widespread threats of violence, such as those feared in the run-up to the Mozambican elections, may have far-reaching implications for the country and call for constant monitoring. In many cases, violence occurs as a backlash against perceived and actual voting irregularities, where in others, it is spurred on by parties looking to nullify elections following their own poor performance. In both cases, the failure to anticipate and prevent further escalation may lead to dire consequences for those within the country, in the surrounding region, as well as for business and investment interests.
Focus Issue: Nationalization, Expropriation and Corruption
Further uncertainty surrounds the direction of future government policy, and is a concern not only for citizens, but for private sector stakeholders and foreign investors – both of whom face exposure to a changing policy environment and business interruption. Particularly worrisome for investors is the threat of nationalization, which may form part of a newly elected government’s development strategy. Alongside this, the threats of expropriation, both outright as well as through the adoption of business policies tantamount to creeping expropriation, are political risks that may become an eventuality with a change in political leadership. In addition to government policies, the political will of leaders in combating corruption will significantly affect investment prospects. With US investors subject to onerous penalties under the Foreign Corrupt Practices Act, genuine measures to combat bribery and corruption in government departments may go a long way in mitigating risks associated with corruption. In every instance, understanding the nature of the political environment and keeping abreast of developments prior to elections remains imperative to managing political risks arising from elections.
This briefing series will begin with an evaluation of elections held in May 2014 in South Africa and Malawi respectively and proceed with the three upcoming elections scheduled to take place in Mozambique, Botswana and Namibia in the final quarter of the year. It will touch on the issues of single-party dominant states, resource dependent states, aid dependency and the malignant threat of political patronage on democracy, development and investment. Drawing from the accumulated analysis and commentary of experts in each country, it will identify key social, economic and political circumstances driving party support and election outcomes and – as a result – economic policy and investment.
See Ernst & Young “Attractiveness Survey: Africa 2013 Getting Down to Business” 2013
Ranked 30th out of 177 countries in Transparency Internationals 2013 Corruption Perception Index