Must Read: Challenging the Perception of Risk in Africa – A.B Mahmoud SAN

AB Mahmoud SAN and NBA Delegation in photo session with the American Bar Section on International Law Africa in Cape Town

President of the Nigerian Bar Association, Mr. A.B Mahmoud SAN has decried the misconception of the international Community which perceives Africa as a destination for charity and aid nothing that such misconception has beclouded the immense investment opportunities in Nigeria.

Mr. Mahmoud SAN was Keynote speaker at the just concluded American Bar Association Africa Regional Forum held in Cape Town, South Africa on 21 May 2018 where he discussed the topic: Challenging The Perception Of Risk In Africa. In his speech, Mr. Mahmoud SAN highlighted the investment opportunities and ways of harnessing the opportunities.

The Speech:



I want to begin by first of all thanking the American Bar Association for organizing this event and for the opportunity to speak to this distinguished audience and such a critical topic. Africa has for long been perceived as a destination for charity and for aid but not for investment. The continent had been strife with conflict both imposed and self-inflicted. For centuries, African slaves were shipped to the Americas and elsewhere. The continent was colonized. In the 1980’s many of us were in the Universities excited at the prospects of an African renaissance. We took part in anti-imperialist and the anti-apartheid student movements. When as a student Union leader, in 1978 we welcomed Samora Machel to Ahmadu Bello University to one of our colourful convocation ceremonies at Zaria, it was a most exciting moment! Samora delivered a fiery speech that kept us in standing ovation for most of the 60 or so minutes that he spoke! In a few days I had memorised that speech by heart! Both in its Portuguese rendition and in the English translation! Many of us of that generation felt that the continent was truly on the verge of greatness and transformation. Decades followed. Much progress has been made. The colonies had fallen, so had apartheid. Military dictatorships were no longer fashionable! But the prosperity is yet to set in, at least not as many of us had dreamt of! The trade and investment are not flowing!

In the summer of 2000, I had poignant experience! I was a part of an international group of lawyers that had gone to the Institute for International Development at Harvard University to train in the techniques of privatization. As part of the training, we had visited New York. We toured such great institutions like the New York Stock Exchange and the NASDAQ. But the one event I remembered the most was a breakfast meeting at offices of Lehman Brothers at the World Trade Centre. Lehman Brothers was at the time the fourth-largest investment bank in the United States after Goldman Sacks, Morgan Stanley and Merrill Lynch. One of the Vice Presidents of Lehman Brothers, hosting us in their lavish and expansive offices had given a talk to us. It was a very futuristic discussion on the Bank’s rather perilous prediction of the world in another 50years! At the end of his talk, one of the participants from Africa asked him, ‘why does your bank not invest in Africa?’ He kept silent for a moment, and then replied: “Although we are in the business of taking risks, there are certain risks we are averse to: the risk of doing business in countries with weak legal systems!” Besides, he went on, “we don’t usually get involved in deals that are below 1$Billion USD. In Africa, there are not many deals that cross that threshold”. It was almost a humiliating answer for the Africans in the group. Nevertheless, the response did get us thinking especially as lawyers! It brought to the fore the significance of our work individually, in our various law firms and in our bar associations. That promoting the rule of law, mattered not just for protecting human rights but also for promoting prosperity on the continent! Even though Lehman Brothers never predicted the tragic attack on the World Trade Centre a year later nor even its down its downfall a few years afterwards, triggering the largest bankruptcy filing in the US history sparked by its involvement in the subprime mortgage crisis, yet in a sense, it does dramatize the changing nature of risks globally and perhaps in a way why the perception of investment risks in Africa must also change!

Africa has been perceived as a high-risk environment for trade and investment, and yes, there are indeed inherent risk in doing business in Africa, however this is just perhaps as anywhere else -Middle East, Latin America, Asia, Europe and North America. The perception of risk in Africa has been overtly skewed, and surprisingly, the narrative of risk in a continent that is composed of over 54 countries has been uniform. To state clearly, Africa risk perception has not been treated as other investment decision criteria, which requires a case-by-case analysis, localisation, and context. There are significant country and regional dynamics to risk in Africa, and the broad categorisation of the risk in Africa has significantly affected perceptions and directly impacted trust and investment decisions across the continent. According to the African Economic Outlook, today’s story is one of a divergent Africa with regional growth trends and trajectories not captured in headline measures of GDP growth

What has changed, and why is Africa now being considered as the last frontier in the global economy? I realised that there is an increasing recognition of the potentials in the continent, and that aggregating 54 countries into a small black box is devoid of any economic sense.

Let me quickly state some reports;

i. The African region has been recognized, to have a robust long-term economic fundamentals (MGI, 2017):

ii. Africa boast of a young and growing population – a workforce projected to be larger than China by 2034;

iii. Spending by consumers and business is expected to grow to US$5.6 trillion by 2025 from US$4 trillion today;

iv. Accelerating technological change is unlocking new opportunities for consumers and business;

v. Some 128 million households are projected to have significant discretionary income by 2020. In Nigeria alone, by 2030, some 160 million Nigerians would live in households with sufficient incomes for discretionary spending. There would be more Nigerian consumers than the current populations of France and Germany combined.

vi. The continent contains 60% of the world’s unutilised cropland; and the world largest reserves of diamonds, aluminum and gold.

Distinguished Guests, Ladies and Gentlemen, all of us who have worked in Africa for years know the great opportunities in Africa, and based on this local knowledge and understanding of the environment and context, some indigenous firms such as the Dangote Group, MTN, Sasol, amongst others have latched on some of the opportunities the continent presents and are making significant progress. Large companies in Africa – majorly African owned- are growing faster than their peers in the rest of the world, raking in an estimated $1.4 trillion in annual profits.

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Going forward in this discourse, I will attempt to interrogate the facts in terms of the major risk Africa has come to be associated with. I will also touch on some public and private sector driven initiatives that are being implemented in some selected countries, which are helping to shape and improve their business environment.

What are the risks associated with Doing Business in Africa?

Africa has been constantly perceived as a highly unstable continent with high Political risk associated with it. It has been seen as a continent of staggering corruption, political rigidities/change or full of sudden eruptions of conflict, political battles affecting investors’ agreements, solicitation of bribes, and officials maintaining personal business interests and skewing the playing field for competitors or causing unfair regulatory changes. The rhetoric of power being vested in individuals and not institutions, appointees scuppering deals made with predecessors, policy inconsistencies between African countries and between governments when political transitions occur are all perceived as hallmark of Africa. Cases are easily given of DRC, Burkina Faso and Mali. However, what is not being drummed, is the fact that in Zimbabwe, Robert Mugabe resigned from power after 37 years, and the transition to Emmerson Mnangagwa went smoothly, reducing the risk of political disruption in the country. The smooth succession as seen in Angola, where long time President José Eduardo dos Santos was replaced by João Lourenço in September 2017 is kept under the rug. Gambia saw a smooth transition from former President Yahya Jammeh’s government to that of President Adama Barrow, and Ghana and Nigeria have also witnessed smooth transitions to opposition without receiving any attention. While all these are still far from utopian, they are steps closer, and are pointers to the significant improvements and increasing maturity of the continent.

Regulatory, Legal, and Compliance Risk is another strongly perceived risk being associated to Africa. Officials are believed to be aware, but often lack the will, political capital, and sometimes the knowledge to enact adequate legislation. There is also an observed mutual mistrust and poor communication prevailing between private and institutional actors, with institutions being weak to ensure compliance to agreements or judgements. While it will be unfair to say this risk is absent, it is also worth noting that the organised private sector and other private driven associations are increasingly engaging the government in conversations and providing needed support towards enhancing the legal and regulatory frameworks.

In Nigeria for instance, the Nigeria Bar Association, the Nigerian Economic Summit Group, and representatives of the National Assembly created the National Assembly Business Environment Roundtable (NASSBER) in 2016. It is a platform for the legislature, critical stakeholders from the private sector, and the executive to engage, deliberate and take action on a coherent legal and regulatory framework that will improve Nigeria’s business environment through a review of relevant legislations and provisions of the Constitution and advanced through the National Assembly. NASSBER has so far reviewed about 54 acts and 50 bills pending before the National Assembly and rated them in order of priority to help the legislature focus more on areas that require urgent intervention. The team categorized 11 of the bills for urgent passage as economic bills, and they are poised to improve the business climate in Nigeria. There are other initiatives that are yielding significant result, such as the Presidential Enabling Business Environment Council set up in 2016, which has amongst others seen business registration process reduced from over 10 days to 2 days, and number of days required to get construction permits reduced from 42 to 20. These reforms have seen Nigeria move up 24 points within a year in the World Bank ease of doing business report, and it is expected to keep improving. Specifically, four of the top ten most improved countries in 2017 are in Africa.

African countries are increasingly being reported to lead in regulatory reforms in recent times. Adjustments in domestic policies in Uganda, Kenya, Mauritania, Nigeria Senegal, and Benin has reduced the complexity and cost of regulatory processes while Mozambique, Ethiopia, Rwanda, Kenya, and Tanzania have pushed for more strategic liberalization measures as some now permit 100 per cent foreign ownership of listed companies. Although these reforms are not sufficient conditions, they however reflect willingness and commitment of these governments to attract foreign investment and boost trade.

Access to Finance is another major risk associated with doing business in Africa. Financial institutions in Africa lack adequate financial infrastructure, experience weak competition, and lack the appetite to provide credit to the private sector. In the capital markets, government-lending activities have also crowded out private investment, making it more expensive to raise capital. Progress is being made on this front however, as 2017 saw the largest initial public offerings (IPOs) over the trailing five-year period in Africa, and an increase in the total value of equity capital market (ECM) transactions of 49% between 2016 and 2017 in US dollar terms. While this is good news, challenges remain, and are being tackled progressively.

The regions rising debt, being led by some oil exporting nations, have seen more than 50 per cent rise in debts recently. And the challenge of African debt is not concessional loans secured from the World Bank, but commercial loans that come with exchange rate risks, global financial condition risks and commodity price risks. African governments are becoming more alive to this, and are speeding up and deepening macroeconomic and structural reforms to achieve high and sustained levels of growth. Two of Africa’s largest economies, Angola and South Africa, are undergoing significant transitions—positioning them and the continent for higher growth, given their weight to Africa’s GDP. East and West Africa’s growth prospects have strengthened through reforms, and are leading Africa in and to higher growth. Ethiopia, Rwanda, and Tanzania (East Africa) are growing at over 6 percent. Senegal, Côte d’Ivoire, and Ghana are powering through growth with improved performance as well. While these transitions are expected to open up the capital market and support access to finance, investors also have the opportunity to tap into the global market for finance.

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The risk of Infrastructure deficits is also real, and $100 billion has been estimated as the annual requirement to raise the infrastructure stock of the continent to an appreciable level. Available statistics reveal that two-thirds of Africans have no access to power, and the road access rate in Africa is only 34%, compared with 50% in other parts of the developing world. Overall, the nations of Sub-Saharan Africa lose as much as 2.1% of GDP annually to inadequate infrastructure.
There is however a greater recognition across the continent, of the need for the private sector to step in, to play a more active role in this sector. To this end, an increasing number of African countries are developing and reviewing PPP policies supported by a PPP framework that typically reflects on the required institutions, procedures, and rules stating how PPPs will be implemented in that country. PPP Units are being established whilst staff dealing with the regulatory and or technical advisory services are being appointed and upskilled. There are significant reforms across the SADC region, and other countries like Nigeria, Mauritius, etc. While the effect is yet to be fully realised, as reflected in the low number of projects reaching financial close, progress is being made and the necessary building blocks are being built, creating opportunities for investment in the region.

The private sector in some countries like Nigeria are also poking the government, and supporting the capacitation process of PPP officials in ministries and departments. For instance, the Nigeria Infrastructure PPP Summit Group, a private sector led advocacy group, which my law practice is part of, and which I sit as the Chairman, are at the forefront in supporting the development and implementation of PPP frameworks in Nigeria. Working with key ministries and departments, we support the development, publishing, and facilitation of commitment from key PPP stakeholders, for the delivery of sector-specific roadmaps for identified PPP pipeline projects in critical sectors of the economy.
Security Risk is another challenge of the continent. Following the end of the Cold War, Africa experienced a rapid decrease in the number of conflict-related deaths. However, since 2010, internal armed conflict has been on the rise. Africa and the Middle East now carry the largest conflict burden, with contemporary African conflicts increasingly fragmented fought on a smaller scale, and on the periphery of states. Terrorism in Africa is not a new phenomenon however; it is complex, mired in politics, history and religion. It is driven largely by non-state actors operating within countries and across state lines. The tripartite and related issue of decades of weak governance, poverty and a democratic deficit are the main drivers of terrorism on the continent, and addressing these issues will significantly reduce this threat.

This is happening, as democracy in Africa is now rising, there is a profound change in the political orientation, and as earlier mentioned, many countries have experienced non-violent transfer of power from one political party to the opposition party in the on-going political liberalization. Mauritius for instance, has seen a very stable democracy since becoming a republic in 1992, and is ranked by democracy index as more democratic than the United States of America, Italy, Spain, and even France. Underpinning stability, governance is improving in other countries like Nigeria, Ghana, South Africa, and a host of others, due to greater awareness, citizens’ involvement, advocacy and the significant opportunities technological advancement and the social media have thrown up – such as use of card readers and biometrics in elections and voters sensitization and awareness campaign through social media. With over 700 million mobile phone users in the continent, and countries like Nigeria and South Africa having over 98.4 million and 36 million Internet users, representing over 51% and 64% of their respective population, more improvements will be seen. On the poverty front also, many African economies have embarked on structural reforms over the last couple of years, setting up social benefit schemes, thereby creating a more trickle down of the nation’s wealth.

What should be the approach of the Private Sector in managing risk associated with doing business in Africa?

Risk is an inherent part of our very human existence, every country suffers from one risk or another -albeit at different levels-, but what keeps us going is our ability to recognise these risk, institute mitigation mechanisms where available, and push on towards achieving any goal we have set out to achieve, and same applies for business.

While progress is on-going across different countries, investment in the region requires awareness, understanding, open-mindedness and strategic planning. This is true, as the line between mitigating risk and capitalizing on investment opportunities have become increasingly difficult to discern, and those seeking to benefit from the sub-Saharan Africa region must carefully localize the risk and develop strategies for mitigating it and minimizing potential impact.

Although pockets of quick wins can be found in Africa, the continent fundamentals are not for quick win, to do business here you must adjust your pace and avoid replicating strategies from other regions. Take the time to build up local relations, get to understand how local business works, learn from successful African Investors who have led in intra-African investment, and find the right local business partners. Local knowledge and mastery is critical and can also be gained by engaging the services of reputable professional service firms with good knowledge of local markets. Such firms must have credibility with both domestic and international clients, and they must be willing to stand behind their risk analysis and risk management recommendations. Utilizing the local knowledge of partners helps pivot your strategy to the specific circumstances.

We have in the course of our practice as a law firm in Nigeria engaged this approach on various occasions for the benefit of our clients and partners, and recorded significant success. Worthy of note are our involvement advising the Lee Group, the Outsource Group, and the Dangote Group amongst several others. The Lee Group – which is one of our oldest clients – is a Chinese conglomerate based in Kano, and engaged in leather and plastic production, aluminum, and the export and import of various other commodities. We have played a key role in Lee Group’s work in Nigeria from inception, and today the Lee Group is one of the biggest employers of Labor in Kano, Nigeria. For the Outsource Group, we advised and structured their investments, and supported them to key into partnerships with International businesses and organizations. This has helped them manage some risks they were exposed to, as a start-up in Nigeria. The Outsource Group has now transformed into a global company dealing with companies from the United States and Europe. Several other examples abound, but the key take-away here is that there is the opportunity to engage with local experts who possess the requisite skill, demonstrated experience, and goodwill in their local economies.

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This further implies that investors should focus on the opportunity the continent provides, and design localized strategies to tackle the risks. Consideration should be given to the adoption of a risk-sharing business model with locals, where strong partnerships is built across government, the private sector, and communities, which will encourage strong support, the adoption of long-term perspective in planning, and flexibility in implementation of plans. Investors should also look at embracing Africa’s diversity and developing its human talents.

Particularly on the African continent, it is becoming more and more important to gain the goodwill and support of many stakeholders, to help navigate safely through the system. Businesses should go beyond corporate social responsibility and begin to see themselves as corporate citizens and conduct themselves as such. They should invest in their local communities where they operate and engage with the community. They should use this in developing some degree of social legitimacy and play their role in promoting and requesting for a better business environment.

For security, managing security risk in Africa is about protecting a firm’s infrastructure, people and processes. Geopolitical events and socio-economic issues cannot be controlled nor influenced by private firms, yet often present significant risks. Therefore, the price of effective security can be viewed as an inherent cost of doing business and managed through necessary insurance policies. Security needs to be ‘architected’ to the business requirements of the firm. While security remains a discretionary spend for most businesses, a balance needs to be struck between having enough security to protect assets and security that is cost effective, local expertise is key here.

I do not know how many here have come across a recent book by Condoleezza Rice and Amy Zegart. It is titled “Political Risk How Businesses and Organisations can Anticipate Global Insecurity” The book published earlier this year is based on their recent teachings a course on global political risks at the MBA program in Stanford. It is a very interesting book and challenges current notions of political risks. It is worth reading. But let me quote just a paragraph from the opening chapter:

“Political risk was once just about the actions of governments, such as dictators seizing assets or legislatures regulating industries. Today, governments are still the main arbiters of the business environment, but they are no longer the only important ones. Instead, anyone armed with a cell phone or a Twitter or Facebook account can create political risks, galvanizing action by other citizens, customers, organized groups, and political officials at the local, state, federal, and international levels. Events in far-flung places are affecting societies and businesses around the world at dizzying speeds. Anti-Chinese protests in Vietnam lead to clothing stock-outs in America. Civil war in Syria fuels a refugee crisis and terrorist attacks in Europe, leaving nations and tourism industry shaken. Video of a United Airlines passenger being forcibly dragged off a plane in Chicago goes viral in China. A North Korean dictator launches a cyber-attack on a Hollywood movie studio. This is not your parents’ political risk landscape. Put in the most elemental terms, twenty-first-century political risk is the probability that a political action could affect a company in significant ways. This definition is more radical than it sounds. We chose words “political action” and not “government action” to highlight the growing role of risk generators outside of the usual places like capitals and army barracks and party headquarters…”.


While challenges exist, existing nature of risks are also shifting. The continent is on the cusp of regaining its foothold as a investment destination, especially with the current excess industrial capacity in China, which creates an opportunity for investors to begin to consider Africa. Although the region’s path to recovery remains fragile, Governments across Africa are making significant progress in terms of addressing the risk landscape, building institutions and entrenching stability, peace and security.

The private sector is also increasingly becoming aware and should deepen engagement with the governments at all levels in dialogues, as we have done in Nigeria with the Nigeria Infrastructure PPP Summit Group – as mentioned earlier – to create a better and more predictable business environment.
The reality about the high-potential and diverse sub-Saharan Africa market is that it continues to offer numerous opportunities in diverse economic groupings such as infrastructure, natural resources, and consumer goods. The region is deficient in infrastructure—power, transportation systems, healthcare, and housing—which are often seen as obstacles to trade and investment, but this situation actually present unique opportunities for long-term investments. The huge population, urbanization and growing middle class supports high demand for consumer products and the continent’s rich natural resources can fuel development and growth opportunities in mining and agriculture.
These opportunities show that given the risk profile across Africa -albeit reducing-, Africa still offers relatively high returns on investment possibly due to low competition environment and the high-risk perception of the continent. A recent World Bank report shows that the overall rate of return on FDI in Africa has been above 9 percent since 2006, higher than the world average of 7.5 per cent and developing country average of 8.1 per cent. Specifically, sub-Saharan Africa has a risk/reward balance profile, and profitability in manufacturing is generally even higher compared to other sectors.

Perceived risks of investing in Africa are higher than the actual risks, and attractive investment opportunities can arise from the ‘negatives’ associated with Africa. If all we focus on in Africa are risks and challenges, we will never see the opportunities. The biggest risk is not any of the identified ones; it is ignoring the African markets.

Distinguished ladies and gentlemen, before I sit down Let me take the hazard of my own prediction: Africa’s time has come! And it will remember its friends!
Thank you for listening.

Abubakar Balarabe Mahmoud, OON, SAN, FCIArb (UK), SFNLI
President, Nigerian Bar Association (NBA)
May 21st, 2018.


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