🕐15.12.10 - 09:54 Uhr
Press release from Alexander Forbes : political risk in Africa
Press Release from Alexander Forbes Risk Services
15 December 2010
Managing political risk key to investment in Africa
With the South African construction industry having hit a wall following
2010 and governments nationalisation debate steering new mining
investment abroad, political risk experts report a rush of South African
businesses into Africa, seen as offering greater returns on investment
with comparatively manageable risk.
For example, "the current iron ore rush in Liberia, Sierra Leone and
Guinea is seeing South African companies pouring idle plant and
machinery into the region" says Tracy de Kock, Manager - New Business,
Credit and Political Risks, Alexander Forbes.
Yet with elections
underway in two of these countries and just having been cancelled for
fear of violence in a third, the possibility of political instability or
even war remains very real.
Since competition for resources in developing economies is intense and
civil institutions and the rule of law weak, power contests provide
opportunities for unrest and violence.
In these conditions contract and
property rights are easily violated, abrogated, confiscated or stolen.
Political risk cover makes business possible in unstable or
unpredictable countries and is critical in helping investment reach
parts of the world that it would normally avoid.
As South African
business appetite for African investment grows de Kock and her team are
seeing a noticeable expansion in their African political risk book.
Yet it remains a hard story to tell as "businesses cant really talk
about political risk.
Its a bit like telling people you have kidnap and
ransom cover" warns de Kock.
If host governments find out that an
investors plant and machinery is covered for political risk the
temptation to take back, nationalise or cancel the concession can become
overwhelming.
While this is becoming less of a problem in Africa it is certainly the
case in countries like Venezuela as well as a number of central Asian
republics where political risk cover has become increasingly expensive.
Much of the risk faced by South African businesses in Africa, especially
in construction and mining, involves redundant and as yet unpaid for
World Cup plant and machinery being moved to various opportunities in
Africa.
If this is stolen, nationalised or destroyed in war or political
unrest the owners still need to pay it off "making political risk cover
key to delivering returns on 2010 plant and machinery - and surviving
the recession in South Africa" explains de Kock.
The important thing is to have the right political risk cover in place
before anything goes wrong.
It is too late to try and get cover after
the event.
"Even if you think a country is safe, things can go wrong
very quickly in developing economies" warns de Kock.
In Africa, the most risky investment destination remains the Democratic
Republic of Congo where many South African businesses have nonetheless
been investing successfully for a while.
This "demonstrates the
effectiveness of political risk cover in making investment possible even
in volatile situations" says de Kock.
This years somewhat unexpected
political riots in Mozambique also emphasised its fragility despite, and
perhaps because of, good investment and growth rates.
As such "many
South African tourism, freight and agricultural businesses in Mozambique
have this year, somewhat belatedly, recognised the importance of
political risk cover" adds de Kock.
Madagascar too has recently run in
to electoral difficulties and violence "causing the many South African
businesses involved in titanium mining ventures there to clamor for
political risk cover" reports de Kock.
And even in Zimbabwe which continues to buck the more
investment-friendly African trend, political risk cover remains the only
cover that you can still secure "with, ironically, the London market
more willing to write Zimbabwe risk than the South African" concludes de
Kock.
ENDS
Prepared by: FD Media & Investor Relations (Stuart Meyer)
011 214 2408 / 083 618 7260
On behalf of: Alexander Forbes Risk Services
Further info: Tracy de Kock, Manager - New business, Credit &
Political Risks
Alexander Forbes Risk Services.
011 669 3485 / 082 924 9199
Stuart Meyer
Account Manager
Financial Dynamics
1st Floor, Lumley House, 177 Jan Smuts Avenue
Johannesburg, 2193
D +27 (0)11 214 2408
M +27 (0)83 6187260
www.fd.com
FD
THE STRATEGIC COMMUNICATIONS DIVISION OF FTI CONSULTING
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