Top ten risks in sub-Saharan Africa
- Unemployment or underemployment
- Failure of national governance
- Failure of critical infrastructure
- Energy price shock
- Fiscal crises
- Profound social instability
- Illicit trade
- Water crises
- Terrorist attacks
- Failure of urban planning
Socioeconomic risks persist in the region, as growth moderates in many countries and political changes bring opportunity, but also potential risks.
Unlike other regions, the leading risks in 2019 in sub-Saharan Africa did not change from the prior year: “Unemployment or underemployment”, “failure of national governance”, “failure of critical infrastructure” and “energy price shock” all remain the top four risks. The only issue that emerged as a major concern for business in the region was “fiscal crises”, which ranks fifth this year. These findings reflect the fact that economic and governance concerns are felt deeply among executives and come at a time when sub-Saharan Africa faces opportunities, but also vulnerabilities, because of its growing population.
Since the 2008–2009 financial crisis, youth unemployment in sub-Saharan Africa has steadily increased from 11.7% to 13.3% in 2018 – this is higher than the current global rate of 12.8%.79 The state of youth employment may explain why “unemployment or underemployment” is not only the top risk to business in sub-Saharan Africa, but also why nearly 60% of respondents identified it as such, making it the highest-scoring risk for any region. Moreover, it tops the list in 21 out of the 33 countries surveyed in the region, including the four largest economies: Nigeria, South Africa, Angola and Kenya. The only country where the issue did not rank within the top ten was Lesotho, which has seen a constant decrease in unemployment rates over the past two decades.
A geopolitical risk was ranked the second highest by business executives in the region: “failure of national governance” – and it is also worth noting that “profound social instability” was ranked sixth. All but three of the 33 countries in the Executive Opinion Survey – Lesotho, Rwanda and Tanzania – ranked “failure of national governance” in the ten most concerning risks, perhaps influenced by political turmoil in Sudan, ethnic conflicts in Ethiopia and separatism in Cameroon. In addition, corruption remains entrenched in day-to-day activities on the continent. According to Transparency International, 55% of Africans believe that corruption increased in the past year.80 Moreover, public sentiment about these social concerns was noticeable across the region, which has seen more than 30 general elections in two years.81 Indeed, fighting corruption (and promoting growth) were common commitments made during the elections that took place in the first half of the year in the two largest economies of the region. In Nigeria, Muhammadu Buhari was re-elected as president in February, while Cyril Ramaphosa was elected President of South Africa in May 2019. These political developments offer leaders new opportunities to respond to the priorities of their citizens, but the region could face risk if policies fall short.
“Failure of critical infrastructure” ranks as the third risk for doing business in sub-Saharan Africa, mostly due to responses from Nigeria, where two out of every three business leaders selected this risk as one of their most pressing concerns. Underinvestment in infrastructure is a handicap for business in the region: According to the African Development Bank, the region’s “infrastructure needs – $130 billion–$170 billion a year – leave a financing gap of as much as $108 billion”.82 Despite notable economic and social progress, the region’s electrical infrastructure is in need of significant strengthening and expansion. According to the International Energy Agency, electricity is unavailable to approximately 600 million sub-Saharan Africans – this represents over half of the region’s population.83 Infrastructure development is vital for the success of the African Continental Free Trade Agreement (AfCFTA), which just last May came into force for the 27 countries that have ratified it.
Respondents also identified “energy price shocks” and “fiscal crises” as top risks. “Energy price shocks” was ranked in the top ten for all countries in the region, except for Mozambique (11th) and Zimbabwe (14th). As the region that collects the second most rents in the world from oil in terms of GDP (after the Middle East and North Africa), sub-Saharan Africa’s economy is highly sensitive to energy-market volatility. Indeed, the timing of the World Economic Forum’s Executive Opinion Survey, which collected responses from January to April, coincided with an oil price hike of 36%.84 “Fiscal crises” is also a trending risk that has likely been influenced by the sporadic disruption in energy prices that is now in danger of becoming systemic. Over the past several years, sub-Saharan African governments have debated raising sovereign debt levels and increasing public deficits to the point where between a third and a half of sub-Saharan Africa’s economies are at risk of high debt distress.
Again this year, climate and health risks are not perceived as the most concerning risks to business in sub-Saharan Africa. Guinea is the only country where “spread of infectious diseases” ranked as a major risk, while “extreme weather events” and “natural catastrophes” topped the list only in Mauritius and Mozambique. Looking back at the devastation caused by Cyclone Idai (March 2019), for which costs were estimated at over $2 billion dollars,85 and at the 2,052 fatalities from Ebola so far (September 2019) in the Democratic Republic of the Congo,86 the absence of these risks from the list continues to represent a potential blind spot that could considerably hinder the economic and social progress that the region has achieved.