There are concerns that the recent wave of coup d’états in Africa could negatively impact foreign investment on the continent, OLUWAKEMI ABIMBOLA reports
The Economic Community of West African States was still deciding on how to restore democracy in the Niger Republic when the military intervened again in Gabon. The Bongo family, which had been ruling the oil-rich country for more than five decades, was toppled from power.
However, if the opposition’s claims are anything to go by, this might be a palace coup, considering that Brice Nguema, the leader of the Republican Guard, which carried out the coup, is a cousin of Bongo. Nguema has also been named the transitional leader.
While world leaders condemned the military intervention, the sovereign bonds of Gabon suffered the steepest daily dip in its dollar bonds since the height of the COVID-19 pandemic on the day of the coup, just weeks after the country carried out Africa’s first debt-for-nature swap.
According to Reuters, the 2025 bond dipped the most, by as much as 14 per cent, before recovering to trade down 9.5 cents on the dollar at 83.41 cents at 1302 GMT.
Gabon completed a $436m debt-for-nature swap earlier in August, where it exchanged parts of the 2025 and 2031 Eurobonds for a ‘blue bond’ maturing in 2038. That bond fell 1.91 per cent to 98.34 cents.
The blue bond meant to generate savings for marine conservation has political risk insurance from the US Development Finance Corporation. The insurance could cover a full repayment in the event of default, subject to arbitration.
On a continental level, the Emerging Markets Fund Manager at M&G Investments, Gregory Smith, in his second-quarter review stated that no African sovereign Eurobonds were issued during the second quarter of 2023, mostly because of the hike in interest rates in the US Fed which affected investors’ confidence in global markets.
According to the analyst, at the end of June 2023, there were $143bn (face value) of African sovereign Eurobonds outstanding. Their market value was around $107bn as of June end. This includes Zambia ($3bn face value) and Ghana ($13.2bn face value) Eurobonds that are being restructured following defaults.
For Nigeria, Smith said that its Eurobond yields had improved year-to-date as reforms initiated under President Bola Tinubu, had boosted investors’ confidence.
In terms of Foreign Direct Investment, the 2023 UNCTAD’s World Investment Report showed that FDI flows to Africa declined to $45bn in 2022 from the record $80bn set in 2021. It accounted for a mere 3.5 per cent of global FDI.
The report said that international project finance deals targeting Africa showed a decline of 47 per cent in value ($74bn, down from $140bn in 2021) but a 15 per cent increase in project numbers to 157, while the number of greenfield projects announcements rose by 39 per cent to 766. Six of the top 15 greenfield investment megaprojects (those worth more than $10bn) announced in 2022 were in Africa.
A breakdown of FDI flow revealed that in North Africa, Egypt saw FDI more than double to $11bn as a result of increased cross-border merger and acquisition sales.
In West Africa, Nigeria saw FDI flows turn negative to -$187m as a result of equity divestment.
Announced greenfield projects, however, rose by 24 per cent to $2bn. Flows to Senegal remained flat at $2.6bn and FDI flows to Ghana fell by 39 per cent to $1.5bn.
For East Africa, FDI flows to Ethiopia decreased by 14 per cent to $3.7bn although the country remained the second-largest FDI recipient on the continent. Uganda’s FDI grew by 39per cent to $1.5bn on investment in extractive industries. FDI to Tanzania increased by eight per cent to $1.1bn.
FDI in the Democratic Republic of the Congo remained flat at $1.8bn, with investment sustained by flows to offshore oil fields and mining.
In Southern Africa, flows returned to prior levels after the anomalous peak in 2021 caused by a large corporate reconfiguration in South Africa. FDI in South Africa was $9bn – well below the 2021 level but double the last decade’s average. Cross-border M&A sales in the country reached $4.8bn from $280m in 2021. In Zambia, after two years of negative values, FDI rose to $116m.
The UNCTAD report showed that European investors remain, by far, the largest holders of FDI stock in Africa, led by the United Kingdom ($60bn), France ($54bn) and the Netherlands ($54bn).
With the sharp decline in investments on the continent, experts are worried that increasing military interventions in the continent may worsen the situation.
Professor of Legal, Social and Political Environment of Business and Head, Department of Strategy at the Lagos Business School, Olawale Ajai, said that military coups represent violent overthrow of constitutional order and that military rule is antithetical to the rule of law.
“Under an autocratic government, the rules of the game, including laws and regulations governing business, trade and investment, can be changed at the whim of the military ruler, by decree. This connotes uncertainty and is bound to discourage trade and the flow of investment. Africa is likely to be perceived as an unstable area. Yet, it requires all the investment it can get, in the global competition for investment,” he stated.
Professor of Economics at the University of Kaduna, Seth Akutson, corroborated Ajai’s stance. He said, “Once there is instability in a region, if you want to invest, you withhold it and watch the unfolding scene. The investors are not coming.
Already the military is in Mali, Burkina Faso, Niger, and now Gabon, although Gabon is in Central Africa. Investors don’t know what is next. Although Cameroon is also not in West Africa, people are thinking.
“Even for Nigeria, the investors are watching because the election is being contested. What will the military do? This is why the investment climate right now is not safe. Naturally, investors will want to watch. Nobody wants to put his money where there is instability.”
Going down memory lane, Akutson said that Nigeria was like a pariah state during the military rule.
“The good investors ran away because we were under sanctions due to human rights abuses and when (General) Abdulsalami (Abubakar) came on, he tried to liberalise the polity and declared within a year to handover. So, it gave us some stability, and investments started flowing.
“I want to tell you that from 1999, Nigeria was having it good to the extent that the international community wrote off our debts. The economy was buoyant. Investors were coming and we were one of the fastest-growing (economies) in the world then. Later on, changes in government started in our democracy and we did not have economy-friendly governments. As a result, investment flow was stunted. The Central Bank exposed itself and as a result, the external reserve dwindled. That was how the naira started experiencing a downward trend,” he said.
He, however, cautioned that having a military regime in Nigeria would take the nation back several years.
For Professor of Management and Accounting at Lead City University, Ibadan, Godwin Oyedokun, while military takeovers are not conducive for investments, they are another type of government that resulted in the building of landmark infrastructure in Nigeria.
He said, “Our neighbouring countries and other African nations with the presence of military men are different from our own. Despite our insecurity, we still have FDI inflow, but it is just low.
“Whether we like it or not, military government is another system of government. I can confirm to you that the Third Mainland Bridge was built by a military government. This is not to say that military government is good. I’m merely stating that it is another form of government,” he said.
Oyedokun also pointed out that the frequency of military interventions in Francophone African nations reflected the state of the relationship between the former colonialists and colonies.
He said, “Look at Africa’s French-speaking countries, they feel like France has exploited them. So, if you come from France and associated climes to invest in such countries, you know you are on your own. Such investments will be nationalised. Those are the reasons investment is not flowing towards those areas.”
According to Oyedokun, once there is no war or the possibility of it, a country can continue to attract foreign capital regardless of its type of government as long as investors feel that their investments are safe.
Meanwhile, the Chief Executive Officer of Africa Finance Corporation, Samaila Zubairu, noted that the spate of coups would adversely impact the organisation.
Speaking with Bloomberg, Zubairu said the rise of the juntas in Africa was “very worrying, especially with the seeming appeal of the changes to the mass populace”.
The AFC CEO revealed that coups would delay the sale of shares in AFC projects and jeopardise investment inflows into the continent.
AFC says it has an investment portfolio of about $11.5bn in Africa.
However, if foreign investors behave on the continental level as they are in the Nigerian capital market and adopt a wait-and-see approach, then local players or diaspora funding can help stabilise the continent.
In April, a World Bank report revealed that the Nigerian Diaspora community remitted $168.33bn to the country between 2015 and 2022.
According to the World Bank and Budget Office of the Federation, Diaspora remittances to the country have been very helpful in cushioning the negative impact of foreign exchange scarcity.
In 2022, the World Bank stated that remittances flow to sub-Saharan Africa grew by 5.2 per cent to $53bn. The flow to Nigeria got the largest share.
Diaspora funding was $21.2bn in 2015, dipped to $19.7bn in 2016 but rose to $22bn in 2017.
It further rose in 2018 to $24.31bn. The trend reversed in 2019, falling to $23.81bn. The Covid-19 pandemic caused a massive dip to $17.21bn in 2020.
Diaspora funding strengthened to $19.2bn in 2021 and by 2022 the World Bank estimated that the inflows into the country had reached $20.9bn.
Will diaspora funding be enough in the face of dwindling foreign investors caused by military interventions?
Professor Ajai responded, “Democracy is an evolutionary process that cannot be nurtured by dictators even by benevolent autocracy. Nations must learn along the way and every little success improves democratic practice. Ghana, South Africa, Kenya and Nigeria are some of the beacons of democracy in Africa and relatively better-performing economies, in spite of any current economic difficulties.
“Investors tend to perceive them as relatively stable and very promising, once they get macroeconomic reforms and management right.”
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