In certain places in Africa, doing business is becoming harder, according to the chief executive of Credit Guarantee, which insures many of the risks for companies trading on the continent.
Some of the standard exposures Credit Guarantee underwrites include credit risks, fraud, and theft.
“All the countries we focus on have seen a deterioration in credit metrics – credit ratings and economic growth have been falling, and interest rates have been rising,” says Charles Nortje, CEO of Credit Guarantee. Countries most affected have typically been those that rely heavily on revenues from the sale of commodities. While many prices have rebounded since the start of the year, they are still significantly lower than levels seen three years ago.
Nigeria is one of the countries facing tough times, as lower oil [prices] have drastically lowered revenues for oil producers and those involved in downstream and associated industries. This has now translated into adverse credit events that has forced Credit Guarantee to begin paying out claims.
“We have definitely seen more volatility in many of the credit risks we underwrite since 2013, which coincides with the fall in commodity prices,” says Nortje.
Angola is another country experiencing tough times – GDP will fall below 1% p.a. this year and foreign currency is hard to come by, but there are also regional nuances. “Parts of Angola are flying. Southern Angola for one is experiencing strong trade with Namibia, so we are seeing very little adverse conditions there,” says Nortje.
One of the bright spots is Ethiopia. “The country has a diverse economy and is doing very well. So too is Tanzania which has just completed peaceful elections and the economy has diversified away from commodities,” says Nortje.
Closer to home, things are looking ominous. “While solvencies and liquidations have been on the decline since 2009, business rescue is on the rise. But fraud as a form of corporate failure is also increasing,” says Nortje. He points to the example of First Strut, which collapsed following the death of one of its founders: “It was a 20-year Ponzi scheme that not even the employees recognised.”
So in summary, is Africa’s risk rising? “Yes, it is at the moment,” says Nortje. “But we don’t see it as a one-day game. You have to get out there and do your homework and visit the places and the people you want to do business with, and really understand the place.”