Risks and opportunities in year of elections

In General

The business community in Kenya faces a rather challenging 2017, unless they resort to  certain appropriate precautionary measures to reduce risks.

According to a new study by Control Risks, a reputed business and political risk consultancy, low oil prices will continue to reduce he cost of doing business and easing the balance of payment pressures as they yet do not export much oil.

“However internal political uncertainty across a number of key nations (Kenya,  Uganda and Tanzania) will pose a much greater risk to businesses on the continent than the effect of international geopolitics,” it adds.

Again, it is likely that African nations vying to emerge as the commercial gateway for foreign direct investment, offer opportunities but also unknown threats for businesses.

Those looking for longterm investments will however be likely to invest on improved governance structures.

The elections also carry embeded business opportunies for small businesses and individuals such as car hire, branding, marketing PR and consultancy in elections related activities. However the increased currency circulation will weaken the shilling hitting importers.

Further, the report titled ‘RiskMap 2017-East Africa: Notes there will be an opportunity for businesses to invest in cyber security while those who do not will remain vulnerable from failing to accord cyber security risk the same value as more established security or political threats.

“Cyber-attacks are advancing in nature. Businesses will become increasingly vulnerable until the impact of cyber risks on their operations and reputation is as well understood as the effects of political and security risks, ” elaborate the researchers.

The collapse of ISIS and weakened al shabaab will increase confidence among business investors.

Governance improvements

As a result,  businesses will respond either as Arks (defensive focus on core markets), Sharks (targeting new opportunities) or Whales (becoming too big to fail).

Control Risks also lays down that governance improvements and the embedding of certain democratic practices and norms will limit the scope of potential for deterioration, but challenges will still persist.

“Better governance has improved the business environment but plain sailing is not assured.”

Daniel Heal, Senior Partner for Control Risks East Africa, comments:

“Macro-economic and domestic political changes are driving African nations to reinvent themselves in the hope of becoming Dubai or Singapore style commercial hubs.

READ: Sharing to be Kenya’s leading growth driver

This will present lucrative new opportunities for business, but equally engender unknown risks and require a deeper understanding of the local political and regulatory environment.”

Opportunity

He underscores the sentiment that companies will pursue different strategies to protect value and seize opportunity in 2017:

“Many organisations will be defined as Arks, Sharks or Whales by their response.”

For a start, he indicates, Arks will be defensive and focus on core businesses and markets.

“They will shed non-performing assets, reverse unsuccessful mergers, cut costs, and delay expansion.”

Heal further says that while particularly associated with mining and oil and gas due to the collapse in commodity prices, the Ark strategy also characterises retrenchment by retailers and re-shoring by manufacturers.

Sharks

“Sharks are less risk-averse and will hunt for opportunities in new activities and locations.”

On that note, Heal says financial services facing regulatory uncertainty and the rise of competing power centres in the emerging world is likely to take on risk to capture first-mover advantages in frontier markets or disruptive sectors.

But whales, their main risks being economic nationalists and competition regulators, will take advantage of their deep pockets and cheap financing to engineer mega-mergers and monopolise markets.

“Consolidation strongly characterises the technology sector, pharmaceuticals, and agribusiness, which have often arbitraged regulatory environments to gain dominant market positions.”

Daniel Heal concludes: “For businesses to succeed in this diverse region, it is important to take a threat-led approach and understand the unique and evolving risks that could impact the business in that specific market.”

Control Risks  is a specialist risk consultancy with 36 offices across the globe. The firm has about 40 years of experience working in Africa with regional offices in Nigeria, South Africa, as well as Kenya.

BY MOSES OMUSOLO

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