Nigeria still in top 5 riskiest African business environments in 2023

Sopuruchi Onwuka

Nigeria is the fourth riskiest country for foreign direct investments in the year, according to analytics by Insider Monkey, an investment advisory company which provides business intelligence for multinational companies that are listed in major global equity bourses.

Analysis from the company accessible to The Oracle Today showed that whereas Nigeria’s position among the worst African countries to locate a business, it has actually dropped from the fist position which it occupied at the beginning of the year when former President Muhammadu Buhari threatened to deal with voters protesting the outcome of the February polls in the country.

Despite stating that significant business potential could be explored in economic zones like South Africa, Nigeria, and Kenya with consistent investment, Insider Monkey noted that the only reason Nigeria’s rating improved links to the assessment by the Standard and Poor’s (S&P) credit outlook on the country after the new government dismantled deliberate support for the Naira and scrapped fuel subsidy.

As per the report, the primary reason for the upgrade is the ambitious policies of the new government of President Bola Tinubu, on economic growth and long-term economic growth.

The Oracle Today reports that despite hosting the highest population of the global poor, Nigeria holds the paradox of being the biggest economy in Africa and home to most of Africa’s richest men. It must not also be discounted that unlike South Africa which boats of robust manufacturing activity, Nigeria is an oil dependent economy with a dying manufacturing sector.

The Nigerian economic irony pushes it farther up the ladder of the bad business climates in the continent, ahead of South Africa which sits at 15the position.

The S&P Global South Africa Purchasing Managers Index grew to 51.0 in August from 48.2 in July, with stable demand conditions supporting the private sector output growing significantly to boost consumer confidence and rise in business development and investment.

Insider Monkey linked risks in Africa’s business climate to economic and political conditions that significantly deter business success rates in the region.

In grading the African economies along the risk and reward scores sourced from the Oxford Economics Report, Insider Monkey shortlisted countries with high reward and risk scores in ascending order of the reward score, and the risk score is our sub-metric.

“Our ranking is relative, meaning that a country could be an objectively safe place for business but is relatively risky compared to other countries in the African region,” the analysts stated.

According to the Oxford Economic Report, the reward score combines medium-term economic growth forecasts, economic size, economic structure, and demographics, and the risk score is an amalgamation of the individual political and economic risk variables.

These variables are then combined to calculate the overall risk rating of a country, Insider Monkey stated about its methodology.

Thus, with a 2023 reward score of 4.39 and risk score of 5.85 on a scale of 10, the methodology throws up Ghana as the 15^th riskiest country in Africa to do business. Ghana reported a risk score of 5.85 as of September 2023, up by 0.61 from September 2022.

Cameroon comes in as 14^th worst environment for investments in Africa with a reward score of 4.39 and a risk score of 6.53. South Africa follows in the 13^th position with a reward score of 4.49 and risk score of 5.06 as of September 2023, up by 0.37 from September 2022. Prominent sectors in South Africa include banking and finance, ICT, and transport.

Algeria comes 12 riskiest business environments in the continent with reward score of 4.7 and a risk score of 5.85 in September 2023, up by 0.17 from September 2022. Some of the most prominent sectors in the country include agriculture, healthcare, and ICT.

Rwanda comes into the 11^th position with reward score of 4.9 and a risk score of 5.46 as of September 2023, up by 0.25 from September 2022. The IT sector, agro-processing sector, tourism sector, and energy sector bring the most business to the country.

Morocco is the 10^th worst place to do business in Africa in 2023 with reward score of 4.49 and risk score of 4.13 as of September 2023, down from 4.29 from September 2022. Transport, ICT, agriculture, and renewable energy are some of the most profitable sectors in Morocco.

Democratic Republic of the Congo comes 9^th with risk score 7.53 against reward score 5.15 in September, up by 0.09 from September 2022.

Tanzania follows in the 8^th position with reward score of 5.19 and risk score of 5.35 as of September 2023, down from 5.43 in September 2022. Some of the most profitable industries in Tanzania include Crop cultivation, livestock production, and agro-processing.

With reward score of 5.22 and risk score of 5.8 as of September 2023, Kenya becomes the 7^th riskiest country in Africa to do business in 2023. The country’s risk score of 5.8 in 2023 is actually down from 5.89 in September 2022. However, Kenya on the other hand is an attractive business location to venture capitalists for its growth potential.

In sixth position, Egypt offers reward score of 5.38 as of September 2023, up by 0.33 from September 2022. This comes against a risk score of 6.3, making the popular tourist destination in Africa one of the riskiest countries in Africa to do business in 2023.

In the fifth position is Senegal with a reward score of 5.41 against a risk score of 4.98 as of September 2023, up by 0.09 from September 2022. Mining, construction, tourism, fishing, and agriculture are some of the most prominent sectors in Senegal.

And despite the reward score of 5.5, Nigeria’s position as fourth in the list comes with a risk score of 7.65  in September 2023, up by 0.4 from September 2022.

According to the methodology, Uganda follows with a reward score of 5.53 against a risk score 6.22 to be the third riskiest business environment in Africa in 2023, up by 0.05 from September 2022.

Ivory Coast, also called Côte d’Ivoire offers a reward score of 5.77 against a risk score of 5.56 to be the second riskiest business environment in Africa, according to Insider Monkey. The country specializes in producing and exporting cocoa beans.

Expectedly, Ethiopia which is grappling with impacts of civil war and mass displacement of hungry civilians holds reward score of 6.58 against a risk score of 7.64, down from 7.65 in September 2022, to descend to the position of Africa’s riskiest business environment in 2023.

Using similar methodology, Insider Monkey declared Côte d’Ivoire the safest business environment in Africa with a reward score of 5.77 against a risk score of 5.56 in September 2023. The country is also one of the largest producers and exporters of Cocoa Beans.

Other safe countries for investment according to the model are Senegal, Kenya, Tanzania, Morocco, Rwanda, Algeria, South Africa and Botswana. Others are Mauritius, Angola, Tunisia, Zambia, Namibia and Malawi.