The index offers a comparative snapshot of market opportunities and risks across the continent.
The COVID-19 pandemic was the single largest factor affecting risk-reward scores in 2020. The economic hit lowered reward scores across the continent. The effect on risk scores was more varied and more influenced by other factors, but nonetheless skewed negative.
The scores in this edition the Africa Risk-Reward Index shows the impact of Africa's economic recovery. Medically, Africa remains in the midst of the pandemic. Case numbers are starting to decline after a third wave, but vaccine rollouts remain slow and further spikes are possible. Nonetheless, economies are starting to recover, and the virus is no longer an all-consuming issue infringing on every area of the investment landscape.
This economic recovery is in its early stages and slow; the continent's GDP growth in 2021 is forecast at 4.4% by Oxford Economics Africa, somewhat below the 6% forecast for the rest of the world. This is likely to be the start of a gradual and uneven recovery process, as discussed in the 2020 Africa Risk-Reward Index. Nonetheless, it has returned the continent to growth and had a knock on impact on reward scores. Many of t the countries that suffered the worst hit in 2020 saw the strongest recoveries, especially when - as in the case of Botswana, Mauritius or South Africa - they were able to support that recovery through stimulus spending.
Changes in risk scores are less attributable to a single driver. In Ethiopia, an increased risk score has been driven primarily by the Tigray conflict, which began soon after publication of last year's index and continues to drive security threats. Tunisia's increased risk score, in contrast, is driven by a primarily political crisis initiated when President Kais Saied dismissed the government and suspended parliament on 25 July. Meanwhile, Malawi has seen its risk score decline since President Lazarus Chakwera came to power in a 2020 re-run presidential poll that reaffirmed Malawi's democratic credentials. A similar demonstration of democratic strength occurred in Zambia on 12 August, when the opposition United Party for National Development (UPND) won against an incumbent administration with authoritarian tendencies.
The overall landscape therefore remains complex. The COVID-19 pandemic has not had a uniform effect. It has spurred positive change in some countries, exacerbated challenges in others, and in some has proved largely incidental relative to other developments.
What happened over the past year is a broad recalibration of Africa's relationship. with the rest of the world; a recalibration that, like everything else, has been at times spurred by the pandemic, at times exacerbated by it, and at times driven by entirely separate developments.
One of the most direct ways in which the pandemic has prompted a rethink of Africa's international relations arises from its medical response. On 2 September, the World Health Organisation (WHO) warned that 80% of African countries would miss targets to vaccinate 10% of the population loby the end of that month. While there have been challenges associated with vaccine scepticism and dom stic rollouts, the primary obstacle to faster rollouts is the lack of supply from external partners. This has undermined what has otherwise been an impressive pandemic response from many African governments, and has forced them to reconsider their reliance on the international community. Our first article in this edition of the Africa Plisk Reward Index puts a spotlight on the fledgling biotech and health-tech industry that is suddenly the focus of efforts to build a new African growth sector,
Another area where Africa's reliance on external partners is under scrutiny is in the continent's debt profile, which is explored in our second article. Rising debt has been a long-term concern exacerbated by the strain of supporting pandemic-hit economies. Even as African governments turn to multilateral financial institutions, bilateral donors and external private-sector creditors to help fill budget shortfalls, the dangers of ever-growing debt burdens are becoming more pronounced. In response, finance ministries across the continent are coming up with innovative mechanisms to keep the credit coming. Not all of these involve turning away from external
funding, but they do represent a shift in the way governments are engaging with international markets.
Finally, our third article looks at the changing nature of security assistance to the continent. This is not pandemic related or even specific to Africa: the US withdrawal from Afghanistan exemplified the reluctance Western governments to engage in military interventions around the world. Yet it comes at a time when the security environment in Africa is arguably more volatile than it has been for years. In the absence of Western military engagement, other actors - both African and external-will attempt to fill the gap with new approaches. In the long term, these may be successful in addressing security threats or they may create new ones. In the short term, there is little doubt that they will result in anything but increased unpredictability.
In all of these areas, new approaches and new roles for Africa's international partners will be influential in shaping the continent's post-pandemic recovery. In many cases, this will have direct and specific implications for investors: opening new opportunities in the biotech sector, reducing non-payment risks from debt-burdened governments or increasing threats posed by militancy in places like the Sahel. But even where the direct implications are not obvious. these issues will affect the wider political, economic and security landscape. Investors must consider them during any attempt to forecast where Africa's future risks and rewards will lie.