The African Union (AU) plan to launch an All-Africa passport for citizens of the continent’s 54 member states, the benefits and risks of which are riddled with complexity for foreign investors.
In the wake of Brexit, African countries party to the AU are moving in the opposite direction. The all-Africa e-passport, designed to transcend visa restrictions on the continent and encourage a freer movement of people, goods, capital, and services, will be launched at the 27th AU Summit in Kigali, Rwanda (10th – 18th July).
Initially, the privilege will only be extended to particular government officials and heads of state, but plans are in place to extend the invitation to all citizens in all African states in 2018.
Proponents of the initiative champion the likely benefits of enhanced intra-African trade, spurred on by eased border restrictions, which could bring increased stability and unity to the continent, both politically and economically. Importantly, the passport should serve to facilitate Africa’s tourism industry and potentially ease the regulatory landscape for multinationals that aim to maintain tangled supply chains.
Whilst it is hard to dispute the theoretical benefits that the passport may reap, it is not hard to see that the opportunity will likely be accompanied by an impressive host of risks to foreign investors. African countries already house complex political and security risks, many of which are intimately connected to cross-border issues – links that might easily be buttressed by the assistance of the all-Africa passport.
Terrorism, refugees and xenophobia
The most feared risk which stands to become heightened in this respect is terrorism (or militia activity). The phenomenon, a prominent and growing issue in Nigeria, Cameroon, Ivory Coast, Mali, Kenya, and Somalia, to name just a few countries, is financed and supported logistically by trans-border networks which extend across Africa and into the Middle East.
In the context of a technical, bureaucratic and intelligence deficit already embedded in most African states (which makes it challenging to counter terrorist operations), no visa requirements would further perpetuate the problem.
Infamous groups such as Al Shabaab and Boko Haram may find it easier to source funding and recruit members owing to freer movement of people and goods. This dynamic is likely to worsen issues of regional instability which may damage business environments.
Another issue that might emerge is more prevalent xenophobic politics, alongside potentially growing migration flows, which could give rise to more frequent protests and clashes in response to increased competition over resources and jobs. This is already a trouble in countries including Tanzania, Kenya, South Africa and Zambia.
Convolutions and risks
Regional leaders like South Africa, Kenya, and Nigeria, may have to shoulder the burden of large influxes of foreign workers which could put stress on their own services that are already over stretched. At the same time, other countries would suffer from brain drains and decreased market sizes, making them less attractive for investment.
In relation to this, it may become increasingly challenging for multinationals to comply with local content laws as skills shortages risk being accentuated in some instances if better-qualified workers from elsewhere flood into various markets, squeezing out local competition.
These dynamics would work collaboratively to generate policy uncertainties for investors as governments become incentivized to introduce protectionist measures, particularly if xenophobia becomes prominent in political narratives.
In turn, the all-Africa passport could work to counterproductively deter foreign investment. Notably, as African traders find it easier to move goods across borders, it will become difficult for companies to compete with a strong informal sector and illegal trade – which often boast a large market share and makes certain sectors unattractive (particularly for consumer goods companies).
Simultaneously, criminal syndicates that penetrate multinational companies and maintain networks across Africa will benefit from relaxed border restrictions. This would boost industries like human trafficking and drug smuggling, damaging the rule of law in a number of markets, which would negatively affect businesses as they become increasingly vulnerable to corruption and reputation risks.
Political risk paradise
In light of a portfolio of complex risks alongside attractive African markets that are set to become better interconnected, foreign businesses and investors will need to rely on analysts and consultants that have a deep familiarity with business, political and security dynamics in African countries. The limitless list of variables that already impact such markets is set to become even lengthier with the introduction of an all-Africa passport, even if it brings with it multiple benefits.
