The unexpected and ongoing political crises in the Middle East and North Africa (MENA) region challenge the view long held among international investors that the level of structural political risk in sub-Saharan Africa is higher than that in the MENA region.

Before the MENA political crises prompted a rethink, the region was a hotbed for foreign investors. Between 2000 and 2009, the 17 countries in the region attracted over $520 billion in foreign direct investments (FDI).

In contrast, sub-Saharan Africa's over 50 economies attracted only $248 billion during the same period. When South Africa, Nigeria and Angola are taken out of sub-Saharan Africa's FDI dataset, the remaining four dozen countries attracted only as much FDI as Turkey.

In other words, without South Africa, Nigeria and Angola, sub-Saharan Africa's cumulative FDI investments of over $90 billion account for only about 18% of the FDI inflows into the MENA region.

Foreign investors are not the only ones who seem to have a soft spot for the MENA region. International credit rating agencies have historically scored countries in the region higher than their peers in sub-Saharan Africa. Perhaps, the latter's great appetite for investment in the region has always been informed by the favourable ratings of the former.

However, all that may soon change as the sudden political crises in a previously seemingly stable region has brought into sharp focus the issue of the mispricing of political risk premia in sub-Saharan Africa as against the MENA region.

For instance, over the past decade, Tunisia, an international tourist hot spot, and a country which does not produce any commercial quantities of oil or gas, attracted nearly 10 times the amount of FDI that went to its sub-Saharan African peer non-oil producing tourist hot spot, Kenya.

Even Lebanon, despite its recent war with Israel and constant fractious governance, attracted about 75% of the FDI that went to politically stable South Africa. And war-torn Sudan, classified as part of the MENA region for investment purposes, has attracted almost as much FDI as democratically stable Ghana, Tanzania and Botswana combined.

Do the fund managers  of foreign capital markets and large international corporations, who have invested nearly half a trillion US dollars of investor funds in the MENA region, know something that the protesting peoples of the region do not know?

While a large number of investments in the region often targeted the energy sector, the quantum of investments in non-energy rich countries, such as Lebanon, Tunisia, Turkey and Morocco, and the level of non-energy investments into Egypt, Sudan and the UAE belies the argument that FDI simply flowed to where the known oil and gas fields are located.

Understandably, sub-Saharan Africa's two largest recipients of FDI are also its largest oil exporters. Even here, semi-autocratic Angola attracted more FDI during the 2000-2009 period than the flawed one-party democracy Nigeria.


Have the assets allocators of Middle East & Africa (MEAF) capital markets simply sheepishly followed larger FDI energy multinational investors?

Naturally because of the geographic location of large oil and gas reserves in the MENA region, a disinterested observer could understand why large energy multinationals invest billions of US dollars every year into the politically brittle region.

But what would explain the multibillion dollar non-energy investments in the region?

It is also unclear why bond rating agencies have historically ranked MENA economies more politically stable than sub-Saharan African economies when politics play a cardinal role in sovereign stability and significantly affect a state's capacity to meet future financial obligations.

Even the current political risk premia in the MENA region compare favourably to sub-Saharan Africa's.  

For example, with more than half of Libya lost to anti-government protestors in early March, the country was still ranked more stable and able to honor its future debt obligations than Morocco or Kenya.

To be fair though, the rating agencies are yet to properly calibrate their "scales" to discount the ongoing crises.

This perhaps, also explains why even with the current Ivorian instigated chaos in the CFA monetary zone and President Abdoulaye Wade’s self-immolation, Senegal still appeared on the ratings table more creditworthy than Ghana or Gabon.


No explicit mention is made in the standard official definitions above of 'political risk' even though it is clear that politics have a cardinal role to play in sovereign stability and significantly affects a state's capacity to meet its future financial obligations. While most bond rating analysis highlights political risk, it is often treated as a tertiary consideration.

After the present crisis has ebbed, risk premia across the MENA region will likely rise dramatically as against the other FDI starved region within the MEAF region – sub-Saharan Africa. After the present crisis, portfolio managers and multinationals will likely be forced to re-allocate resources from the capital saturated MENA  into capital starved sub-Saharan Africa. New investments in oil and gas-rich North Africa and even the Middle East are expected to now attract a heavy premium, raising the possibility of a future deceleration in the growth of energy investments in the region. As a result, there could be a rise in future global energy prices following a fall in new MENA oil and gas reserves.

The largely unrecognised past 20 years of economic and political reforms in sub-Saharan Africa have seen many of the region's countries embrace multiparty democratic systems (which are at various levels of perfection) and economic liberalism. Most Africans living south of the Sahara Desert eagerly await their regular and colourful, if often contentious elections, rather than dream at night of a violent overthrow of their political systems.

In spite of the teething challenges, sub-Saharan Africa's not-so-perfect democracies have the safety valve of regular, relatively competitive elections, which the more brittle MENA monarchies and autocracies do not have.

The 20-year period of IMF-induced economic liberalisation may have considerably weakened the power of sub-Sahara African states - helping instead, to diffuse economic and political power to multiple actors. However, considerable gains have been made on both the political and economic fronts in the past two decades. Until the recent crises, most MENA countries were still frozen in 1970s style stale political autocratic politics, with many still hanging on to loss-making state-owned enterprises.

Even the Islamic African countries such as Mali, Nigeria and Sudan have largely instituted political systems that are more durable than those which exist in the MENA region. While some large sub-Saharan countries such as Ethiopia, or monarchies like Swaziland, or autocracies such as Equatorial Guinea, Djibouti and Gambia have yet to fully embrace economic or political pluralism, sub-Saharan African states are today more politically stable than most MENA economies.

Even politically fractious countries like Zimbabwe, Niger and Madagascar will be likely spared any wholesale national revolt as is currently happening in Libya. President Muammar al-Gaddafi's violent intransigence makes embattled Ivorian President Laurent Gbagbo and the quintessential western irritant, Zimbabwean President Robert Mugabe, look somewhat reasonable by comparison.

Meanwhile, US based DaMina Advisors forecast that, sub-Saharan Africa's more politically stable countries such as Mauritius, Mali, Benin, Kenya, Ghana, Botswana, Tanzania, Namibia, Mozambique and Zambia will all likely over the next few years see a surge in new MEAF capital markets investment funds and new long-term FDI.

The emerging market research firm also predicts that, ironically, South Africa may lag behind its Latin American and Asian peers in FDI because of its ongoing statist microeconomic tilt. It expects the local currencies of many sub-Saharan African countries to also continue to appreciate.

According to the firm, sub-Saharan Africa's largest local equity and fixed income markets, especially Nigeria's, may also begin to witness a reversal in fortunes as MEAF investors are forced by a new reality of higher political risk premia in the MENA region to increase their allocations to sub-Saharan Africa. However, it will help if this optimism is spiced with caution. There are 26 elections to be held on various levels – presidential and legislative across the continent this year. With Benin and Cape Verde already postponing their elections and presidential candidates like Gabon's André Mba Obamé contending election results over one year after the elections, one can only hope that sub-Saharan Africa can hold the politically stable mantle long enough to reap these potential inflows.