Sovereignty and subversion: Africa's risk perception reviewed

Reality is malleable. Feelings trumping facts is a very human instinct, one that can have outsized consequences when it achieves critical mass. Feelings that are organised into narratives are virtually unstoppable.Take Africa, for example. It is now well documented that this massive, diverse continent is consistently subjected to an exaggerated risk premium in global financial markets. A general sense of riskiness; distilled into a reductive but compelling story about fragility, instability, and corruption; funnelled through global regulators, financial institutions, creditors, and investors has forced a continent to pay far more for capital than it should. African leaders respond This is an obviously simplified tale in and of itself. And it matters, of course, because the story isn’t new. What is new is how African leaders across political, economic, and financial ecosystems are responding. Specifically, they are spearheading two derisking initiatives in tandem: one proving creditworthiness to the system and one reducing exposure to it. The first initiative, therefore, is in direct response to the risk narrative surrounding the continent and is concentrated at the project level: demonstrating that individual investments are creditworthy by being bankable in their own right and through credit enhancements, like local guarantees and insurance. The second initiative is systemic: neutralising the influence of external judgements by pursuing greater economic sovereignty, through intra-African trade, domestic capital mobilisation, and payment infrastructure. This undertaking is, in parts, both wonderfully subversive and deliberately understated. If successful, the second initiative will simultaneously function as a diplomatic and economic posture. In doing so, it will result in a real rebalancing of power, one where stories generated elsewhere will not be enough to impact the structural realities of an entire continent. Economic sovereignty, diplomatic maneuverability Immunising Africa against global misperceptions is not a politically neutral endeavour. If anything, African leaders are having to navigate a delicate balance between building economic sovereignty without courting geopolitical retaliation. Therein lies the real challenge of the Second Initiative: de-risking from rather than for the global financial system and its unfounded perceptions of risk. Although market integration, payment infrastructure, and capital mobilisation function as parts of a whole in Africa’s pursuit of deeper economic sovereignty, the level of diplomatic finessing required across each lever is not evenly distributed. This variability can provide African leaders with much-needed maneuverability in a politically charged environment. The room to maneuver is most apparent in the domain of intra-African trade. Greater market integration in Africa poses no overt challenge to the international order, but it is the undisputed lynchpin for the continent’s economic sovereignty, anchoring both domestic payment infrastructure and the domestic capital that it is intended to channel. Intra-African trade is projected to grow 6.6% annually 2025–2028, adding $261.4bn to continental GDP by 2028. This is where African public and private sectors have the greatest latitude to move freely in terms of building sovereignty without inciting confrontation. Payment sovereignty lies at the opposite end of the spectrum. De-dollarisation in and of itself constitutes a major geopolitical flashpoint, one that has invited very real repercussions – from tariffs to sanctions. Meanwhile, the Pan-African Payments and Settlement System (PAPSS) is essential to realising the potential of the African Continental Free Trade Area (AfCFTA), because it allows cross-border transactions across Africa to be conducted in local currencies. Within this geopolitically fraught context, Mike Ogbalu, the CEO of PAPSS, demonstrated great savoir-faire when he declared: “Our goal is not de-dollarisation…African economies struggle with access to global currencies for settlements. This system reduces our dependency and cuts costs significantly.” This is a small reframing, but one that provides crucial geopolitical cover. Finally, situated somewhere in the middle of this spectrum is domestic capital mobilisation, arguments for which have to be weighed against alienating foreign investors, but only up to a point. The African Union’s (AU) deputy chairperson, Selma Malika Haddadi, explicitly called for Africa to finance its future with homegrown solutions, since “for too long, external creditors imposed conditions that did not serve us, so Africa is charting a different path.” Institutionally, this has been distilled into NAFAD (New African Financial Architecture for Development), an 11-point framework geared towards mobilising domestic savings, deepening capital markets, and reducing investment risk via guarantee and risk-sharing mechanisms. Africa Finance Corporation’s (AFC) CEO, Samaila Zubairu, has drawn attention to the $4.4 trillion in investable domestic capital, spread across pension/insurance assets, banks, and foreign reserves. Though a lot remains to be done to actually mobilise this capital, this is perhaps the best example of where Africa’s efforts to overturn risk perceptions should really be concentrated: its own domestic capital allocators. Whose risk, whose perception? Africa has, to some extent, internalised global risk perception. Even though Africa accounted for 40% of global blended-finance transaction volume in 2024, the actual capital involved was only $6-15bn, a relatively minor proportion. Moreover, a G-20 commissioned study of blended finance deals over the past decade revealed that Sub-Saharan Africa attracted more deals than any other region, but still possessed a lower private-capital mobilisation ratio than Latin America, illustrating that a deal’s structure alone cannot galvanise commercial capital. In addition to private capital, the African Development Bank estimates that over 80% of the continent’s $2.1 trillion in institutional assets under management sits in treasuries rather than productive investment. For example, Ghana’s pension fund permits up to 25% in alternative assets, but actual allocation is just 0.58%. African development finance institutions (DFIs) are trying to bridge the gap alongside complementary organisations. A case in point: InfraCredit, a Nigerian local-currency guarantee institution founded by the Nigerian Sovereign Investment Authority (NSIA) in collaboration with GuarantCo (part of the Private Infrastructure Development Group), with subsequent investment from AFC, KfW (the German Development Bank) and AfDB. While it was incepted with around $25m at its 2017 founding, InfraCredit has since guaranteed the equivalent of over $516m (₦492bn) in debt across 27 infrastructure projects, crowding in capital from over twenty domestic pension funds and insurers, who would not otherwise have financed these projects directly. DFIs should function as catalytic funders, de-risking rather than taking the place of commercial capital. The more African commercial banks, insurers, and pension funds complement the work of DFIs and export credit agencies – rather than leaving them to do the heavy lifting – the more mutually reinforcing the first and second Initiatives will become, both economically and politically. Deeper domestic capital markets will strengthen payment infrastructure; a more liquid PAPSS will in turn make intra-African trade cheaper to finance; and a continent that is trading and investing within itself will be far less vulnerable to the consequences of external (mis)perceptions, including internalising these perceptions as its own.