Africa’s Risk Premium: A Costly Myth Holding Back a Continent

To their cost, many global investors are getting Africa wrong.

This was the stark message delivered by African leaders and business executives at the World Governments Summit in Dubai this week, where they challenged persistent misconceptions about investment risk on the continent.

“Africa’s risk is not different from any part of the world,” declared Dr Akinwumi Adesina, President and Chair of the Boards of Directors of the African Development Bank Group. Speaking at a panel titled “The New Economic Revolution: An African Perspective” on February 11, 2025, he cited striking data that turns conventional wisdom on its head.

“We actually asked Moody’s Analytics to look at the risk profile of Africa, of investments and infrastructure over the last 14 years. Guess what they found? The rate of loss in Africa is 1.7%. That in Latin America was about 13%. The one in Eastern Europe was more about 10%.”

These statistics paint a picture starkly different from the risk premiums typically demanded for African investments. The continent’s actual performance suggests it might be one of the world’s safest investment destinations—a reality masked by persistent negative stereotypes.

Tony Elumelu, founder of the Tony Elumelu Foundation and chairman of multiple African businesses, spoke from direct experience: “There’s nowhere else we get the kind of returns on investments as what we make in Africa.” Elumelu, whose portfolio spans power, oil and gas, financial services, and healthcare across four continents, including investments in the Gulf states.

He emphasized that success lies in seeing opportunity where others see risk.

“You may decide to see risks or challenges, or you may see opportunities,” Elumelu explained. “But ability to identify opportunities and structure your approach in a way that addresses and mitigates those risks confers extra competitive advantage on you and your business.”

To bridge this perception gap, the African Development Bank Group announced plans to establish a new Africa Investment Guarantee Agency. The institution will offer comprehensive coverage against climate, equity, political, and currency risks—addressing key concerns that have historically deterred international investors.

The timing could not be more critical. Africa stands at the nexus of several global transitions: demographic, energy, and agricultural. With 75% of its population under 35 years old, including 600 million people between ages 15 and 35, the continent is positioned to become the world’s workforce. Its vast mineral resources—including critical materials for electric vehicles and renewable energy—make it indispensable to the global energy transition.

“Whether it is lithium-ion batteries, whether it is electric vehicles, whether it’s platinum, whether it’s copper, whether it’s graphite, whether it’s any of this lithium-ion, all is in Africa,” Adesina noted. “So what Africa actually does with its resources will shape the future of the world.”

The narrative of a “resource curse” that has long haunted Africa’s development story also came under scrutiny at the summit. Sierra Leone’s Chief Minister David Moinina Sengeh rejected this framing entirely, introducing instead the concept of “conscientious concessions”.

These, he explained, are deals that benefit investors, governments, and local communities alike.

“It’s so easy to speak about concessions from any one of these countries or from private sector that is 100 years, lots of waivers, employees coming from abroad, everything gets shipped out. That’s not consensual. You’re talking about bad deals, by the way, which turned things into a curse, and I think that’s what people talk about,” Sengeh explained. He pointed to recent developments in Sierra Leone’s rutile mining sector, where domestic ownership is changing the dynamics of resource management.

“If we think about not just pennies, but the people and the planet, then the deals and the agreements we sign, with our conscience, will work for the people, will bring economic value for everyone, for the investor, for the government, and the people who are there,” Sengeh added.

The African Development Bank Group is actively working to facilitate such balanced agreements. “We have the African Legal Support Facility at the African Development Bank to help Sierra Leone and DRC, several other countries, to be able to structure deals that are in their own interest,” Adesina explained.

The Africa Investment Forum Market Days held in Morocco in December 2024 demonstrated strong investor appetite when barriers are removed, securing $29.4 billion in investment interest within just 72 hours! This contributed to over $225 billion in investment interests mobilized since the Africa Investment Forum’s inception in 2018. This success is part of a broader push to industrialize the continent and move beyond raw commodity exports.

“The export of raw commodities of any kind is a door to poverty,” Adesina emphasized. “But the export of industrial value-added manufacturing to allow Africa’s share of global manufacturing to rise and to move up in global value chains, that is the highway to prosperity.”

Major initiatives are already underway to build this infrastructure. The African Development Bank Group is investing $3 billion in special agro-industrial processing zones, while “Mission 300,” a partnership with the World Bank, aims to provide electricity access to 300 million Africans. These projects represent significant opportunities for private investment in power generation, transmission, and distribution.

The African Continental Free Trade Area, with its $3.4 trillion market potential and population of nearly 1.5 billion people, adds another layer of opportunity. “Africa is not going to beg its way into development,” Adesina insisted. “Africa is going to trade and invest its way into development.”

Looking ahead, African leaders are clear about who will drive this transformation. As Sierra Leone’s Chief Minister Sengeh put it: “Who’s going to dominate in Africa? Africans are going to dominate in Africa.” He called for “progressive, social, democratic radicalism” to ensure development benefits all Africans.

For global investors, the message from Dubai was clear: the risk is not in investing in Africa, but in missing out on its opportunities. As Elumelu concluded: “The time is now.”

Source: Norvanreports