Mutisunge Zulu 

Chief Risk Officer | Global Executive PhD Cand. Business Mgt, AI & Strategy at ESCP Business School | Global Executive MBA (Manchester) | Advanced Management Program (Harvard) | 

December 11, 2025

Why Risk Premia Are Repricing Capacity, Not Headlines

Markets have long priced political noise in Africa, but 2025 is forcing something deeper: a real-time audit of institutional strength under stress. As someone who has tracked emerging-market risk through the Arab Spring’s NDF spread blowouts, Mozambique’s EMATUM default shock, Kenya’s shilling volatility during Al-Shabaab turbulence, and Nigeria’s crude market jitters when militants bombed pipelines – I have learned one immutable truth: political posture can ignite volatility, but it is institutional capacity that determines whether that volatility becomes a crisis. And this year, Africa’s markets are repricing exactly that.

1. Market Risk: Volatility Is Up – But Pricing Discipline Is Even Higher

Elections across Tanzania, Malawi, Côte d’Ivoire and others have triggered classic event-risk: wider FX bid-ask spreads, curve steepening, and selective Eurobond repricing. Add to that the M23 flare-up in eastern DRC, Cabo Delgado’s insurgency, and multiple Sahel transitions, and 2025 looks like a geopolitical minefield.

Yet markets have responded with notable precision:

• FX spreads widen, then normalize as clarity returns.
• Local curves steepen, reflecting a polling-cycle premium.
• Eurobond spreads bifurcate – strong credits hold, weak credits widen.
• Equities reprice earnings risk, not existential risk.

This is event volatility, not structural rejection. Wall Street is not stepping back from Africa; it is simply pricing Africa more efficiently.

2. Credit Risk: Execution, Not Excuses, Now Drives Spread Behavior

The year 2025 has exposed the widening gap between narrative and execution. Security shocks do not create credit fragility, they expose it.

Examples across markets show the same pattern:

• DRC: M23 tensions widen spreads faster where fiscal space is already thin.
• Mozambique: LNG timeline uncertainty becomes a credit issue, not a political one.
• Sahel states: Governance deterioration lifts country-risk premia even with small capital markets.

Credit markets are not punishing instability; they are punishing weak buffers, shallow liquidity, and slow reforms.

Meanwhile, sovereigns with disciplined fiscal anchors, credible monetary policy, coherent FX regimes and strong IMF engagement are outperforming despite regional turbulence. Credit differentiation has never been sharper, and it is fully earned.

3. FX & Liquidity: Elections Do not Break FX Regimes – Weak Architecture Does

Africa’s 2025 FX stress test reveals a simple truth: Strong FX frameworks absorb shocks. Weak frameworks internalize them.

Where regimes are transparent, flexible, and backed by reserves, volatility remains contained. Where they rely on opaque controls, quasi-pegs, or shallow liquidity pools, election cycles and security events immediately expose fragility.

The market’s verdict: FX credibility is a structural differentiator, not a political one.

4. Operational & Resilience Risk: The Silent Driver of Cost of Capital

Security disruptions across Africa are shifting from geopolitical concerns to hard financial variables in corporate risk models:

• M23 conflict threatens mining continuity and logistics in the DRC.
• Cabo Delgado insurgency: influences LNG project financing, insurance premia, and capex timelines.
• Sahel instability: reshapes freight, aviation, and extractives risk modeling.

Operational resilience is no longer a footnote; it is a pricing discipline.

5. Sovereign Resilience: Institutional Strength Is the Only Real Hedge

The 2025 has confirmed what seasoned risk managers already know: Institutions, not elections, determine spread behavior.

Countries with credible policy regimes – predictable fiscal frameworks, strong central banks, transparent FX architecture – continue to outperform.

Those with weak signaling, eroding reserves, and opaque systems are seeing spreads widen persistently, even without major events.

Markets aren’t pricing coups or elections. They are pricing the ability to withstand coups and elections.

6. What Markets Are Really Signaling

Drawing on two decades of risk management and episodes like the Arab Spring FX blowouts, Mozambique’s EMATUM shock, Kenya’s shilling volatility, and Nigeria’s insurgency-induced crude disruptions, five structural signals are clear:

1. Volatility is episodic; resilience is structural.
2. Credit markets have matured – spreads now punish weak execution, not weak headlines.
3. FX architecture is destiny in emerging markets.
4. Operational continuity is a growing pricing factor.
5. Africa’s risk premium is shifting from political noise to capacity risk.

The critical investor question is no longer what happened? It is how well can you absorb what happened?

Zambia: A Case Study in How Political Cycles Shape the Yield Curve

Zambia – currently the multilaterals’ darling – is one year from elections, and investors are already sharpening hedges around pre-poll fiscal spend. Fitch’s upgrade to ‘B-‘ and S&P’s upgrade to ‘CCC+’ acknowledged macro improvements but also signaled an election-year caution premium.

Historically, the 5-year point on the Kwacha curve was the market’s “sweet spot,” tightly aligned with election cycles. It was the tenor where uncertainty peaked, and risk premia were richest.

But 2025 has introduced a structural shift:

• copper is trading at LME record levels,
• macro fundamentals are improving,
• and Zambia’s rating trajectory is upward.

Result? The sweet spot is migrating to the 10-year, effectively a two-election-cycle horizon. This signals deeper investor conviction and a more accurate repricing of sovereign capacity.

The broader takeaway: Political risk ‘masquerading in fiscal policy’ is the pencil that shapes the money demand curve – but institutional credibility determines how sharp that pencil is. Layer in pensions and state retirement funds, and Zambia’s curve is evolving into a more structurally anchored market.

Africa Is Not in Crisis – It Is in Repricing Mode

2025 isn’t exposing Africa’s political fragility; it is revealing Africa’s institutional hierarchy. Markets are rewarding capacity, credibility, and resilience, the real drivers of modern risk premia.

For investors, this is not a warning. It is an opportunity – for those who know how to price risk, not headlines.