Geopolitical risk: examining the incidence and impact of geopolitical risk uncertainty in Africa

Abstract

This thesis develops a locally grounded framework for measuring and analysing geopolitical risk (GPR) in African economies. It argues that geopolitical risk is context-specific and cannot be adequately captured by global indices alone, particularly in settings where domestic insecurity, political instability, local media narratives, and regional security dynamics shape economic expectations. Using domestic newspaper sources, locally relevant keywords, and supervised machine-learning validation, the thesis constructs new GPR indices and applies them to three empirical questions: whether local GPR predicts macroeconomic outcomes, whether multiple uncertainty sources explain emerging-market volatility, and how geopolitical risk is transmitted across African economies. Chapter Two shows that Nigeria’s Local Geopolitical Risk index contains predictive information that is largely missed by global benchmarks. Increases in local GPR are associated with naira depreciation, changes in investment dynamics, and weaker consumer spending, even after controlling for global oil- price movements. Chapter Three demonstrates that South African equity volatility is shaped by domestic geopolitical risk, global policy uncertainty, and macro-financial conditions within a GARCH–MIDAS framework, confirming that emerging-market volatility reflects multiple uncertainty channels operating at different frequencies. Chapter Four extends the analysis regionally by constructing comparable local GPR indices for eight African economies and estimating spillovers using Diebold–Yilmaz and Baruník–Krˇehlíkconnectednessmethods. Theresultsrevealsubstantial,asymmetric,andhorizon- dependent regional spillovers. Gravity-model evidence further shows that formal trade linkages are not the dominant transmission mechanism once endogeneity is addressed. Instead, spillovers are strongly shaped by Sahel–Lake Chad security exposure and by recipient-country absorptive capacity. Overall, the thesis contributes to geopolitical-risk measurement, African macro-finance, and regional- risk analysis. It shows that locally measured geopolitical uncertainty affects exchange rates, capital flows, consumption, volatility, and regional spillovers. The findings support the use of local GPR indices in macroeconomic surveillance, reserve management, fiscal-risk assessment, stress testing, and AfCFTA- related regional early-warning systems.