African investment risk starts with the transaction
An investment committee needs to know where an exposure sits, how it reaches the investor and what can change it. A broad view of a country is only the beginning of that work.
Separate the sources of uncertainty
My starting point is to distinguish risks that are often folded into a single country premium. Sovereign conditions affect the operating environment. Currency movements affect the relationship between revenues, costs and obligations. Liquidity determines whether an investor can exit or meet a cash requirement. Governance and enforcement shape what happens when the original plan fails. Each deserves its own analysis.
Follow the cash flows
Consider a hypothetical business earning local currency while servicing foreign-currency debt. The central issue may be its ability to absorb a currency mismatch. A second business in the same country might receive export revenues in the debt currency, but depend on one buyer. The two investments share a location; their cash-flow vulnerabilities differ. That difference should be visible in the assessment before either opportunity reaches an investment committee.
Examine the structure
I use six layers as a working framework: sovereign, market, institutional, enterprise, transaction and execution risk. At each layer, the useful questions are specific. Who holds the obligation? Who controls the cash? What evidence supports the valuation? What happens if a key counterparty fails? Which protections can actually be enforced? A contractual promise has limited value if the investor cannot use it when needed.
Give uncertainty an owner
Where evidence is missing, the committee should record the gap, the decision it affects and who will resolve it. Some uncertainty can be reduced through diligence, stronger reporting or a different transaction structure. Some must remain in the pricing or result in a decision to decline. Decomposing risk does not imply that an investment is attractive. It makes the decision more accountable.
Test what could change the decision
A useful investment paper explains which assumptions matter most and the thresholds at which the recommendation changes. That includes downside cash flows, refinancing dependence, exit conditions and the investor’s own liquidity needs. The same discipline should continue after investment, with monitoring linked to the assumptions on which approval depended.
The question behind the book
This is the question I am developing in The African Risk Premium: how much of the price assigned to an African opportunity reflects an identifiable exposure, and how much reflects information that has not been obtained or understood? The answer will vary by transaction. That variation is precisely why the question deserves attention.