Why African Coups, Geopolitics Are Becoming Headline Risks

The resource-rich continent is becoming an increasingly crucial node in the geopolitical power grid, opening up new risks to investors and policymakers.

The Breakdown

African geopolitics may become a more recurrent and important thematic risk to monitor.

Following the coup in Niger, General Brice Nguema in Gabon deposed then-president Ali Bongo who is now under house arrest. However, more intelligence has revealed that the coup may be the orchestration of the Bongo family itself.

According to the BBC, Nguema “spent most his career in the Bongo's inner circle and is even thought to be Ali Bongo's cousin”. There is additional concern that it may be nothing more than a re-branding: same system, different name.

But the larger story is not about one coup. Rather, it is about how many of these seem to be popping up at a time of precarious geopolitical relations between competing powers amid a major reshuffling of supply chains for technology and energy.

The Trend

Africa has the highest number of coups worldwide with the highest success rate overall. Furthermore, while the number of head-of-state-deposing attempts have declined, the success-to-failure ratio has increased.

Source: VOA

In other words: there are fewer overall coup attempts but their success rate is higher. This is because political globalization has lowered the international community’s collective threshold for tolerance of coups and illegitimate forms of rule.

Conspiring individuals may therefore wait until the socioeconomic/political conditions are sufficiently deteriorated enough to maximize local support for a forceful change of leadership and are in a position to withstand economic blowback.

As Megan Duzor and Brian Williamson of VOA correctly point out: “Across much of West and Central Africa, younger citizens have become widely disenchanted with the traditional political class, even with those who have been legitimately elected to office”.

Furthermore, resentment of the legacy of French colonialism is being leveraged as a lightning rod to unite underlying historical grievances among the populace. According to AP, “Macron’s predecessors, including François Hollande, Nicolas Sarkozy, Jacques Chirac and François Mitterrand, had all launched new French military operations on the African continent. [However,] Macron did not”.

The Sahel region, which includes Burkina Faso, Mali, Chad and Sudan, are fertile with many of the common denominators which lead to coups. These include corruption, limited economic opportunities, and ineffective responses to terrorist threats.

According to the Fragile States Index, 15/20 of the most geopolitically-precarious states are in Africa. The past three years have seen seven coups in five countries, and the general election in the Congo in December may elevate regional risks.

DRC President Felix Tshisekedi may exploit the instability in the eastern provinces of North Kivu, South Kivu, and Ituri as an excuse for delaying the election. There is a risk many Congolese may see this as a push to stay in power for longer, potentially elevating social unrest.

What are the Current Risks?

The concern more recently is the situation in Niger and the Economic Community of West African States’ (ECOWAS) somewhat lackluster response has emboldened domestic power-seekers. Nigeria - who heads the group - and its allies have imposed sanctions and restricted border crossing into Niger as punitive measures.

They have not ruled out military intervention as a last resort. Both Mali and Burkina Faso said military intervention in Niger would be tantamount to war with them too. They were granted permission to station troops in Niger’s borders in late August.

Nigerian President Bola Tinubu proposed a nine-month transition back to democracy for Niger's new regime, not like what Nigeria itself had done in the 1990s. However, Niger's military have dug their heels in, and instead suggested a three-year transition period to “restore constitutional order”.

The risk of an open conflict is it might irritate the same underlying forces that prompted these coups in the first place. Domestic terrorists may then take advantage of the instability to further their own agenda and recruit more to their ranks.

But what are the broader, macro-level concerns of how African geopolitics may impact markets and Great Power Competition dynamics?

“Greenflation” and the Energy Transition

Geopolitically-induced disruptions could accentuate what economists are expecting to be a demand-driven surge in commodity prices amid a shift to net-zero emissions. This has been dubbed “greenflation”.

Niger is a major exporter of uranium, and Gabon is the world’s fourth-largest producer of manganese. It also produces about 200,000 bpd of crude oil, making it the second-smallest OPEC producer. Oil markets therefore did little more than shrug. In comparison, Saudi produces 12.4 million bpd.

The key takeaway, is the push for green energy and demand for crucial resources is and will continue to elevate Africa’s geopolitical relevance.

The continent alone boasts 30% of the world’s mineral reserves, and demand for rare earth metals alone is expected to reach 315,000 tons by 2030, more than double the volume in 2021. The Congo is home to ~70% of the world’s cobalt, a necessary input for the production of lithium-ion batteries. Derailing consistent production could cause a ripple effect across not just Africa, but G10 economies that rely on these strategic resources to support their own energy transitions.

Gabon’s coup also had a major impact across asset classes. Shares of European mining and oil firms with exposure to Gabon plunged in some cases between 16%-20%, and Gabon’s sovereign eurobonds suffered their biggest daily loss since the COVID-19 pandemic.

If sanctions or other punitive economic measures are imposed on Gabon, it could accentuate their financial troubles by restricting access to global funding markets. As a result, it may embolden local leaders to nationalize foreign companies on the basis of national security.

Chessboard for China and the US

China’s investments in Africa are well-documented. Because of their key position along the global commodity supply chain, Beijing holds significant economically-linked political leverage. Their arrangement with Africa is a resources-for-infrastructure arrangement, but locals are not all too happy.

Working conditions are below sub-standard, with wages in some areas averaging as little as $1/day with limited facilities in cobalt-rich towns. Furthermore, Beijing continues to hold dominance in the cobalt supply chain and is working with China-leaning candidates in the upcoming election.

On the other hand, the US is also supporting domestic politicians who lean more pro-Washington as an anchor for securing cobalt reserves. Foreign policy strategists are also trying to elbow out Beijing with complementary efforts such as the Anything But China (ABC) strategy for securing strategic minerals and metals.

According to the US Agency for International Development, China is Africa's largest trading partner, with about $250 billion in trade in 2021. By comparison, U.S.-Africa trade in 2021 was about $64 billion.

See a more detailed analysis of Africa’s geopolitical/macroeconomic prospects here.

China is also using its economic relationship as a pretext to set up additional military bases to protect their financial interests. While this may be true, Chinese foreign investments are never without geostrategic intent.

China’s Belt and Road Initiative further supports this notion: over 90% of countries in Africa have signed MoUs with Beijing. Looking ahead, strategically-placed countries like Djibouti - which have both US and Chinese military bases along with three others - will increasingly hog the spotlight in modern geopolitical affairs.