How democracy benefits Africa’s debt
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How democracy benefits Africa’s debt

In Africa, the more democratic a country is, the higher its Euromoney Country Risk score, but as the continent’s ECR grade stalls, African countries are diverging – politically and economically.


Africa has experienced an economic and political transformation from basket case to breadbasket over the last 30 years. It is home to some of the world’s fastest-growing countries, including Ethiopia, Rwanda and Kenya – a sign that Africa’s non-oil producing countries are also flourishing.

Meanwhile, free and fair elections in Ghana, Nigeria and Benin and the fall of Africa’s strongmen in South Africa, Angola, Gambia and Zimbabwe hint towards a transition to stronger democratic institutions.

But a nagging question remains: does democracy foster economic development and boost investor sentiment in Africa as it has done elsewhere in the world? A comparison of Euromoney Country Risk (ECR) data and the Economist Intelligence Unit’s (EIU) Democracy Index over the last eight years – the time period for which we have comparable data – suggests that it does.

A scatter diagram, offering a snapshot of democracy and country risk in 2018, shows that there is a distinct correlation between the two. There is some double counting here – Euromoney’s country risk score takes in to account political risk as part of its methodology – but nevertheless the pattern is clear.

“Contrary to what some authoritarian leaders would have you believe, democracies tend to be better governed and grow faster; and good-quality democracies are more stable,” says Nic Cheeseman, professor of democracy and international development at the University of Birmingham.

“As a result, democracies also tend to feature lower levels of risk – even though closely contested elections can sometimes lead to controversy and unrest,” he says.

The trend in Africa reflects one that is visible globally. According to a report published by the Massachusetts Institute of Technology (MIT) in March this year, countries that have switched to democratic rule experience a 20% increase in GDP over a 25-year period, compared with a projection had they remained authoritarian states.

But what about Africa’s recent past? Since 2010, Africa has become increasingly embedded in the global financial landscape. One after another, African sovereigns have made their debuts in the international debt capital markets and investor appetite has soared, spurring an ‘Africa rising’ narrative.


At the same time, the continent’s democracy and country risk scores have stalled.

The ‘Africa rising’ rhetoric – this has always been oversold,” says David Cowan, Africa economist at Citi. “But there are ways to think about or justify this; in particular the overselling was a response to the previous underselling of Africa.

“However, as with most things, the pendulum swung from too much pessimism to over optimism. The question is where to next? I still think things are going forward. But as with most things, development does not move in straight-line trajectories,” he says.

Phumelele Mbiyo, head of Africa research at Standard Bank, says: “Arguably, in the 1990s and the 2000s there were greater advances in economic development and democracy. But over the last decade, African countries have diverged – so it is much more important to pay attention to these idiosyncrasies when we assess things like the relationships between democracy and investor sentiment. Democracy alone cannot be a sign of how safe your investments are.”



Specific political events and global economic issues impact country risk across Africa – sometimes overriding democratic gains made in any individual country. Nigeria and Rwanda provide valuable case studies.

On April 1, 2015, the incumbent, Goodluck Jonathan, lost a hotly-contested Nigerian presidential election to Muhammadu Buhari, but there was no sign of the usual post-election violence that many feared.

President Jonathan took the news well, calling on his successor to congratulate him. Buhari’s supporters took to the streets in celebration. It was the first time an opposition candidate had won a presidential election in Nigeria, heralding a new beginning for Africa’s largest economy.

On the back of the election, Nigeria’s EIU democracy score crept up from 3.7 to 4.6.


According to the index, Nigeria had transitioned from an authoritarian regime to a hybrid regime – a regime where elections still suffer from some irregularities, where there is pressure on opposition parties and candidates, corruption tends to be widespread and the rule of law is weak. Nevertheless, Nigeria had made it one step closer to full democracy.

At the same time, however, Nigeria’s ECR score fell. In 2014, the country’s score was 40.3, falling to 39.5 in 2015 and 38.3 in 2016. Only in 2018 did its country risk score start to rise again, but it has yet to return to the numbers seen before the 2015 election.

Weren’t investors buoyed by Nigeria’s move towards democracy?

“For investors, the main concern is country risk,” says Cowan. “This goes beyond politics, such as a change in economic policy, issues about the tax policies of governments, and particularly the worry of a currency devaluation – and currency availability problems more widely,” he says.

In 2015, Nigeria was grappling with the global decline in commodity prices. Highly reliant on oil – it accounts for 85% of all Nigeria’s exports, despite attempts to diversify the economy – the country’s success is much more aligned with fluctuations in commodity prices than developments in democracy. As a result, the naira fell, forcing central bank governor Godwin Emefiele to restrict imports to shore up the currency.

“For Nigeria, economic developments appear to impact country risk much more than democracy,” says Mbiyo. “In Nigeria, the democratic dividend was a one-time thing. If you are operating in the country, the biggest risk is economic change, not political development.”


In Rwanda, as it recovered from the devastation and destruction of the genocide in 1994, the country and its authoritarian leader, Paul Kagame, one of Africa’s longest serving presidents, suffered a blow in 2012 when developed economies cut donor funding.

Allegations had spread that Rwanda was supporting armed groups in neighbouring eastern Congo, including the M23 – fighters, mainly from the Tutsi ethnic group, accused of committing widespread atrocities across the region.

Yet in the same period, Rwanda’s ECR score saw one of its biggest positive changes, from 18.4 to 32, while the country’s democracy score increased slightly from 3.2 to 3.4.


Between 2010 and 2018, Rwanda was classified as an authoritarian regime by the EIU’s Democracy Index, always scoring less than four points.

“Perhaps there was a delayed response to these issues,” says Mbiyo at Standard Bank. “We can see there is a slight fall in Rwanda’s country risk score in 2014, but perhaps the strength of Rwanda’s authoritarian regime is a safe bet for investors.

Stuart Culverhouse, chief economist and global head of research at investment bank Tellimer, says: “Democracy might be seen as important, but the quirk to me – and what the data probably cannot explain – is that you can still get positive reforms and strong policy implementation even in countries which lack democracy.”

In 2010, doing business in Rwanda became markedly easier. A number of reforms removed much of the red tape associated with opening a business in the country, attracting international investment and spurring entrepreneurship in the country.

As a result, in 2010 Rwanda ranked 67th in the World Bank ‘Doing Business Report’, up from 143rd a year earlier. It was the most-improved country that year and may explain the rise in its ECR score.

“Most investors view the move towards greater democracy as a potentially positive step in the medium to long term but are able to live with the current mismatch of quasi-democracies which exist in Africa,” says Cowan. “This can create certain political risk events from time to time, but this is par for the course for investors in developing countries. Moreover, these tend to be one-off incidents with a certain, often limited, time period.”

But as Culverhouse warns: “An autocrat can force adjustments that sometimes a democratic government can struggle with. Over the longer term, however, lack of democracy might not be sustainable.”


EIU Democracy Index methodology

The Economist Intelligence Unit’s Democracy Index is based on ratings for 60 indicators, grouped into five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. 

Each category has a rating on a zero to 10 scale and the overall index is an average of the five category indexes. Full democracies score higher than eight points, flawed democracies are between six and eight, hybrid regimes and between four and six, and authoritarian regimes are scored four or lower. 

In some instances the EIU Democracy Index scores have been increased by a factor of 10 to make the scores comparable to Euromoney Country Risk scores.

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