The Sahel's High Stakes: When Political Risk Outweighs Economic Reward

The investment landscape in the Sahel has been fundamentally reshaped by a convergence of political coups, resource nationalism and ongoing militant violence. This volatile environment presents a highly elevated risk for foreign capital and challenges the traditional calculus of foreign direct investment. The confluence of internal and external pressures has created a complex operational landscape, necessitating a re-evaluation of long-standing partnerships and economic agreements in the region.

A primary risk factor is the frequent and unpredictable change in government leadership, typified by recent military coups in both nations. These new regimes frequently re-evaluate pre-existing agreements and partnerships, driven by a commitment to national interests and resource sovereignty. This constant reassessment creates a volatile business environment, where multinational corporations face legal and operational uncertainty that can lead to significant financial and political disputes.

A direct consequence of these political shifts is the growth of resource nationalism. Following the coups, the new governments asserted increased state control over their natural resources, directly impacting the financial viability of foreign-owned enterprises. For instance, Niger's amended mining code now permits the state to acquire up to a 40% equity stake in mining companies, a substantial increase from the prior 15% ceiling. In a similar move, Burkina Faso's revised mining code allows for a 15% non-dilutable state stake and the option to acquire an additional 20% on commercial terms. These policy changes can significantly diminish returns for foreign investors and are a source of considerable legal and commercial friction. It's important to note these percentage figures are not static and can be adjusted as a result of ongoing political changes, economic pressures and/or individualized partnership agreements.

As a prime example, actions taken by Niger's government against the French nuclear company Orano represent a profound shift in the dynamics of resource control. In this instance, the Nigerien government seized control of the Somaïr uranium mine and declared its intent to appropriate the assets. This is not merely an isolated incident but an expression of growing resource nationalism, stemming from a deep-seated desire to reassert sovereignty over national wealth. While Orano condemned these acts as an "unlawful seizure" and initiated international arbitration to seek compensation, the situation underscores the profound geopolitical realignment underway.

Beyond the political and economic factors, both nations are facing significant and persistent security challenges. The continued presence of armed militant groups, such as those connected to Al-Qaeda and the Islamic State, has fostered widespread instability and violence. This has made business operations difficult, particularly in remote areas with valuable resources. While new governments have often cited security as a key justification for their takeovers, the security situation has remained a significant concern, necessitating substantial investments in private security by foreign firms, in some cases leading to the abandonment of projects.

The combination of these factors creates a highly challenging environment for investors. The changing legal and regulatory frameworks, coupled with increased state control over resources, undermines the ability to project long-term profitability. Furthermore, the political instability and fluid international alliances introduce a profound layer of uncertainty, while the persistent threat of militant violence makes on-the-ground operations both costly and dangerous. While Niger and Burkina Faso possess considerable natural resource potential, the current sociopolitical and security climate renders them a high-risk proposition for foreign investment.

If you're wondering about challenges facing regions of interest in your operating environment, Stylos Advisory is here to help. Geopolitical instability, shifts in policy and security risks can all impact your business, but with the right intelligence you can make informed decisions. To stay ahead of the curve, reach out via the contact page to be added to future Insight releases or to discuss how Stylos can assist your business interests.