McGill U. - Desautels Faculty of Management, Canada
Systemic underinvestment in Africa is often attributed to a deficient institutional environment ostensibly due to the political risk caused by corrupt governments, crime, and civil wars. However, leading intergovernmental organizations have recently noted that these perceptions of the political risk in Africa are increasingly misaligned with the brighter macroeconomic reality of the continent. In this paper, we build theory on the “risk perception premium” that is hindering investment and economic development in Africa. Drawing on rhetorical history, we link nostalgic and dystoric narratives about Africa to perceptions of institutional quality and postalgic and dystopian narratives to perceptions of institutional change. These factors influence how opportunities to invest in Africa are evaluated (in terms of feasibility and possibility) and ultimately actual investment on the continent. Our theory of socially constructed political risk builds a subjectivist counter perspective to the dominant rationalist approach to foreign investment decisions and offers important insight into the pernicious challenge of underinvestment in African economic development.
