Global investors are reviewing how they assess risks across different markets, and the disparities are becoming increasingly pronounced.

According to data from Professor Aswath Damodaran of New York University, analyzed by Visual Capitalist, equity risk premiums—the additional returns demanded by investors to compensate for country-specific risk—vary considerably, reflecting deep disparities in economic stability, governance, and geopolitical conditions.

The divergence is clear. While stable economies are around 4 to 5%, fragile or conflict-affected states can exceed 30%, highlighting how geopolitical instability, weak institutions, and economic difficulties influence investor sentiment.

Aswath Damodaran's methodology assesses the risk of investing in a country based on sovereign credit ratings from agencies like Moody's, which indicate the probability that a country will repay its debts.

He then converts these ratings into a "default risk spread," which is the additional return investors require to compensate for that risk. Since stock markets are generally more volatile than government bonds, he adjusts this risk measure to account for the greater volatility of the stock market compared to that of bonds.

Together, these steps provide a more realistic estimate of the overall risk to which investors are exposed in a country's market. They also offer a more accurate picture of country risk, particularly in emerging and frontier markets where volatility is often high.

Sudan tops not only the African ranking but also the global ranking. It is tied with Belarus, Lebanon, and Venezuela at 30.9%, reflecting the ongoing political crisis in the affected regions.

Countries like Somalia and Niger remain exposed to persistent insecurity and political instability, while Mozambique continues to struggle with the risks of insurgency in its gas-rich north.

Elsewhere, macroeconomic fragility plays a decisive role. Malawi and Ethiopia face monetary pressures and vulnerabilities related to their debt, while Gabon and Guinea have experienced political instability, marked in particular by coups d'état or contested transitions.

Liberia, which is still rebuilding after past crises, remains structurally vulnerable.

Overall contrast: where the risk is lowest

At the other end of the spectrum, advanced economies such as Canada, Germany, Switzerland, Singapore, Sweden and the Netherlands all have equity risk premiums of around 4.2%, making them some of the safest investment destinations in the world.

The United States is slightly above, at 4.5%, but remains firmly in the category of low-risk countries.

These markets benefit from strong institutions, stable governance, deep capital markets and predictable political environments – factors largely absent from higher-risk African economies.

For investors, this gap highlights a well-known reality: while Africa offers strong growth potential, it also demands significantly higher risk premiums, which influences capital flows and investment decisions across the continent.