Geopolitical Risk and State Sovereignty in Southern Africa: Navigating Post-Conflict Political Settlements for Investors

In the intricate dance of global capital, few regions exemplify the tension between geopolitical risk and state sovereignty as vividly as Southern Africa. The recent Lungu burial dispute in Zambia—a seemingly symbolic clash over the repatriation of former President Edgar Lungu's remains—has crystallized broader political tensions between the ruling United Party for National Development (UPND) and the opposition Patriotic Front (PF). This case underscores how post-conflict political settlements shape asset allocation decisions, particularly in equities, sovereign debt, and infrastructure projects. For investors, understanding these dynamics is critical to navigating the region's evolving risk landscape.

The Lungu Dispute: A Microcosm of Political Fractures

The legal and cultural battle over Lungu's burial has transcended its immediate context to become a proxy for deeper political divisions. The Zambian government's insistence on repatriating Lungu's body for a state funeral, despite family objections, reflects a strategic assertion of state sovereignty over individual autonomy. This move, celebrated by UPND supporters as a symbolic victory, has been met with accusations of political weaponization by the PF. The phrase “It's coming home,” co-opted from English football culture, now carries dual meanings: a nationalistic rallying cry and a reminder of unresolved grievances between political factions.

The dispute's implications extend beyond symbolism. It highlights the fragility of post-conflict political settlements in Zambia, where trust between ruling and opposition parties remains tenuous. For investors, such tensions signal elevated political risk, which can disrupt policy continuity and deter long-term capital flows. The Zambian case mirrors broader trends in Southern Africa, where post-conflict transitions often leave institutional weaknesses that amplify the impact of political disputes on economic stability.

Sovereign Debt and the Shadow of Default

Zambia's sovereign debt crisis, exacerbated by its 2020 default—the first in Africa during the pandemic—has been a focal point for investors. The country's debt-to-GDP ratio, now among the highest globally, has been downgraded to speculative-grade by major rating agencies. While the Hichilema administration's engagement with the IMF and the G20 Common Framework offers hope for debt relief, the Lungu dispute and ongoing legal battles with the PF underscore the risks of political fragmentation.

South Africa, by contrast, has maintained a more stable macroeconomic environment despite its own challenges. Its speculative-grade ratings (B+ to B) reflect a stronger fiscal capacity and diversified economy, though its debt burden and policy uncertainty remain concerns. For investors, the contrast between Zambia's fragile political settlements and South Africa's institutional resilience highlights the importance of sovereign creditworthiness in asset allocation. Sovereign debt in Zambia remains a high-risk, high-reward proposition, while South Africa's market offers a more predictable, albeit still volatile, alternative.

Equities and the Mining Sector's Resilience

Zambia's equities market, dominated by the mining sector, has shown resilience amid political turbulence. The Hichilema administration's reforms, including tax incentives for miners, have attracted renewed interest in copper and cobalt producers. However, the Lungu dispute and broader political tensions create a dual-edged sword: while reforms boost short-term investor confidence, unresolved political conflicts could disrupt supply chains or trigger policy reversals.

South Africa's equities market, though larger and more diversified, faces its own challenges. State-owned enterprises like Eskom and Sasol remain under pressure from policy uncertainty and load-shedding. Investors here must weigh the potential of infrastructure-linked projects against the risks of governance failures and regulatory overreach.

Infrastructure Projects: A Test of Political Will

Infrastructure development in both countries hinges on the durability of post-conflict political settlements. Zambia's government has prioritized road and energy projects, supported by IMF and World Bank funding, but progress is contingent on maintaining political unity. The Lungu dispute, with its cultural and political undertones, risks diverting resources from critical infrastructure to symbolic gestures.

South Africa's infrastructure agenda, including green hydrogen and renewable energy projects under the Just Energy Transition Partnership (JETP), offers a more stable framework. However, its success depends on resolving corruption scandals and improving public procurement efficiency. For investors, infrastructure projects in both countries require careful due diligence on political risk, with South Africa's institutional frameworks providing a relative edge.

Strategic Implications for Investors

1. Diversification and Hedging: Investors should diversify regional exposure, balancing high-risk Zambian equities with South African sovereign debt. Hedging against currency and political risks through instruments like inflation-linked bonds or political risk insurance is advisable.
2. Sectoral Focus: Prioritize sectors with strong government support, such as mining in Zambia and renewable energy in South Africa. Avoid overexposure to state-owned enterprises in both countries.
3. Long-Term Engagement: Post-conflict political settlements require patience. Investors with a long-term horizon may benefit from Zambia's reform agenda, provided they monitor political developments closely.

Conclusion

The Lungu burial dispute is more than a domestic controversy—it is a lens through which to view the fragility of post-conflict political settlements in Southern Africa. For investors, the region's geopolitical risks and state sovereignty dynamics demand a nuanced approach. While Zambia's reforms offer hope, its political tensions remain a wildcard. South Africa's institutional resilience provides a safer bet, albeit with its own challenges. In this environment, adaptability and a deep understanding of local politics will be the keys to successful asset allocation.