Ticking time bombs: The MENA and SSA regions' geopolitical risks

Abstract

One of the major global challenges that most affect the world economies are geopolitical risks triggered by tensions arising from exploiting natural resources. This paper attempts to study the influences of global governance indicators (voice and accountability, political stability and absence of violence/terrorism, the rule of law, government effectiveness, regulatory quality, and control of corruption) on natural resource rents in Sub-Saharan Africa (SSA) and Middle East & North Africa (MENA). We apply a new panel quantile estimation technique to panel data from 62 countries from 1996 to 2021. The results show, in general, in both MENA and SSA economies, there is a negative perception of the quality of governance. This is due to several factors, such as the absence of popular participation and transparency in decision-making, political instability, violence and terrorism, low government efficacy, low-quality regulation, lack of the rule of law, and high corruption in these regions. Thus, governance quality could be the driver of geopolitical risks in resource-rich economies. This study adds to the literature on geopolitical risk by assessing the impact of the perceived quality of governance on natural resource income in the MENA and SSA regions. Furthermore, it is the first study to compare two regions, with many countries, regarding the effects of global governance indicators on natural resource rents. In addition, it has been empirically demonstrated that the deterioration of the quality of government is associated with increased revenues from the exploitation of natural resources, which increases the likelihood of geopolitical tensions. Higher quality and more effective governance require less complex, more transparent, and less contradictory regulations, reducing the likelihood of geopolitical tensions. Practical and policy implications are drawn from the findings to help the MENA and SSA economies overcome geopolitical risks.