Geopolitical risk and exchange rate dynamics in Sub-Saharan Africa’s emerging economies

Abstract Geopolitical risk (GPR) and exchange rate dynamics have been examined in this research, utilizing QQR and Wavelet Coherence techniques in the emerging economies of SSA. The study examined how GPR affects exchange rates under varied, bearish, stable conditions in several emerging economies in sub-Saharan Africa, respectively. The results reveal varying sensitivity levels in exchange rates to geopolitical risk (GPR). While some economies are more vulnerable to heightened geopolitical tensions, others demonstrate greater resilience in the face of similar challenges. For example, Angola’s exchange rate is more sensitive to GPR under good market conditions, while countries like Mauritius and Tanzania maintain stability across several conditions. In addition, bi-wavelet analysis has been utilized to show the link between GPR and exchange rates and capture complex, time-varying relationships. These results indicate that emerging markets from sub-Saharan Africa harbor differences concerning the vulnerabilities to geopolitical risks and the need for specific policy interventions, such as setting up frameworks for crisis management and diversifying foreign reserves to buffer exchange rates. This study helps decipher the link between geopolitical uncertainty and changes in macroeconomic indicators, thus bringing evidence-based suggestions toward reducing the bearing of GPR shocks and maintaining exchange rate stability in the footprints of relevant policymakers.