Harding, 2020, Akhtaruzzaman et al. 2017, Bøe et al. 2019).<sup>27</sup> There is less data to conduct similar analyses for mining, although one would expect a similar outcome. The only study of mining and political risks we are aware of looked at grassroots mine exploration budgets in Chile (Castillo, 2021). It shows that a tax reform that increased but stabilized tax levels – a signal of reduced political risk at the project level, caused firms benefitting from these agreements to increase exploration budgets by 32%, even though the stabilization agreement was accompanied by the higher tax rate. Firms that did not receive such agreements either reduced their exploration budgets or kept them the same. When less exploration is undertaken, fewer projects go forward, with less resource rent for the government to capture.

The Fraser Institute conducts an annual survey of international mining company executives to gain their opinions on which jurisdictions have less political risk and which have more. Its Policy Perception Index includes factors concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labor regulations, quality of the geological database, security, and labor and skills availability. Of the 84 jurisdictions evaluated in 2021 (some are provinces or states rather than countries), African countries tend to rank in the lower half (Yunis and Aliakbari, 2022).

Africa’s most favorable country is Morocco, ranked second globally. Only three other African countries rank in the global top half – Namibia (29), Senegal (30), and Botswana (31). The Democratic Republic of the Congo (DRC) and Zimbabwe rank 78<sup>th</sup> and 79<sup>th</sup> respectively. From this, it is more likely that a mineral deposit in Morocco would generate more rents and more tax revenue than the identical mineral deposit in the DRC or Zimbabwe. When mineral potential is combined with political risk, Zimbabwe ranked as the least desirable jurisdiction in the world for mining investment. On a regional basis, Africa ranked lowest in terms of overall investment attractiveness. This would imply that African projects have lower after-tax quasi-rents available to mine project operators, and that the operators would preferentially direct their talents elsewhere. To compensate, African country governments may lower the negotiated tax rate to increase the after-tax project NPV to the project operator. To the extent that this strategy is already in place, Africa still ranks lowest of all regions since the ranking includes the taxation regime.

There is almost perfect substitutability between the negative investment effects of political risk on a project and the negative investment effects of increased taxes. The difference is that higher taxes benefit the government, while higher political risk, aside from corruption, is a friction very similar to an administrative cost that benefits no-one.

Political risk is not an easily measurable variable; nevertheless, risk perception impacts project selection and design. One way that political risk does not affect a mineral project in theory is through an increase in the project discount rate, r . The most common and accepted model of investor discounting of projects is the Capital Asset Pricing Model (CAPM). It has the discount rate being the sum of the riskless rate, or bond rate, and a risk premium:

> 27 Corruption, on the other hand, may increase extractive industry investment because it can result in favorable treatment (Kolstad and Wiig, 2013).

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