The changing risk-reward equation

There’s a “scramble for Africa” underway as investors seek to share into the decadelong period of high returns on the continent.

For African governments, these investments are more than welcome in the face of dwindling aid to create jobs and help address the infrastructure deficits. Investors, however, are also becoming more mindful when it comes to the management of political risk. They are much more aware that when a government changes, odds increase that previously agreed contracts are questioned by the new government. News feeds vividly bring to European board rooms images of sectarian strife from Kenya, Nigeria and Iraq.

As a result, the Multilateral Investment Guarantee Agency has seen a doubling of global demand for political risk insurance products over the past five years. Sub-Saharan Africa is an important part of this growth, especially in infrastructure and energy where the continent is trying to catch up with needs, both in generation and distribution. For example, in Nigeria we have been working with the World Bank and the International Finance Corp. to support a series of groundbreaking generation projects to help bring a reliable, affordable and sustainable supply of power to the country. Another example of a transformational project that will involve the entire World Bank Group is the Banda gas project in Mauritania, which will provide energy not only to local consumers, but also to those located in neighboring Mali and Senegal.