Political Risk Continues to Slow Energy Development in Africa

To attract foreign investment into Africa, the Islamic Development Bank offers investors political risk insurance.
Published: Fri 15 Aug 2014

It is well understood amongst investors that there is a significant amount of opportunity in Africa, especially its energy sector. However, political risk is standing in the way of economic growth.

Political risk insurance

Although the political situation in most countries is improving, political risk continues to stand in the way of potential foreign investment. This is according to Moustapha Sow, ICIEC, Islamic Development Bank.

“Through our political risk insurance programme, we try to cover that gap in Africa and other country members,” explains Sow. He says that through this programme, the Islamic Development Bank supports investment in Africa with their political risk insurance. By underwriting the risk, the bank develops a tool that ensures investors feel comfortable with the investment. Power project contractors are also insured through this programme. The programme’s focus is mainly on foreign investors.

Short term insurance terms

It is encouraging to hear that the perception of Africa is changing since political volatility is decreasing. Shorter term insurance terms are proof of this, explains Sow. In the past, insurance was taken out for the duration of a project - approximately 20-25 years. Now, investments are secured for only five years.

Sow concludes, “There is a general agreement that it is Africa’s turn to shine. Therefore, we need to make sure that effective implementation is carried out. I strongly believe that education and good leadership will also enable this development as perceptions will change as a result.”