Mitigation of political risks in infrastructural project finance in African countries

Abstract

Political risks have adversely affected project financing in African countries. There are instances of risks in the state hosting project that may negatively affect the bankability of the project. They include nationalisation of assets, spontaneous changes in laws and regulations by the government, wars, and terrorism etc. Investors require assurance to participate in project finance. Guarantee by the government on the stability of the polity is required. The government may also give assurances through legal measures, stabilisation clauses and guarantees to the effect that the regulatory environment of the project will be stable. This article examines infrastructural project finance in relation to political risks, with specific emphasis on African countries. Therefore, beyond assurance from the government, political risk mitigation instruments developed internationally can be employed. This article also elaborates the emergence of instruments/ mechanisms that have been developed internationally to mitigate political risks. These instruments include partial risk guarantees offered by international financial institutions, political insurance guarantees and export credit guarantees. It calls for the utilisation of these instruments and recommends that countries should tailor their regulatory regime to accommodate them. It contends that with the existence of these guarantees; the government has a role to play in creating a favourable legal regime and framework that will admit their utilisation within the legal system.