Expanding Political Risk Insurance: A Partnership Approach to Grow Private Investment

Closing the $2.5 trillion annual investment gap needed to achieve the Sustainable Development Goals (SDGs) by 2030 requires a step change in how we mobilize private capital. Global macroeconomic trends adversely affecting investment flows into emerging markets and developing economies have, however, slowed the progress in closing the investment gap to date.

Foreign direct investment (FDI), which has already been in decline since 2015, is estimated to decrease by upwards of 40% due to the COVID-19 pandemic. At the same time, average public debt ratios in emerging markets and developing economies have risen to levels comparable to those seen during the crises of the mid-1980s and 1990s. In addition to the volatile global macroeconomic environment, the challenges associated with climate change necessitate a coordinated global response and significant private sector investment. From 2017 to 2018, average public climate finance investment totaled $253 billion—less than half of the commitments required to achieve the global climate goals. Low-income countries and countries facing fragility, conflict and violence (FCV), where private investment is already strained, are especially at risk of falling behind due to these declines. These challenges combined require a renewed commitment to grow private sector investment into emerging markets and developing economies.

MIGA believes that expanding collaboration among the development community in the use of political risk insurance has the potential to unlock material incremental private capital. This handbook sketches out a systematic approach to expanding partnerships by making the case for collaboration, articulating a set of principles to facilitate partnerships, and highlighting project typologies that demonstrate how political risk insurance can be expanded through partnership.