1

Capital Mobilization Impacts Resulting 

from DFC’s Political Risk Insurance 

Product 

Impact Assessment Report 

May 2023 
2

Table of Contents 

Introduction..................................................................................................................................................4

Literature Review and Mechanisms for Capital Mobilization ....................................................................5

Chapter Summary .....................................................................................................................................5

Links between PRI and Private Capital Mobilization ................................................................................5

Political Risk and Foreign Investment.......................................................................................................6

Role of PRI.................................................................................................................................................7

Demand for PRI.......................................................................................................................................10

Implications for Pathways of Private Capital Mobilization for PRI .........................................................11

PRI Market Overview and Trends..............................................................................................................12

Chapter Summary ...................................................................................................................................12

Insurable Investment Flows....................................................................................................................12

Global Risk Perception............................................................................................................................15

Market Dynamics....................................................................................................................................18

DFC’s PRI Portfolio and Capital Mobilization Impact................................................................................25

Chapter Summary ...................................................................................................................................25

Portfolio overview...................................................................................................................................25

Private Capital Mobilization Impact........................................................................................................26

First Order Private Capital Mobilization .................................................................................................27

Second Order Private Capital Mobilization.............................................................................................29

Key insights and Recommendations Going Forward ................................................................................32

Appendix .....................................................................................................................................................36

Overview of 14 selected DFC Projects....................................................................................................36

OECD methodology.................................................................................................................................39

References..................................................................................................................................................43

 

 

 
3

Glossary of terms 

BU Berne Union

D4C Debt-for-Climate

DFC United States International Development Finance Corporation

DFI Development Finance Institution

ECA Export Credit Agency

ERU Energy Resources of Ukraine

EU European Union

FDI Foreign Direct Investment

HIC High-Income Country

ICIEC Islamic Corporation for the Insurance of Investment and Export Credit

IFC International Finance Corporation

IMF International Monetary Fund

LIC Low Income Country

LMIC Lower Middle-Income Country

MCL Maximum Contingent Liability

MIC Lower Middle-Income and Upper Middle-Income Countries (LMICs and UMICs) as defined 

by the World Bank

MIGA Multilateral Investment Guarantee Agency

OCE Office of the Chief Executive

ODP Office of Development Policy

OECD Organization for Economic Co-operation and Development

OGC Office of the General Council

OPIC Overseas Private Investment Corporation

OSFI Office of Structured Finance and Insurance

PCM Private Capital Mobilization

PPA Power Purchasing Agreement

PPP Public-Private Partnership

PRI Political Risk Insurance

SSA Sub-Saharan Africa

TNC The Nature Conservancy

UMIC Upper Middle-Income Country

US United States of America

WEF World Economic Forum
4

Introduction 

Since launching in 2019, the U.S. International Development Finance Corporation (DFC) has helped 

advance America’s foreign policy by providing financing solutions to the most critical challenges facing the 

world today. DFC mobilizes private capital to invest in projects that create jobs and opportunities in 

emerging markets. 

In this holistic assessment of DFC’s Political Risk Insurance (PRI) initiatives, the primary goal was to measure 

the effectiveness of the product in mobilizing private capital by analyzing a portfolio of 14 DFC PRI projects 

that spanned ten countries and five sectors. 

The analysis was framed through three primary objectives:

1. Understand the PRI and reinsurance context and channels for impact through a detailed analysis of the 

market landscape and a robust literature review

2. Critically review the impact of 14 projects that have received DFC support by analyzing quantitative data 

and conducting a qualitative assessment through in-depth interviews with key DFC and market 

stakeholders

3. Develop a clear set of lessons learned and recommendations that DFC can consider that could allow the 

organization to deploy its PRI and reinsurance products more strategically, and better measure and 

articulate its impact on mobilizing private capital

The following pages will provide a comprehensive view of these three objectives, complete with 

marketplace dynamics, in-depth project and competitive analysis, and priority areas going forward.

Ultimately, the report is designed to provide a provide a granular and comprehensive view of these findings. 

There is immense opportunity for DFC to expand, serve, and evaluate projects, maximizing developmental 

impact and creating new opportunities for its stakeholders and society at large.
5

Literature Review and Mechanisms for Capital Mobilization 

Chapter Summary1

The majority of foreign direct investment (FDI) (~65 percent) continues to flow to high-income, politically 

stable countries, as investments in many low-income countries are subject to a variety of additional project 

risks, including vulnerability to sizeable political risk. Political risk – which includes expropriation, 

corruption, and government ineffectiveness, among other areas – significantly inhibits FDI’s potential 

impact.1

Political Risk Insurance (PRI) can serve as a catalyst for private capital mobilization, effectively engaging

countries with perceptions of higher political instabilities. This is seen in fragile and conflict-affected states 

where an average of 6.2 percent of FDI is covered by PRI, compared to 3.8 percent amongst sample lowerincome countries.2 By assuming part, or all, of the critical non-commercial project risk, PRI improves

investor confidence and enhances credit of emerging market debt securities. In addition, and specifically in 

the case of public insurers, PRI can help prevent adverse political events (e.g., expropriation) from taking 

place. 

Currently, PRI does not cover a significant number of investments in low-income countries (LICs) and lower 

middle-income countries (LMICs). The share of annual equity inflows into developing countries insured 

against political risks by Berne Union (BU) members stood at approximately 3.6 percent between 2010 and 

2018.3 However, PRI coverage is likely to become more attractive, gaining traction and evolving alongside 

marketplace dynamics including the potential for higher yields in riskier emerging markets and the need to 

protect against downside losses as a result of an increasingly volatile global business environment and 

precarious geopolitical affairs.

The threat of adverse regulatory changes, breach of contract, convertibility restrictions, and expropriation

stand as the most relevant factors to acquire PRI. New types of engagements between the private and 

public sector, such as public-private partnerships and public financing and subcontracting, have increased

the investors’ need to cover various types of political risks these structures present. Furthermore, PRI 

product attributes, perceived fairness of price, extent of coverage, and brand name, significantly influence 

clients’ decisions on when, and from whom, to purchase PRI.

Links between PRI and Private Capital Mobilization

The primary goal of this literature review is to analyze the impact of political risk insurance and reinsurance 

activities in order to catalyze foreign equity and debt investments to developing economies. This objective 

is realized by reviewing literature across, and triangulating the implications between, three pillars (Exhibit 

1):

i) Political Risk and Foreign Investment: Reviewing the literature on FDI to understand the main factors 

driving investment inflows to developing economies, as well as the role of political risk in relation to these 

flows.

ii) Role of PRI: Analyzing the role that PRI can play in driving FDI while simultaneously anticipating and 

mitigating against potentially inhibiting factors. Through this assessment, we can develop an understanding 

1

Literature review may not reflect the impact of recent geopolitical events (e.g., war in Ukraine) as academic 

articles are yet to be published on such recent events.
6

and perspective on positive externalities that are created once investments into politically risky countries 

are covered by PRI.

iii) Demand for PRI: Holistic, regional, and sector-level analysis of the drivers of demand for PRI. Identifying 

the drivers of PRI demand and factors inhibiting demand, focusing on sectors that are most dependent on 

PRI to enable investment.

Exhibit 1 

Political Risk and Foreign Investment

The need for FDI is greatest in emerging economies. However, most capital flows (~65 percent)

4

 are 

invested into high-income countries (HICs) and upper middle-income countries (UMICs). This imbalance of 

flows can be partially attributed to both perceived and real political and other non-commercial risks. This 

trend exists even within LICs/LMICs, as investments skew towards more politically stable environments. 

Between 2017 and 2020, LICs/LMICs in East Asia and Pacific accounted for 31 percent of FDI into 

LMICs/LICs, while Sub Saharan Africa only accounted for 20 percent.

5

It is telling that investment flows 

within emerging economies skew toward East Asia and Pacific. On average, this region is comprised of

countries with higher economic development levels. 

Democracy is a critical driver of political stability, and directly corresponds with increased FDI inflows into 

developing countries.

6 Democratic institutions may have a positive effect on FDI because democracy 

provides checks and balances on elected officials, reducing arbitrary government interventions, lowering

the risk of policy reversals, and strengthening property right protections. However, research shows that 

there is an inverse effect of FDI in democracies when natural resources comprise a large share of the 

country’s exports. A possible explanation includes that FDI in natural resources is often tightly controlled 

by the government, and it may be easier to develop preferential and close ties with the government in 

autocratic regimes.7

Overall, stronger institutions have a positive and economically significant effect on FDI. Some institutional 

aspects matter more than others. There are key factors which play an outsized role in deterring FDI 
7

including: the unpredictability of laws, regulations and policies; excessive regulatory burdens; government 

instability; and lack of commitment. Furthermore, research has shown that improved institutional quality 

and declining political risk have attracted FDI to Sub-Saharan African countries.8

Politically risky investment environments are typically characterized by arbitrary policies that do not 

protect property rights or assure steady tax rates.9 Foreign investment is potentially harmed due to high 

uncertainty about potentially abrupt changes in host countries' political institutions and their ensuing 

policies.10 Specifically, inadequate protection of property rights or insufficient contract enforcement raise 

transaction costs for investors. Further, risk premiums are increased significantly with the absence of formal 

and informal institutions required to maintain the rule of law, and information asymmetries among market 

actors related to the costs associated with the market value of products.11

Expropriation risk one of the most significant concerns for investors. It is a key driver of FDI’s uneven 

investment flow across developing countries.12 This effect is more pronounced in countries that receive 

little foreign aid, as aid is often used as leverage to offset expropriation risk.13 However, aid alone cannot 

entirely offset the adverse effects of political risk. Countries still need to take measures to reduce the types 

of risks that deter FDI, such as the lack of enforcement of rules and regulations.14

Role of PRI

PRI enables investors to mitigate against country risk and increase the financial returns of projects. As such, 

PRI facilitates investment in high-risk countries that otherwise would not be considered. The main role of 

PRI, as emphasized in the literature, is to transfer foreign investors’ capital exposure to insurance providers 

that are less risk averse and more capable to bear the risk.15 Additionally, PRI coverage protects foreign 

investors from asset-based and trade-related risks such as events in which the host nation forces 

shareholders to sell off their stake in a foreign enterprise, defaults on obligations, or illegally revokes 

licenses and permits, among other risks. 

PRI plays a relevant role in mobilizing capital to fragile and conflict-affected states, generating higher 

demand for insurance from investors in these countries. From 2010 to 2018, fragile states had on average 

6.2 percent of FDI covered with insurance while lower-income countries had an average of 3.8 percent in 

the same period among countries surveyed for an Islamic Corporation for the Insurance of Investment and 

Export Credit (ICIEC) report.

16 However, the report highlights differences among country peers. For 

instance, considering fragile and conflict-affected states, Rwanda had an average of 13 percent of FDI 

covered with PRI, while Chad had a share of 0.9 percent. The report illustrates that as some countries –

even in the same income category – have less access to other sources of finance and PRI than others, there 

are still substantial differences regarding risk perceptions of the market in individual countries.

17

 

Beyond PRI’s risk allocation impact, the literature emphasizes PRI’s second-order effects in developing 

countries, including positive externalities related to improving investor confidence, enhancement of credit 

conditions, and increased valuation of investment projects.

PRI enables favorable lending terms for foreign investments. Theoretically, PRI compensates for the 

potential economic losses caused by asset-and-trade-related adverse events.18 Most insurers cover 90

percent of the risk, requiring the investor to bear the remaining portion.19 Political risk insurers protect 

investors' balance sheets from unanticipated damages from the host/foreign governments that are 

otherwise difficult to mitigate. PRI limits corporate liability and preserves shareholder value invested in 
8

foreign projects, thereby encouraging investment in geographies and sectors where it would not occur 

otherwise.20

PRI can be used for credit enhancement of emerging market debt securities. Lenders and rating agencies 

reward PRI-insured debt issue, especially if there is a partial payment facility independent of final 

arbitration rulings.21 For instance, if a company wants to finance an infrastructure project in a B- rated 

country with a bond offering on the New York Stock Exchange, it may be able to achieve an investment 

grade rating depending on the PRI coverage it negotiates and the structure of the deal (reserve, arbitration 

attributes, and timing). As a result, the company could reduce the spread over Treasury bills paid on the 

bonds. In addition, a robust debt reserve payment mechanism is key to credit enhancement and assuring 

continued returns to bondholders. 

PRI curbs country risk premiums, improves the valuation of investments in emerging markets, and 

enhances the internal rate of return of development projects.

22 In work conducted by S&P Global, a single 

representative project was looked at in three differently rated country contexts: Ghana, Indonesia, and 

Brazil (B- to BBB in S&P/Fitch rating equivalents), and insurable perils covered under PRI were mapped 

against 21 risk events. The study showed that, assuming full coverage, PRI typically improved country risk 

premiums (CRP), the related credit rating equivalent of an investment project, and increased internal rate 

of returns and net present values of projects (Exhibit 2). The main conclusion of the work is that PRI thus 

does more for a company than cover insured losses, as a lower CRP confers higher asset valuation, enables 

investment finance on more favorable terms, and other benefits. 

Exhibit 2 

 
9

In addition, for medium-and long-term debt investments, guarantees (proxies of political risk insurance) 

can also provide better financial terms and conditions. A study from the Islamic Development Bank showed 

the impact of having guarantees from The International Bank for Reconstruction and Development (IBRD) 

on the tenor and pricing of financial contracts among 13 countries (Exhibit 3). The report highlights that on

one hand, having insurance or guarantees can extend credit periods up to 10-15 years. On the other hand,

insurance or guarantees can provide favorable interest rates and lending conditions. 23 

Exhibit 3 

 

 

Public providers of PRI can avoid adverse events through diplomatic channels. A public PRI provider's 

involvement in a project can prevent host governments from taking discriminatory and unwarranted 

actions against the insured investor. Public insurers can advocate to avoid adverse events from occurring 

through political engagement with relevant public entities. Furthermore, host governments may be worried 

about jeopardizing their relationship with other bilateral or multilateral organizations related to the insurer 

if political problems arise in a publicly insured project. This decreases the likelihood that PRI trigger events 

occur, further reducing the risk of the investment. As a result, PRI improves fundraising and project 

financing opportunities for investors.24

Furthermore, there are additional advantages that public PRI providers can leverage. Public entities have 

better access to information through public and diplomatic channels, and have broader development 

ambitions beyond profitability, which enables higher risk tolerance.25 First, public entities have broader, 

context-specific knowledge about the host governments' potential actions and intentions. This information

can be used to stabilize premiums to cover their risk as needed. However, if host governments act under 

bilateral investment treaties, it will narrow the existing information asymmetry between public and private 

PRI issuers. Second, public entities often have a statutory mandate to support their sponsor government's 

policy goals. Unlike private providers, they can operate at break-even, or even at loss, with subsidies from 

sponsoring governments, and without the fiduciary responsibility of generating profits for shareholders. 

This convergence of factors, combined with the deterrent effect of public institutions on host governments, 
10

create an opportunity whereby investors are increasingly willing to pay for lower and more predictable 

premiums of publicly provisioned PRI.26

Although its role is critical to enhancing FDI flows to developing economies, PRI is not the main tool 

considered by investors to mitigate political risk. According to the results of a survey conducted by MIGAEIU, most of the firms address political risks by setting joint ventures with domestic partners, exercising 

caution by implementing investment plans gradually, and performing in-house political risk analysis. In 

2011, one in five firms used investment insurance to mitigate political risks. 27 This number varies by sector, 

with utility companies (28 percent of firms) and the financial service sector (25 percent) being those with 

a higher number of firms using PRI, ahead of manufacturing (21 percent) and non-financial services (12

percent).

28

Demand for PRI

A significant number of investments in LICs/LMICs are not covered by PRI. Between 2010 and 2018, the 

share of annual equity inflows into developing countries insured against political risks by Berne Union 

members stood at approximately 3.6 percent.

29 In total, an estimated 5 percent of FDI inflows, excluding 

third-party loans, was insured against political risks. In 2018, only 0.7 percent of the stock of foreign equity 

investments and 1 percent of total FDI stock, were insured by Berne Union members. 

In addition, there is a potential gap of PRI provided to south-south and domestic investments. First, the 

majority of PRI for equity investments are provided by Export Credit Agencies. However, they tend to only 

provide support to investors from the country in which they are domiciled. Also, domestic equity 

investments lack access to PRI as the insurance supply is mostly focused on foreign direct investments. 

Domestic investors could benefit from coverage against political violence and breach of contract risk in 

public-private partnerships, in which a local investor makes an equity investment.

30

Adverse regulatory changes, breach of contract, convertibility restrictions, and expropriation stand as the 

most relevant factors to acquire PRI. Project structures that engage both the private and public sector, such 

as public-private partnerships and public financing and subcontracting, increase the desire to mitigate 

against inconvertibility and expropriation risks, in addition to the desire to protecting investments from 

traditional factors such as war or terrorism acts. In sectors in which the regulatory frameworks are complex 

and the public sector plays a critical role – predominantly oil and gas, mining, electricity and power, and 

telecommunications – PRI is considered to cover contractual risks and country level risks.

31

Previous growth in the demand for PRI has been driven by the appetite of investors to enter higher yield 

markets coupled with the risks implied in these markets. According to the literature, the higher the 

magnitude and probability of potential loss, which is gauged by risk managers' perceived exposure to 

political risks, the more likely an investor is to seek out PRI policies.32 The growth seen in FDI up until 2016, 

directed to Asia, Sub-Saharan Africa, and Latin America, is reflected in the gradual orientations of new PRI 

business towards these markets.33

Investors have targeted sectors with high intrinsic risks to create additional financial returns. Investors are 

attracted by higher returns in natural resource-based sectors, power generation, and infrastructure –

projects that are linked to expropriation risks, asset devaluation, and contract frustration. For instance, in 

Latin America, independent power producers and their lenders are hesitant to enter new markets without 

PRI. As a result, investors are buying PRI and incorporating the cost into the price agreements.34
11

A number of key factors may also inhibit PRI demand. According to the literature, investor willingness to 

pay, coverage gaps, and contract complexity are the main limiting factors to procuring PRI. First, high 

insurance costs in fragile states limits PRI adoption. Second, some key risks such as partial expropriation

and asset devaluation, are out of scope for typical insurance products. Finally, the complexity of insurance 

contracts, and the lack of transparency and clear communication, affect the perceived adequacy of contract 

prices, reducing incentives to acquire PRI.35 To combat this issue and generate higher PRI demand, it is 

important to expand the types of losses or events covered by PRI, and improve contract design and 

communication.

36

Implications for Pathways of Private Capital Mobilization for PRI

The insights from the literature review have been used to distill a framework for evaluating DFC’s ability to 

mobilize private capital through its PRI activities. DFC can drive private capital mobilization (PCM) through 

both first order (direct) and second order (indirect) effects. 

First order PCM effects relate to mobilizing capital for the specific investment on which DFC is providing 

PRI. First order PCM involves reducing or reallocating risk taken on by the private investor. As a result, it 

will decrease the risk profile and improve the expected returns of the project to the extent that the investor 

feels confident to pursue the investment. A key condition for private capital mobilization is the additionality 

of the coverage – that the investment would not take place absent the coverage. The key channels through 

which DFC’s PRI activities can most directly impact capital mobilization are:

• Improving expected returns from the investor’s reduced risk allocation

• Securing investor buy-in conditional on reduced risk

• Enhancing credit and lending terms

• Reducing likelihood of political risk events as a result of DFC’s political and diplomatic engagement

 

Second order PCM effects relate to a broader perspective on capital mobilization. For example, this could 

mean enabling the investor to conduct subsequent investments or attracting additional capital into the 

sector. Second order impacts materialize when impact in the country and/or sector are changed beyond 

the scope of the individual covered transaction. The key channels through which DFC’s PRI activities can 

indirectly impact capital mobilization include: 

• Improving formal and informal institutions (e.g., pioneering contracting or purchasing agreement 

regimes in the host country)

• Decreasing risk perception through demonstration effects, i.e., decreasing information 

asymmetries for investors by pioneering and proving an investment thesis in the country or sector.

• Improving physical assets and infrastructure in the country, in the energy or infrastructure sector 

as an example, for a specific project which then ultimately enhance and facilitate business 

engagements for other investors
12

PRI Market Overview and Trends 

Chapter Summary

This chapter assesses the global political risk insurance market, focused on evaluating the factors that 

impact demand for DFC’s PRI coverages, particularly the underlying insurable investment flows, global risk 

perceptions, and the competitive marketplace dynamics. 

The PRI market has been shrinking 10 percent p.a. since 2017, likely reflecting somewhat volatile crossborder investment flows to low- (LICs) and middle-income countries (MICs), which decreased by 7 percent 

annually from 2017 to 2020.37 The impact of the war in Ukraine, supply chain constraints, continued impact 

from the COVID-19 pandemic, and growing civil unrest globally mean that 2022 FDI flows are expected to 

further decline, hitting decade-low levels. 

Global risk levels are increasing, as 90 percent of global leaders have an increasingly negative perception 

toward global outcomes.38 Increased risk perception has opposing impacts on PRI demand: it increases 

demand for PRI insofar as overall risk tolerance levels aren’t exceeded, in which case underlying 

investments (and therefore PRI) start to decrease. Across geopolitical, economic, and environmental macro 

risk factors, evidence was found for both positive and negative implications for PRI demand. Increased 

sovereign debt levels, civil unrest, and climate policy risks may increase demand for PRI, while ongoing 

wars, more severe cases of unrest or conflict, and recession risk may dampen investments and thus PRI 

demand.

DFC has a clear niche supporting the riskiest countries with high exposures and tenors. Customer interviews 

indicate strong competitiveness and differentiation. DFC has achieved a top 8 market share in the global 

PRI market (including Export Credit Agencies) since 2020, with a 31 percent market share (excluding Export 

Credit Agencies) of total 2021 issuance in countries that are rated CCC+ and lower or unrated.

39 There is 

opportunity for growth by further solidifying DFC’s position in risky markets. DFC is overall competitive with 

leading public insurers on price, maximum tenor, and exposure limits. However, DFC has opportunities to 

diversify and bolster its range of product offerings, organizational scale, and strategic focus relative to key 

competitors. DFC’s clients highlight its flexibility and collaborative model (or partnership) as core 

competitive advantages.

Insurable Investment Flows

The biggest driver of PRI demand is changes in the underlying, insurable investment flows, especially 

foreign direct investments into lower- and middle-income countries. Since 2017, these cross-border flows 

have been declining by 7 percent year-over-year.40 This is reflected in a 10 percent annual decrease in PRI 

issuances in recent years.41 

Cross-border investment flows to LICs and MICs have been on a downward trend since 2017, with negative 

implications for the total addressable market for PRI providers. Cross-border investments represent the 

underlying insurable flows for the global PRI market. From 2017 to 2020, investments shrunk by 7 percent

p.a. (Exhibit 4).42 A one-off spike in 2021 was driven by pandemic stimulus and international aid, which

caused decade high levels of cross-border flow. However, this spike is not projected to be sustained in 2022 

as appetite for further stimulus diminishes. Rather, 2022 is expected to return to decade-low levels with a 

drop of ~28 percent compared to 2020 (should trends from H1 2022 continue), driven by the impact of the 

war in Ukraine and supply chain constraints.43 
13

Exhibit 4 

These declining cross-border investments are driven mainly by decreasing investments in MICs, while lower 

income countries experienced flat growth leading up to the pandemic. Upper middle-income countries 

(UMICs) saw a decline of 6 percent p.a. from 2017 to 2020, LMICs a decline of 10 percent p.a., while LICs 

experienced slight growth of 2 percent p.a. in the same period.44 The overall FDI fluctuations have primarily 

been driven by cyclical flows into UMICs as investors chase yield. This decline in cross-border flows to LMICs 

came despite favorable economic conditions prior to the pandemic. In short, FDI has not kept pace with 

overall economic growth in LMICs. Post-pandemic, LICs seem to be the most affected by declining FDI flows: 

LICs are projected to see a decline of 51 percent p.a. in FDI from 2020 to 2022, while this decline is 20

percent and 31 percent for UMICs and LMICs, respectively.45

China has overtaken the US as the largest source of FDI into low- and middle-income countries. In 2017-

2020, China accounted for $54 billion of FDI into LICs/MICs, on average, while the US accounted for $49

billion.

46 Assuming Chinese FDI flows are more likely to be captured by its sovereign Export Credit Agency 

(ECA), this represents an additional constraint on DFC’s addressable market. Japan, Germany, and South 

Korea round out the top five globally. More than two-thirds of DFC’s PRI exposure is concentrated in SubSaharan Africa and Latin America. Fifty percent of Chinese FDI is funneled to those two core regions. In 

assessing FDI flows to Sub-Saharan Africa, the top investor country by far is China; $9 billion vs. US’s $4

billion. The US is the second largest investor.47

Following years of growth, the PRI market has been shrinking 10 percent p.a. since 2017.48 The declining 

PRI market likely reflects the shrinking cross-border investment flows into emerging markets, and 

additionally may reflect a decrease in investor demand for mitigation against political risks in these markets. 

Private insurers and ECAs represent >80 percent of PRI issuance,

49 while multilateral and major public 

insurers including DFC and MIGA represent 10-15 percent of issuance. The growth of multilateral and major 

public insurers over the last four years represents a strengthening of these insurers in the market as ECAs 

and private providers pull back from the market.50

24% 22%

52%

35% 0.9

10%

22%

2013

50%

5%

18%

14

7%

127%

0.5

3%

-40%

3%

6%

15 20

64%

18%

5%

13%

5%

16

13%

51%

43%

12%

26%

-4%

25%

17 18

52%

33%

56%

17%

5%

1.6

19

1.2

86%

49%

37%

11%

3%

21

47%

1.0

-34%

1.0

2022E

2

1.3 1.3

1.5

0.5

23%

-7% p.a.

Cross-border investment flows to LICs and MICs1

, $ T

1.Includes both lower middle income and upper middle-income countries (LMICs and UMICs) as defined by the World Bank

2.Includes 2022 data through Q3

FDI Loans and Other Investment Portfolio debt Portfolio equity Estimated 2022Q4
14

PRI issuance has held steady in LICs over the past few years while issuance in LMICs and UMICs declined 

sharply.51 From 2018 to 2021, PRI issuance in LMICs and UMICs declined by 15 percent and 16 percent p.a., 

respectively (Exhibit 5). In the same period, LICs remained relatively steady (slight decline of 3 percent p.a.). 

LICs have maintained a relatively constant share of PRI issuance of 7-12 percent of total issuance in 

LICs/MICs.52 LICs have also represented a disproportionate share of PRI issuance compared to their typical 

share of cross border flows (2-3 percent). Fragile and conflict-affected states across income types saw a 

sharper decline of 17 percent p.a. in PRI issuance over the same period. However, like LICs, they maintained 

a disproportionate share of PRI issuance (7-16 percent of total issuance in LICs/MICs) compared to their 

typical share of cross-border flows (1-5 percent) (Exhibit 6).

Exhibit 5 

 

Exhibit 6 
15

Brokers play a significant role in PRI issuance from private providers. It is estimated that >90 percent of PRI 

procurement in the private sector is completed through brokers, compared to an <50 percent for public 

providers. However, broker usage among public providers is highly variable. For example, MIGA no longer 

engages brokers, but this is an outlier among many Western multilaterals/ECAs. For re-insurance, broker 

usage increases among public providers. Data is not readily available on PRI issuance by private insurers 

without reinsurance from a public provider, but reinsurers did note that in high risk emerging markets (e.g., 

Sub-Saharan Africa), many private players will not provide PRI without the support of a public insurer. 

However, a majority of coverage from private providers likely has no public sector involvement (as reinsurer 

or reinsured).

There is also a lack of data on the types of policies and projects PRI issuance covers. Although corporate 

blanket policies are favorable for insurers, they at best make up 25 percent of contract volumes for the 

private sector. These volumes will be even lower for the public sector. Other breakdowns like coverage of 

greenfield vs brownfield projects, are also unclear and highly dependent on the sector. For example in the 

energy sector, the past few years have shown a significant growth in renewable greenfield projects. 

However, since the war in Ukraine began, there has been a resurgence of expansion of brownfield projects 

for fossil fuels.

Global Risk Perception

Increasing risk perceptions could have opposing impacts on PRI demand. Through one lens, there is 

increased demand for PRI coverage as a result of increased sovereign debt levels, civil unrest, and publicprivate project structures – and the combination that the three risks create. However, in looking through 

another lens, ongoing wars, more severe cases of unrest or conflict, and recession risk may decrease overall 

investment and thus PRI demand. In particular, the war in Ukraine has given many investors pause at the 

speed at which a geopolitical situation can change. Events such as these are likely to increase risk 

perceptions and thereby may increase the demand for PRI.

Global risk perception is increasing. Almost all global leaders have an increasingly negative view toward 

global outcomes.53 When asked for their outlook for the world over the next three years, only 10 percent

of global leaders expect decreasing risks and accelerated global recovery, while 90 percent predict 

increasing risk, with scenarios including consistent volatility and increasing catastrophic outcomes.54

Geopolitical, economic, and environmental macro risks have increased over the past 2 years and are 

expected to continue on a downward trend. Environmental risks climb to the top of risks that global leaders 

expect to increase in the next two-to-five years (Exhibit 7).

55

In the short-to-medium term, there are several macro risks that will significantly impact PRI demand. 

Geopolitical and economic factors are expected to be strongest in the short-term, but environmental and 

climate risk factors are becoming increasingly important. The remainder of this section highlights a few 

non-commercial risks that will have a direct impact on PRI in the short-to-medium term.
16

Exhibit 7 

 

Geopolitically, ongoing wars, and civil unrest will result in loss of life, damage of real assets and 

infrastructure, and restrictions on the movement of resources and goods, with two-sided implications for 

PRI demand. The Russian invasion of Ukraine is expected to continue to lead to major loss of life, 

infrastructure damage, energy disruptions, economic sanctions, and tenuous interstate relations – in 

Europe and beyond. The impact of the crisis on supply chains and food security may become a vector for 

further political risks in wide-ranging regions that are facing food insecurity or inflation challenges. Similarly, 

increased civil unrest across LICs/MICs will lead to prolonged loss of life and physical damage, while also 

likely leading to restrictions on goods, knowledge, and resources flowing in and out of impacted 

geographies. The implications of increased political instability for the PRI market will likely increase demand 

for political violence coverage; though this may be supplanted by overall decreased investments in 

impacted geographies.

Economic risk factors, particularly sovereign debt and recession risks are expected to increase demand for 

arbitral award and currency inconvertibility coverage. Debt crises across LICs/MICs risk leading to fiscal 

crises, sovereign defaults, debt reduction negotiations, and disputes (e.g., as is presently salient risks in 

Ghana and Egypt). Recession risks are expected to lead to limited spending, unemployment, internal 

displacement, and other civil consequences. These economic risk factors will likely increase the demand 

for arbitral award, expropriation, and currency inconvertibly coverages. It will also lead to increased risk for 

trigger events.

Environmental and climate risks exacerbate an already unstable political and economic climate. Abrupt or 

far-reaching policy changes, regulations, or taxes imposed to facilitate green energy transitions can spark

significant political risks (e.g., the EU’s recent carbon border adjustments). It is unclear whether those risks 

are covered under existing PRI policies and may be a potential growth area for PRI providers. Moreover, 

physical climate risks and extreme weather events (e.g., floods) can amplify destabilized political situations 

and increase the frequency of economic crises, potentially increasing the demand for arbitral award 

coverages. 

Some risks have worsened over the past 2 years... ...and are expected to continue to be threats in the near term

Risks that worsened since start of the COVID-19 crisis1, % of respondents2 Top risks that will be a critical threat within 2-5 years, % of respondents2

27.8%

25.5%

25.4%

23.0%

22.7%

13.8%

12.4%

10.9%

10.5%

9.5%

8.4%

8.2%

Cybersecurity failures

Social cohesion erosion

Biodiversity loss

Livelihood crises

Climate action failure

Mental health deterioration

Extreme weather

Infectious diseases

Debt crises

Digital inequality

Backlash against science

Geoeconomic confrontations

Environmental Economic Geopolitical Other

31.1%

30.4%

27.5%

27.5%

26.4%

26.1%

19.5%

19.3%

18.2%

14.2%

Infectious diseases

Climate action failure

Extreme weather

Cybersecurity failure

Livelihood crises

Social cohesion erosion

Mental health deterioration

Debt crises

Digital inequality

Asset bubble burst

1.N = 1,000 global experts and leaders; data supported by WEF Global Risks Report, which features views of 12,000 country-level leaders

2.% of respondents who agreed “Risks that worsened the most since the start of the COVID-19 crisis” and “When will risks become a critical threat to the world?” respectively

These risks are interconnected – increased risks in one category can increase risks in another

(e.g., extreme weather crises can lead to economic crises)
17

Investors’ risk perceptions of emerging markets investments are increasing, as seen in the higher risk 

premia that markets are demanding for emerging market sovereign debt. A widening spread of interest 

rates between LICs/LMICs and advanced economies from ~5 p.p. in 2013 to more than 8 p.p. in 2022 

demonstrates an increase in perceived risk of emerging markets (Exhibit 8).

56 This risk premium is even 

more pronounced when looking at Sub-Saharan Africa, which is DFC’s largest market; the interest rate 

spread between Sub-Saharan Africa and advanced economies has grown by more than 4 p.p. over the last 

10 years - from ~5 p.p. in 2013 to more than 9 p.p. in 2022.57 Worsening risk perception is also reflected in 

the increasing number of sovereign rating downgrades: the share of investment grade sovereigns has 

steadily decreased from 52 percent in 2013 to 45 percent in 2022.58

Exhibit 8 

 

DFC has a larger market share in riskier markets; increased risk in emerging markets may therefore mean 

an increase in the addressable market for DFC. More than a quarter of DFC’s PRI exposure is in markets 

with a CCC rating or lower. Thus, worsening risk perceptions, as reflected in increased risk premia and 

sovereign rating downgrades, potentially mean an increase in the addressable market for DFC.

Looking towards the future, several headwinds and tailwinds are critical for DFC to be aware of to 

understand trends in PRI demand. Tailwinds, defined as factors that increase risk perception within 

acceptable risk levels include: 

• The increasing spread of US treasury bond yields vs. emerging market bond yields; and 

• The increase in credit default swaps in emerging markets, as more people are seeking default 

protection, which can be considered a proxy for investors willing to purchase protection for illiquid 

assets

However, rising interest rates can also have secondary effects on PRI, as the high cost of capital puts 

pressure on developers to minimize PRI costs. Key metrics indicating headwinds, defined as factors that 

decrease investment levels or cause risk tolerances to be exceeded include a decrease in: 

• FDI flows; 

2020

4

2013 2014 2015 2016 2017 2018 2019 2021 2022

0

1

2

3

5

6

7

8

9

10

11

12

1. Data available for 32 countries

Interest rates of 10-yr government bonds, % 

X p.p. difference in interested rates between 

selected region and advanced economies

5.4 5.8 7.3 7.8 7.6 7.3 8.0 8.1 8.0 

8.2 

5.1 5.4 6.9 

8.5 8.1 8.2 

9.5 9.8 9.7 

9.3 

Advanced economies LIC/LMIC1 Sub-Saharan Africa
18

• Capital outflows from emerging markets, which is a warning sign of overall decrease of demand for 

assets; and

• Gross capital formation in emerging markets, which is a warning sign of a decreasingly suitable 

investment environment

Meanwhile, a few indicators remain ambiguous as to their implications on overall demand levels including: 

• Significant increase in perceived risk levels raise the need for PRI but may also make investors more 

reluctant to invest; and 

• Sovereign rating downgrades signal deteriorating status of a country’s ability to meet its sovereign 

financial obligations, but also may mean an increase in market share for DFC who is competitively 

well-positioned in sub-investment grade markets.

Market Dynamics

DFC’s largest competitors are other public insurers – especially MIGA as it has a directly comparable product 

offering and target segment. DFC has a clear competitive niche supporting the riskiest countries with high 

exposures and tenors. Customer interviews indicate strong competitiveness and differentiation. 

[Sensitive Market Information Redacted] 

DFC has a strong and growing presence in the lowest income and most risky markets. DFC has consistently 

maintained a high market share in countries with sovereign debt ratings of CCC+ or lower or in those that 

are unrated, with 31 percent share in new annual issuance in 2021 (Exhibit 9).

59 Moreover, DFC shows a 

stronger presence in LICs and LMICs across both issuance and maximum liability (exposure). DFC’s clients 

are remarking the importance of this strategy for capital mobilization – as one investor said:

“Getting the PRI was really impactful and really helped us de-risk the whole project, and take 

on those massive exposures as we did in this case. DFC was willing to step in for some of the 

countries where our private insurer wasn’t willing to go.” – DFC client60

[Sensitive market information redacted] (Exhibit 10).
19

Exhibit 9 

 

Despite a decline in total PRI issuance, exposure (maximum limit of liability) continues to increase, 

especially for ECAs, indicating an increasing market capacity. ECA exposure within LMICs has more than 

doubled since 2017, indicating growing risk appetite among ECAs. Similarly, ECA exposure almost doubled 

within LICs, though issuance remained flat / declining. Private providers have kept their exposures relatively 

steady. DFC, like the ECAs, has shown a rapid increase in exposures in LICs since its creation. 61

[Sensitive Market Information Redacted]

Exhibit 10 

 
20

Exhibit 11

Private capital mobilized (PCM) is an important metric for measuring the impact of PRI, and competitors 

leverage PCM to monitor success of changes in PRI programs. There is a clear and positive relationship 

between PRI availability and FDI volumes, and therefore volume of PCM in LICs and other fragile/high-risk 

countries(Exhibit 12).

62 As PRI availability increases in the riskiest regions, it will likely attract additional FDI. 

A recent report by the World Bank Group confirmed that all MIGA activities directly mobilize private capital, 

and specifically, that MIGA guarantees improved investor ability to raise capital. In the past decade, MIGA 

has made significant structural changes, including covering additional risk types (e.g., credit enhancement), 

covering additional underlying financial instruments (e.g., swaps and bond issuances), expanding coverage 

to new investor groups, and designing new project structures. The success of these changes can be 

measured in the doubling of MIGA’s PCM from 2015 to 2019.63
21

Exhibit 12

DFC’s core competitive advantages lie in tenor, rates, exposure size, geographical risk willingness, and 

flexibility. According to interviews with PRI customers and market participants, DFC is generally considered 

to have a strong, competitive offering; interviewees value DFC’s backing of the US government, its flexibility 

on coverage changes, its long tenors, and its pricing, which is generally on-par with MIGA’s. Moreover, DFC 

is almost comparable with MIGA in terms of maximum coverages that it’s willing to take on. 

“We used to have a very traditional contract, but now DFC has given us a more flexible deal 

where they allow us to change the coverage every quarter given how unpredictable the 

situation is.” – DFC client64

“DFC has a lot of sway because of the backing of the US government. Simply having the DFC 

name affiliated is a deterrence to government or local oligarchs meddling.” – DFC client65

DFC’s environmental and social (E&S) safeguard requirements have positive, but mixed feedback from the 

market. DFC’s E&S requirements are viewed as a clear risk mitigant, and DFC backing gives projects a 

“stamp of approval” compared to private insurers. However, this the weight of this “stamp of approval” is 

sometimes more limited than MIGA depending on geography (e.g., in Sub-Saharan Africa where DFC clients 

felt MIGA had more influence). While there is growing awareness of the importance of meeting high E&S 

standards among private insurers, many of them still rely on the standards of the insured parties (e.g., 

Additional PRI availability would likely lead to increased PCM in LICs 

and fragile/high-risk countries 

1.Buyers of PRI (commercial banks and institutional investors) were asked “Do you believe that additional insurance capacity for PRI for equity investment will 

substantially increase or mobilize additional equity investments in developing countries?” as part of the ICIEC survey for the joint MDB G20 stock-take study

Source: MIGA, ICIEC

Impact of additional PRI capacity on FDI into Developing Countries, % of respondents 

(buyers of PRI)1

5%

35%

0%

10%

30%

15%

25%

20%

40%

45%

IBRD HighIncome CountriesIBRD Middlelncome CountriesIBRD Lowlncome CountriesFragile States and 

Conflict-Affected 

Countries

High-Risk 

Countries

No increase High increase

Very low increase

Low increase

Medium increase Very high increase

Don’t know
22

Equator Principles for banks). However, investors do note the rigor and paperwork needed to meet the 

requirements, which can create challenges depending on where a project is in its development timeline.

DFC lags competitors on brand recognition, perceived restrictions due to US investor focus, and capacity 

constraints. According to interviews with PRI customers and market participants, DFC doesn’t have as 

strong of brand recognition as MIGA. Investors across both Africa and Latin America, DFC’s main markets, 

mentioned that DFC isn’t as well-known as MIGA amongst market participants and the most active 

investors. For example, one investor said:

“The World Bank is very well established amongst all banks and financiers in Africa, so if you 

say that you have MIGA insurance, you basically don’t have any follow up questions. DFC 

doesn’t quite have this reputation; not all financiers in all countries will understand exactly 

what DFC is about and what their process is.” – DFC client66

Stakeholders also mentioned that DFC is seen as highly competitive amongst US investors but is seen as 

less focused on non-US investors. While this is a legacy from DFC’s predecessor agency (OPIC’s) policy on 

US nexus requirements (which was relaxed by DFC’s authorizing legislation, the BUILD Act), the perception 

seems to persist in the market, discouraging non-US investors from considering DFC as a viable option. 

Finally, DFC is perceived to have organizational capacity constraints. Compared with other public insurers,

DFC is seen as a small, collaborative, and agile organization – but its small size and capacity can have a 

detrimental effect on client service.

DFC’s PRI issuance is concentrated in Latin America and Sub-Saharan Africa. DFC’s concentration in SubSaharan Africa (49 percent) is significantly higher than competitors (i.e., another public insurer has the next 

highest share, at 31 percent) (Exhibit 13). Although another public PRI provider is also strong in Latin 

America and Sub-Saharan Africa, its portfolio is more evenly split across Europe and Central Asia, Latin 

America, and Sub-Saharan Africa. Other public insurers are more concentrated in Asia (>75 percent of 

issuance), while private players issue PRI more evenly across regions.

67

 

 

 

 

 

 

 

 

 

 

 
23

Exhibit 13

 

DFC has a competitive advantage in serving large-scale projects given its ability to offer large maximum 

coverages and long tenors. There are >700 large projects that will cost $250 million to $1 billion under 

development in DFC’s regions of focus – Latin America and Sub-Saharan Africa – that could serve as an 

opportunity for growth.68 All of these projects have an expected completion before or by 2025 and can act 

as an effective pipeline for DFC (Exhibit 14). Moreover, DFC can leverage large projects to expand into 

additional regions. Latin America and Sub-Saharan Africa represent less than 20 percent of large-scale 

projects from 2015-2025 in emerging markets. DFC could leverage its unique competitive offering to 

support such large-scale projects in other regions of interest. 

 

 

 

 

 

 

 

 

 

Exhibit 14
24

 

Several new products and expanding coverages are emerging focused on political violence; there is 

preliminary support for sustainable investments. Private insurance providers have launched new products 

and expanded their coverages in recent years. For example, with regard to political violence PRI, Chubb 

launched a product in 2020 aimed at bridging the gaps in traditional terrorism business interruption 

policies. In 2016 and 2017, AXA more than doubled the available liability limits for standalone terrorism 

insurance. In 2018, Liberty expanded its coverage to include a range of new risks, including loss of attraction 

(e.g., coverage of negative business impacts from terrorism despite lack of physical damage), denial of 

access, and damage caused by firearms/weapons and unmanned vehicles. In terms of environmental and 

climate risk, Parhelion, designed and executed a “policy risk” insurance for EU carbon markets, and in 2020, 

Vantage launched as a specialty reinsurer focused on renewable energy and infrastructure development.69

 

Number of large projects1

in LATAM and Sub-Saharan Africa, expected completion 2015-2025

1. Defined as projects >$250M. Includes Transportation and Energy/Utilities/Process industries completed/expected to be completed during 2015-2025

Project phase:

269

147 106

182

152

130

56

49

41

357

218

233

49

$250-500M $1-5B

24

5 1

24

26

$500M-1B

592

26 16

$5B+

888

534

97

Study

Design

Bidding/negotiating

Execution

Complete
25

DFC’s PRI Portfolio and Capital Mobilization Impact 

Chapter Summary

DFC currently has 174 active PRI contracts and eight commitment letters with a total maximum contingent 

liability (MCL) of $7.7 billion. Of this exposure, the biggest 20 contracts and commitment letters make up 

around 90 percent of its total exposure, while DFC’s five biggest contracts and commitment letters make 

up around 50 percent of its total exposure. DFC has a high proportion of exposures in low credit-rating 

countries; about 25 percent are in CCC+ or lower-rated countries, while a further 50 percent are in B rated

countries. 

To assess the private capital mobilization impact of DFC’s PRI portfolio, this report analyzed 14 cases, 

accounting for 30 percent of DFC’s total MCL from active contracts, across 10 countries and several sectors 

to estimate the first order and second order private capital mobilization impact. Across the 14 cases 

analyzed, DFC directly mobilized approximately $2 billion in private sector capital, with five contracts

accounting for $1.7 billion. In addition, 80 percent of DFC contracts reviewed had identifiable second order 

private capital mobilized. 

Portfolio overview

DFC’s $7.7 billion in PRI exposure is mostly focused on LIC and LMIC countries in Africa and Latin America at 

the time of the analysis. Exposure is highly concentrated with 91 percent of the MCL coming from the top 

20 contracts and commitment letters2 that are expected to be executed soon, mainly in energy and nature 

conservation. 

DFC currently has 174 active PRI contracts and eight commitment letters. DFC’s most common coverage is 

expropriation, which is used in 82 percent of the active contracts, in 75 percent of the commitment letters,

and involves $47 million of average maximum coverage. Political violence coverage is used in 56 percent of 

active contracts, 38 percent of commitment letters, and has a maximum average coverage of $24 million. 

Finally, currency inconvertibility coverage is used in 24 percent of active contracts, in 38 percent of 

commitment letters and has an average maximum coverage of $76 million. 

Of DFC’s $7.7b PRI portfolio, 6 percent is reinsurance and 94 percent is direct insurance, of which about 

one-third is ceded to private insurers. Of the total exposure, active contracts represent 55 percent of the 

MCL, and commitment letters represents 45 percent. Within active contracts, 9 percent are reinsurance, 

while 91 percent are direct insurance, of which 16 percent is ceded to private reinsurers. For DFC’s

commitment letters portfolio, 1 percent is reinsurance, and 99 percent is direct insurance, of which about 

half is ceded to private insurers. 

DFC has a long tail of small projects. 70 percent of the total number of contracts and commitment letters

are smaller than $10 million in MCL. About 20 percent of its portfolio in terms of number of contracts is 

between $10 million and $100 million, and only three percent is bigger than $100 million. However, the 

contracts larger than $100 million represent about 80 percent of the total exposure of DFC’s portfolio. It is 

relevant to highlight that there is only one contract (a resource extraction commitment letter) with an 

exposure larger than $1 billion. 

2

Letters of intent by both parties to enter into a legal contract
26

At a portfolio level, DFC has a high proportion of exposures in countries with a low sovereign credit rating; 

about 25 percent are in CCC+ or lower-rated countries, while 60 percent are in B rated countries. DFC is a 

market leader with a 16 percent share in this segment. This is driven mostly by DFC’s geographical focus. 

The region with the biggest maximum contingent liability is Sub Saharan Africa, which represents 40

percent of DFC’s exposures. These contracts are concentrated mostly in high-risk countries, with 62 percent

of the DFC’s contracts in this region being in countries with a sovereign credit rating of CCC+ or lower. The 

second biggest region in terms of exposure is Latin America, representing 25 percent of DFC’s exposures. 

Contracts in this region are more skewed towards middle income countries and more stable economies, 

with 75 percent of contracts being in countries with a sovereign debt rating of B (+/-)

3

. In Europe and the 

Middle East, DFC has a pool of contracts predominately in medium risk countries, with 65 percent of 

contracts in countries with credit rating B (+/-)

1

and a small percentage of contracts in low-credit countries.

Lastly, in Asia, DFC’s portfolio is focused on medium risk countries, with 92 percent of the contracts with B

(+/-)

1

rating and the rest 8 percent of the projects in countries with a lower risk profile. 

DFC’s exposures are highly concentrated in a few contracts and commitment letters; its top five contracts 

make up more than 50 percent of its total exposures, and its top 20 contracts make up 91 percent of total 

exposures. The top 20 exposures are mostly within nature conversation, resource extraction, and the 

energy sector, adding up to a total of $7 billion in MCL. The top five contracts and commitment letters are: 

resource extraction – $1.5 billion, nature conservation – $800 million, nature conservation - $725 million, 

nature conservation - $604 million, and energy - $400 million. 

Nature conservation, resource extraction, and energy are the biggest sectors in terms of maximum 

contingent liability and average maximum coverage size. Ranked by the share of the total MCL, nature 

conservation is the DFC’s biggest sector, comprising 32 percent of the total MCL but only 3 percent of total 

number of contracts. The five active contracts and commitment letters in this sector are large-scale

projects, with average maximum coverage size of $371 million, compared to the DFC portfolio average of 

$116 million. The resource extraction sector has a similar profile, with four contracts representing 23

percent of total MCL, and an average maximum coverage size of $456 million. The energy sector is the third 

in terms of share of total MCL, representing 16 percent of the total, but with smaller contracts. DFC has 31 

active contracts and commitment letters in the energy sector with an average maximum coverage size of 

$39 million. The contracts and commitment letters across the remaining sectors have a total exposure of 

around $2 billion, with an average maximum liability of $14 million.

Private Capital Mobilization Impact

Across 14 cases analyzed in 10 countries, DFC’S PRI enabled nearly $2 billion of private capital mobilization 

(PCM) and set a pathway for further investments by decreasing risk perception of the host countries, 

improving critical infrastructure, and pioneering better institutions. 

To assess the private capital mobilization impact of DFC’s PRI portfolio, this report analyzed 14 cases across 

10 countries and estimated the first order and second order capital mobilization impact. Over half of the 

cases had significant or very high first and second order PCM impacts (Exhibit 15). The cases considered 

represent almost 30 percent of DFC’s exposure from active contracts, and are spread across five sectors –

energy, agriculture, nature conservation, healthcare, and finance. Across the cases, DFC mobilized

approximately $2 billion of private sector capital. Most of the cases (78 percent) showed some level of 

3 B, B+, B-
27

second order PCM. In particular, 68 percent of the cases showed demonstration effects and infrastructure 

improvements. 

Exhibit 15 

First Order Private Capital Mobilization

Across the 14 cases analyzed, DFC directly mobilized nearly $2 billion in private sector capital. Amongst 

these cases, five of them mobilized $1.7 billion of private capital. 

Private capital mobilization refers to the amount of private capital that is invested in a project, sector or 

country as a result of some type of DFI investment. In the case of the DFC PRI, private capital mobilization 

refers to the amount of private capital that is invested because PRI was provided to the projects. There are 

two main drivers of PRI that enable first order private capital mobilization. First, PRI attracts investments 

into high-risk countries by managing unacceptable levels of risks. Political risk insurance can help secure

investor buy-in that is conditional on reducing risk to an acceptable level and can also help secure affordable 

debt by improving the credit ratings of project debt. Second, PRI, and especially those coverages provided 

by public entities, reduces the likelihood of political risk events as a result of political and diplomatic 

engagement. 

First order capital mobilization is measured with one of two industry-standards through the Organization 

for Economic Cooperation and Development (OECD) methodology. The OECD methodology requires 

assumptions within its application because it does not provide guidance related directly to PRI. In its current 

application at the DFC, the methodology is split into two components to attribute capital amongst official 

(public) investors and insurers:

Very high impact Significant impact Limited impact High Medium Low First order PCM1

Low High

Second order PCM2

Medium

A1 A2 A3

A4

A5

A6

A7

A8

B1

B2 B3

C2

C1

D1

1. Measured by the number of dollars mobilized for every dollar of PRI exposure provided

2. Measured by the number and evidence of second order effects identified

Renewable energy project

Renewable energy project

Energy project

Renewable energy project

Renewable energy project

Renewable energy project

Renewable energy project

Renewable energy project

Conservation project

Agriculture project

Agriculture project

Healthcare project

Healthcare project

Financial services project

A1

A2

A8

A3

A4

A5

A6

A7

B1

B2

B3

C2

C1

D1
28

1) Anchor component: assigns 50 percent of the private investment equally among only the public

investors and insurers with the riskiest stake, e.g., in some cases only equity investors.

2) Proportional component: assigns 50 percent of private funding proportionally among all public

investors and insurers based on their share of total official investment. 

Combining these two components, it is possible to get an estimation of the private capital mobilized 

through PRI (Exhibit 16)

Exhibit 16 

 

Applying this methodology in the 14 cases analyzed, it is estimated that DFC’s PRI directly mobilized nearly 

$2 billion in private sector capital, as shown in the exhibit below. Among these cases, five of them mobilized 

$1.7 billion of private capital. Projects in the healthcare sector mobilized a total of $899 million, C2,

recognized as the project mobilizing the largest amount of capital of $632 million across more than 10 

different countries. The eight projects in the energy sector mobilized $601 million, and the three projects 

within agriculture and conservation mobilized $476 million. Among the 14 cases, B1 mobilized the greatest 

amount of private capital ($364 million) into a single country (Exhibit 17).

To illustrate how the calculation works, we examine A4, which mobilized a significant amount of private 

capital ($278 million) into a single country, in the next section.

DFC helped mobilize $278M through its PRI coverage of the A4. A4 is a 100 MW wind power project in 

Africa. It is one of the largest wind farms in the country and serves to support the country in achieving its 

clean power goals by 2030. 

In this case, DFC provided a $233 million investment guarantee, as well as reinsured $50 million of equity 

of another insurer’s $100 million political risk coverage. DFC participation was complemented by an $18 

million equity investment by another development finance institution. 

Following the equations in Exhibit 16, the anchor component is split between DFC and the other 

development finance institution equally and the proportional component is split in pro rata shares between 

DFC and the other development finance institution based on the $50 million of DFC reinsurance and the 
29

$18 million the other development finance institution’s investment. The $233 million investment guarantee 

is private capital mobilized that is fully attributed to DFC.

Exhibit 17 

 

This OECD methodology provides a good high-level understanding of PCM and enables comparison across 

international institutions. However, OECD doesn’t capture the full range of second order capital 

mobilization effects, which may imply some amount of under-counting of the full range of private capital 

mobilization. 

Second Order Private Capital Mobilization

Most of the DFC projects reviewed refer to projects in sectors with low maturity and high levels of countryrisk, which implies a pool of projects with significant expected second order PCM. 

Second order capital mobilization refers to situations where investments in projects result in additional 

capital investments in different projects after the initial investment was made (i.e., not the project that was 

specifically being invested in). Political risk insurance enables PCM through three second order capital 

mobilization effects including: 1) Demonstration effects; 2) Improving infrastructure; 3) Improving formal 

and informal institutions (Exhibit 18). 

First, demonstration effects decrease risk perception by reducing information asymmetries, while proving 

an investment thesis in the sector or country. For instance, among the cases analyzed, A5 was one of the 

first renewables projects in the country. At the time, the country was a medium-risk market with a stable 

political context, but low economic development. Its energy sector lagged lower-middle income countries 

but was ahead of low-income countries in terms of electricity rates, consumption, and electricity 

generation. Its electricity generation mix was predominantly based on oil, with low share of renewables. 

Each DFC investment, which included PRI, helped set a precedent for the next investment opportunity. For 

example, the A5 project paved the way for the investor to raise the financing for its subsequent investments

in the country. In addition, the projects provided a critical upgrade to the grid enabling it to handle a higher 

generation capacity and promoted the construction of the biggest storage/battery project in the region.

1,246 1,976

24

16

14

278

5

2

49

214

24

88

364

267

632

0

Agriculture & 

conservation

Healthcare

Energy

B

C

A

D Banking

Total

24

14

12

50

2

3

12

100

6

54

305

246

383

34

A1 Renewable energy project

A2 Renewable energy project

A8 Energy project

A3 Renewable energy project

A4 Renewable energy project

A5 Renewable energy project

A6 Renewable energy project

A7 Renewable energy project

B1 Agriculture project

B2 Agriculture project

B3 Conservation project

C1 Healthcare project

C2 Healthcare project

D1 Financial services project

Project DFC max PRI exposure, USDm Private capital mobilized, USDm

Source: DFC project data

Exposure to PCM 

ratio1

1. Defined as the amount of dollars mobilized for every dollar of PRI exposure provided

1.00

1.13

1.13

5.56

2.63

0.63

4.02

2.14

4.07

1.63

1.19

1.09

1.65

0.00

1.59
30

Second, improving infrastructure (e.g., increasing transmission capacity) facilitates business engagements 

for later investors. For instance, the A8 project provided gas storage infrastructure that supported the 

trading of gas and the development of the country as a regional gas hub. It resulted in gas price reductions 

of >25 percent by enabling the introduction of competition into the market. This price reduction enabled 

incremental capital investment in businesses that utilize this gas. 

Third, improving formal and informal institutions such as pioneering better contracting or purchasing 

agreement regimes in the host country accelerates the completion process and attracts investor attention. 

For example, the A3 project was the first renewable energy project in the country, helping the government

set up an improved PPA regime, enhance contracting quality, and institute strong public-private 

partnership processes. Moreover, the project resulted in an increased installed generation capacity of 14

percent in the country which could enable additional FDI by providing critical infrastructure. 

Currently, second order private capital mobilization is not consistently tracked or communicated. Given the 

development goals of DFC, these second order effects are potentially even more important than the first 

order PCM and should be both actively pursued and communicated by the PRI team. 

Exhibit 18 

 

We have identified three project characteristics which could be used as indicators for high second- order 

PCM:

1) Level of country risk; 

2) Maturity of the sector in which the project took place; and 

3) Provision of critical infrastructure. 

Providing PRI to high-risk countries increases additionality and may provide demonstration effects for other 

insurers or investors. In high-risk countries, there is also usually a higher second order capital mobilization 

effect from improving the physical infrastructure and enhancing institutions. In most cases, these countries 

Second order PCM

Energy

Agriculture & 

conservation

Healthcare

B

C

A

D Banking

Project

C1 Healthcare project

B1 Agriculture project

B2 Agriculture project

B3 Conservation project

C2 Healthcare project

D1 Financial services project

A8 Energy project

A7 Renewable energy project

A6 Renewable energy project

A5 Renewable energy project

A4 Renewable energy project

A3 Renewable energy project

A2 Renewable energy project

A1 Renewable energy project

Demonstration effects Building infrastructure Strengthening institutions

Clear evidence of impact

Some evidence of impact

Limited or no evidence of impact
31

have not had many successful projects funded by foreign or local private investors and often do not have 

critical infrastructure in place. Hence, in LICs and other vulnerable countries, successful FDI in revenuegenerating projects (especially infrastructure) can generate positive spill overs, such as increasing 

productivity, spurring incremental private investment, and stabilizing domestic prices.

70 This report 

measures the level of country risk based on key indicators of political risk (expropriation, currency 

inconvertibility, and political violence), economic indicators (credit ratings, investment, and growth rates), 

and governance indicators (government effectiveness and rule of law). 

Ensuring political risk of projects in immature sectors or first-of-its-kind projects is an opportunity for 

outsized PCM as it creates demonstration effects for other foreign investors. Moreover, it can help the PRI 

market mature so that in subsequent investments, private insurers are willing to go in or match, or even 

improve upon, the original price and tenure terms. This report assesses the sector maturity from the size

of the sector, the extent of previous investments in the sector, and the growth of the sector. 

Lastly, providing PRI to projects that enable or improve critical infrastructure such as electricity supply or 

financial systems, increases the potential for second order PCM. Among the four sectors analyzed, the 

energy and financial sectors most naturally involve investmentsthat provide infrastructure critical to attract 

further private capital. For instance, the A5 and A6 projects provided critical upgrades to the grid that 

enabled a higher electricity generation capacity in the country. As a result, future projects could benefit 

from this infrastructure upgrade. 

Most of the DFC projects reviewed involved projects in sectors with low maturity and high levels of country 

risk, which implies a pool of projects with high expected second order PCM impact. This aligns well with 

the qualitative analysis of the three drivers of second order PCM in the 14 cases considered. Across the 

projects reviewed, there were significant demonstration effects (in 11 out 14 projects), infrastructure 

improvements (in 9 out of 14 projects), and institution building (in 3 out of 14 projects). Some of the 

projects had particularly high second-order PCM impact. For example, A5 helped unlock three more 

renewable projects in the country’s nascent renewables sector, and the four projects provided critical 

infrastructure by increasing the generation capacity of the country by 5 percent. A few projects had slightly 

lower, though still significant, second order PCM impact. For example, B3 did not achieve the same level of 

second order PCM impact as other case studies because it included investments in less risky countries and 

supported already established agricultural sectors that did not provide critical infrastructure that other 

sectors could benefit from.

The second order PCM impact of projects varies by sector. In general, projects in the energy sector have 

higher second order PCM effects. These projects typically took place in high-risk countries where fewer or 

no projects were developed before due to the overall risk profile of the countries. Moreover, the energy 

sector, specifically renewable energy, is a less mature sector. The low maturity of the reviewed African 

energy markets is indicated by low electrification levels and the small share of renewables in the electricity 

generation mix, which amplifies the second order PCM impact of the projects.

For instance, A3 improved electricity capacity in the country, and kickstarted regulatory changes to 

enhance further investments in the energy sector. At the time of the project, the country was a high-risk 

market with low economic development and poor governance. In addition, its energy and electricity sector 

lagged the average of low-income countries on most key metrics. A3’s investment was the first renewable

energy project in the country. This project delivered against all three elements of second order private 
32

capital mobilization. It increased total grid electricity by 10 percent, doubling the solar generation capacity 

and resulting in improved infrastructure for other investors trying to build other capital projects. It 

improved the country’s formal institutions by improving both PPP and contracting practices for subsequent 

investors. And it created significant demonstration effects, since after this project, the government signed 

contracts with at least four more IPPs for renewable projects.

Key insights and Recommendations Going Forward 

Five areas have been identified as potential priority areas for DFC to strengthen its competitive position and 

catalyze its private capital mobilization impact: 1) Targeting high impact segments that match DFC’s 

strengths; 2) Building out go-to-market capability; 3) Crowding in private insurers through reinsurance; 4) 

Building up internal capacity of PRI underwriting and support structure; and 5) Recognizing second order 

PCM effects when evaluating projects. 

Priority area 1: Targeting high impact segments that match DFC’s strengths

As discussed in the first section of this document, PRI issuance has declined by 10 percent per annum since 

2018. This is driven by declining FDI flows; 2022 cross border flows are expected to decline by 28 percent 

compared to 2020. However, opportunity continues to exist in riskier geographies. For example, there are 

more than 700 large infrastructure projects under development in Latin America and Sub-Saharan Africa, 

and interest in PRI is increasing amongst investors who are assessing possible projects in Ukraine. DFC is 

well positioned to drive new FDI in several high impact segments, including projects with high potential for 

second order PCM impact (e.g., first-of-its-kind or infrastructure projects), long-tenor and large-scale FDI 

projects (>$250 million), as well as projects in the riskiest and most fragile markets (less than CCC+

sovereign credit rating). The following actions can be considered: 

Recommendation 1a: Set strategy and align this across all departments (Office of Structured Finance and 

Insurance, Office of Development Policy, Office of General Counsel, Office of the Chief Executive) on 

pursuing projects along 2 dimensions: (i) higher second order PCM impact projects, (ii) long tenor, large 

scale projects. Specifically, high impact projects would include “first-of-it-kind” projects”, projects in CCC 

and below sovereign credit rated markets, and projects that contribute to critical infrastructure. Moreover, 

DFC can continue emphasizing long-tenor, large-scale FDI projects, e.g., by increasing collaboration 

between the business development and underwriting team.

Recommendation 1b: Align incentives across all departments to ensure priority projects are effectively 

pursued (given incremental challenges to underwriting and approval processes of pursuing higher impact 

/ riskier projects). Specifically, DFC can seek to create KPIs that all departments are measured against in 

terms of the target amounts of high-PCM project exposure.

There are three key intended outcomes from pursuing these recommendations:

• Improving collaboration and alignment across departments on challenging projects across the endto-end project development process

• Increasing PCM impact of DFC's PRI portfolio

• Strengthening competitive positioning amongst large-scale, long-tenor investments
33

Priority area 2: Building out go-to-market capability

DFC is seen as passive in its PRI deal sourcing, limiting the PRI activities to investors already familiar with 

DFC. For example, one investor said “Working with DFC is highly private sector driven. You really have to be 

the one coming to the DFC and pushing everything forward.” Moreover, DFC has an opportunity to improve 

its visibility in the market by correcting the perception that it has a US-ownership requirement, promoting 

its advocacy capabilities further, and strengthening its image as an agile and private-sector friendly 

organization. The following actions can be considered:

Recommendation 2a: Cultivate new relationships with high potential clients, e.g., through roundtables or 

roadshows with top (e.g., 20-30) priority investors. This can include developing a list of priority clients (not 

currently served) in DFC’s key markets and assigning responsible staff and tracking outreach and 

engagement for those clients. It can also include organizing roadshows and roundtables, inviting key 

stakeholders and decision makers from top priority clients.

Recommendation 2b: Upskill regional and on-the-ground business development DFC staff on PRI. Roll out 

training program for existing staff as well as for new staff as the organization is growing.

Recommendation 2c: Improve finance-to-insurance cross-selling through measurable incentives. This will 

be particularly relevant for smaller scale projects where the total exposure risk is smaller, or for projects 

where DFC is not the only lender and does not bear the entire risk on the debt side. 

There are three key intended outcomes from pursuing these recommendations:

• Deepening relationships with existing priority clients, enabling DFC to better meet client needs and 

priorities

• Bringing on new clients, thus enabling additional capital mobilization and development impact

Priority area 3: Crowding in private insurers through reinsurance

DFC is perceived in the insurance market as a potential and trusted target of reinsurance from private 

insurers. Obtaining private reinsurance can reduce DFC’s exposure while maintaining PCM and may 

additionally prepare the private insurer to provide direct insurance on subsequent transactions in the 

market. Willingness amongst private insurers to provide reinsurance to DFC is high, as it allows them to 

enter riskier markets and to benefit from DFC’s advocacy in claim events. Moreover, reinsurance can be 

used as a tool for achieving additionality in cases where investors are insisting on using a public insurer but 

where the project itself is not meeting DFC’s additionality requirements. DFC currently lacks a streamlined 

approach for sourcing reinsurance. In order to increase the share of reinsurance of the PRI portfolio, DFC 

can pursue the following activities:

Recommendation 3a: Allowing DFC’s additionality requirement to be met through private market 

reinsurance. DFC can leverage the reinsurance panel presented below to source this increased reinsurance

in an efficient way.

Recommendation 3b: Launching a reinsurance panel to coordinate the procurement of private sector 

reinsurance. The panel will serve as a coordinated forum for the efficient procurement of facultative private 

sector reinsurance. The panel will be formed by experienced private insurers with a track record of 
34

delivering on the type and scale of projects that DFC supports For projects above a certain threshold,4 DFC 

will solicit reinsurance from the panel members, and each insurer will have the opportunity to submit an 

indication of interest for reinsurance.

Recommendation 3c: Streamlining documentation requirements for reinsurers to improve process 

efficiency. To enable increased reinsurance, DFC can implement more simplified and standardized 

documentation requirements for private insurers to aid efficiency of procurement and reporting.

Recommendation 3d: Tracking the value of insurance ceded to private insurers as a KPI to demonstrate 

DFC’s additionality. Set reinsurance target for portfolio as a KPI to demonstrate additionality to DFC 

stakeholders.

There are four key intended outcomes from pursuing these recommendations:

• Streamlining DFC’s approval process by revising the way the additionality requirement can be met.

• Setting a faster and private market friendly reinsurance procurement process

• Establishing a high-quality reinsurance service sourced for DFC’s PRI projects

• Enabling DFC to drive increased developmental impact where private insurers or investors would 

not have proceeded with the transaction but for DFC reinsurance

Priority area 4: Building internal capacity of PRI underwriting and support team

One of DFC’s key competitive advantages in the market is that its underwriting process is perceived as 

considerably faster and smoother than those of key competitors (e.g., MIGA). However, a significant 

number of the interviewed market participants still considered DFC’s diligence and underwriting process 

as lengthy. Moreover, if DFC is to increase its PRI activities, especially given an increase in the exposure 

ceded to reinsurers, it likely will need an increase in its PRI underwriting capacity to maintain and reinforce 

its reputation as an efficient and private-sector friendly underwriter. This could involve the following:

Recommendation 4a: Expanding PRI-dedicated underwriting team capacity to maintain speedy and 

responsive underwriting process. Increasing the size of the team dedicated to the PRI underwriting can 

allow DFC to maintain its reputation of being speedy and responsive as a public insurer, while also 

supporting the need for increased underwriting to maintain its premiums as DFC increases the volume of 

reinsurance through the reinsurance panel.

Recommendation 4b: Launching review of DFC’s underwriting process to identify opportunities for 

reducing roadblocks. DFC can review its internal process (as they pertain to the underwriting process and 

the department that the underwriting team interfaces with), to allow DFC to identify bottlenecks and 

roadblocks currently limiting its capacity to provide an efficient service.

Recommendation 4c: Increasing resource capacity to prevent approval backlogs and support high-quality 

customer service by ensuring adequate staffing in support offices, including legal, E&S, development 

4 Private insurers require a certain amount of insurance in order to undertake the effort to underwrite a project. 

Traditionally, private insurers require a minimum share of more than $10 million of insurance in order to allocate 

resources. 
35

impact, and the KYC process. This will allow more efficient and effective service of the PRI underwriting 

business.

There are three key intended outcomes from pursuing these recommendations:

• Maintaining its reputation in the market of being an easy, responsive public insurer to work with

• Freeing up resources from the underwriting team to be more proactive in client development

Priority area 5: Recognize second order PCM effects when evaluating projects

As it was mentioned before, DFC follows the industry standards and uses the OECD methodology to 

measure PCM. The OECD methodology is a useful tool for comparison of PCM across development 

institutions; however, it is not specific in its guidelines on how to treat PRI when estimating PCM. Therefore, 

there is scope and need for interpretation in the application of the methodology for PRI. A couple of options 

have been laid out for DFC’s application of the methodology. Additionally, while a useful tool, the OECD 

methodology does not provide a holistic and comprehensive picture of the full capital mobilization impact 

of DFC’s portfolio. The methodology doesn’t capture second-order capital mobilization effects, such as 

demonstration effects, building enabling infrastructure, and strengthening institutions. Hence, there is 

scope for DFC to also take a broader lens on PCM in both its measurement and communication effects or 

risk the issue of OECD under-counting. To address these points, the following actions can be considered:

Recommendation 5a: Implementing qualitative framework for assessing second order PCM, which can be 

communicated as ‘market building’. DFC can implement a framework for holistically assessing PCM 

including at least three second order PCM drivers: (a) Demonstration effects: Improving risk perception by 

decreasing information asymmetries and proving investment thesis in sector/country; (b) Building enabling 

infrastructure: Improving physical or financial infrastructure (e.g., increasing transmission capacity) 

enhancing ease of doing business; (3) Strengthening institutions: Improving institutions, enhancing 

regulations, and pioneering better public-private collaboration.

Recommendation 5b: Reviewing application of the OECD methodology for PRI. DFC has a few different 

options for adapting the application of the OECD methodology as it relates to its PRI portfolio: First, it can 

maintain its current approach, where it treats PRI on equity/debt as the same as making a direct 

equity/debt investment in terms of PCM attribution. Secondly, DFC can move PRI below equity and debt in 

the attribution hierarchy, which would result in an average decrease of 2 percent in PCM across the 14 

cases analyzed. Finally, it can treat PRI the same way that the OECD methodology treats guarantees, which 

would result in an average increase of 3 percent in PCM across the 14 cases (Exhibit 19).

The intended outcome of pursuing these recommendations is:

• Achieving a more holistic picture of DFC’S PCM impact, which can be communicated to internal 

and external stakeholders.

PRI remains a critical tool for DFIs to mobilize private capital and support developmental impact. There is 

immense opportunity for DFC to expand, serve, and evaluate projects, and continuing to create new 

opportunities for its stakeholders and society at large.
36

Exhibit 19 

Appendix

Overview of 14 selected DFC Projects

In this appendix, we have laid out the calculation of both the primary and secondary private capital 

mobilization effects for the 14 analyzed projects. The detail is structured by sector, beginning with the 

energy sector, then followed by agriculture and conservation, healthcare, and finally financing. 

Energy Projects: Country and Sector Overview

Current application Proposed application

Options Description

Option 3

Treat PRI like 

guarantees

PRI is treated as a 

guarantee (face value 

of the investment 

covered by PRI is 

what is attributed to 

the PRI provider)

Option 2

Move PRI 

below equity & 

debt in the 

attribution 

hierarchy 

PRI is treated as 

below equity & debt 

in the PCM attribution 

hierarchy

Impact compared to 

current calculations

Option 1

Keep as-is

PRI on equity/debt is 

treated the same as 

making a direct 

equity/debt 

investment

3% average increase in PCM 

across the 14 case studies

~70% average increase in the 

6 cases where it applies, with 

one case in particular driving it 

due to a 250% increase

2% average decrease in PCM 

across the case studies

~55% average decrease in the 

4 cases where it applies (>1 

DFI involved), with one case 

being up to ~95%

None

Pros

Has a more direct attribution 

logic; PRI provides direct 

coverage of an investment, so 

should be able to attribute that 

investment to DFC

More accurately reflects the 

logic in the OECD 

methodology that DFIs that 

take on more risk have a 

higher mobilization impact

Leverages the guidelines from 

other parts of the OECD 

methodology

Cons

May be over-counting the impact of 

PRI, not leaving enough room for 

attribution to direct investors

Doesn’t clearly link the amounts 

mobilized to the instruments mobilizing 

them

Risk is not always a good indicator

of actual capital mobilization

Doesn’t account for the 

disproportionate impact PRI may have 

(e.g., where a project would have 

without PRI)

Doesn’t clearly link the amounts 

mobilized to the instruments mobilizing 

them

Assumes that PRI has the same risk 

profile as the underlying investment

Across the energy projects, most host countries have medium risk levels

Political risk indicators, project year1

A

Economic indicators, project year

925

1,138

472

3,727

9

Credit 

rating

1. Based on information from Marsh Political Risk Assessment and Investment Climate Statements from US Department of State 3. Numbers based in 20164. 

4. Information of Annual FDI is based on the year of the project per country 5. Based on World Bank governance indicators

Annual FDI 

inflow4, $ M 

A1

A2

Renewable energy project

Renewable energy project

A8 Energy project

A3 Renewable energy project

A4 Renewable energy project

A5

A6

Renewable energy project

Renewable energy project

A7 Renewable energy project

Currency 

Expropriation inconvertibility

Political violence 

and terrorism 

B

B

Unrated

BBBNo restrictions on the 

flow of funds for 

remittance or profits 

from foreign 

investments

2010 Constitution 

guarantees safety from 

expropriation. Land 

right issues remains 

contentious

No recent cases. Law 

allows expropriation for 

exceptional reasons

No records. Bilateral 

Inv. Treaty with US 

supports international 

standards for 

expropriations

Possible if criminal 

proceedings of FDI, 

not fulfillment of 

privatization process or 

due to military reasons 

Not an issue. Land 

could be expropriated 

at market value under 

Land Acquisition Act

Guaranteed capital 

remittances. No 

restriction on 

converting fund from 

investments 

De facto capital control 

implemented in 2019 

limits foreign exchange 

for remittances

Bilateral agreement 

with US secures no 

restriction on 

repatriation of capital 

and transfer of funds

No legal restriction on 

flow financial resources. Yet, enforcement of key laws and 

transparency is low

High violent crime 

rooted in poverty, 

unemployment and 

criminal organization

Electoral violence has 

been reduced. Threat 

of instability from 

regional conflict 

Politician tension 

remains although 

frequent violence after 

election declined after 

2015

Stable democracy with 

sporadic and declining 

political violence in one 

region 

Conflict and violence 

on country territory

Weak GDP growth and high 

debt-service burden impair 

creditworthiness. Economy 

vulnerable to external shocks 

Monetary tightening and low 

dependance on exports help 

reduce vulnerability; Instability 

in the banking sector 

Lower diversification, high 

deficit and debt-to-GDP ratio, 

and extreme poverty make the 

country vulnerable to shocks 

Stable political context and 

manageable debt levels, but 

high exposure to commodity 

price shocks and euro zone 

weakness.

Reforms implemented in 2016 

stabilized the financial 

situation. Yet, high 

vulnerability to price shocks 

and trade bans

Host country deep dive – all data anchored in project year

4,586

234

1,525

1,362

2,638

Economic risk

GDP per 

capita, $ 

Overall 

country 

risk

Governance indicators5

Rule of 

Law

Govern. 

Effectiveness

Economic / political risk

High Low Medium High Low: 0-25 %ile High: 75-100 %ile

Overall country risk

Low

Governance risk
37

Agriculture and Conservation Projects: Country and Sector Overview

Energy market maturity varies significantly by project country; highest market growth rates found in less mature markets, especially in SSA

Annual 

electricity 

supply, gWh

4,122

238

10,259

4,455

148,406

Avg. electricity use 

per capita, kWh / 

capita

26

373

90

236

0

Market growth, 

CAGR before 

project year3

Sector maturity2

12,441

319

1,891

2,390

21,840

Key insights and trends, project year

• 93% of energy from oil; undeveloped renewables 

• National Energy Policy aims to achieve 20% of energy 

from renewables; 3 renewables projects are in 

construction (+80MW in 2016)

• New Elect. Act increases transparency to attract FDI

• Unified natural gas prices to reduce subsidies (average 

10% of GDP since 1991)

• Nuclear energy provides 50% of energy 

• Country that transits the most natural gas in the 

world

• 33% of gas consumed is imported

• 55% electricity rate in 2016. Goal of 70% for 2017

• Deregulated market with access to Independent 

power producers (IPP) since 1996

• Tax Incentives removed import duty for renewable 

energy equipment (2015) 

• 65% of electricity access across the country with 88% 

in urban and 38% in rural areas.

• LPDSE1 regulates the sector; setting path liberalize 

the market, reduce subsidies, and boost renewables

• 2013-2017 Production Plan aims to increase capacity 

and reduce energy costs promoting FDI in the sector

• Low electrification levels. Demand expected to 

grow 4x between 2018-2025 to 250MW

• Electrification rate is 70% in urban and 5% in rural 

areas. 2 million households without access

• National utility has monopoly on supply

Renewable energy project

Renewable energy project

A1

A2

A8 Energy project

A3 Renewable energy project

A4 Renewable energy project

Renewable energy project

Renewable energy project

A5

A6

A7 Renewable energy project

High maturity Low maturity

Electricity generation mix, % of total

93

14

14

87

1

3

6

1

1

3

73

39

9

6

1

7

1

2

1

44

2

33

2

5 54

Oil Wind Hydro Solar Geotherm Coal Biofuel Gas Nuclear

Deep dive on energy sector across host countries – all data anchored in project year

-5.7.%

6.2.%

5.4%

-0.3.%

9.6%

Electricity market

Electricity market

Electricity market

Electricity market

Natural gas market

Private inv. in 

energy sector, avg 

of 5 yr prior to 

project year, $ M

A

1. Sources: Our World in Data, International Energy Agency (IEA)

2. LPDSE: Letter of Policy Development of the Energy

3. Market maturity is evaluated based on an overall market analysis, incl. electrification rates, investment levels, growth rates, diversification, percentage of renewable sources of energy

4. Based on 10-year time period leading up to the project year
38

Healthcare Projects: Country and Sector Overview

C The healthcare projects selected have low to medium country risk levels

2,614

1,234

6,534

379

3,196

3,472

321

622

664

50,367

1. Based on information from Marsh Political Risk Assessment, Investment Climate Statements from US Department of State and Economist Intelligence Unit reports for the years of 

the projects considered

2. Information of Annual FDI is based on the year of the project per country

3. Based on World Bank governance indicators

Healthcare 

project

C1

Country deep dive – all data anchored in project year

Healthcare 

project 

C2

2,445

6,494

10,729

4,670

7,519

12,509

5,026

4,908

4,406

9,367

4,836

Political risk indicators, project year1

Currency 

inconvertibility

Governance indicators3

Expropriation

Political 

violence and 

terrorism 

Rule of 

Law

Govern. 

Effectiveness

BB+

BB

CC+

BBB+

BB

BB+

BBBBCCC

Credit 

rating

Annual FDI 

inflow4, $ M 

Economic 

risk

GDP per 

capita, $ 

Economic indicators, project year

Overall 

country 

risk

N/A

Economic / political risk

High Low Medium High Low: 0-25 %ile High: 75-100 %ile

Overall country risk

Low

Governance risk
39

Financial Sector Projects: Country and Sector Overview

OECD methodology

Overview

As it is mentioned on Page 27, PCM is estimated using the OECD Methodology. This approach is the industry 

standard that DFC uses in fulfilling its requirements in the BUILD Act - 22 U.SC. § 9672(b)(3), namely, to 

collect data on the amount of capital mobilized in support of DFC-supported projects. 

This section of the appendix lays the steps to calculate PCM for different types and scenarios of PRI 

coverage. First, PCM is estimated when DFC is treated as an official equity investor. Second, DFC is 

considered as a debt investor. The third type of PRI coverage includes reinsurance and PCM is calculated 

at point in which the primary insurance is provided. Lastly, the fourth scenario, refers to the case in which 

DFC provides insurance for a project where DFC is also providing financing or equity investments. 

Across the four types of PRI coverage and scenarios, PCM is composed of two components– an anchor 

(distributed among the most junior official investors) and proportional (distributed among all official 

investors). Each scenario calculates PCM differently for both components.

To estimate PCM with this approach, four key assumptions are made:

382 1,327

Bank deposits, $ billions

Banking sector concentration, % of assets held by top

3 largest banks

Percentage of adults with deposit accounts with 

commercial banks, % 

Banking sector key insights and trends

1.7 1.8 1.8

2.0 2.1

2.3

2.7

2.9

3.2

2004 05 06 07 08 09 10 11 2012

8% p.a.

16

19

21

26

28

26 26

28

24

2004 05 06 07 08 09 10 11 2012

5% p.a.

72

84 87

97

80 82 85 85 84

2004 05 06 07 08 09 10 11 2012

2% p.a.

Target country’s banking sector is underdeveloped and was the smallest in the 

region in 2007; growth driven by increased privatization

1. Economy is extremely vulnerable given weak fiscal situation, large current account deficit, and the country’s dependency on small number of export products

2. Based on World Bank governance indicators

Economic indicators, project year

Credit 

rating

Annual FDI 

inflow, $ M 

BFinancial services 

project

D1

GDP per 

capita,$

Expropriation 

risk 

High risk. Records of confiscation since 

1980. 592 US citizens claims against the 

government remain. In 2007 the 

government seized petroleum storage 

tanks owned by US company 

Currency inconvertibility 

risk 

No restriction for conversion and transfer of 

funds associated with investment. 

Foreigners can open bank accounts, but 

process can be cumbersome

Political 

violence and 

terrorism risk 

High political tension between government 

and opposition supporters. The government

creates Citizen Power Councils (CPC) 

mobilizing civils chosen by official party to 

monitor opposition and social media

Political risk indicators, project year

Governance indicators, project year2

Rule of Law Governance 

Effectiveness

Economic 

risk1

Overall country risk

D

 The banking sector is underdeveloped and was the smallest in 

the region in 2007. However, it has grown at 8% annually since 

2002, driven by privatization of banks

 In 2007, the banking sector consisted of seven banks and is 

highly concentrated. 3 banks held 97% of the assets 

 Private and foreign ownership of banks increased in 2005/06 

through investments. Last state-owned bank was closed in 2001

 Credit expansion up to 34% of GDP in 2006. However, 

intermediation is weak and hinders development

 High exposure of banks to public sector. 82% of banks 

investments in public debt papers

 Percentage of people with bank account is growing, but private 

banking sector has very low penetration in rural areas

Economic / political risk

High Low Medium High Low: 0-25 %ile High: 75-100 %ile

Overall country risk

Low

Governance risk

Formula for attribution of private capital mobilization for DFC equity investment

Proportional component Anchor component1 2
40

• Debt is senior to equity, so junior investors are prioritized in attribution and take greatest share 

(official equity investment has a higher mobilization impact than mezzanine and senior debt)

• DFC is treated as the insurer in PCM calculations

• If there is no official equity in the accounting period, this component of private funding 

attribution may be split equally among official senior debt and mezzanine investors 

• PRI on equity and an equity investment are treated as equivalent (as is PRI on debt and debt 

investments)

Equity PRI

In this scenario for equity PRI, DFC is treated as an official investor. This is reflected in the specifications for

each of the components mentioned above. First, for the anchor component, this scenario assigns 50

percent of private funding in equal shares among the official equity investors only. In addition, if there is 

no official equity in the accounting period, this component of private funding attribution may be split 

equally among official senior debt and mezzanine investors. For the proportional component, this scenario 

assigns 50 percent of private funding pro rata based on DFC’s share of total official investment, inclusive of 

non-equity investment. 

Example 1 shows a project $100m from private investors, structured with $70m equity and $30m debt 

from private investors. In this case DFC PRI covers 50 percent of the equity ($35m) and there is no other 

PRI coverage. Applying the OECD approach, DFC mobilizes $100m of private capital. 

Debt PRI

In this scenario for debt PRI, DFC is treated as debt investor. This is reflected in the specifications for each 

of the components mentioned above. First, for the anchor component, this scenario assigns 50 percent of 

the private funding in equal shares to the public investors, subject to the following: if public equity investors 

involved, then only assign this 50 percent among those investors. For the proportional component, this 

scenario assigns 50 percent of private funding pro rata based on DFC’s share of total official investment, 

inclusive of non-equity investment. 

Example 2 shows a project $100m in which $90m are provided by private investors and $10m provided by 

official investors (MIGA). The total project amount is composed by 70 percent of equity and 30 percent of 

debt. In this case, DFC PRI covers 50 percent of the debt ($15m) and there is no other PRI coverage. Applying 

the OECD approach, DFC mobilizes $27m of private capital. 

= $100M 

Example

Total project $100M ($70M equity, $30M debt) 

Total private investment $100M ($70M equity, $30M debt)

Total official investment $0M 

DFC PRI coverage $35M (50% equity)

Other PRI coverage None
41

Reinsurance

In this scenario, PCM is calculated at the point in which insurance is provided. The estimated PCM depends 

on who is the provider of reinsurance and what is the state of the transaction. In this case, the report

assumes that the other party is a private insurer. To contemplate different alternatives for providers and 

state of transaction this report considers three scenarios with different outcomes in terms of PCM. 

The first scenario contemplates that another insurer cedes part of the coverage to DFC and the transaction 

takes place at similar times. In this case, the private capital mobilized by DFC is estimated using the 

approach in the two previous cases (Equity PRI or Debt PRI). The second scenario assumes that DFC 

provided reinsurance to the private insurer in a secondary transaction, after private risk insurance is in 

place. In this scenario, there is no private capital mobilized by DFC. Lastly, in the third scenario DFC cedes 

part of the coverage to the private insurer in a secondary transaction. In this case there is no change in the 

private capital mobilized by DFC. 

Wraps

In this scenario, DFC provides insurance for a project where DFC is also providing financing or equity 

investments. In this case, it is relevant to incorporate adjustments to not double count PCM. In these 

scenarios, the proportional component will increase and DFC may be able to claim a portion of the anchor 

component, if at least one of the instruments is equity. Hence, the formula in this scenario is:

Example 2

Total project $100M ($70M equity, $30M debt) 

Total private investment $90M ($60M equity, $30M debt)

Total official investment $10M equity (MIGA)

DFC PRI coverage $15M (50% debt)

Other PRI coverage None

= $27M 

Note: If second insurer is an official insurer, re-allocate based on relative split (e.g., PCMDFC decreases)

Private risk insurance is in place; later (e.g., 1-2 years) DFC provides reinsurance to private insurer in a secondary transaction

Scenario 2

Another insurer cedes part of coverage to DFC; transactions take place at similar times

Scenario 1

OR

DFC insurance in place; DFC cedes part of coverage to private insurer in a secondary transaction

Scenario 3
42

Considering Example 3, it shows a $100m project financed by $70m of equity and $30m of debt. In this 

case, the debt is composed of $20M from official investment (excluding DFC) and $10m of DFC investment. 

In addition, DFC PRI coverages 50 percent of the equity ($35m) and there is no other PRI coverage. Applying 

the OECD approach and considering that DFC investment is the sum of the financing and PRI ($10m +35m), 

the total private capital mobilized is $59.2m. 

 

If any of these scenarios include investment guarantees, we can assume that DFC mobilizes the total 

amount of the underlying investment. The calculations would then proceed as described above, with the 

guaranteed amount removed from the total private investment to avoid double counting.

Data required

To estimate PCM using the OECD approach there is critical data needed in the scenarios considered above. 

These data points are:

• Investment amount committed by DFC (including guarantees)

• Number of official investors in equity

• Number of official investors in mezzanine/senior debt

• Official investment by player

• Total private investment

• Amount covered by original PRI insurer (for reinsurance)

• Transaction date (for reinsurance)

• Amount covered by DFC PRI

• Capital type covered

Formula for attribution of private capital mobilization for DFC wraps

Example 3

= $59.2M 

Total project $100M ($70M equity, $30M debt) 

Total private investment $70M (equity)

Total official investment (excl. DFC) $20M (debt)

DFC PRI coverage $35M (50% equity)

Other PRI coverage None

Total DFC investment $10M (debt) 
43

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Endnotes 

1

International Monetary Fund, Balance of Payments and International Investment Position Statistics (IMF BOP/IIP)

2

ISDB, 2020

3

SDB/ ICIEC. 2020

4

IMF BOP/IIP

5

IMF BOP/IIP

6 Asiedu and Lien, 2011

7 Asiedu and Lien 2011

8 Matime and Gossel, 2022

9 Henisz, 2000; Ali, Fiess and MacDonald, 2010

10 Brunetti and Weder, 1998
46

11 Hamdani et al., 2015; Mayer, 2018

12 Akhtaruzzaman, 2019

13 Asiedu, 2009

14 Asiedu, 2009

15 Galvao, 2001

16 ISDB, 2020

17 ISDB, 2020

18 Galvao, 2001

19 ISDB, 2020

20 MIGA, 2011

21 Galvao, 2001

22 S&P Global, 2022

23 ISDB, 2020

24 ISDB, 2020

25 Waters, 2015

26 Waters, 2015

27 Based on a survey conducted by MIGA and presented at MIGA,2013

28 MIGA, 2011

29 ISDB, 2020

30 ISDB, 2020

31 MIGA, 2013

32 IIE, 2018

33 IEE, 2018

34 Galvao, 2001

35 IIE, 2018

36 McLennan and Hansen, 2022; MIGA, 2011; Benedict at al, 2022

37 IMF BOP/IIP, Berne Union

38 World Economic Forum Global Risk Perception Survey 2021-2022

39 Berne Union
47

40 IMF BOP/IIP

41 Berne Union

42 IMF BOP/IIP

43 Berne Union

44 IMF BOP/IIP, World Bank

45 IMF BOP/IIP, World Bank

46 IMF BOP/IIP, Dealogic, FDI Markets

47 IMF BOP/IIP, Dealogic, FDI Markets

48 Berne Union

49 This only includes ECAs PRI coverage; i.e., it excludes all credit and credit insurance products

50 Berne Union

51 Berne Union

52 Berne Union

53 World Economic Forum Global Risk Perception Survey 2021-2022

54 World Economic Forum Global Risk Perception Survey 2021-2022

55 World Economic Forum Global Risk Perception Survey 2021-2022

56 World Bank, Oxford Economics

57 World Bank, Oxford Economics

58 S&P Global, Fitch

59 Berne Union

60 Interviews with DFC political risk insurance clients

61 Berne Union

62 ICIEC survey for the joint MDB G20 stock-take study

63 World Bank Group

64 Interviews with DFC political risk insurance clients

65 Interviews with DFC political risk insurance clients

66 Interviews with DFC political risk insurance clients

67 Berne Union

68 IPAT - Infrastructure Projects Analytics Tool, leveraging GlobalData
48

69 Press search

70 Yin Germaschewski, 2016