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Project Finance in Emerging Markets: Examining the Role of Risk
Mitigation Instruments in Attracting Foreign Direct Investment
Akomolehin F. Olugbenga
1*
, Aluko, Olufemi Rufus
2
Department of Finance, College of Management & Social Science Afe Babalola University, Ado - Ekiti,
Ekiti - State, Nigeria.
*Corresponding Author
DOI: https://doi.org/10.47772/IJRISS.2025.91200045
Received: 14 December 2025; Accepted: 20 December 2025; Published: 31 December 2025
ABSTRACT
This paper examines the role of risk hedging instruments in mobilizing foreign direct investment (FDI) for
infrastructure development in emerging economies, focusing on Francophone West Africa over the period 2018–
2025. Persistent infrastructure deficits in the region are exacerbated by heightened political, regulatory,
institutional, and macroeconomic risks, which continue to deter long-term private capital. Within this context,
the study assesses how structured risk mitigation mechanisms—particularly political risk insurance, credit
guarantees, and blended finance arrangements—influence investor behaviour, project bankability, and
infrastructure delivery in fragile settings.
Using a review-based methodology, the paper integrates insights from Transaction Cost Economics, Institutional
Theory, and the Risk–Return Trade-Off Framework to explain investment decision-making under uncertainty.
These theoretical perspectives are complemented by illustrative case studies from Côte d’Ivoire (Azito Power
Expansion Project), Senegal (Taiba Ndiaye Wind Farm), and Burkina Faso (Zagtouli Solar Project), highlighting
diverse applications of de-risking instruments across varying institutional environments.
The findings indicate that risk hedging instruments significantly enhance investor confidence and project
viability when embedded within supportive regulatory frameworks, strong institutional capacity, and effective
supranational coordination. However, their effectiveness is highly context-specific, with superior outcomes
observed where risk mitigation is aligned with robust public–private partnerships and coherent state–market
collaboration. The study contributes policy-relevant insights for strengthening risk mitigation frameworks and
advancing sustainable, FDI-led infrastructure development in fragile economies.
Keywords: Project Finance; Risk Mitigation Instruments; Foreign Direct Investment; Infrastructure
Development; Blended Finance; Fragile States; Francophone West Africa
INTRODUCTION
Background to the Study
The persistent financing gap for large-scale infrastructure projects in emerging and developing economies
remains a critical concern for policymakers and investors alike. Mega infrastructure investments are
characterized by substantial capital requirements, extended gestation periods, and complex risk profiles, often
exceeding the fiscal capacity of governments. In response, project finance has emerged as a central financing
mechanism, particularly in contexts where public resources are constrained and private capital is required to
bridge infrastructure deficits. Project finance structures typically rely on the projected cash flows of a specific
project rather than the balance sheets of sponsoring firms, with risks ring-fenced through special purpose
vehicles (SPVs) that allocate and manage financial exposure (Yescombe, 2018).
In Sub-Saharan Africa, and particularly in Francophone West Africa (FWA), project finance has played an
increasingly prominent role in mobilizing foreign direct investment (FDI) for infrastructure development in
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
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sectors such as energy, transportation, and telecommunications. Several French-speaking West African
countries—notably Côte d’Ivoire, Senegal, and Burkina Faso—have recorded notable success in attracting
foreign capital, supported by regional integration frameworks. These include the West African Economic and
Monetary Union (UEMOA), a coordinated monetary regime under the Central Bank of West African States
(BCEAO), and harmonized commercial legal systems established through OHADA. Together, these
institutional arrangements have contributed to policy coherence and investor confidence across the sub-region.
Recent FDI trends identify Côte d’Ivoire and Senegal as emerging investment hubs, driven by infrastructure
reforms, improved macroeconomic management, and targeted investment promotion strategies (UNCTAD,
2023). Nonetheless, despite these advances, FDI inflows into Francophone West Africa remain uneven and
volatile, reflecting persistent structural, institutional, and financial vulnerabilities that continue to constrain long-
term infrastructure investment (IFC, 2022).
Problem Statement
Notwithstanding the growing adoption of project finance structures, infrastructure investments in Francophone
West Africa remain exposed to a complex constellation of risks that elevate financing costs and deter foreign
investors. These risks include political instability, weak governance frameworks, bureaucratic inefficiencies,
legal enforcement challenges, and exchange rate volatility. In fragile contexts such as Burkina Faso, the erosion
of democratic institutions and heightened security concerns linked to insurgent activity have significantly
increased risk premiums for infrastructure projects. Additionally, the absence of deep domestic financial markets
and underdeveloped hedging instruments heightens currency convertibility and repatriation risks, particularly
for foreign investors seeking long-term returns.
Empirical evidence suggests that such risk environments constrain capital mobilization even where economic
fundamentals are relatively sound. Akitoby and Stratmann (2020) argue that limited financial market depth and
institutional fragility can undermine investor confidence, discouraging the provision of long-term financing for
infrastructure projects. While multilateral development institutions and export credit agencies have introduced
risk mitigation instruments—including political risk insurance, partial credit guarantees, and currency hedging
facilities—their effectiveness in catalyzing FDI in high-risk environments remains insufficiently examined,
particularly in the Francophone West African context.
Objectives of the Study
This study seeks to address the identified gaps by pursuing the following objectives:
To examine the role of structured risk mitigation instruments—such as political risk insurance, credit guarantees,
and currency hedging mechanisms—within project finance frameworks.
To assess the influence of these risk mitigation instruments on foreign direct investment inflows in emerging
and high-risk markets.
To analyze the relationship between structured risk management practices and project completion or success in
fragile investment environments.
Research Questions
Guided by these objectives, the study addresses the following research questions:
To what extent are existing risk mitigation instruments effective in de-risking infrastructure investments in
Francophone West Africa?
How do risk mitigation tools and techniques influence FDI inflows within project-financed infrastructure
projects?
What is the impact of structured risk management processes on project delivery and performance in high-risk
contexts?
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Scope of Study
The study covers the period 2018–2025, capturing significant economic transitions in the aftermath of the
COVID-19 pandemic and a renewed policy emphasis on resilient and sustainable infrastructure development.
Geographically, the analysis is limited to Francophone West African countries, with specific focus on Côte
d’Ivoire, Senegal, and Burkina Faso. This regional focus is justified by the shared legal, monetary, and
institutional frameworks that provide a relatively uniform policy environment for comparative analysis.
Methodologically, the study adopts a review-based approach, integrating a systematic review of peer-reviewed
academic and institutional literature with selected country case studies to provide both theoretical depth and
empirical grounding.
Significance of the Study
This study makes a timely and relevant contribution to the literature on project finance, risk management, and
foreign direct investment in fragile economies. By focusing on Francophone West Africa, it addresses a notable
empirical gap concerning the role of risk mitigation instruments in mobilizing private capital for infrastructure
development. The findings are expected to inform policymakers, multilateral development institutions, and
private investors on the design of targeted financial instruments and regulatory frameworks capable of reducing
perceived risks and attracting sustainable FDI inflows.
Beyond its academic contribution, the study has important policy implications for advancing infrastructure-led
growth, regional integration, and the achievement of the Sustainable Development Goals (SDGs) in fragile and
emerging market settings. Through a project finance and risk mitigation lens, the research contributes to broader
debates on sustainable investment and infrastructure delivery in Sub-Saharan Africa.
Conceptual and Theoretical Review
Conceptual Review
Risk Mitigation Instruments in Project Finance
At the core of project finance in emerging markets lies the strategic deployment of risk mitigation instruments
designed to reduce the exposure of investors to political, financial, and macroeconomic uncertainties. In high-
risk environments such as Francophone West Africa, infrastructure projects are particularly vulnerable to risks
including expropriation, breach of contract, currency inconvertibility, regulatory instability, and sovereign
default. Risk mitigation instruments—such as political risk insurance (PRI), partial risk guarantees, credit
guarantees, and currency hedging mechanisms—serve as critical financial tools to address these vulnerabilities.
Political risk insurance provided by multilateral and regional agencies, including the Multilateral Investment
Guarantee Agency (MIGA) and the African Trade Insurance Agency (ATI), protects investors against non-
commercial risks, while credit and partial risk guarantees reduce default exposure associated with public sector
counterparties (IFC, 2022). By lowering perceived risk and improving risk allocation, these instruments reduce
the risk-adjusted cost of capital and enhance the bankability of infrastructure projects, thereby making project
finance structures more attractive in fragile and uncertain contexts (OECD, 2023).
Foreign Direct Investment (FDI) Inflows
Foreign direct investment represents the primary channel through which long-term private capital is mobilized
for infrastructure development in emerging markets. In the proposed framework, FDI inflows capture both the
volume and stability of foreign capital committed to project-financed infrastructure assets. Investors are more
inclined to participate in infrastructure projects where risks are transparently identified, effectively allocated,
and credibly mitigated.
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Risk mitigation instruments function not only as financial safeguards but also as signalling mechanisms,
conveying policy credibility and commitment to investor protection (Humphrey & Prizzon, 2022). When
integrated early in the project lifecycle—particularly during project structuring and financial close—these
instruments accelerate investment decisions and attract risk-averse institutional investors such as pension funds,
insurance companies, and sovereign wealth funds. Consequently, the framework posits a direct and positive
relationship between the availability of risk mitigation instruments and the scale and resilience of FDI inflows
into infrastructure projects.
Infrastructure Project Performance
Improved risk management and increased FDI inflows are expected to translate into enhanced infrastructure
project performance. Project performance within this framework is reflected in indicators such as timely project
completion, cost efficiency, operational sustainability, and service delivery outcomes. In emerging markets,
infrastructure projects are frequently disrupted by political instability, macroeconomic shocks, and regulatory
uncertainty, leading to cost overruns, delays, and underperformance.
However, projects that systematically integrate risk mitigation strategies are more resilient to such disruptions.
Effective hedging against political and financial risks enhances project adaptability, reduces uncertainty during
implementation, and improves the likelihood of successful project delivery (Akitoby & Stratmann, 2020).
Accordingly, the framework assumes that the use of structured risk mitigation instruments indirectly improves
infrastructure performance by stabilizing investment flows and strengthening project governance.
Regulatory and Institutional Support (Moderating Variable)
Regulatory and institutional frameworks play a critical moderating role in determining the effectiveness of risk
mitigation instruments and their impact on FDI and project outcomes. Even well-designed financial instruments
may fail in the absence of strong institutional capacity, transparent regulatory systems, and credible enforcement
mechanisms. Institutions such as dedicated public–private partnership (PPP) units, independent regulators,
competent judiciaries, and investment promotion agencies are essential for the effective deployment and
enforcement of risk mitigation arrangements (Khan et al., 2024).
Clear procurement processes, predictable macroeconomic policies, enforceable contracts, and regulatory
consistency strengthen investor confidence and amplify the effectiveness of de-risking mechanisms. Empirical
evidence suggests that countries with robust institutional and regulatory environments are better positioned to
attract risk-averse foreign capital and sustain infrastructure investment over time (AfDB, 2023). Within the
framework, regulatory and institutional support moderates the relationship between risk mitigation instruments,
FDI inflows, and project performance by either strengthening or weakening these linkages.
The conceptual framework establishes a sequential and interrelated pathway in which risk mitigation instruments
enhance FDI inflows, which in turn improve infrastructure project performance. This relationship is conditioned
by the strength of regulatory and institutional support, which determines the credibility, enforceability, and
overall effectiveness of risk mitigation mechanisms.
The framework provides a multidimensional perspective on project finance in emerging markets, emphasizing
that attracting foreign capital for infrastructure development is not solely a matter of financial engineering.
Rather, it is equally dependent on institutional capacity, regulatory quality, and policy coherence. By integrating
financial, institutional, and performance dimensions, the model offers a robust analytical foundation for
examining how risk mitigation instruments can catalyze sustainable FDI-led infrastructure development in frag
would thus have to seriously engage with a number of interrelated financial and economic concepts to
understand the inflation-hedging potential of cryptocurrencies in high-inflation economies. This section reviews
and critically reflects on the key aspects related to the topics of this review: inflation hedge, cryptocurrencies,
conventional inflation-proof assets, asset volatility and correlation, store of value, and financial inclusion in the
context of high inflation. These two concepts, together, serve as the analytic geometry of comparison of digital
vs traditional assets.
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THEORETICAL FRAMEWORK
The institutional framework for the analysis in this paper draws theoretically from the cross-disciplinary tools
that can describe the behavior of investors, the structure of financial contracts and institutions that bear risk and
manage uncertainty in project finance. In higher risk emerging markets, including Francophone West Africa,
investments in infrastructure by foreign direct investment (FDI) are made largely based on expected returns but
also based on perceived and actual risks which are related to the political, legal and the operational environment.
In this regard, there are three main theoretical bases underpinning the analysis adopted in this study: Transaction
Cost Economics (TCE); Institutional Theory (IT); and the Risk-Return Trade-Off Framework.
Transaction Cost Economics (TCE), as first articulated by Coase (1937) and refined by Williamson (1985),
offers a critical perspective to help explain how firms design their contracts and governance arrangements in the
presence of uncertainty and asset specificity. TCE assumes that firms bear costs when engaging in transactions
such as negotiation, monitoring, or enforcement costs of a contract. In places with poor institutional quality and
high risk, these costs are raised and conventional ways of funding infrastructure become unattractive. Project
financing, especially with supported by risk mitigation instruments, provides a way to alleviate these transaction
costs by placing risk where it will be most efficiently managed, routinely through the use of special purpose
vehicles (SPVs) and risk sharing arrangements. This theory provides a theoretical framework for deploying
structured and insured financial products—like guarantees and political risk insurance as mechanisms to address
information asymmetries and opportunistic behaviour that enhance the efficiency and financial sustainability of
infrastructure investments (see Yescombe, 2018; Estache & Wren-Lewis, 2021).
Institutional Theory adds to this understanding by focusing on the impact of formal and informal regulations,
standards, and enforcement on economic actions and organizational results. The attractiveness and success of
project finance and FDI in emerging markets from this point of view are not independent of the institutional
environment. North (1990, in particular, has claimed that institutions minimize uncertainty through creating an
order in which human interaction can take place, which is particularly important in markets with weak systems
of governance and weak regulatory reach. In Francophone West Africa, existence of Harmonized legislations
under OHADA, regional monetary institution as BCEAO and development finance institutions such as BOAD
and AfDB drive reductions in institutional voids. Nevertheless, differences in contract enforcement, political
stability, and administrative capabilities across countries continue to generate considerable variation in
investment conditions. Risk mitigation tools therefore will only be as successful as the institutions that support
the use and enforcement of these instruments as has been shown in recent research that links the quality of
institutions to the resilience of investment in UEMOA countries (Khan, Diop, & Sagna, 2024; AfDB, 2023).
The Risk-Return Trade-Off Framework elaborates the math behind investors math, i.e., scaling the desired rate
of return against different levels of risk. Based in modern portfolio theory and the classical financial economics,
this model posits that, in general, an investor would tend to invest only in those projects that offer a higher
return… for the additional risk encountered (Sharpe, 1964). In these markets, the risk premium is generally
higher than what institutional investors can bear, other than with risk mitigants such as guarantees, insurance or
concessional finance. So, risk mitigation instruments do not remove risk as such but change the risk-return
profile in favour of the investor, in view of attractive and bankable infrastructure projects. The model can explain
why even commercially-viable projects are unable to achieve financial close in the absence of the necessary de-
risking structures, and why blended finance solutions, combining concessional and market-based finance, are
gaining ground in fragile situations (Humphrey & Prizzon, 2022; OECD, 2023).
Collectively, these theories provide an integrated framework of the financial, institutional, and behavioral factors
that influence the outcomes of project finance under high risk conditions. Transaction Cost Economics offer an
explanation for the design of the architecture of project finance; Institutional Theory emphasizes the importance
of the institutional environment within which governance processes and regulatory systems were evolving; while
the Risk-Return Trade-Off-Framework explains investor decision-making in a value-of-risk (VOR)
environment. Considering the multifaceted character of the research problem, we use an integrated theoretical
approach, mainly based on Institutional Theory and Transaction Cost Economics as anchoring theories. These
two theories taken together help us in understanding the relationship between institutional quality, risk
management and investment behavior, and it thus presents a holistic framework on which we can build how risk
mitigation instruments affect FDI and project performance in the Francophone West African countries.
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Conceptual Framework
Figure 1: Conceptual Framework Linking Risk Mitigation Instruments, Foreign Direct Investment, and
Infrastructure Project Performance in Emerging Markets
This figure illustrates the hypothesised relationships between risk mitigation instruments and infrastructure
project performance in emerging markets. Risk mitigation instruments—proxied by political risk insurance,
credit guarantees, partial risk guarantees, currency hedging, and blended finance—influence foreign direct
investment (FDI) inflows, which act as a mediating variable. The effectiveness of this relationship is moderated
by regulatory and institutional support, reflecting the role of legal frameworks, institutional capacity, and policy
stability in shaping investment outcomes.
Explanatory Note on the Conceptual Framework
TheThe conceptual framework illustrates the interrelationships among risk mitigation instruments, foreign direct
investment (FDI) inflows, regulatory and institutional support, and infrastructure project performance within the
context of project finance in emerging markets. It is premised on the argument that the viability of infrastructure
investment in high-risk environments depends not only on the availability of capital but also on the effectiveness
of mechanisms that manage and allocate risk.
At the core of the framework are risk mitigation instruments, which serve as the independent variable.
Instruments such as political risk insurance, credit guarantees, partial risk guarantees, currency hedging, and
blended finance structures are designed to reduce investors’ exposure to political, financial, and macroeconomic
uncertainties. By lowering perceived and actual risks, these instruments enhance project bankability and reduce
the risk-adjusted cost of capital, thereby making infrastructure projects more attractive to foreign investors.
FDI inflows function as the mediating variable through which risk mitigation instruments influence
infrastructure outcomes. The framework posits that when risks are credibly mitigated, foreign investors are more
willing to commit long-term capital, leading to increased and more stable FDI inflows. These inflows, in turn,
facilitate timely project financing, support efficient project implementation, and improve overall project
viability.
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The dependent variable, infrastructure project performance, captures the ultimate outcomes of project-financed
investments, including project bankability, delivery performance, operational efficiency, and long-term
sustainability. The framework assumes that higher and more stable FDI inflows contribute positively to these
performance indicators by ensuring adequate funding, improved governance, and operational continuity.
Regulatory and institutional support is incorporated as a moderating variable that conditions the strength of the
relationships within the framework. Strong legal and regulatory frameworks, effective institutions, and policy
stability enhance the credibility and enforceability of risk mitigation instruments, thereby amplifying their
impact on FDI inflows and project performance. Conversely, weak institutions and regulatory uncertainty can
undermine the effectiveness of de-risking mechanisms.
The framework underscores that attracting FDI into infrastructure in emerging markets is a multidimensional
process that combines financial engineering with institutional quality and policy coherence.
METHODOLOGY
Research Design
This research utilizes a qualitative research design that combines a literature review with the analysis of case
studies. This research approach has been considered most apt for the aim of this study that tries to blend
theoretical understanding with practical experience that is not necessarily quantitative. The use of the literature
review approach also allows the study to fully interpret the role that the use of risk mitigation instruments plays
under differing institutional settings, particularly in the fragile environment that is often associated with data
shortages that may impede purely quantitative research.
Data Sources and Literature Selection
This research only leans on the secondary sources from peer-reviewed journals, policy publications, and
institutional reports that have appeared during the period from 2019 to 2025. The major sources include:
1. Scopus-listed journals on project finance, development finance, & economics
2. Publications by multilateral bodies and regional organizations such as the World Bank Group, the
International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), the
Organisation for Economic Co-operation and Development (OECD), the African Development Bank
(AfDB), the United Nations Conference on Trade and Development (UNCTAD), and the International
Monetary Fund (IMF)
3. Policy briefs and investment reports prepared by development finance institutions and export credit agencies.
The literature screening aimed at studies that examine project financing mechanisms, risk mitigation
instruments in political and financial risks, investments in infrastructure, and foreign direct investments in
emerging or fragile economies. The study utilized citation chaining and backward searching to identify
influential works.
Analytical Framework
TheThis analysis rests on an integral framework based on concepts and theories of Transaction Cost Economics,
Institutional Theory, and the Risk-Return Trade-Off Framework. These theoretical approaches offer the
theoretical viewpoint or framework from which the behavior of investors, treatment of risks, and financing of
capital in the situation of high-risk infrastructure projects is examined.
The conceptual framework structures the analysis around four core constructs:
(i) risk mitigation instruments (independent variable),
(ii) FDI inflows (mediating variable),
(iii) infrastructure project performance (dependent variable), and
(iv) regulatory and institutional support (moderating variable).
This structure enables a systematic assessment of how de-risking mechanisms influence investment decisions
and project outcomes under varying institutional conditions.
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Case Study Selection and Use
To complement the literature review, the study incorporates illustrative case studies from Francophone West
Africa, namely:
⚫ the Azito Power Expansion Project in Côte d’Ivoire,
⚫ the Taiba Ndiaye Wind Farm in Senegal, and
⚫ the Zagtouli Solar Project in Burkina Faso.
These cases have been chosen for their relevance to project finance, their application of risk mitigation tools, as
well as their characteristics that reflect varying degrees of institutional capacity and political risk. These case
studies should not be used for generalizing statistical purposes but for making conceptual points, illustrating the
workings of risk mitigation tools, as well as their effects on foreign direct investment participation.
Method of Analysis
The research applies thematic and comparative techniques for synthesizing learnings from literature reviews and
case studies under examination. The key themes include the role of political risk insurance, guarantees, and
blended finance, responses of investors to de-risking tools, and the roles of regulatory frameworks. Cross-case
comparisons are applied for revealing commonalities, as well as nationally distinctive features, among the
chosen study nations.
Scope and Limitations
While the methodology based on reviews gives a wide range of conceptual as well as policy-oriented insights,
the research itself does not involve any econometric analysis or the generation of primary data. This means that
the research will infer causal relations on an analytical level and not on a statistical level. Despite this, the
framework for research gives a firm grounding for further research.
Figure 2: PRISMA 2020 Flow Diagram of the Study Selection Process
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This figure presents the PRISMA 2020–compliant flow diagram detailing the identification, screening, eligibility
assessment, and final inclusion of studies reviewed in this paper. It outlines the systematic process through which
relevant peer-reviewed and institutional literature on project finance, risk mitigation instruments, and foreign
direct investment in emerging markets was identified, screened, and synthesized.
Review of Literature
Understanding Project Finance in Emerging Markets
Project finance is a long-established financial architecture that has emerged specifically for the purpose of
financing capital-intensive infrastructure projects through a system in which lenders look primarily to the cash
flows generated by the project as the source of repayment, and thus rely on the revenue generated by the project
in order to service and repay their loans rather than the balance sheets of the sponsors of the project. This is
through a non-recourse or limited-recourse financing structure which pass funds via Special Purpose Vehicles
(SPVs) that legally and financially separate the project from that of the sponsors’ corporate entities (Yescombe,
2018). Project finance is at the heart of a system where risks are allocated in an optimal way between different
parties, sponsors, lenders, contractors and off-takers, thanks to the use of sophisticated contractual structures.
Such frameworks are the are build-operate-transfer (BOT), public-private partnership (PPP), build-own-operate
(BOO) depending on the regulatory and market conditions (Esty, 2020).
Project finance, particularly in Sub-Saharan Africa, has become a key mechanism for leveraging private funding
in sectors such as power, transport and water in developing markets. The infrastructure financing deficit -
estimated to be more than $100bn each year in Africa - requires innovative financing solutions that would shift
the risks of capital and encourage private capital (AfDB, 2023). The SPVs are also very important for the risk
ring-fencing and debt leveraging of the sponsor's other activities and their (almost) complete insulation from
project-specific risk. In addition, contractual mechanisms such as step-in rights, debt service reserve accounts,
and escrow arrangements are frequently inserted to improve credit of the project and reduce credit risk of investors
and lenders (ADB, 2025).
Types of Risk in Project Finance
Project finance deals, particularly in delicate emerging markets, are exposed to a wide variety of risks by their
very nature. These risks are political risk, currency risk, regulatory risk and construction and operation risks.
Political risk includes expropriation, political violence, breach of contract by a government, and contract
frustration. In regions with weak democratic institutions or repeated conflict, such as some countries in
Francophone West Africa (e.g., Burkina Faso), political risk is still a significant obstacle to long-term investment
(IFC, 2022).
Currency risk is even more acute when projects are being cash-flown in local currency while debt service is being
paid in foreign currency, which can lead to mismatches that may cause instability in the cash flow forecast. While
the CFA franc zone (to which UEMOA member countries belong) provides some stability through its peg to the
euro, the limitations on convertibility and repatriation continue to create liquidity restrictions (OECD, 2023).
Regulatory risk includes sudden shifts in policy, as well as permitting delays and the lack of investment protection
frameworks. Risk associated with construction and operation is related to delays in the project implementation,
cost overruns and underperformance, while it might be magnified by low level of local capacity and poor
supplychain mechanisms (Khan, Diop & Sagna, 2024).
In Francophone West Africa, these risks are compounded by a range of structural problems: weak enforcement
of the law, limited transparency in institutions, fragile political transitions, and bureaucratic entrenchment. While
states such as Côte d’Ivoire and Senegal have made serious efforts to address governance and investor protection,
the region remains characterized by systemic fragility that demands targeted risk reduction measures (AfDB,
2023) that are multi-faceted in nature in order to ensure the continued confidence of investors.
Risk Mitigation Instruments
Stacking risks of project finance in emerging markets have made it necessary to deploy risk mitigation instruments
as a key element of investment structuring. Among these, one of the most used instruments is Political Risk
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Insurance (PRI) supported by institutions such as the Multilateral Investment Guarantee Agency (MIGA) and the
African Trade Insurance Agency (ATI). PRI insures non-commercial risks such as expropriation, political
violence, and currency inconvertibility. Evidence also point to PRI not only reduced exposure to investors but as
a signalling role to bring co-investment and to make the project more bankable (Humphrey & Prizzon, 2022).
Credit insurance is another efficient means of improving the credit profile of a public sector borrowers or a public-
private partnership. GuarantCo, for example, and AfDB, provide partial credit guarantees (PCGs) that can cover
defaults in debt service, which help ensure that the infrastructure projects are more attractive to local and
international lenders. Guarantees are a form of credit enhancement they cut the interest spread on project loans
and the length of tenors and hence, improve financial sustainability (Estache & Wren-Lewis, 2021).
Hedging products and contingency finance are other tools intended for the management of interest rates
fluctuation, inflation risk and foreign exchange risk. Cross-Currency Swaps, Interest-Rate Caps, and the Provision
of Standby Liquidity: Guiding References to Complex Financial Structures in Fragile States (Guiding References)
Instruments such as cross-currency swaps, interest-rate caps, and standby liquidity facilities are becoming more
embedded into financial structures in markets of fragile states. For instance, it has been shown that GuarantCo’s
local currency guarantees have been effective in protecting investors from FX-related losses in West Africa,
leading to broader participation by local capital markets (OECD, 2023).
Although access to such instruments is increasing, the uptake of them is not as widespread in many Fracophone
West African countries as a result of information asymmetries, undeveloped financial ecosystems and a lack of
institutional capacity. Accordingly, there is an urgent requirement for capacity building, project preparation
upstream and alignment of financial instruments with local regulatory issues (IFC, 2022).
FDI and Risk Perception in High-Risk Environments
The negative influence of risk on FDI in developing countries is supported by empirical studies. Investors invest
capital according to assumed risk-return trade-offs; when risks (expropriation, poor enforcement, macroeconomic
instability) are considered to outweigh returns, capital flows are discouraged (Blanchard & Acalin, 2019). Any
additional political or regulatory risk in fragile states further diminishes the potential for project finance deals to
get to financial close.
There are differences in investor behavior based on origin as well. Large institutional investors from around the
world are more likely to be risk averse and only invest where they see a full package of credit supports and
political guarantees. Even though local investors are more used to country-specific risks, they are frequently
limited by short capital resources, short-term liquidity demand and thin local capital markets. These
4ResilientAfrica working paper 6 twin constraints – global capital’s risk aversion and local capital’s lack of
volume – make de-risking apparatus not just a tool but a necessity for investing in fragile contexts (Kaul &
Conceição, 2018).
Empirical evidence shows that countries with strong de-risking ecosystems and institutional frameworks (e.g.,
Kenya, Ghana) have achieved better results in FDI mobilization compared to those countries who do not have
these structural set-ups. In addition, projects with embedded risk mitigation elements (e.g. MIGA-wapped
infrastructure deals or AfDB-guaranteed bonds) have higher completion rates and performance metrics to non-
guaranteed projects (Humphrey & Prizzon, 2022). This highlights the role of the risk perception not only in
investment decision-making, but also in the sustainability of capital mobilization in the long run.
The literature reviewed emphasises the significance of risk in determining infrastructure investment behaviour in
developing economies and the importance of financial structuring to mitigate these challenges. Project finance
models offer a pragmatic and viable means of delivering infrastructure, however their success in doing so depends
on strong risk identification and allocation processes. West Francophone Af rica is a curious case of common
monetary and legal orders but continued institutional fragility, which requires place-specific approaches to risk.
Political risk insurance, credit guarantees, and hedging facilities are important instruments, but their effectiveness
is heavily dependent on the quality of domestic regulatory and institutional systems. Second, investors in high
risk environments exhibit more risk aversion inducing that the availability and credibility of de-risking tools are
crucial in FDI, too. On the whole, the literature secures that filling Africa's infrastructure gap would entail more
than mere projects financing, but purposeful deployment of risk mitigating instruments with corresponding
institutional reforms.
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Case Studies of Francophone West African Countries (2018–2025)
This section presents three illustrative case studies of infrastructure projects in Francophone West Africa—
specifically Côte d’Ivoire, Senegal, and Burkina Faso—implemented between 2018 and 2025. Each case
highlights the structuring of project finance under high-risk conditions, emphasizing the application of risk
mitigation instruments such as political risk insurance, credit guarantees, and blended finance mechanisms. These
cases demonstrate the impact of such instruments on investor confidence, project delivery, and FDI attraction in
fragile economic contexts.
Côte d’Ivoire – Azito Power Expansion Project
The Azito Power Expansion Project one of the top private sector driven infrastructure developments undertaken
on a project finance basis in West Africa. Near Abidjan, an increase (Phase IV) of the gas-fired Azito Power
Plant, to add another 250 MW, commenced in 2019. The overall project cost was about $330 million financed by
a syndicated debt package from the International Finance Corporation (IFC), the African Development Bank
(AfDB) and Proparco, and equity from industrial sponsors (IFC, 2022).
The financing structure included a strong element of limited recourse project finance, with risk sharing among
the consortium through a clear public-private partnership (PPP) framework. The Government of Côte d’Ivoire
was the off-taker represented by its utility company CI-Energies and the commercial risk was mitigated by a long-
term Power Purchase Agreement (PPA). And most importantly, MIGA’s political risk insurance (PRI) covered
potential breach of contract, currency inconvertibility, and political violence, thereby protecting multiple investors
over a 15-year life of the project (MIGA, 2023).
In addition, AfDB provided a partial credit guarantee to improve counterparty risk of the government off-taker,
helping lenders to extend maturities. The backstop afforded by a combination of institutionally risk guarantees
and sovereign risk for the investor is a powerful de-risking mechanism and drew significant private and
multilateral investment into the project. Results are such as successful commissioning of the addition in 2022, the
reinforcement of the network reliability and the change from the investors’ perspective with regard to Côte
d’Ivoire, as a stable FDI destination in the field of energy (AfDB, 2023; Khan et al.; 2024).
Figure 3: Project Finance Lifecycle in Fragile States
This circular diagram illustrates the four core phases of project finance—Pre-feasibility, Financial Close,
Construction, and Operation—and overlays where key risk mitigation instruments (e.g., Political Risk Insurance,
Credit Guarantees, Contingent Finance) are most effectively applied. It underscores the importance of timing and
targeted risk tools in ensuring project viability in high-risk environments.
Senegal – Taiba Ndiaye Wind Farm
The site is occupied by the Taiba Ndiaye Wind Farm, which came fully on line in 2020 as the largest wind power
project in West Africa, contributing 158MW of clean energy to the country’s power grid. Arisingometryn is a
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selective herbicide for use on crops; its international patent, which covers the regulated active ingredient of
Trumpor, from its pre-treatment to post-treatment cycled harvest, is issued and has twice been
validated.www.alligatorraiders.com" With an estimated 105 million wild pigs at work destroying our natural
resources—amy 9590 year-old burial in Florida was just recently found uprooted by feral hogs—American
hunters may need all the help they can get in trying to eradicate these pests.HCP Actively seeking fundraising
partners in weed science, agriculture, green chemistry, effective natural products, and medical oncology,
alligatorraiders requests a comparable HB200 million equity release from any potential fundraising partners to
coincide with the later anticipated HB600m IPO Alligator Raiders 12 May 2007 "It also provides the opportunity
for common-everyday-Weed-Scientists and/or producers to make Billions for themselves as they each sniff out
various tips and tricks to remove unwanted poisonous plant pests that have literally killed half the known plant-
holistic-oncology green-planet-cure-services within the planet's 5,000 year history! The financing package was
provided by the U.S. Development Finance Corporation (DFC), the European Investment Bank (EIB) and the
Emerging Africa Infrastructure Fund (EAIF), supported by political risk insurance from MIGA (MIGA, 2023;
EAIF, 2022).
Various risk mitigation instruments were employed to make the project bankable. MIGA’s guarantee covered
currency inconvertibility and breach of contract while EAIF provided long-term debt under concessional terms.
A cross-currency hedge was structured to hedge Senegal’s exposure to foreign exchange rate risk, as government
revenues were in CFA francs and debt servicing obligations were in euros and US dollars (OECD, 2023).
Furthermore, risk was managed through the use of a take-or-pay PPA with Senelec, and by reducing market risk
and revenue volatility.
The project also received strong political endorsement via the new Senegalese Renewable Energy Law and the
establishment of a robust regulatory framework for Independent Power Producers (IPPs). Quick financial close
for an early opening and a well-received programme design for risk de-risking. On the side of technical success,
the project structure has provided a precedent for future PPP arrangements and investments in renewable energy
deployment in all UEMOA countries (Humphrey & Prizzon, 2022).
Table 1 Risk Allocation Matrix
Burkina Faso – Zagtouli Solar Project
In this light, the Zagtouli Solar Plant in Burkina Faso, initiated in 2017 and expanded from 2019 to 2022, provides
an example of how innovative risk sharing can facilitate the construction of infrastructure in politically uncertain
jurisdictions. Financed by the World Bank and the European Union and implemented by Burkina Faso’s state-
owned power utility, SONABEL, the 33 MW plant is the largest of its kind in the country and one of the most
competitive in terms of costs of utility-scale solar installations in the Sahel (World Bank, 2023).
This approach is different from typical private sector-driven project finance as in the case of the Zagtouli project
the financing structure was a publicly sponsored model, which is complemented with IFC advisory work and
World Bank partial risk guarantees. This risk minimization enabled procurement and contract procedures, and in
turn enabled international contractors to enter construction and operation without political interference and the
risk of payment default. A political risk cover was also provided through the World Bank’s International
Risk Type
Azito Power (Côte
d’Ivoire)
Taiba Ndiaye (Senegal)
Zagtouli Solar (Burkina Faso)
Political Risk
MIGA (PRI),
Government
guarantee
MIGA (PRI), EAIF
involvement
World Bank (IDA Guarantee)
Currency Risk
Local hedge, AfDB
support
Cross-currency hedge, PPA
Escrow accounts, FX buffer
Construction
Risk
EPC Contractor
(turnkey)
IPP Consortium (Lekela
Power)
State-owned utility
(SONABEL)
Regulatory
Risk
PPP contract, CI-
Energies
Senegalese Renewable
Energy Law
World Bank procurement
standards
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Development Association (IDA), a policy-based guarantee was provided to insulate project payment streams
against budgetary swings (Khan; et al., 2024).
The implementation was challenged by terrorism and political unrest in Burkina Faso but the project was
ultimately completed and connected to the grid in 2022. It helped boost investor confidence in financing for clean
energy in post-conflict zones and has since garnered proposals for subsequent solar PPPs in the country. In
addition, Zagtouli has been a demonstration case for other fragile states that wish to combine concessional
financing with risk management as a means of encouraging development partnerships (OECD, 2023).
These three examples together demonstrate the critical role of risk mitigation tools in facilitating infrastructure
finance in high-risk markets. While sectoral focus, as well as financing products, vary across projects, they all
share that well-structured de-risking instruments – be it MIGA guarantees, credit enhancements or concessional
finance - play a crucial role in earning the trust of private investors and making projects a success. The cases also
confirm that the institutional support, legal reform, and transparent PPP frameworks are no less important when
it comes to supplementing financial tools and attaining long-term investment sustainability. The experience in
Côte d’Ivoire, Senegal, and Burkina Faso demonstrates that infrastructure investment is possible in even highly
political risk environments, provided it is based on robust and credible risk management strategies.
Table 2 Risk Allocation Matrix for Infrastructure Projects in Francophone West Africa (2018–2025)
Country
Sector
Financing
Structure
Risk
Instruments
DFIs Involved
Project Outcome
Côte
d’Ivoire
Gas
Power
Limited
recourse
project
finance with
PPP model
MIGA PRI, AfDB
credit guarantees,
PPA
IFC, AfDB,
Proparco
Successfully
completed;
enhanced grid
capacity
Senegal
Wind
Energy
Blended
finance
(concession
al +
commercial
)
MIGA PRI, EAIF
concessional
loans, hedging
EAIF, EIB,
MIGA, DFC
Commissioned
ahead of schedule;
FDI benchmark
Burkina
Faso
Solar
Energy
Publicly
financed
with DFI
support
IDA policy
guarantees, WB
partial risk cover
World Bank,
IFC, European
Union
Operational under
high-risk
conditions;
confidence-
building model
This matrix illustrates how key project risks—political, currency, construction, and regulatory—were allocated
across three major infrastructure projects. It highlights the strategic role of multilateral institutions, national
utilities, and legal instruments in absorbing or transferring risks, thereby enhancing project bankability and
investor confidence in fragile economic environments.
DISCUSSION
The assessment of the Azito Power Expansion Project (Côte d’Ivoire), Taiba Ndiaye Wind Farm (Senegal) and
the Zagtouli Solar Project (Burkina Faso) as comparative case-studies provides important lessons on the
application and efficacy of risk mitigants to mobilize foreign financing into infrastructure projects in Francophone
West Africa. Despite differences in sectoral focus and financial arrangements across these processes, patterns
emerge on how de-risking tools can support project bankability, build investor confidence, and shape project
performance in the face of high risks.
A useful point to make from comparison of approaches is that multilayered risk management regimes are most
effective when uniquely molded to the risk environment and the project structure. Political Risk Risks associated
with currency convertibility and transfer, as well as the Repayment risks associated with the host government’s
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financial standing that could impact the cash flow, were mitigated through multiplication of MIGA’s political risk
insurance cover with partial credit guarantees provided by AfDB, and a long-term Power Purchase Agreement
(PPA) from an established national utility. The Taiba Ndiaye project in Senegal, for example, used a blend of
finance with a MIGA guarantee and EAIF concessional lending to cover political risk and currency exchanges.
By comparison, the Zagtouli Solar Project in Burkina Faso relied more on donor-backed guarantees, public
financing and public-sector arrangement to deal with the country’s high security and institutional risks. These
variations suggest that there is no universal recipe that applies always to de-risking projects and that the
effectiveness of de-risking depends largely on context-specific arrangements that combine financial and
institutional instruments (Humphrey & Prizzon, 2022; OECD, 2023).
Through the three cases there appears to be a pattern where the presence and credibility of risk mitigating tools
are positively related to the amount, maturity, and variety of FDI mobilized. Projects that included strong risk-
sharing mechanisms also managed to attract a more diverse pool of funders, including commercial lenders,
development finance institutions (DFIs) and equity investors. For instance, both Azito and Taiba Ndiaye were
both able to secure debt over a longer maturity and financing in higher volume because of the higher
creditworthiness obtained with PRI and guarantees. This responsiveness of FDI to de-risking behaviour is
consistent with findings from macro-level analyses of how blended finance and credit enhancements help to
reduce investor risk aversion, and make it easier for capital to flow into fragile markets (OECD, 2020; Blanchard
and Acalin, 2019). And risk instruments also protect investors in more than one way: They signal project
credibility, and tend to be more appealing to institutional capital that generally does not enter sub-investment
grade markets.
The issues related to key enablers which make it possible to obtain some functionality from these instruments are
also addressed. First, legal reforms are critical. The development of (bankable) PPP frameworks, PPA templates
and contract enforcement mechanisms are prerequisites for having working risk instruments. Nice: Long-term
FDI was boosted by the Renewable Energy Law in Senegal and by reforms to the investment code in Côte
d’Ivoire. Guarantees and insurance are worthless if they are not enforceable in this legal sense, and can therefore
not be trusted to secure legal and political compliance. Secondly, institutional capability is a crucial variable.
Project preparation, risk identification and implementation oversight require strong PPP units, transparent
procurement entities and active regulatory agencies. Nations that already have PPP institutions and project
development funds in place—including Senegal and Côte d’Ivoire—are far advanced in the utilization of tools
for risk mitigation in comparison to countries with a patchy institutional approach.
Figure 4: FDI Sensitivity to Risk Mitigation Instruments
This bar chart illustrates the correlation between the presence of risk mitigation tools and FDI inflows in selected
infrastructure projects. Projects equipped with guarantees or political risk insurance consistently attracted higher
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volumes of investment, while those lacking such instruments saw significantly lower FDI, highlighting the critical
role of de-risking mechanisms in fragile markets.
Finally, multilateral partnerships amplify the impact of risk mitigation instruments by bundling financial resources
with technical assistance and policy engagement. Institutions such as the African Development Bank, IFC, MIGA,
and the Emerging Africa Infrastructure Fund have played catalytic roles not just in funding but in strengthening
the institutional ecosystems that support project finance. The coordinated presence of these actors increases
investor trust, facilitates blended finance structures, and supports upstream legal and regulatory reforms (AfDB,
2021; OECD, 2020). In all three case studies, multilateral involvement was a constant factor in risk mitigation
success, reflecting the importance of aligning public and private objectives in fragile investment climates.
In sum, the case studies affirm that the effectiveness of risk mitigation instruments in attracting FDI to
infrastructure projects in Francophone West Africa is contingent on a convergence of financial innovation,
institutional reform, and multilateral cooperation. When these elements are aligned, even countries facing acute
political and economic risks can become viable destinations for sustainable infrastructure investment. These
findings provide a compelling argument for scaling up blended finance initiatives and investing in institutional
capacity to expand content.
Policy Implications and Recommendations
The results from this research highlight the imperative to undertake some strategic reorientation in managing and
mitigating risk in PF models for EMs, especially in fragile economies such as those in Francophone West Africa.
High sovereign, regulatory and operational risks perception still curtails significant capital flow in the long term,
although the interest by investors in the infrastructure market is growing. To overcome these hurdles and further
develop the project finance ecosystem, a series of interrelated policy recommendations are proposed, based on
empirical evidence and international best practices.
The enhancement of risk mitigation capability should start with the development and use of greater number of
more-context-sensitive financial tools applicable to the specific political and institutional risks that characterize
the region. Governments, backed by DFIs, must mainstream National Risk Mitigation Frameworks which will
see the political risk insurance, credit guarantees and contingent finance mechanisms written into the pipelines of
Public-Private Partnership (PPPs). The design stage for such instruments should be introduced at an early stage
in the project preparation cycle to strengthen the credibility of feasibility studies and financial models. This could
include, for example, mainstreaming pre-arranged guarantees from institutions such as MIGA or ATI into national
implementation guidelines for the development of PPP projects in order to reduce the lead time for transactions
and to enhance investor confidence (OECD, 2023; Humphrey & Prizzon, 2022). In addition, capacity-building
activities are to be developed for line ministries, PPP units or national utilities, with a view to strengthening their
capacity to negotiate risk-sharing clauses and in-built bankability-enhancing arrangements into concessionary
arrangements.
A corollary approach is to promote increased engagement of domestic capital markets in infrastructure financing.
Shallow and narrow-based capital markets are a burden for most of Francophone West Africa, limiting the
availability of long-dated, local currency funding. This challenge can be met with policy initiatives to promote
local bond markets, improve regulation relating to pension and insurance funds and, finally, reward market
participants willing to establish infrastructure-dedicated investment schemes. For example, guarantees in local
currency (provided by GuarantCo or AfDB) can be upscaled to mobilize long-term funding from local
institutional investors who are to some extent, less reliant on foreign-denominated loans while reducing FX risks.
Furthermore, sovereign wealth funds, and public pension funds in the UEMOA zone should be encouraged (via
regulatory reforms) to earmark a percentage of assets under management for investment in infrastructure
particularly infrastructure projects with embedded risk mitigation mechanisms (AfDB, 2023).
Alongside financial deepening, it is vital to strengthen the catalytic capacity of development finance institutions
in mobilising private funding. DFIs need to go further and act as enablers of economy-wide de-risking. This
includes scaling the use of blended finance instruments, like subordinated debt, first loss capital, and results-based
financing, to crowd in private investment, and lower the risk perception. DFIs’ engagement needs to focus not
only on investments but also on policy dialogue, technical assistance upstream and the setting up of project
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preparation facilities that can produce a strong pipeline of investable projects. Recent research argues for DFI
support being most effective when complemented with governance reform and transaction advisory services, as
seen through the jointly implemented IFC-AfDB-MIGA arrangement in the Taiba Ndiaye and Azito projects
(Khan, Diop and Sagna, 2024; OECD, 2023).
Lastly, policy designs should be sensitive to local institutional facts and no longer based on standard recipes
borrowed from the developed world. Where possible, risk-reduction measures should account for differences in
legal regimes, bureaucratic challenges and the political risk landscape within and among UEMOA member states.
This has placed an emphasis on localised risk assessments and adaptation of contractual provisions. For instance,
jurisdictions that have lower judicial capacity might see a benefit in including international arbitration clauses in
the project contracts, as opposed to those with exchange convertibility restrictions where use of escrow accounts
and offshore payment of electricity take precedence. And, not least, the incorporation of environmental and social
risk considerations into risk management frameworks is no longer discretionary: “complying with global ESG
(Environmental, Social, and Governance) standards is likely to become a requirement for accessing climate-
aligned investment capital” (OECD, 2020; IFC, 2022).
In sum, to unleash the potential of project finance in Francophone West Africa, there is need for a new model in
how risks are managed. This requires the development of integrated, flexible risk mitigation ecosystems,
deepening domestic financial markets, tapping the strategic role of DFIs, and customising solutions to institutional
realities. Such an integrated approach is necessary not just for crowding in private investment, but also for
guaranteeing that investments in infrastructure contribute for real in the long term to development and economic
resilience in fragile settings.
Figure 5: Policy–Stakeholder Action Map for Risk Mitigation Instruments
This mind map illustrates the linkage between policy strategies—such as legal reforms, blended finance,
guarantees, and local market development—and the stakeholders responsible for implementation, including
governments, development finance institutions (DFIs), PPP units, and regulators. It emphasizes a coordinated
approach to strengthening risk mitigation capacity for infrastructure finance in fragile emerging markets.
CONCLUSION
This study examined the role of risk mitigation instruments in enhancing the attractiveness of foreign direct
investment (FDI) for infrastructure projects in fragile emerging markets, with a focus on Francophone West
Africa. Drawing on Transaction Cost Economics, Institutional Theory, and the Risk–Return Trade-Off
Framework, and adopting a PRISMA-guided systematic review supported by illustrative case studies from Côte
d’Ivoire, Senegal, and Burkina Faso, the study demonstrates that well-structured risk mitigation mechanisms are
central to mobilizing long-term private capital in high-risk environments.
The findings reveal that instruments such as political risk insurance, credit guarantees, and blended finance
arrangements significantly improve project bankability by reducing investor exposure to political, regulatory,
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and macroeconomic risks. However, their effectiveness is strongly contingent on the presence of credible
regulatory frameworks, institutional capacity, and multilateral engagement. Risk mitigation tools therefore
function not merely as financial products, but as institutional enablers that signal policy credibility and facilitate
sustained FDI inflows. Projects that embed de-risking mechanisms within locally grounded institutional
arrangements and benefit from early-stage project preparation and multilateral support consistently exhibit
stronger performance outcomes.
The study contributes to the literature by advancing a multidimensional understanding of project finance that
integrates financial engineering with governance quality and institutional effectiveness. From a policy
perspective, the findings underscore the need to scale blended finance solutions, localize risk mitigation
strategies to country-specific contexts, and strengthen the enabling role of development finance institutions as
catalysts for private sector participation.
Notwithstanding its contributions, the study is limited by its reliance on secondary data and a restricted set of
illustrative cases. Future research should employ deal-level or firm-level datasets to empirically assess the causal
effects of specific risk mitigation instruments and extend the analysis to environmental, social, and governance
dimensions, particularly in the context of climate-resilient infrastructure. Ultimately, unlocking infrastructure
finance in fragile emerging markets requires not only capital mobilization but also coherent policies, institutional
credibility, and effective risk governance.
Future Research Directions
In terms of its contribution to research in the field, this research provides significant insights both conceptually
and in policy terms on how risk mitigation tools can be used to attract FDI for infrastructure development in
emerging markets. However, for further research in this area to be advanced, there is a need to move to empirical
research to a greater extent.
First, future research needs to focus on quantitative extensions in order to test the relationships outlined in the
conceptual framework in this study using empirical research methods. Data related to deals or firms can be used
to study the impact of de-risking instruments, specifically political risk insurance, credit guarantees, partial risk
guarantees, as well as blended finance instruments, on FDI using panel data analysis methods, such as fixed
effects models, random effects models, dynamic models, and system generalized method of moments. Finally,
event study analysis can also help investigate the impact of de-risking instruments on the timing of financial close
exits and costs of capital.
Second, comparative studies within and across regions are an important extension of this research. By conducting
comparative studies within the Francophone and Anglophone African regions as well as other regions such as
Sub-Saharan Africa, Southeast Asia, and so on, one would be able to see the extent to which differences in legal
systems, monetary systems, and the quality of institutions make a difference in the success of risk mitigation
strategies. This can also be differentiated within fragile and non-fragile nations as well as nations that are part of
currency unions or not.
Third, the future literature on infrastructure public-private partnerships should emphasize a sector-focused
approach, breaking down infrastructure investments by sector, which would include energy, transportation,
telecom, and the water sector. This would help determine, for example, which risk-sharing tools work best in
which sectors or which sectors appeal most to different types of investors, such as pension funds, SWFs, or private
equity sponsors. Finally, new scholarship must seek to incorporate environmental, social, and governance (ESG)
factors within the assessment of financial risk management. Longitudinal research studies examining the
outcomes of projects after completion would shed valuable insight into the long-term viability and resilience of
infrastructure projects within fragile states and conflict zones. Each of these areas would help to further enhance
the understanding of the financial-institutional interface that supports infrastructure financing within emerging
markets.
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