Managing Risk: Africa Political Risk Insurance

Political Risk Insurance

Africa political risk insurance could be an overlooked solution for risk management.

One of the major concerns I hear from from investors and entrepreneurs considering entering the African arena is, “isn’t that risky part of the world for me to exposing my money?”

Africa Less Risky Today

While on one hand I say Africa is, overall, a less risky environment than it used to be, potential risks do remain.  Terrorism, government regulation changes, and unemployment are all ingredients that could, at any time, contribute to a disastrous scenario for investors.

New, innovative Africa Political Risk Insurance offerings can mitigate a large share of the risk.  There are products that serve the high-end, multinational banks and energy companies, but in recent years plenty of offerings are available to much smaller businesses, investors, and entrepreneurs.

What is Africa Political Risk?

First off, what is Political Risk?  A good, working definition is offered by Alkan Shenyuz, a Managing Director for VeventisIn very broad terms, we see political risk as any political event or activity which has a negative impact on a large-scale project or investment and which could lead to a financial loss of some description. Political risk is usually present where there is volatility or wide-spread instability in the governing process.”

Managing the Risk

Political risk is not easily managed, especially for the newcomer to Africa, without insurance.  Africa Political Risk Insurance is becoming a common component of a conscientious and comprehensive risk management solution for those taking advantage of the potential for profit in the economic renaissance underway on the continent.

Increased inflows of investment into Africa has heightened the demand for Political Risk Insurance.  This has brought new products to market.  Many of these new risk products are being offered by private providers.

Without a doubt, purchasing political risk insurance increases project costs, yet it is seen by many investors as prerequisite for initiating activity in the perceived, high risk environments of Africa.

What does Africa Political Risk Insurance Cover?

Political risk does not cover all eventualities, but among other things it does insure against the following:

  • political violence such as terrorism, civil unrest, or war.
  • governmental confiscation of property, funds and other assets.
  • governmental nullification of contracts with 3rd parties.
  • business interruption.
  • inability to repatriate funds.

Private sector Political Risk Insurance is much more flexible than other insurance products that are more familiar to consumers.  Clients can make their individual cases to the provider that the area in which they will be working is less vulnerable to disturbance than another area of the same country.  They also inform underwriters of all the precautions they have taken to lower the risk they are seeking to protect against.   Believe it or not, underwriters are often able, and willing, to calculate risk and offer premiums according to the client’s circumstances, rather than offering generalized terms for policies.

Political Risk Insurance Resources

Potential investors and entrepreneurs seeking to initiate business in Africa should consult a mentor or coach to help them wade through the range of Political Risk providers, but the following are some resources to peruse:

Political Risk Insurance Center

OPIC, the U.S. Government’s development finance institution.

 

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