Investment in Africa: ATI, the financial shield against political risk

When a company decides to build a power plant, factory, or transportation infrastructure in an African country, the risk it assesses goes beyond the project's economic viability. Investors also consider regulatory stability, currency transfer conditions, the risk of conflict, changes in public policy, and the state's ability to fulfill certain contractual obligations. In many cases, these uncertainties are a greater deterrent to investment than the lack of viable projects.

It is precisely in this area that the African Trade & Investment Development Insurance Agency (ATI) intervenes. Created in 2001 at the initiative of several African states with the support of the World Bank, the institution was designed to reduce the risks faced by investors, banks and companies operating on the continent.

The ATI is now owned by a group of African states representing a significant portion of the continent's economy. Over the years, its scope of operations has expanded considerably, both geographically and sectorally. Its headquarters are located in Nairobi, Kenya.

Its model is based on a relatively simple principle. When an investor or bank believes that a project presents too high a political or regulatory risk, ATI can provide coverage that protects a portion of the invested capital. This guarantee reduces risk exposure and can thus facilitate the investment decision.

The institution intervenes in particular against several types of risks often observed in emerging economies. It can cover risks related to restrictions on currency transfers, expropriations, breaches of public contracts, certain forms of political instability, or the non-compliance with financial commitments by public entities.

This activity addresses a clearly identified need. According to UNCTAD, foreign direct investment flows to Africa remain far lower than those observed in other developing regions, even though the continent's financing needs remain considerable. Part of this gap is explained by the perceived risk associated with certain African markets.

Infrastructure projects perfectly illustrate this problem. The African Development Bank estimates that the annual financing needs of African infrastructure are between $130 billion and $170 billion, while the financing gap remains between $68 billion and $108 billion per year. Some of these projects could attract more private capital if certain risks were better mitigated.

ATI has become one of the most active players in this field. According to its annual reports, the institution has supported over $100 billion in investments and business transactions across the continent since its inception. Its portfolio now covers hundreds of projects in sectors as diverse as energy, infrastructure, telecommunications, financial services, and industry.

Recent results demonstrate this growing importance. In 2024, the institution's total gross exposure exceeded $8 billion, compared to less than $1 billion some fifteen years earlier. This increase reflects the growing importance of insurance and guarantee mechanisms in financing African development.

The energy sector is among the main beneficiaries of these interventions. Electricity production projects often require very high investments and repayment periods that can exceed fifteen or twenty years. Investors therefore seek to secure their commitments over long periods. The guarantees offered by ATI help reduce certain uncertainties that could jeopardize the financial viability of projects.

The institution also plays a role in trade finance. Banks that facilitate international trade sometimes face payment or transfer risks. By providing appropriate coverage, the ATI helps streamline certain commercial transactions that would otherwise have been considered too risky.

This function takes on particular significance in the current context. Since the rise in global interest rates that began in 2022, investors have become more selective and financing conditions have tightened for many African countries. Risk-sharing mechanisms have therefore become an increasingly sought-after element in project structuring.

Senegal is part of this dynamic. The financing needs related to infrastructure, energy, industrialization, and the energy transition require the mobilization of significant public and private resources. Specialized risk management institutions, such as ATI, can help attract investors who might otherwise hesitate to commit to certain long-term projects.

The benefit of these mechanisms is also evident in the cost of financing. When a project has recognized coverage from investors and banks, it can often access less expensive resources. The perceived risk decreases, and financing conditions tend to improve.

This evolution reflects a broader transformation in development finance. Multilateral banks, sovereign wealth funds, institutional investors, and commercial banks have considerable capital at their disposal, but their mobilization largely depends on the level of risk associated with projects. Increasingly, the challenge is therefore not only to find financing, but also to create the conditions that allow this financing to be deployed.

The African Investment Trust (ATI) fulfills precisely this function within the African financial ecosystem. It does not build infrastructure, does not lend as directly as a development bank, and does not define public policy. Its role is to reduce certain uncertainties in order to make African projects more attractive to investors. On a continent where investment needs amount to hundreds of billions of dollars, this ability to reassure financiers has become a major lever for accelerating capital mobilization.