The role of political risk insurance in advancing sustainable development
Political risk insurance unlocks private investment in developing countries, helping bridge the financing gap.
The investment gap to achieve the UN Sustainable Development Goals (SDGs) in developing countries by 2030 has widened from USD 2.5 trillion to approximately USD 4 trillion per year between 2014 and 2023 (UNCTAD, 2023). This chasm underscores the urgent need for effective solutions. It is widely acknowledged that public resources alone, including official development assistance, will be insufficient to bridge this gap. Mobilising private sector finance is critical, with foreign direct investment (FDI) playing a vital role. However, private investment in developing economies, and in least developed countries (LDCs) in particular, is constrained by heightened real and perceived risks.
In the World Investment Report 2024, UN Trade and Development (UNCTAD) highlights that, despite persistent regulatory gaps and bottlenecks, developing countries are implementing long-term derisking strategies by improving their business environments and enhancing their legal and regulatory frameworks for investment (UNCTAD, 2024). At the same time, capital-exporting countries play a critical role in facilitating outward investment towards developing countries and LDCs. This aligns with the Addis Ababa Action Agenda and SDG indicator 17.5.1, which calls for home countries to adopt investment promotion regimes to support investment in developing economies.
Political risk insurance has a crucial role to play in supporting FDI in developing economies
Climate change, geopolitical tensions, and supply chain disruptions are amplifying investment risks, particularly in developing countries and LDCs. As the global investment landscape becomes increasingly uncertain, demand for effective risk mitigation tools is growing. Robust derisking strategies are needed to unlock private investment and bridge the financing gap to achieve the SDGs.
Among investment derisking instruments, political risk insurance (PRI) has a critical and potentially growing role to play in fostering investment towards developing countries, and LDCs in particular. By providing coverage against risks such as expropriation, breach of contract, currency inconvertibility, and political violence, PRI reduces uncertainty for investors and facilitates long-term commitments in developing economies.
Recognising the significance of PRI, UNCTAD has initiated a research project to examine the role of PRI in supporting FDI and advancing the SDGs. Thanks to our collaboration with the Berne Union Secretariat, which provided access to valuable data, and the active participation of many Berne Union members in our survey and interviews, we have gathered crucial insights into the universe of PRI, encompassing both challenges and opportunities. The initial findings of this research have been published in UNCTAD’s most recent Investment Policy Monitor, on 5 February 2025.
Trends in PRI: regional and sectoral insights
Between 2018 and 2022, private finance mobilised by development finance interventions from official donors totalled USD 228 billion.[1] Over the same period, PRI from countries and multilateral institutions members of the Development Assistance Committee (DAC) covered investment to developing countries for a total of about USD 75 billion. When including SINOSURE, the Export Credit Agency (ECA) of China and the largest (and non-DAC) member of the Berne Union, the figure rises to USD 152 billion.
ECAs are the primary providers of PRI, accounting for 78% of total issuance over the past decade. Multilateral institutions and private insurers account for 7 and 15%, respectively (Figure 1). Developing countries are the largest beneficiaries of PRI, comprising 70% of insured projects. Asia accounts for the largest share of PRI provided by ECAs and private insurers, reflecting China’s dual role as a major recipient of PRI and a leading provider. Africa receives the most PRI from multilateral institutions.
Figure 1. PRI mainly covers FDI projects in developing countries
Share of total new PRI issued between 2014 and 2023 by type of provider and level of development of recipient country of projects
Source: UN Trade and Development based on Berne Union Secretariat data
PRI matters even more for least developed countries
The role of PRI in supporting investment in LDCs is particularly significant. Although LDCs account for only 15% of the total value of projects insured by PRI providers, the ratio of PRI to FDI inflows in these countries underscores its critical role. Between 2014 and 2023, PRI issued by Berne Union members equated to 2% of FDI inflows in developed countries and 6% of FDI inflows in developing countries. However, in LDCs, this ratio surged to 28%, reflecting the higher reliance on PRI in countries with higher perceived risks (Figure 2).
Figure 2. PRI equates over a quarter of FDI in LDCs
PRI to FDI ratio by level of development, 2014-2023, per cent
Source: UN Trade and Development based on data from UN Trade and Development and the Berne Union Secretariat
Note: *LDCs excluding Angola, which has recorded negative FDI flows in the last eight years.
Excluding the financial services sector, PRI coverage is predominantly provided to industries involving large-scale, capital-intensive projects with long-term payback periods, which heightens perceived risks for private investors (Figure 3). Between 2019 and 2023, manufacturing accounted for the largest share of PRI coverage at 20%, followed by non-energy infrastructure (19%), natural resources—including mining and fossil fuel extraction (14%)—and non-renewable energy projects (14%).
Renewable energy projects received only 4% of total PRI coverage during this period, despite increasing from 3.7% in 2019 to 6.2% in 2023. Despite the commitments made by G7 and OECD countries to phase out support for fossil fuel projects, these received more than three times the PRI coverage allocated to renewable energy, underscoring a disconnect between policy commitments and the allocation of derisking resources by PRI providers. Encouragingly, many public PRI providers have taken steps to align their offerings with their countries’ climate commitments by implementing sectoral restrictions, such as excluding support for coal-fired power plants.
Figure 3. Renewable energy projects represent only 4 per cent of total PRI
New PRI coverage by sector 2019-2023, millions of dollars and percentage
Source: UN Trade and Development based on Berne Union data
Note: Other/ multiple: included all other projects not applicable to any other sectors or projects that are applicable to more than one sector. It for instance includes projects in the financial services sector, other services and agriculture. PRI classified as "non-specific", i.e. PRI coverage for which the sector is unknown or was not disclosed by the PRI provider to the Berne Union Secretariat, was not included in the sectoral analysis.
Strengthening PRI’s role in sustainable development
The analysis highlights the need for a more targeted and inclusive approach to PRI, to better support sustainable and climate-resilient investments while balancing the interests of investors and host countries. Expanding PRI coverage in underrepresented sectors in LDCs will require enhanced collaboration among multilateral institutions, ECAs, and private insurers. Key priorities include fostering innovation in risk mitigation instruments, enhancing public-private partnerships, streamlining PRI processes, and leveraging blended finance to bridge the sustainable development financing gap.
A forthcoming publication, based on survey and interview data from Berne Union members, will provide a deeper analysis of policy implications and key recommendations to strengthen the role of ECAs and PRI in mobilising investment in SDG-related sectors in developing countries, with particular focus on LDCs.
- Official donors include DAC countries and multilateral organisations. See OECD data explorer on private finance mobilisation ↑
