Foreign direct investment (FDI) in Africa involves substantial contributions from several global players, each offering significant economic support while navigating challenges. The United States, for example, invested USD 7bn in 2022, with a focus on telecommunications, business services, and technology in South Africa, Egypt, and Kenya.

Additionally, USD 55bn has been pledged by the US for sectors such as sustainable energy, health systems, and infrastructure over the next three years. The Gulf Cooperation Council (GCC), led by Saudi Arabia and the United Arab Emirates (UAE), has committed USD 60bn toward infrastructure, green hydrogen, and solar energy projects. India, with cumulative investments of USD 74bn, aims to increase its African investments to USD 150bn by 2030. China, though still a key financier, has reduced its focus on large infrastructure projects, reflecting a broader shift toward more risk-averse opportunities. 

African governments are turning to public-private partnerships (PPPs) to address the continent’s estimated USD 100bn annual infrastructure financing gap. As sovereign debt levels rise, private market investors are playing a larger role in PPP consortia. These large-scale projects carry integrity risks due to their complexity and significant capital requirements. Political instability, regulatory uncertainties, and policy changes present challenges, potentially causing project delays, renegotiations, or financial setbacks. Effectively managing these risks is crucial for ensuring project viability and maintaining strong investment ties with governments across Africa. 

Political exposure within infrastructure projects

Globally, it is common for large businesses to maintain close ties with political power. However, this phenomenon is particularly pronounced in Africa, where politicians are often heavily involved in business activities. Consequently, companies participating in infrastructure projects frequently have associations with political figures or “politically exposed persons” (PEPs). This underscores the importance of understanding the integrity risks associated with political exposure when private investors in PPP infrastructure projects collaborate with local partners. Although these partnerships are often intended to comply with local content regulations, enhance local expertise, or secure political support, they can sometimes heighten the risk of corruption and introduce other integrity-related challenges.

In Africa, historically stakeholders have tended to adopt a binary approach to managing political exposure risks. Risk-averse investors have often chosen to avoid such investments entirely. Whereas more risk-tolerant investors have engaged in these opportunities without adequately implementing robust risk management strategies to identify, mitigate, and address integrity and reputational risks, sometimes leading to substantial losses as a result. For example, in 2022, an infrastructure project in Africa lost crucial financing from a multilateral bank due to a PEP acquiring an ownership interest in the project company.

Evolving risk attitudes toward political exposure

Investors have shifted from this binary approach to a more nuanced strategy when assessing investments involving PEPs. They are now adopting tailored, flexible investment strategies. The more risk-tolerant entities, such as traditional investment banks and extractive companies, are conducting deeper analyses of potential political exposure, recognising that inadequate risk assessment could either restrict access to capital or increase its cost. 

Conversely, more risk-averse investors, including private equity firms, sovereign wealth funds, and sustainability funds, are increasingly considering investment opportunities involving PEPs. Their interest is driven by the potential for significant socioeconomic impact, particularly in the context of the growing emphasis on impact investing. The African Union’s (AU) Programme for Infrastructure Development in Africa (PIDA) 10-year priority action plan (2021–2030) underscores the importance of mitigating both real and perceived risks to enhance private sector participation in infrastructure projects across the continent. 

Control Risks has conducted due diligence investigations to determine any political connections held by subjects: we supported a global equity investment fund considering investing in a port operations company with due diligence investigations. Its key principals are politically connected, and we assessed whether these connections had been improperly leveraged to advance personal commercial objectives, including through corruption, bribery and conflicts of interest in their commercial operations. From an investor’s perspective, such governance failures could impede the ability to raise capital or increase the project’s cost due to perceived risks.

Increasing domestic regulations on assessment of integrity risk

From a public sector perspective, the growing need for private sector capital has driven a more rigorous approach to evaluating potential integrity and reputational risks. For instance, Kenya’s PPP Act of 2021 mandates due diligence assessments for privately initiated proposals (PIPs) for infrastructure projects, explicitly evaluating potential integrity and reputational risks, among other factors. This reflects a broader trend of increased domestic enforcement of anti-bribery and corruption regulations. Thorough scrutiny of integrity and reputational risks is increasingly becoming a critical component of the due diligence process. Understanding the risks associated with consortia in PPP infrastructure projects is essential not only to prevent the bankability of these projects. Below we briefly discuss scenarios in which its vital to understand integrity risks due to political exposure.

Ultimate beneficial owners (UBOs) and key principals’ association to PEPs

To fully understand the ultimate beneficial owners (UBOs) of an investment, investors may seek to identify any connections or networks the UBOs, and key principals maintain with PEPs and how these relationships may be leveraged for undue financial gain. We have supported clients in examining these aspects, even when the investor is already aware of the political exposure of their prospective investments but seeks a more in-depth analysis of these relationships. 

More broadly, investors aim to assess whether these political connections may have influenced or are likely to influence the project during the procurement stage, which could undermine the project’s viability. During the implementation stage, investors may want to evaluate the risk of PEPs interfering in the project, such as through attempts to influence subcontractor engagements, potentially leading to conflicts of interest. 

Political exposure linked to international partners

There is a common misconception that political exposure and integrity risks originate solely from the host country of a project. While this is an important factor, risks can also arise from the actions of prominent infrastructure organisations involved in global procurements. These companies frequently engage in high-value transactions with governments and public officials, which may expose them to corruption risks due to their regular interactions with public officials.   In this context, Control Risks has assisted development finance institutions, private market investors and state departments by conducting due diligence investigations to assess these companies’ track records in global procurement transactions. This has included tender probity analyses to evaluate their reputations in previous infrastructure projects. In some cases, these investigations have uncovered instances where companies leveraged their proximity to senior state officials to secure PPP contracts or where a lack of transparency led to direct contract awards, raising significant governance concerns. 

Business outlook

According to the International Monetary Fund (IMF), Africa is expected to be the second fastest-growing economic region in the world (after Asia) with a 4% average annual growth rate. Given the politicised nature of PPP infrastructure projects and prevailing market dynamics in Sub-Saharan Africa, political exposure is often unavoidable. 

However, organisations can enhance their ability to capitalise on these opportunities in a more compliant and resilient manner. Understanding the integrity risks associated with political exposure requires a comprehensive approach to risk management and due diligence, making high-quality, actionable intelligence crucial. This entails developing deep insights into the political relationships maintained by companies and key principals, as well as understanding the nature of these connections. Investors and developers must adopt a proactive approach to critically assess how these relationships might influence project implementation, affect the ability and cost of raising capital, and impact the project’s public reputation.

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