Abstract/Summary

Guarantee solutions are widely recognized as effective instruments for increasing private investment in infrastructure projects. However, the existing literature provides limited insight into the decision-making processes that influence investors' decisions to purchase guarantee solutions for their infrastructure investments in Africa. This thesis aims to fill that research gap by identifying the key factors that affect investors' decisions to acquire guarantee solutions for infrastructure projects on the continent. To explore this issue, a comprehensive review of relevant literature was undertaken, which subsequently led to the formulation of hypotheses. The primary objective was to identify the key factors that drive investors' decisions to obtain guarantee solutions for infrastructure projects in Africa, as well as to improve the understanding of investor behavior in relation to decision-making concerning these solutions. To gather essential data for this study, a survey was conducted among professionals in the infrastructure sector, including executives and senior officials from banks, Export Credit Agencies (ECAs), Development Finance Institutions (DFIs), insurance companies, institutional investors, advisors, and brokers. The respondents represented entities actively engaged in infrastructure investment operations in Africa. The collected data were analyzed using Exploratory Factor Analysis (EFA) and a Logistic Regression Model. The findings revealed statistically significant positive coefficients for three specific variables: uncertain revenue and cash flows, which arise from both country-specific and project-specific concerns; the upstream risks inherent in infrastructure projects; and the regulatory capital requirements imposed on regulated institutions. The findings suggest that these factors significantly influence investors' decisions to purchase guarantee solutions. Additional insights gleaned from the open-ended responses in the survey further corroborated these findings. In contrast, the coefficients for other factors—including advisors' knowledge, understanding, relationships, and expertise; the project's perceived left-tail risk; and perceptions of country risk—were not statistically significant and did not emerge as relevant determinants in the decision-making variables related to the purchase of guarantee solutions for infrastructure investments. The implications of this study hold considerable significance for stakeholders involved in infrastructure development and financing. This includes guarantee-providing institutions such as Multilateral Development Banks (MDBs), Development Finance Institutions (DFIs), and Export Credit Agencies (ECAs). The research outlines several recommended actions that these organizations can take. Key insights into user decision-making processes are presented, which can help inform both the review and creation of innovative financial products, as well as guide necessary policy interventions. Additionally, it fosters engagement among stakeholders such as regulators, lenders, and risk solution providers, emphasizing the need to review the regulatory implications of using guarantees for infrastructure investments and their effects on economic growth, capital consumption, and risk-adjusted returns.