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Because the risk of a country is not the same as the risk and potential value of every project in it. An energy company may see resource access, contracted revenue, future demand, or strategic value; public finance, guarantees, or insurance may also make a particular project financeable. Those arrangements can share or reduce specific risks, but they do not make the country safe or guarantee a return.
What makes an energy project worth considering when a country looks risky?
Investors assess a particular asset and its expected cash flows, not just a country label. An oil or gas development may depend on resource access and a sales agreement. A power plant may sell electricity under a long-term contract. A grid or storage project can have a different revenue model again. Those potential revenues must be weighed against construction costs, financing terms, regulation, currency exposure, and the likelihood that agreements will be honored.
Energy projects often require large upfront spending and rely on future demand or long-term contracts. That can make them attractive to an investor able to secure a durable market position, but it also leaves capital exposed if policy, contract terms, or demand changes. A high-risk setting does not automatically offer a higher return: added risk can instead raise financing costs, cut expected risk-adjusted returns, delay construction, or make a project uneconomic.
The International Energy Agency (IEA) and International Finance Corporation (IFC) describe unpredictable policy and regulation in emerging and developing economies as a factor that raises investment risk and lowers risk-adjusted returns. Their report notes that unclear rules and weak institutional conditions can affect the pace and scale of energy investment. Read the IEA-IFC analysis.
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Why different investors can reach different decisions
“Other investors” can mean private developers, commercial banks, portfolio investors, governments, or state-owned companies. They do not have the same objectives, financing sources, or tolerance for risk. A developer may focus on project cash flows; a lender on repayment, borrower credit, and currency mismatch; a government or state-owned enterprise may also weigh supply security or national strategy. One participant’s willingness to proceed does not show that other capital providers consider the same risk acceptable.
The IEA’s World Energy Investment 2024 reports that governments and state-owned enterprises make about half of energy investment in emerging-market and developing economies, compared with 15% in advanced economies. National oil companies and state-owned utilities are among the public actors involved. These are shares of energy investment, not a measure of private-company confidence in any particular country. See the IEA’s 2024 investment analysis.
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Company decisions and financing decisions are also distinct. A company may choose to develop an asset while a development bank, commercial lender, or public institution supplies some of the capital. The institution providing money may have a different mandate from the company choosing the project.
How public finance and risk-sharing can make a project financeable
Concessional finance—capital offered on more favorable terms than ordinary commercial finance—can improve a project’s credit quality or financing terms. The IEA says it can help mobilize investment in frontier markets and projects exposed to foreign-exchange risk, including projects that might otherwise not receive financing. Its role is to change the economics or allocation of risk, not to replace policy and institutional reforms.
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For emerging and developing economies outside China, the IEA estimated annual needs of USD 0.9–1.1 trillion in private finance for the energy transition, alongside an estimated USD 80–100 billion per year in concessional finance by the early 2030s. These are estimates of financing needs, not amounts already invested or committed. The IEA report explains the financing estimates.
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Which risks can change the economics?
| Risk | Why it matters to a project |
|---|---|
| Political stability, rule of law, and contract enforcement | They affect confidence in property rights, the risk of expropriation, and the ability to resolve disputes. |
| Regulatory change and procurement uncertainty | Changes to tariffs or contract terms after major spending can undermine expected revenue and lead to disputes. |
| Permits, licenses, and land | Unclear or slow approvals add costs and can delay construction by months or years. |
| Currency exposure and shallow capital markets | When financing is in a hard currency but revenue is in local currency, exchange-rate movements can make repayment more expensive. Hedging may be costly or unavailable. |
| Resource governance and community impacts | Weak transparency and accountability can contribute to corruption, inequality, instability, or conflict, weakening public benefits and the durability of a project. |
| Technology, demand, and transition uncertainty | Future demand, costs, policy, and energy-security needs can change whether an asset or contract remains economic. |
Regulatory changes can matter especially in renewables, where projects commonly depend on long-term contracts and policy frameworks. The World Bank Group reported more than 1,300 investor-state disputes across sectors by December 2023; about 10% of investor-state disputes were in renewable energy as of February 2022. The figures have different reference dates and do not mean that 10% of disputes across all sectors were renewable-energy cases by the end of 2023. See the World Bank Group’s 2024 analysis of regulatory risks.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Energy investment is not driven by climate policy alone
In its 2025 outlook, the IEA estimated global energy-sector capital flows at USD 3.3 trillion, a 2% real increase over 2024. It estimated USD 2.2 trillion collectively for renewables, nuclear, grids, storage, low-emissions fuels, efficiency, and electrification, versus USD 1.1 trillion for oil, natural gas, and coal. These are IEA estimates for 2025, not final audited totals. The agency attributes recent transition-spending growth to economic, technology, industrial, and energy-security considerations as well as climate policy. See the IEA’s 2025 outlook.
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These global figures provide context, not a forecast for a particular country or project. Different energy assets have different revenue sources, timelines, and exposures; the same national conditions can affect them differently.
When resource investment helps—and when it can harm
Resource wealth alone does not ensure that investment benefits local communities or produces durable public value. The Extractive Industries Transparency Initiative (EITI) warns that extraction without transparency, accountability, and strong institutions can worsen corruption, inequality, instability, or conflict. Fair fiscal terms, anti-corruption measures, and accountable management help attract investment while improving the chance that the public shares in its benefits. Read EITI’s 2024 progress report.
How to judge the claim that a company is investing where others will not
That claim needs evidence about both the company’s decision and the supposed absence of other investors. A single investment does not prove that a country was broadly shunned, nor does it establish that the project will succeed. To assess a specific case, examine:
- Expected cash flow: What asset is being built or developed, who will buy its output, and what contract or market supports revenue?
- Risk allocation: Which party bears construction, political, regulatory, currency, and repayment risks?
- Financing terms: Is capital commercial, concessional, publicly backed, guaranteed, or insured, and what risks do those arrangements actually cover?
- Investor mandate: Is the participant a private company, lender, government, or state-owned enterprise, and what objectives shape its decision?
- Governance and local benefits: Are permits, fiscal terms, community impacts, and public revenues managed transparently?
Without project records and contemporaneous evidence about other investors’ decisions, “other investors avoid it” remains a broad characterization rather than a demonstrated fact. The existence of an energy investment is evidence only that its participants judged that particular arrangement worthwhile—not that the country is low-risk or that the project is certain to work.
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