Geopolitical Risk Mitigation in Post-Conflict Emerging Markets: Capital Allocation Strategies for Resilience

The global economic landscape in 2025 is defined by a stark divergence: while advanced economies like the U.S. have outpaced pre-pandemic growth projections, emerging markets account for 66.4% of global GDP expansion since 2015 and are projected to drive 65% of global growth by 2035, according to World Economics data. Yet, post-conflict emerging markets face a dual challenge-navigating geopolitical risks while rebuilding institutions and infrastructure. This analysis examines how capital allocation strategies in Colombia, Liberia, and Sri Lanka have mitigated geopolitical risks, offering lessons for investors seeking resilience in volatile environments.

Colombia's PDET Program: Territorial Development as Peacebuilding

Colombia's Territorially Focused Development Programs (PDETs), launched under the 2016 peace agreement with FARC, exemplify how capital allocation can address both economic and geopolitical vulnerabilities. By targeting 170 conflict-affected municipalities, the PDETs aim to reduce rural-urban inequality and dismantle illicit economies through fiscal incentives for private sector activity, as shown in a 2023 arXiv study. Despite initial challenges-such as weak state capacity in post-conflict zones-the program has attracted private investment by aligning projects with UN Sustainable Development Goals (SDGs), according to a RIPILab analysis. For instance, infrastructure projects in roads and energy have been structured as Build-Operate-Transfer (BOT) PPPs, sharing risks between public and private actors, as demonstrated in a ResearchGate paper. This approach not only stabilizes local economies but also reduces reliance on U.S. trade agreements, diversifying Colombia's economic partnerships amid U.S.-Colombia diplomatic tensions, according to an FTI analysis.

Liberia's Infrastructure PPPs: Risk-Sharing in Post-Conflict Reconstruction

Liberia's post-civil war recovery has hinged on public-private partnerships (PPPs) to rebuild critical infrastructure. The government's 2020–2025 strategy prioritizes roads, ports, and energy projects, with the Port of Monrovia upgraded as a regional transport hub for ECOWAS countries, as noted on Invest Liberia. A key example is the Gbarnga-Mehndi road rehabilitation, funded by the World Bank and UNDP, which created local employment while restoring connectivity, as detailed in a PPIAF report. To mitigate geopolitical risks-such as policy instability-Liberia has established the Liberia Reconstruction Trust Fund (LRTF), co-financed by the African Development Bank and EU. This mechanism ensures transparent risk allocation, attracting private capital by guaranteeing returns through revenue-sharing agreements, according to a World Bank memorandum. Such frameworks are critical in a country where political transitions historically disrupted projects, demonstrating how institutional credibility can transform capital flows into sustainable development.

Sri Lanka's Policy Interventions: Balancing Fiscal Constraints and Geopolitical Exposure

Sri Lanka's post-2019 economic crisis forced a shift toward PPPs to manage infrastructure deficits without exacerbating debt. The government's focus on road sector PPPs, modeled after India's risk-sharing frameworks, highlights how policy interventions can mitigate geopolitical risks. For example, the Colombo Port City project, a joint venture with China, leverages foreign investment while ceding partial control-a controversial but pragmatic strategy to avoid over-reliance on Western creditors, as noted in an FT opinion. However, Sri Lanka's experience underscores the fragility of such models: poor risk allocation in earlier projects led to stalled infrastructure and financial strain, as discussed in a Cardinal Point analysis. The 2025 policy reforms now emphasize legal clarity and fiscal buffers, ensuring that capital allocation prioritizes social infrastructure (e.g., healthcare, education) alongside economic projects. This dual focus stabilizes domestic support for reforms, reducing the risk of political backlash that could disrupt foreign investment.

Challenges and the Path Forward

Despite these successes, post-conflict markets remain vulnerable to global shocks. U.S. tariffs on Brazilian and South African exports, for instance, have disrupted trade flows in emerging markets, according to S&P Global research, while high inflation and sovereign debt levels persist in frontier economies, as noted in an IMF blog. Investors must also contend with the "de-risking" trend, where supply chain diversification reduces exposure to conflict zones but fragments global capital markets, as argued in a Mercaton blog.

Conclusion

The cases of Colombia, Liberia, and Sri Lanka reveal that effective capital allocation in post-conflict markets requires more than financial engineering-it demands geopolitical foresight. By aligning infrastructure projects with SDGs, institutionalizing risk-sharing mechanisms, and diversifying trade partnerships, these countries have turned vulnerabilities into opportunities. For investors, the lesson is clear: resilience in emerging markets hinges on strategies that address both local inequities and global uncertainties.