Investors cautious amidst global turbulence – MIGA

Foreign investors are increasingly cautious about investing in developing countries in the face of continued global economic and political turbulence, according to the 2013 World Investment and Political Risk report published last week by the Multilateral Investment Guarantee Agency (MIGA).

The report’s survey found that macroeconomic instability and political risk rank neck-and-neck as top concerns for investors as they plan over the short and medium terms. But despite this, the survey revealed nearly half of respondents expect to increase their investments in developing countries over the next 12 months—with that number increasing to 70% when the horizon is extended for three years.

The 5th MIGA Political Risk Survey found that breach of contract and regulatory risks once again top survey respondents’ political risk concerns. Survey results showed that these concerns were based on actual experience as well as sentiment.

The World Investment and Political Risk 2013 noted that the continued level of investor caution has been a boon for the political risk insurance industry. It said the dramatic increase in political risk insurance issuance of recent years has continued, rising 33 percent in 2012 and on track for similar growth in 2013.

Political risk insurance issuance (PRI) once again exceeded the pace of increase in FDI flows into developing economies over the same period. The report noted the ratio of FDI to PRI now stands at 14.2% for developing economies, a marked increase on the low-water mark of nearly 5% in 1997.

“These findings support the increased interest we are seeing in MIGA’s risk-mitigation products,” said MIGA Executive Vice President Keiko Honda.

The report offered an innovative analysis of breach of contract risk, combining deal and country specific causes of breach for the first time.

Overall, the results identified a number of key focus areas for investors and insurers when considering a contractual relationship with a public, developing economy counterparty.

By Ekow Quandzie