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UNCTAD

Are Rates of Return in Places that are Fragile and Affected by Conflict Really Higher?

Paul Barbour's picture

Supporting populations in fragile and conflict-affected situations (FCS) is a key priority for the World Bank Group.  The Group’s President, Jim Yong Kim, has repeatedly stressed the importance of finding ways to bring sustainable peace and development to these difficult contexts. According to the World Development Report 2011: Conflict, Security, and Development, more than 1.5 billion people in today’s world live in FCS, or in countries with high levels of criminal violence.

Apart from the very human cost of fragility, it colors foreign investors’ perceptions of risk, especially political risk, affecting private sector activity. This begets a vicious cycle, where economies worsen, increasing fragility. The importance of political risk, including political violence, in the perceptions of investors is well documented, including in the annual MIGA-EIU surveys presented in MIGA’s World Investment and Political Risk report. In particular, MIGA’s 2011 report focused specifically on investing into FCS, and the survey results demonstrate that political violence remains a very serious factor inhibiting investment.

Aside from capital, foreign direct investment (FDI) can bring essential knowledge and technology across borders. These benefits are often what make FDI so sought-after by policy makers. But investors have to consider the return on their investment relative to the risks they are taking, especially political risks such as expropriation, currency convertibility and transfer restrictions, breach of contract by the sovereign, and war and civil disturbance.
 

Pop the Champagne: Developing-Country Outbound Investment Hits Record High

Cara Santos Pianesi's picture

The UN Conference on Trade and Development (UNCTAD) has just issued its Global Investment Trends Monitor that looks at outward-bound foreign direct investment (FDI). Here’s the lead: The share of developing and transition-country FDI in global outflows increased to 28 percent in 2010, up from 15 percent in 2007, the year prior to the global financial crisis. These are historic levels, both in absolute terms and as a share of the global total of outbound FDI.

Another important snippet from UNCTAD is that a full 70 percent of developing and transition-country outward investment is destined toward other developing and transition countries—this is also known as “South-South” investment. The Monitor attributes this trend to the stronger recovery and economic condition is those destinations.

Ethiopia: Uptick in Investor Interest

Michael Durr's picture

Here at MIGA, I’m responsible for fielding initial investor inquiries about our political risk guarantees, which is an interesting vantage point from which to note trends. Last year I blogged about the rising interest of foreign investors in Sierra Leone. Talking with investors around the world interested in emerging markets and examining MIGA’s Preliminary Application (PA) data, I see a similar trend emerging in Ethiopia. Investor interest has grown dramatically.

MIGA was created to promote foreign direct investment into developing countries by mitigating political risk. The agency offers insurance to private investors against