Private Sector Development
Recent events surrounding the Dubai World debt standstill raise broader questions about the political risks of investing in the Arab World. The good news is that growth and FDI have risen markedly in recent years; yet, risks undoubtedly remain. I researched the issue in depth for a new Perspectives from the Multilateral Investment Guarantee Agency (MIGA) that highlights the diversity of risks within the Arab World.
The Arab World, like other developing regions, provides both potential risks and rewards for international investors. The most important message from the Perspectives piece, though, is that risks vary significantly by country, by sector, and by project. As a result, it’s crucial not to take a one-size-fits-all approach to investing in the region.
Case in point: The Arab World is perceived as being prone to war and civil disturbance. Yet available data from the Berne Union shows no claims for war and civil disturbance in Arab countries. Here we see a considerable gap between perceptions and reality.
I recently represented MIGA in a special working group of the OECD focused on Iraqi reconstruction. It was an interesting and useful gathering, attended by Iraqi civil servants from across the administration, export credit agencies, and of course private sector representatives interested in doing business in the country.
On Wednesday, May 5, 2010, MIGA convened a panel discussion on the state of political risk in the world economy, which proposed to answer the pregnant question: “Are we moving into a riskier world?”
MIGA Chief Operating Officer, James Bond, moderated a panel that included:
Lebanon is a country of expatriates. Nine million of its 11 million inhabitants live abroad, in places as diverse as Terra del Fuego, Côte d’Ivoire, and Columbus, Ohio. The Lebanese Diaspora remains profoundly committed to its mother country, remitting money to family back home, investing, and visiting as tourists.
MIGA recently launched its new World Investment and Political Risk report in London to a gathering of investment and political risk experts. Based on a joint MIGA – EIU Political Risk Survey conducted last year, the report underscores that political risk remains one of the main obstacles to FDI in emerging markets.
My thanks again go out to the World Bank InfoShop for the opportunity to hear and meet former World Bank Chief Economist—and, indeed, Nobel Laureate—Joseph Stiglitz, who came to speak yesterday about his new book, "Freefall: America, Free Markets, and the Sinking of the World Economy". His trademark frank analysis was both refreshing and enlightening; especially interesting, if troubling, was his view that central bankers’ inflation-hawk instincts will increase the likelihood of a double-dip recession.
This was a very general presentation about some of the hubristic, anti-regulatory thinking that created the conditions for the recent crisis and the errors in countries’ responses to it. Stiglitz also excoriated the failures of political will and the power of the strongly entrenched, well-represented interests currently standing in the way of true reform. These are his views, of course—I make no claims to know enough about what “really” happened to be authoritative on the subject, other than to say that his arguments were persuasive and his examples illuminating.
One subject I was surprised to hear him discuss, however, was the role of interconnected global capital markets in financial crises. This was a key issue raised after the Asian crisis in the late 1990s; less so for the current “great recession”—although Stiglitz’s tag line that this was a crisis “made in America” and exported around the world reflects a common conclusion of much recent analysis.
I'm in a unique position in MIGA, responsible for fielding initial investor inquiries about MIGA’s political risk guarantees. Over the last few years I have noticed a jump among investors considering MIGA cover in several countries. One of those countries is Sierra Leone.
One joy of working within the World Bank Group is the access to great lectures from brilliant and creative thinkers on issues of relevance to the global economy and international development. Today, I had the opportunity to listen to Robert Skidelsky, acclaimed author of a three-volume biography of John Maynard Keynes, and, most recently, of Keynes: Return of the Master. He provided an interesting picture of how Keynes – one of the primary forces behind the creation of the Wor