Today in Singapore, MIGA and IE Singapore co-hosted a seminar:"Managing Global Political Risks: Old Risks, New Moment."
After the welcome speech by IE's Assistant CEO Terence Seow, Michel Wormser, MIGA's Vice President and COO, delivered the keynote speech, which touched upon the current global economic turbulence, potential investment opportunities for Asian investors, the perception of risks, and what role the World Bank Group can play in facilitating private capital into productive projects. Michel noted that—while he understands that many Asian companies tend to invest in nearby countries—there are also plentiful of opportunities in Africa and Latin America.
MIGA's CFO, Lakshmi Shyam-Sunder then gave a punchy presentation about the main findings from MIGA’s 2011 World Investment and Political Risk report, which generated much interest judging from the corridor conversations afterwards.
The two panels discussed a number of points that are relevant to the investor community in the region, including the economic prospects and risk perceptions for several countries including Vietnam, Mongolia, and Indonesia. Also emphasized was the desire from the investment community for the World Bank Group to play a bigger role to ensure that bankable infrastructure projects get prepared, financed, and built.
Panelists agreed that Singapore is strategically located, both geographically and geopolitically, for facilitating cross-border investment activities in the region, including among the geopolitical "big boys." However, in a coffee conversation between my colleague Niklas Eklund and a senior executive from a prominent Singaporean firm, the executive addressed his frustration with Singaporean firms (including his own) for generally being very hesitant to take on unfamiliar risks when thinking about international expansion. He believed that bringing the option of risk mitigation more strongly into the conversation with his management team would help this outlook. Indeed, there seemed to be a clear understanding that sustained growth is not possible if investors simply stay in their own backyards, the question remains how to seek out opportunities with more confidence.
MIGA's Asia hub has been meeting with local investors on an almost daily basis, and this risk aversion seems to characterize the majority of Singaporean investors and explain their limited FDI flows and exposure beyond the more familiar Southeast Asian region. Asian investors are often family businesses who don't use the risk management frameworks preferred by western asset managers. Events like the one today are seen as helpful to bring risk mitigation options into their radar screen.
In his keynote, Michel discussed the Middle East, including countries like Egypt that suddenly and unexpectedly turned volatile after decades of stability. Speakers on the global risk panel that I moderated also discussed country risk situations where expert analysis or relationships with a particular government did not really help to mitigate risk once there was a regime change. This prompted me to think that the strongest risk mitigation for cross-border investment projects comes down to fair and common-sense arrangements among all stakeholders, including the investors, banks, local government, local people, and other relevant parties. MIGA's real strength is our ability to facilitate such fair stake-holding arrangements, whether when an investment is made or when there is a dispute to be resolved. That's why we want to make sure that bidding is fairly done, that the environment is not harmed, that local jobs are created, that governments can afford what they commit themselves to, and that we can help broker a settlement when things go wrong. MIGA's multilateral nature further enhances our credibility and ability to create such stakeholding arrangements, as we also bring in the international community as a stakeholder to any project. To use Egypt as an example, only a real and fair stakeholding arrangement would have eliminated or reduced the risk associated with this kind of situation. Deep analysis will not do. A plain-vanilla insurance cover will not do. Buying off a few government officials will certainly not do.
The discussion surrounding the public-private partnerships panel—where MIGA colleague Hal Bosher was a panelist—turned lively when it turned out that three members on the panel(not including our dear Hal) were associated with the Enron Dabhol debacle in India. An Enron alumni reunion in Singapore was promptly proposed, to roaring laughter in the room. OPIC paid out a $110million claim for the Dabhol project, which incidentally was named as the "Project of the Year" by a well-known trade magazine before everything turned south.
This leads to my point. Most participants left the seminar with the conclusion that a "Project of the Year" is not good enough (though most of us have been privileged to work on deals with that distinction). We need "projects of the next 10 years."
MIGA colleagues in particular left the seminar with a few new project leads and a question on our minds: is MIGA's role as a multilateral that can almost always bring stakeholders together—even when situations evolve or governments change—our real value as we seek to fulfill our mission to promote beneficial foreign direct investment into developing countries? The job of all of us at MIGA is essentially to be the honest broker to deliver "Projects of the Next 10 Years."