Political Risk Perceptions and the Financial Crisis

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.

Specifically, investors indicated a greater concern about breach of contract, non-honoring of government guarantees and adverse regulatory changes—which can result in investment loss—than outright expropriation itself.  Investors also noted that political risk relative to other concerns will increase over the next three years, as constraints related to the crisis begin to ease.

While the financial crisis does not appear to have significantly altered political risk perceptions across the board, it has exacerbated concerns over specific perils and investment destinations.  Specifically, risk of convertibility and transfer restrictions were concentrated in Eastern Europe and Central Asia for 2010, with risk to recede over the next three years.  Risk of payment defaults by sovereign (or sub-sovereign) and state-owned entities was expected to remain roughly the same over the medium term. 

For additional information on risk perceptions and political risk mitigation mechanisms, download the full report from MIGA.org.