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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.
 

Agricultural FDI: Risky Business?

Khalid Alsuhaibani's picture

Al-Arabiya reported a few weeks ago that the political crisis in Ukraine and Russia is threatening the availability of food in Egypt and Jordan. Food prices becoming hostage to political crises is certainly not a new phenomenon: food plays an important role in the stability of societies through its availability, affordability, and quality. We learned this lesson from the 1789 French Revolution and more recently, many commentators link soaring food prices in 2010 with the events leading up to the ‘Arab Spring.’ The latter is not surprising when Arab countries import 56% of their cereal consumption, and some Arab countries import 100% of their wheat consumption. These recent market dynamics have led many countries to revisit their food security strategies with an eye to securing food supply.

There is a vigorous debate over the reasons pertaining to the food price increases in 2008, 2010, and 2012. Many highlight the effects of seasonal, short and medium term factors such as weather changes and biofuel-related crop conversions as well as long term factors such as population growth, income growth, and climate change. These price increases in food have enormous effects on people, for example, the 2008 food crisis pushed 105 million people into poverty.
 

Partnership in Political Risk: Singapore Goes Global!

Paul Barbour's picture

On February 22, MIGA partnered with the Singapore Management University (SMU) and International Enterprise Singapore (IE Singapore), to launch the most recent World Investment and Political Risk Report in Asia. The event, at SMU’s downtown campus, focused on the key issues of sovereign and political risk and how foreign investors can mitigate them.

The latest World Investment and Political Risk report is the fourth in a series that we’ve recently launched in London and Washington, DC as well. There are some important nuggets on FDI trends and perceptions this year. The report notes that foreign investors, attracted by stronger economic growth in developing countries while mindful of risks, still remain optimistic about these destinations.

Bujagali is Commissioned! Uganda Nearly Doubles Electric Capacity in One Fell Swoop

Marcus Williams's picture

This past Monday I was present as the 250 megawatt Bujagali hydropower plant on Uganda’s River Nile – supported by MIGA, Photo by Marcus Williams, MIGAas well as our sister institutions the World Bank and IFC – was commissioned into active service.

After many years of preparation and planning, this was an auspicious moment indeed for Uganda, with the plant’s opening coinciding with the Jubilee celebrations marking the country’s 50 years of national independence. The new Bujagali power plant comes close to doubling the country’s electricity capacity and in a single step has elevated Uganda to having the second largest kilowatt consumption per capita in East Africa, following  Kenya.

Are MIGA Guarantees Governance Products?

Olivier Lambert's picture

I’ve considered whether MIGA guarantees are, in effect, governance products. Readers might rightly ask how I’ve come to this conclusion. Consider what a governance product is:  something that supports good governance (and by this we mean, first and foremost, eliminating corruption and its incentives). Thus, could not a MIGA guarantee be recognized as a governance product from two perspectives—that of the company that is our guarantee holder and that of the country host to a  MIGA-insured investment? 

Does Richard Gere Have the Right Political Risk Mitigation Strategy?

Michel Wormser's picture

In the new film “Arbitrage” the character played by Richard Gere thought he had made a highly profitable mining investment in an Eastern European country with a “friendly” government. But suddenly things are not working the way they were supposed to. He cannot access the returns from his investment —the government will not let him take them out of the country.

On Optimism and Caution: Connecting East Asia

Kevin Lu's picture

It was all about connectivity in the just-concluded World Economic Forum for East Asia that took place in Bangkok last week. Participants pondered many questions related to how we could make this region more connected, in terms of trade, tourism, investments, and even value.

In a session on infrastructure financing, IFC Vice President Karin Finkelston spoke eloquently about the need to mobilize financing for many developing countries in Asia and what IFC has been doing in terms of both investing and advising governments to prepare bankable projects. When Professor Joe Stiglitz on the same panel raised his proposal to establish an ASEAN development bank, it received mixed feedback from the fellow panelists.

Do Investment Promotional Agencies Leave Investors Out in the Cold?

Paul Barbour's picture

This week, the World Bank Group’s Investment Climate Department hosted a stimulating discussion on the credit: Johanna Ljungblomeffectiveness of Investment Promotion Agencies (IPAs). The panel discussion coincided with the launch of the Investment Climate Department’s report on IPAs across the globe.  MIGA co-sponsored the report and pioneered its methodology. 

First, the bad news. This report makes for quite depressing reading for this startling finding: overall, the responsiveness of investment promotion intermediaries to investor inquiries is low, with 80% of IPAs not responding to sector-specific investor inquiries. This means that 80% of these organizations did not return a phone call or email from a foreign direct investment (FDI) “mystery shopper.” This translates to missed investment opportunities that are particularly needed now as the competition for FDI is so fierce.

How Kenya is using World Bank Group Instruments to Leverage Private Investment in Power

Esohe Denise Odaro's picture

Having spent some of my formative years on the African continent, I can attest to the fact that the frequency of power blackouts desensitized citizenry to the point that power outages were neither a cause of despair nor excitement but just another mundane facet of everyday life. Power outages remain common phenomena throughout most of sub-Saharan Africa owing to various reasons such as low capacity output, over-reliance on volatile sources of energy, outdated machinery, mismatched pricing, energy theft, low collection rates, among other reasons. Over 30 countries in the continent have suffered power shortages in recent years, with detrimental economic effects including lost revenues, typically ranging between 1 and 4 percent of GDP.

Investing to Build a State

Layali H. Abdeen's picture

A few weeks ago, I attended the launch ceremony of theGaza. City. Photo: © Natalia Cieslik / World Bank new Palestine Capital Growth Fund, a subsidiary of the multibillion-dollar, Dubai-based private equity fund Abraaj. I found that many people questioned why   Abraaj would operate in the Palestinian Territories. Some would even describe such a move as a pure act of  social responsibility. But it is not.


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