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Presented at the Annual Meeting of the MENA-OECD Working Group on Investment Policies and Promotion, March 2013
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Risk mitigation tools for enhancing private infrastructure investment in the MENA region
The Investment Security in the Mediterranean (ISMED) Support Programme
Implemented by the MENA-OECD Investment Programme (with funding from the European Union)
MENA Regional ContextRising demand for infrastructure as private investment declines
• Demand for infrastructure in the MENA region has been rising due to longstanding factors : population growth, rapid urbanization and economic expansion…
… and this has been accentuated by the Arab Awakening and resulting pressure for higher living standards.
• The financial crisis of 2008/09, sovereign debt concerns in Europe and the US and the political uncertainty in the MENA region contribute to a volatile risk environment for investment.
MENA Regional ContextRising demand for infrastructure as private investment declines
• As a result, lending appetite amongst commercial banks is diminishing :
• Large EU based banks are shrinking their balance sheets by US$ 2.6 trillion between ‐September 2011 and December 2013 (IMF)
• Negative impact on credit supply estimated between -1.7% to - 4.4%
• Shrinking tenors and a rise in the cost of bank funding is the consequence, making private infrastructure investment increasingly scarce.
MENA Regional ContextRisk classification of Deauville Partnership countries remains high
Source : OECD (2012), Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits, OECD, Paris, as of 30/03/2012.
The Country Risk Classification Method classifies countries into eight risk categories (0-7),with 0 being the lowest and 7 being the highest risk category.
Deauville Part-nership Countries
Colombia, Chile, Mexico, Peru
BRIC G80
1
2
3
4
5
6
7
Country Risk Classification used by Export Credit Agencies(on a scale from 0 - 7)
MENA Regional ContextRisk classification by OECD ECAs of MENA countries is still high
Source : OECD (2010), Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits, OECD, Paris, as of 22/10/2010
Iraq
Leban
onLib
ya
Palesti
nian Authorit
yYe
menEg
ypt
Jordan
Bahrai
n
Tunisia
Algeria
Morocco
Qatar
KuwaitOman
Saudi A
rabia
UAE0
1
2
3
4
5
6
7
Country risk classification for selected MENA countries
MENA Regional ContextDemand for guarantee instruments is on the rise
1995 - 2000
2001 - 2005
2006 - 2010
2011 - …0
5
10
15
20
25
Number of projects supported by MIGA in the MENA region
Source : MIGA project database
• Attracting private investment involves creating improved legal and regulatory conditions – and highlighting guarantee instruments that cover residual risk factors.
•Sound legal and regulatory conditions include :Strong commercial law,Intellectual property rights,Transparent licensing processes,Anti-corruption provisions,Adherence to international treaties,Access to arbitration…
• Since 2011, there has been an upsurge in demand for products offered by MIGA and other investment guarantee agencies in a context of extreme risk aversion
MIGA supported 20 projects throughout the MENA region (gross exposure USD 846.4m) in 2011-2012, compared with only 4 projects in 2005-2010 (gross exposure of USD 441.6m) ;The EBRD mandate was extended in 2012 to cover the southern and eastern Mediterranean (SEMED) region, with the goal to improve financing of the private sector via investments in loans and equities, while providing support and expertise through policy dialogue, capacity building and other forms of technical assistance.
7
Co-financing andRisk participation agreements
Loan, grants, guarantees, technical assistance
Credit enhancement
Project Company
International and local
lenders and equity
providers
Export Credit Agency /
Investment Guarantee
AgencyFinancing Guarantees
Debt capital markets
Investors
Issuance of project bonds
Contracting Authority / Host country
Multilateral Investment Framework (e.g. IIAs)
Country risk evaluation
FinancingTendering
Project BondGuarantee
Facility
International Financial Institutions
A number of risk mitigation instruments are already at the disposal of investors
8
Investment guarantees are increasingly used in Deauville Partnership countries
Tunisia Egypt Morocco Jordan Libya 0
1
2
3
4
5
6
0.027
3.921
0.035 0.2031.450
1.401
6.386
1.2411.701 1.784
Exposure Investment Guarantees
FDI net inflow
* OPIC, PwC, COFACE, SACE, EDC, ECDG, JBIC Source: OECD
Exposure of G8 Investment Guaranty Agencies* / Total FDI Net Inflow all countries, 2010 (USD billion)
9
The DP Finance Ministers’ Meeting Communiqué from 20 April 2012…
The Deauville Partnership Financial Pillar recommends to expand existing instruments
“…acknowledges existing financial instruments”: • loan, grants, budget support• multilateral investment frameworks• technical assistance• bilateral and multilateral guarantee tools and export credit instruments dedicated to the private sector
“…welcomes support to explore new avenues”: • risk-sharing instruments• further guarantee mechanisms• project bonds• concessional credit loans• further technical assistance
The Investment Security in
the Mediterranean (ISMED)
Support Programme
Investment Security in the Southern MediterraneanTwo pillars of EU support (1/2)
The ISMED Support Programme is implemented by the MENA-OECD Investment Programme with funding by the European Union.
• Promoting infrastructure investment in the Southern Mediterranean through :► Policy advice for governments on designing sustained policy frameworks for reducing
the legal and regulatory risks of private investment in specific infrastructure projects
► Public-Private dialogue to help ensure that project-specific recommendations lead to broader policy reforms
► Information-sharing for private investors on available guarantee and financing instruments (via a guarantee database and quarterly newsletter)
ISMED Risk and Cost Sharing Toolkit of the
Neighbourhood Investment Facility
Investment Security in the Southern MediterraneanTwo pillars of EU support (2/2)
• The ISMED Risk and Cost Sharing Toolkit will provide targeted measures like support to risk-sharing mechanisms (making funds available to help private investors by reducing their exposure to risk) and guarantee schemes
• €200 million in EU grants expected by the Neighbourhood Investment Facility (NIF) will underpin the toolkit, which could leverage at least €2bn from European public institutions and private investors for infrastructure projects in the Neighbourhood region
The ISMED Support ProgrammeA three-pillar approach to enhancing private invesment security
Policy advice for government•Assist the enhancement of legal and regulatory frameworks for selected sectors / subsectors (e.g. renewable energy)
Project-specific assessments
•Recommend improvements to the legal and regulatory framework of selected projects and support connection to innovative financing tools
Guarantee database
•Provide information to private investors on available guarantee instruments and innovative risk mitigation tools (e.g. political risk insurance)
The ISMED Support Programme promotes a three-pillar approach to enhancing private investment in infrastructure projects
Project Life CycleIntervention stages of the ISMED Support Programme
The Investment Security in
the Mediterranean (ISMED)
Support Programme
Policy Assistance Project identification
Pre-FeasibilityPre-Qualification
Provide upstream capacity support to the host government
Select infrastructure projects facing legal, regulatory and guarantee related obstacles
Advise on optimal legal, regulatory and guarantee -related framework for the project
ISMEDISMED
ISMED
Tendering (RFP)
Prospects for short-term ISMED assistanceSample of eligible projects
Recycle municipal solid waste (MSW) into energy in
the form of electricity or heat, through novel incineration
technologies
Construction of pilot ports along Nile River to develop passenger and cargo river transport facilities in Egypt
Objective : Provide a sustainable source of energy as well as an alternative way to landfills for
waste disposal
Objective : Reduce pressure on land transport by creating hubs to river transport from Alexandria to
Upper Egypt
Ministry of Transport&
Egyptian River Transport Authority
SHORT-TERM ASSISTANCE
Nile River Transport
Solid waste-to-energy
Ministry of Environment&
Environmental Affairs Agency (EEAA)
Renewable energy infrastructure
Study of optimal mix of renewable energy infrastructure incentives in the
Kingdom of Jordan, based on a regional context study
Objective : Provide capacity-building and technical assistance on
environmental regulatory issues through training workshops with line
ministries
Jordanian Ministry of the Environment
Legal, financial and fiscal incentives
Regulatory and institutional
overlap
Legal and regulatory challenges
KEY CONTACTS:
Mr. Alexander BÖHMER
Head, MENA-OECD Investment Programme
Mr. Carl DAWSON
ISMED Support Programme Coordinator
MENA-OECD Investment Programme
For general enquiries:[email protected]
www.oecd.org/mena/investment
With the financial assistance of the European Union
