adminInvestors’ demand for insurance against political risk is on track to match last year’s record as instability persists in the Middle East and disputes in Latin America erode confidence, the World Bank said. Investment insurance for developing economies by a group of the main public, private and multilateral providers reached $45 billion by mid-2013, according to the bank’s Multilateral Investment Guarantee Agency unit. For all of last year, issuance totalled $88 billion even as foreign direct investment to the region fell 6 percent, it said.
“Demand for political risk insurance continues to be driven by concerns related to general market turbulence, including the still-unfolding Arab Spring, high-profile expropriations, persistent resource nationalism, capital constraints, and regulation,” the unit said in a report released yesterday.
The bank forecasts a 4.5 percent drop in foreign direct investment to developing countries next year as economic uncertainties, such as the effect of a potential tapering of US monetary stimulus, add to political concerns including a record number of disputes between governments and investors.
An annual survey in the report shows investors ranking for the first time macroeconomic instability as their key constraint in the medium term.
“This concern has tempered the historically bullish investor sentiment,” according to the report.
“Against this backdrop, the survey finds that political risk remains a significant concern for investors operating in developing markets, something that countries will be under new pressure to address if the current mood persists.”- Reuters.
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