The document discusses tools and programs to mitigate risks and enhance private infrastructure investment in the MENA region. It notes rising infrastructure demand but declining private investment due to economic and political instability. Programs like ISMED provide policy advice, project assessments, and a guarantee database to help attract investment. ISMED also manages a risk-sharing toolkit with EU funds that could leverage billions for infrastructure projects through mechanisms like guarantees and risk-sharing instruments. The overall goal is to enhance investment security through improving frameworks and connecting projects to innovative financing.
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Risk mitigation tools for enhancing private infrastructure investment in the MENA region
1. 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)
2. MENA Regional Context
Rising 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.
3. MENA Regional Context
Rising 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.
4. MENA Regional Context
Risk 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.
0
1
2
3
4
5
6
7
Deauville Partnership CountriesColombia, Chile, Mexico, Peru BRIC G8
Country Risk Classification used by Export Credit Agencies
(on a scale from 0 - 7)
5. MENA Regional Context
Risk 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
0
1
2
3
4
5
6
7
Country risk classification for selected MENA countries
6. MENA Regional Context
Demand for guarantee instruments is on the rise
0
5
10
15
20
25
1995 - 2000 2001 - 2005 2006 - 2010 2011 - …
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. 7
Co-financing and
Risk participation
agreements
Loan, grants, g
uarantees, tech
nical assistance
Credit
enhancement
Project
Company
International
and local
lenders and
equity
providers
Export Credit
Agency /
Investment
Guarantee
Agency
Financing Guarantees
Debt capital
markets
Investors
Issuance of
project bonds
Contracting Authority / Host country
Multilateral Investment Framework (e.g. IIAs)
Country risk
evaluation
Financing
Tendering
Project Bond
Guarantee
Facility
International Financial Institutions
A number of risk mitigation instruments are already at the disposal of
investors
8. 8
Investment guarantees are increasingly used in Deauville Partnership
countries
0.027
3.921
0.035 0.203
1.450
1.401
6.386
1.241
1.701 1.784
0
1
2
3
4
5
6
Tunisia Egypt Morocco Jordan Libya
Exposure Investment Guarantees
FDI net inflow
* OPIC, PwC, COFACE, SACE, EDC, ECDG, JBICSource: OECD
Exposure of G8 Investment Guaranty Agencies* / Total FDI Net Inflow all countries, 2010 (USD billion)
9. 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
10. The Investment Security in
the Mediterranean (ISMED)
Support Programme
Investment Security in the Southern Mediterranean
Two 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)
11. ISMED Risk and Cost Sharing Toolkit of the
Neighbourhood Investment Facility
Investment Security in the Southern Mediterranean
Two 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
12. The ISMED Support Programme
A 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
13. Project Life Cycle
Intervention stages of the ISMED Support Programme
The Investment Security in
the Mediterranean (ISMED)
Support Programme
Policy
Assistance
Project
identification
Pre-Feasibility
Pre-
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
ISMED
ISMED
ISMED
Tendering (RFP)
14. Prospects for short-term ISMED assistance
Sample 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 TransportSolid 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
15. KEY CONTACTS:
Mr. Alexander BÖHMER
Head, MENA-OECD Investment Programme
Alexander.Boehmer@oecd.org
Mr. Carl DAWSON
ISMED Support Programme Coordinator
MENA-OECD Investment Programme
Carl.Dawson@oecd.org
For general enquiries:
mena.investment@oecd.org
www.oecd.org/mena/investment
With the financial assistance of the European Union
Editor's Notes
The level of risk in Deauville Partnership countries is still high (Egypt and Jordan: 5, Libya: 7, Morocco and Tunisia: 3) if you take for examplethe Country Risk Classification developed under the OECD Export Credit Arrangement. This classification is produced for the purpose of setting minimum premium rates for transactions supported by OECD Export Credit Agencies which are bound by the OECD Export Credit Arrangement. These numbers are significantly higher than comparable developing and emerging economies and illustrate the risk perception challenge the DP countries are facing.
Speaking points: Let us have a look at investment facilitation instruments using the example of a transport project, such as a section of a road network:1.) The project is planned by a group of companies (sponsors) and tendered by public authorities. The sponsors create a project company to raise the financing, construct and operate the roadnetwork for a period agreed with the public authorities. 2.) The sponsors provide own funds to the project company in the form of equity and shareholder loans. The remaining financing is raised by the project company in the form of debt, traditionally in the form of a bank loan. The bank loan could be covered by aninvestmentguarantee. 3.) Instead of using traditional bank lending, the project company could raise the senior debt through project bond issues which are encouraged by the Finance Ministers Communiqué.An international financial institution (through a Project Bond Guarantee Facility) could provide a loan or guarantee to the project company in order to raise the likelihood of timely repayment of principal and interest to bond holders during the lifetime of the bonds. The IFI would therefore help reducing the risk of such bonds and, consequently, increasing their credit rating. A project bond guarantee facility is currently piloted by the EIB in the framework of the Europe 2020 Project Bond initiative. This type of instrument does not yet exist for the Deauville countries but has been recommended by the ISMED Working Group. 4.) The project company could furthermore benefit from risk-participation or co-financing agreements between International Financial Institutions and ECAs or other blending mechanisms between international financial institutions.
Speaking points: Investment guarantees are not yet very widely used in all Deauville partnership countries. Exposure in Egypt and Libya however is high. The under-utilisation of investment guarantees could be linked to a lack of awareness among investors for such instruments, and under some circumstances high premium costs. Background Information:Russian Agency for Export Credit and Investment Insurance (EXIAR) is not included as the Russian Agency has only been created in October 2011. EXIAR’s insurance products are currently being designed and developed, are expected to come in 2012 .
Speaking points:The latest communiqué by the Deauville Partnership Finance Ministers (April 20, 2012) gives a good overview over instruments from countries and institutions in the region that facilitate investment and access to finance for the private sector in the Deauville countries. The Finance Ministers acknowledge the variety of existing instruments such as loans, grants, budget support and technical assistance. The communiqué also references: bilateral and multilateral guarantee tools and export credit instruments dedicated to the private sector and the multilateral investment framework, e.g. International Investment Agreements which improve legal investment security Next to existing instruments, which should be maintained, the Finance ministers encourage to explore new avenues of facilitating investment, for example through innovative mechanisms such as risk-sharing instruments, project bonds, guarantees or concessional credit loans.