How the World Bank Group removes generation risks in emerging markets.
Philippe Valahu is acting director, Operations, at the Multilateral Investment Guarantee Agency. Contact him at email@example.com.
Infrastructure investors have had their share of pain over the past few years, particularly in developing countries. Disputes over troubled concessions have spilled over into the streets in some communities—fueling the fires of disenchantment with government and the private sector—while some countries unilaterally have cancelled concessions or breached agreements on tariffs, leaving investors foundering to deal with the fallout. As a result, such private investment in infrastructure declined to just $56 billion in 2003, down from a peak of $114 billion in 1997.
The pain is starting to recede for some investors, as cash savings begin to weigh down balance sheets, and governments take steps to institute pro-private sector reforms, as well as tools for offsetting political risks start to take some of the bite away from deals gone awry.
Experienced private investors in infrastructure around the world know all too well that there are significant and unique risks associated with these investments. These projects are often massive in scope, involving multiple parties and complex financing arrangements. And typically, such efforts involve the government, either at the sovereign or sub-sovereign level, further complicating the deal. In developing countries, macroeconomic, legal, and regulatory concerns add a level of uncertainty that can complicate deals even more.