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REVIVING INVESTMENT IN THE MENA REGION

This article discusses factors impacting investment decisions during transition periods in the MENA region, including security, contract validity, expropriation, and transparency. It also explores policy options for host and home governments to facilitate investment and proposes measures to enhance investment security in the Mediterranean region.

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REVIVING INVESTMENT IN THE MENA REGION

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  1. REVIVING INVESTMENT IN THE MENA REGION 6 December 2011 Alexander Böhmer, Head, MENA-OECD Investment Programme

  2. I. Investment decisions during transition periods (1/2) Factors impacting investment decisions during transition periods/ phases of instability : • Security: safety of employees Go/ No Go Issues • Security: ability to operate without external disruptions • Contract validity (especially with new governments) and enforcement (legal mechanisms) • Expropriation • Capital transfer • Transparency of procurement decision and award processes High Concern • Likely return on investment • Future opportunities in country • Company’s comfort with type of project, operating environment, and skill requirements Standard Concern

  3. I. Investment decisions during transition periods (2/2) Sector differences matter • Perceptions of risk vary strongly by sector • Some sectors – oil and minerals, especially – are used to challenging political environments and security issues • Other sectors with longer term investment perspectives like manufacturing and service sectors are typically more fearful and risk-averse Special measures are required from host and home governments to facilitate investment

  4. II. Policy options for host governments (1/3) • Host governments can mitigate certain risks perceived by investors • Certain risks may be beyond reach (e.g., political turmoil) Perceived Risk Host Government Action Guarantee security for operations Enable involvement of guarantee agencies Provide incentives Security and Political Risks Adherence to BITs/ ICSID/ NY Convention Clear contract terms PPP law Contract Validity and Enforcement

  5. II. Policy options for host governments (2/3) Examples of recent measures taken by MENA countries to facilitate investment : Creation of an Online Dispute Settlement Body by the General Agency for Investment, in 2011 Egypt Improvements in dealing with construction permits, protecting investor’s rights and paying taxes, in 2011 (World Bank Doing Business Report 2012) Morocco Strengthening of the legal framework for public private partnerships (PPP) and promoting draft regulations to lower the cost of credit information Jordan

  6. II. Policy options for host governments (3/3) Explicit references in investment law Referral to dispute resolution mechanisms in contracts BITs Expropriation and Capital Movement Perceived Risk Host Government Action Clear procedures (procurement, licenses) Clear contract terms Dispute resolution mechanisms Transparency

  7. III. Policy options for home governments/ International Financial Institutions (1/2) Consider improving existing Guarantee/ Insurance offer (extended risk coverage, fees, extended country plafond) • Inconvertibility and Transfer Risk, Political Violence Risk, Expropriation Risk, Breach of Contract, Government Non-payment Perceived Risk Government/ IFI Action Risk of investing in particular regions or sectors Special investment funds e.g.: MIGA’s MENA Trust Fund

  8. Examples of measures by home governments/ IFIs to facilitate investment : III. Policy options for home governments/ International Financial Institutions (2/2) • US support to investment in MENA through OPIC: USD 2 bn • France support to Egypt and Tunisia: Immediate budgetary support , a reinforcement of the guarantee systems for the benefit of SMEs, and the development of key infrastructure projects (USD 1,8 bn) Bilateral Investment Assistance G8 countries confirmed that Multilateral Development Banks could provide USD 20 bn to support reform efforts in Egypt and Tunisia over the 2011- 2013 period at the G8 Marseilles meeting Multilateral Development Banks Increased coordination and co-operation between IFIs from the Partnership countries in the areas such as technical assistance programmes and strengthened investment frameworks G8 Deauville Partnership New proposed Instruments Investment Security in the Mediterranean Region (ISMED)

  9. IV. Investment Security in the Mediterranean Region (ISMED): Proposals for facilitating the implementation of long-term infrastructure projects Joint EC-OECD Support Programme on legal security assistance, insurance monitoring and follow up of ISMED process Long-term investments lead by host states and project sponsors EC/ NIF window for lowering guarantee premium costs Extending actual and encouraging further risk-sharing mechanisms MIGA or alternate qualified operator’s role as facilitator in the guarantee and insurance market

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