South-Based Companies Play Increasing Role in Developing Country Growth, but Wary of Risks

WASHINGTON, DC, February 20, 2008

Foreign direct investment (FDI) originating in developing countries and destined for other developing countries is on the rise, but the growing development potential of this so-called “South-South” investment is inhibited by political risks, according to a new report by the Multilateral Investment Guarantee Agency (MIGA).

Political risks are cited by South-based investors as a principal constraint to doing business in emerging markets. The MIGA review—“South-South FDI and Political Risk Insurance: Challenges and Opportunities”—looks at perceptions of political risk by companies based in emerging markets that are seeking to invest abroad, as well as challenges in mitigating those risks.

The report is based on client and insurer surveys, regional case studies conducted and commissioned by MIGA, and existing research. It is designed to provide emerging market investors with important information needed to make decisions about investing in other developing countries. “This report aims to fill a research gap by pulling together different pieces of the puzzle and then drawing a more complete picture of the situation,” said Stephan Dreyhaupt, manager of MIGA’s Online Investor Information Services.

The review is available on MIGA’s political risk insurance portal, www.pri-center.com.

South-South FDI is on the rise, but a cautious mood prevails

Over the past few years, the growth rate of outward FDI from emerging markets has outpaced the growth from industrialized countries. South-South FDI growth has been especially fast—a trend that is expected to continue, according to the MIGA survey. Nearly 90 percent of South-based companies surveyed said they expected their overseas investments to increase over the next five years. More than four-fifths planned to invest in emerging markets over the next year.

At the same time, the investors surveyed said the world is becoming a riskier place for business. Emerging markets are perceived to be riskier than industrialized countries, and the risk is expected to increase in the next five years.

Investors take increasing precautions against political risks

Although South-based companies appear to have a higher tolerance for risk compared with their North-based counterparts, they are increasingly conscious of the need to protect their investments as they go into unfamiliar markets. For instance, MENA-based investors, evolving from small, family-owned businesses to sizeable international firms, are becoming more conscious of the need for risk management, according to the Islamic Corporation for Insurance of Investments and Export Credit, which contributed to the MIGA report.

Some 80 percent of political risk insurance (PRI) providers surveyed by MIGA said they expected demand for PRI by South-based investors to go up in the next five years. South-based PRI providers appear to be responding to this demand in different ways, although some are facing capacity constraints.

“We stand ready to meet the needs of this growing market,” says Yukiko Omura, executive vice president of MIGA. “MIGA complements the work of public PRI providers, providing technical assistance and jointly underwriting projects—thus encouraging them to venture into markets where they may not otherwise feel comfortable and leveraging their underwriting capacity.”

As a small agency, MIGA also has the flexibility to tailor its guarantee products to meet the emerging needs of South-South investors, as seen by the agency’s recent $427 million guarantee for Shariah-compliant project financing for a project in Djibouti.

For more on the report, visit www.pri-center.com. For more on MIGA, visit www.miga.org.

For information:
Angie Gentile, agentile@worldbank.org, 202.473.3509
Farah Hussain, fhussain@worldbank.org, 202.473.2540

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UAE-based Sahara Group, expands into Moroccan Market

Sahara Management and Marketing Consultancies, subsidiary of UAE-based Sahara Group, has signed a joint venture agreement with the Morocco based 'Arab Gulf Agency for Media and Communications for reciprocal representation rights, according to which Sahara will represent the Morocco-based agency in the UAE, and the latter will represent Sahara in Morocco.

The signing ceremony was attended by Mr Fahad Ahmed Al Deeb, Vice President of Sahara Group, who signed the agreement with Mr Mohammed Ayat Bou Silham, Executive Manager of Arab Gulf Agency for Media and Communication”.

Both parties agreed that Sahara will commence a promotional campaign for the second edition of the Gulf Investments Forum, scheduled to be held in Rabat on 19-20 November 2009. Participants in the forum will come together to discuss existing opportunities in Morocco's industrial, technology, real estate, tourism and energy sectors.

The forum aims to encourage GCC firms and businessmen to enter the Moroccan market, which presents untapped opportunities in various economic sectors, particularly in light of the special incentives offered by Moroccan government to Arab investors. This has enhanced the country's appeal to Arab investment, particularly GCC capital, which has been injected into Morocco's vibrant market over the last few years. But the value of the relatively modest Arab investment in Morocco accounts for only ten percent of total foreign investment, and is restricted to the tourism and real estate sectors.

The amount of foreign direct investment (FDI) pumped into Morocco in 2006 was estimated at $25bn, according to official statistics issued by the Office Des Changes, with French investors leading the way, followed by their Spanish counterparts. The industrial sector attracted 36% of total foreign investment, followed by the tourism and real estate sectors with 32 percent and 16%, respectively.

Commenting on the agreement, Mr Al Deeb said: “Morocco enjoys one of the region's largest markets in terms of its appeal to foreign investors. Today, we are witnessing competition among businessmen and firms looking to enter this market and capture a slice of its diverse investment opportunities. This urged us as a leading management and marketing consultancy firm to be present in this market and offer our media, marketing and management services to potential clients."

“Arab Gulf Agency for Media and Communication is an ideal partner that is well positioned to represent us in the Moroccan market, due to their broad experience in the market, and their quality customer service. Sahara, in return, will extend all possible support to make this agreement a success”.

Mr Silham said: “We are delighted to join hands with one of the largest management and marketing consultancies firms in the UAE and the region. We are confident that this will open new vistas for our company in the GCC region, in a way that will serve the interests of both firms.”

“We are currently focusing our efforts on the 2nd Gulf Investments Forum, and we are confident that Sahara will offer the most reliable services to reach the largest segment of interested investors. The forum is supported by the Moroccan government and has drawn the attention of public and private sector firms, which we look forward to seeing in this forum,” he added.

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INVESTING IN THE SOUTH MEDITERRANEAN REGION

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A concise analyses on how to invest and doing business in the 11 MEDA countries; ALGERIA; EGYPT; ISRAEL; JORDAN; LEBANON ; MOROCCO; PALESTINIAN AUTHORITY; SYRIA; TUNISIA; TURKEY; and LIBYA by identifying the main drivers and opportunities for foreign direct investment (FDI) as well as an assessment of the attractiveness of the business environment in these countries.