Risk mitigation tools for enhancing private infrastructure investment in the MENA region

Editor's Notes

• #5: 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.
• #8: 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.
• #9: 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 .
• #10: 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.