Foreign direct investment into emerging markets was expected to rebound in 2010, says Edith Quintrell, the operations director of Multilateral Investment Guarantee Agency (MIGA), a private sector arm of the World Bank.
Quintrell told Engineering News Online that the global economic recession had taken a significant toll on investment trends in 2009 and, as a result, the rate of FDI had decreased dramatically.
In January, the United Nations Conference on Trade and Development reported that global FDI had dropped by 39% in 2009 from $1,7-trillion in 2008 to around $1-trillion last year.
According to the UN report, FDI inflows into development countries had fallen by 35%, and in Africa, inflows retreated by 36%.
However, Quintrell said that there were signs of economic recovery and a slow increase in FDI had become evident in the fourth quarter of last year.
The upswing in FDI was due to, amongst other factors, rebounding Chinese demand for commodities and a surge in commodity prices, she said on the sidelines of a mining conference in Cape Town.
Quintrell added that, although FDI was expected to increase this year, the nature of investments would be different going forward.
Owing to the causes and implications of the global economic recession, it was believed that investors would be cautious and more realistic of the risks involved with FDI initiatives.
As investors became more realistic of risks, both political and financial, Quintrell believed that the demand for investment insurance, in the form of MIGA, would increase significantly this year.
MIGA provides guarantees against political or noncommercial risks to protect cross-border investment in developing member countries.
MIGA provides guarantees to protect investors against the risks of currency inconvertibility and transfer restriction; expropriation; war, civil disturbance, and terrorism; breach of contract (for contracts between the investor/project enterprise and the authorities of the host country); and non-honoring of sovereign financial obligations.
MIGA can cover only new investments, which include greenfield investments; new investment contributions associated with the expansion, modernisation, or financial restructuring of existing projects; and acquisitions involving privatisation of State enterprises.
Quintrell said that MIGA currently had an outstanding exposure of $7,5-billion worldwide.
Just over eleven percent of that exposure was focused on FDI initiatives in Africa.
It was noted that, with regard to FDI in Africa, MIGA primarily underwrote investments in the agri-business, manufacturing, and infrastructure sectors.
The mining sector was an important and growing sector of the African economy and Quintrell noted that MIGA has experience in supporting mining projects in Africa, although its current exposure was small.
"Africa is definitely an area of focus for MIGA and we would like to increase our exposure on the continent."
"However, the challenge is to find good projects in which to invest."
Quintrell elaborated that investors might be reluctant to invest in African projects because of the perceived regulatory and political risks in specific African countries.
It was thus essential for some African countries to improve regulatory and legal frameworks in order to help change perceptions and encourage greater FDI in the future.
MIGA was founded in 1988 with a mission to promote foreign direct investment into developing countries.
MIGA promotes foreign direct investment into developing countries by insuring investors against political risk, advising governments on attracting investment, sharing information through on-line investment information services, and mediating disputes between investors and governments.
MIGA's shareholders are its 175 member countries.