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World Investment and Political Risk 2013 WIPRWorld Investment and Political Risk World Investment Trends and Corporate Perspectives The Political Risk Insurance Industry Breach of Contract © 2014 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, NW Washington, DC 20433 t. 202.473.1000 www.worldbank.org [email protected] Some rights reserved 1 2 3 4 15 14 13 12 This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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DOI: 10.1596/978-1-4648-0039-9 License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. ISBN (paper): 978-1-4648-0039-9 ISBN (electronic): 978-1-4648-0146-4 DOI: 10.1596/978-1-4648-0039-9 Design, cover art, and document: Antoine A. Jaoude, MIGA/World Bank Group 2013 World Investment and Political Risk World Investment Trends and Corporate Perspectives The Political Risk Insurance Industry Breach of Contract Table of Contents FOREWORD ....................................................................................................................................................... 1 ACKNOWLEDGMENTS .................................................................................................................................. 3 SELECTED ABBREVIATIONS ........................................................................................................................4 EXECUTIVE SUMMARY .................................................................................................................................. 5 CHAPTER ONE World Investment Trends and Corporate Perspectives .......................................................................................9 Economic recovery, investor hesitation ........................................................................................11 The bigger FDI picture: waiting, seeing ....................................................................................... 12 For developing economies: a glass half-full? ............................................................................... 12 Regional FDI into developing economies in 2013 ....................................................................... 14 New seats at the table? .................................................................................................................16 Keeping their powder dry? ............................................................................................................ 18 Political risks remain important ................................................................................................... 18 And everyone else? ........................................................................................................................22 A perpetual spring? ....................................................................................................................... 23 It’s (still) the economy ..................................................................................................................26 CHAPTER TWO The Political Risk Insurance Industry .................................................................................................................27 Demand growth for PRI continues... ............................................................................................30 It’s a riskier world ...........................................................................................................................31 But don’t forget the supply side ................................................................................................... 32 Pricing grows, but only slowly ......................................................................................................34 Innovation, both public and private ............................................................................................. 35 No upswing in claims, yet? ...........................................................................................................36 A complementary product? .......................................................................................................... 37 Ever upwards? ............................................................................................................................... 38 CHAPTER THREE Breach of Contract ...............................................................................................................................................39 Investor concerns and trends in disputes ................................................................................... 41 A more comprehensive analysis ...................................................................................................44 What we do and what we expect to see .......................................................................................45 Some early findings .......................................................................................................................45 Contract-level issues .....................................................................................................................46 Country-level issues ......................................................................................................................48 Corporate-level approaches and perception of these risks .........................................................49 Towards a better handle on breach of contract ........................................................................... 52 ENDNOTES ...................................................................................................................................................... 55 APPENDICES Appendix 1 FDI Inflows, 2004–2012 ............................................................................................................... 58 Appendix 2 MIGA-EIU Political Risk Survey 2013 .......................................................................................... 60 Appendix 3 Berne Union, Prague Club Members and Lloyd’s Syndicates ....................................................79 BOXES Box 2.1 Overview of the PRI market ................................................................................................................29 Box 3.1 What is meant by breach of contract? ............................................................................................... 41 Box 3.2 Potential triggers of contract breach: evidence from MIGA pre-claims ...........................................50 TABLES Table 1 Major constraints to foreign investment over the next three years ................................................... 7 Table 1.1 Global growth assumptions ................................................................................................................11 Table 1.2 Regional FDI .........................................................................................................................................15 Table 1.3 Recent survey findings regarding FDI prospects............................................................................... 19 Table 1.4 Survey findings regarding political risks ............................................................................................20 Table 2.1 Aggregate Berne Union PRI issuance by provider type, 2012 ........................................................... 32 Table 2.2 Available private market capacity by tenor, total maximum per risk ............................................... 34 Table 2.3 Key new and expanded market offerings, 2012 ..................................................................................35
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