"Political Risk and Risk Mitigation as Part of the Investment Climate“

Stephan J. Dreyhaupt,Advisor, Investment Climate Department,World Bank Group

World Bank Group Investment Climate Reform Work:New emphasis on reducing the risk of doing business

Investment climate reform outcomes can be measured in three different ways:

• an increase in investment and business opportunities• reduction in the cost of doing business • a reduction in risks

Incubation of a new product line to limit the impact of political risk on inbound investments through policy reform measures aimed at strengthening investor protection confidence (“Political Risk Advisory”)

The Comeback of Political Risk:Concern over political risk moves back towards the top of corporate agendas

* WIPR 2010 survey

Demand Side View:High volume of new investment insurance issued marks continuation of longer-term trend of rising demand for PRI

Why should Governments be concerned?Better investment climate associated with lower political risk premiums

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Investing Across Borders Index (0-100), 2010Lowest Highest

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Why should Governments be concerned?Political risk concerns force cancelations and withdrawals from investments

* WIPR 2010 survey

Reducing Impediments to Sustainable Private InvestmentsCombination of ST-financial instruments and IC reform to address LT-issues

Investor Protection Confidence

Gap

New Product Development: Political Risk Advisory focusing on strengthening investor protection confidence

Addressing Political Risk as part of the Investment Climate reform work: Country example - Ukraine

Guaranteeing investor’ rights and protection on issues such as: Expropriation Transfer of currency Dispute settlement Compensation

Example: Shortcomings concerningrepatriation of funds

Legal: Amend Foreign Currency Law

Admin: Streamline BoU procedures

Institution: Improve capacity of local BoU offices

High-level investment law review

Review of de facto investor protection

Investment Law Review (Law No. 1540a-XII of 10th September 1991 entitled “On the Protection of Foreign Investment in Ukraine” and Law No. 93/96-VR of 19th March 1996 entitled “On the Regime of Foreign Investments”)

Planning for the reform of the law

Development of the policy and legislative drafting

Steering new law through enactment process

Improving the enforcement and effectiveness of investor rights and protection

Currency transfer restrictions (licensing, registration, etc.)

Award enforcement practice Compensation procedures Ease of process Capacity of institutions involved

Review of specific investor guarantees