Driving Transportation Investments
There are significant and unique risks associated with investing in roads, shipping, ports, airports, and public transportation. Such projects typically involve huge upfront costs, take longer to complete, and are reliant on future cash flows to meet financial obligations and provide reasonable returns. In some emerging markets, macroeconomic, legal, institutional, and regulatory concerns may add a level of uncertainty that can complicate deals even more.
Transportation projects, such as toll roads, in many cases are exposed to sub-sovereign risk as governments decentralize control of services from national to provincial and municipal authorities. These authorities may have limited experience in dealing with the private sector or international banks, which adds another layer of complexity to project structuring.
MIGA guarantees are well-suited to reduce transportation sector investment risks. They are designed to help companies overcome risk aversion, particularly for highly capital intensive investments, in countries where there is high perception of risk. Once a deal is in place, MIGA guarantees bring companies additional comfort, providing an added measure of security that can help keep a project stable and reinforce positive relations with host governments.