Manufacturing: Guaranteeing Investments in Manufacturing Projects
As with cross-border investments in many sectors, there are noncommercial risks associated with manufacturing projects in emerging economies. Despite the best intentions and thorough planning, unforeseen events can disrupt a project. Newly stabilized governments could still be on shaky political ground. Unclear or incomplete laws on property ownership can obscure the profit picture. Investors may be worried about potential government takeover of land or assets. Restrictions on revenue repatriation could complicate a project’s finances even more, exacerbating imbalances between foreign-denominated debt and locally denominated revenue. Lastly, threats such as revolution or terrorism add an additional layer of uncertainty, potentially derailing even the most promising of investments. Combined, such political risks contribute to high costs of capital. Some lenders may not be willing to lend at all in the absence of political risk insurance policies.