Enhancing legal conditions for infrastructure investment in the Mediterranean

Raising awareness of risk mitigation instruments

Infrastructure is key for job creation and economic growth

• Strengthened infrastructure reduces production costs, raises productivity and

has long term beneficial impacts on living standards and employment

opportunities.

• It also has a direct short-term impact on jobs – according to a recent study1, the

MENA region could create 2 million direct jobs (2.5 million direct, indirect and

induced infrastructure-related jobs) by meeting estimated annual infrastructure

investment needs.

• Longer term, a 1% rise in GDP growth from infrastructure spending could create

9 million jobs over 10 years.

1 World Bank [2012], Job creation through infrastructure investment in the Middle East and North Africa, by Elena Ianchovichina et al., Policy Research Working Paper 6164. 

Rising demand for infrastructure in the MENA region…

• Demand for infrastructure in the MENA region has been rising due to longstanding factors such as population growth, rapid urbanisation and economic expansion

• This trend has been greatly amplified by the Arab Awakening as governments come under pressure to increase living standards and improve public services and the business environment

• MENA region infrastructure needs through 2020 are estimated at about $106 billion per year or 6.9% of annual regional GDP1

 1 World Bank [2012], Job creation through infrastructure investment in the Middle East and North Africa, by Elena

Ianchovichina et al., Policy Research Working Paper 6164.

… in a context of declining private investment ...

• Private infrastructure investment has become increasingly scarce, due to the global economic crisis and commercial bank deleveraging, political instability in some countries, and tightened bank prudential regulations.  

Private participation in infrastructure (PPI) projects in the MENA region, by type of PPI, 1990-2012

… creates an urgent need for improved legal conditions for investment ...

• Attracting more private investment means creating the improved legal and regulatory conditions that investors require – and highlighting guarantee instruments that could cover residual risk

• Sound legal and regulatory conditions include:

Strong commercial law

Intellectual property rights and arbitration rules

Transparent licensing processes

Anti-corruption provisions

Adherence to international investment treaties 

Enhanced investment security for Mediterranean infrastructure: Two pillars of EU support

The Investment Security in the Mediterranean Support Programme

(ISMED Support Programme)

• Seeks to expand private infrastructure investment in the Mediterranean region via:

Advisory services to governments on reducing the legal and

regulatory risks of private investors in specific infrastructure projects

Policy dialogue bringing government and private sector together to help

ensure that project-specific recommendations lead to broader reforms

Information for investors on risk mitigation instruments available to cover

residual risk in the MENA region

Enhanced investment security for Mediterranean infrastructure: Two pillars of EU support

The ISMED Risk and Cost Sharing

Toolkit of the NIF

(Neighbourhood Investment Facility)

• The ISMED Risk and Cost Sharing Toolkit will provide targeted measures like

support to risk-sharing mechanisms (making funds available to help private

investors by reducing their exposure to risk) and guarantee schemes.  

• Much of the €200 million in EU grants expected by the NIF through 2014 will

underpin the toolkit, which could leverage at least €2 billion from European public

institutions and private investors for infrastructure projects in the Neighbourhood

region.

 

The ISMED Support ProgrammeScope of intervention

New infrastructure projects characterized by:

• Private sector participation

• Advanced implementation stage: post-feasibility study but pre-financial closing

• Experiencing legal, regulatory or guarantee-related obstacles

• Likely to have high development impact in terms of :

Growth and jobs – for example, highways and ports facilitate the transit of

goods from producer to market to end-consumer

Basic services essential to development – water, electricity, sewage,

hygiene, housing

Technology transfer

The ISMED Support Programme Approach

• Evaluate, through project-specific assessment missions, the level of protection offered by legal frameworks

Evaluate

• Identify gaps in protection and make policy recommendations to address them, via project-specific assistance missions and broad policy dialogue.

Recommend

• Provide relevant information concerning risk mitigation products to potential investors and public officials (via an online database and a quarterly newsletter)

Inform

The ISMED Support ProgrammeStages of intervention

ISMED Support Programme assistance: Egypt River Transport Project

Nile River Transport

Project

Egypt

Beneficiary: River Transport Authority (RTA)

Project: Public-private partnership (PPP) for the construction and

operation of 4 ports on the Nile. Part of a national strategy for port

development that aims to increase the market share of river and

rail transport to reduce pollution, lighten road traffic density, and

limit the cost of road fuel subsidies.

ISMED Support Programme assistance: To improve the legal

framework and risk-sharing mechanisms involved in the

construction and operation of port infrastructure under PPP.

Forms of assistance:

- Advice on the horizontal legal framework (PPP Law) and sectoral legal framework with the objective of eliminating obstacles to private investment

- Definition of an optimal allocation of risk between the public and private parties

- Preparation of model tender documents including the standard terms and conditions for this type of project and a clear risk allocation that is acceptable to all parties

Key contacts

Mr. Carl DAWSONISMED Support Programme Coordinator

MENA-OECD Investment ProgrammeCarl.Dawson@oecd.org

Mr. Andrew FITZPATRICKMENA-OECD Investment Programme

Andrew.Fitzpatrick@oecd.org

www.oecd.org/mena/investment

With the financial assistance of the European Union