Conference Presentation, Panel, Fireside Chat, Interview
De-Risking Emerging Markets Investments
Milken InstituteAron Betru, Jeremy Carter, Michael Eckhart, Keiko Honda, Catherine McCarthy, Jukka Pihlman, Kate McCarthy, Mike Eckhart, David Rockefeller Jr., Kate Ballard, David Freeman, Anne-Marie Slainmann, Cathy O, Jeremy Walker, Michael L, David Batts, Jeremy Standiffer, Rodney Ferguson, Aryeh Green, Ambassador Kobi Krimson
- Emerging market economies are projected to maintain growth rates above 7%, whereas G7 nations are anticipated to achieve at most 4% growth with some facing contraction, while global private sector assets totaling hundreds of trillions of dollars are expected to be mobilized to address a $2.5 trillion annual gap in Sustainable Development Goals (SDG) financing, with identified commercial opportunities reaching $12 trillion.
- The financing landscape is shifting from public sector-led thematic investment and direct multilateral lending toward private capital mobilization, featuring MDBs moving to guarantees and risk strips to leverage AAA balance sheets, with institutions like the Green Climate Fund potentially converting into guarantee agencies and the World Bank prioritizing private investors.
- Regulatory frameworks including Basel III/IV revisions and currency exposure rules are creating disincentives for equity investing and local currency engagement by requiring up to 250% reserves for equity and treating local branch transactions as foreign exposures, while banks receiving partial guarantees face regulatory anomalies preventing capital relief pass-through to borrowers.
- Structural barriers to financing include a scarcity of investable projects, rating criteria mandates from agencies like Fitch and S&P that banks must meet to access capital, and inefficient guarantee mechanisms where 80% of the market fails to comply with standards required for capital relief.
- Market participants expect a transition toward shorter-term construction phase guarantees rather than full-life coverage to accommodate 10-to-20-year bond tenors, alongside a demand for straight-to-bond solutions and clear covenants to prevent rating downgrades, though credit enhancement processes may require new institutions to handle thousands of projects.
- Future project viability relies on government support to bridge pre-commercial gaps, realistic tariff settings, and one-day credit enhancement turnaround times, with utilities non-payment risks requiring guarantees to attract developers and specific capital flows anticipated from Middle Eastern, European, and Chinese entities into small-scale power projects.
- Global financial capacity faces potential contraction with the banking sector shrinking due to regulations and never returning to previous growth levels, while conflicting incentives between financial stability and development goals persist across G-20 nations, potentially leading to a scarcity of risk appetite despite six times the FDI relative to ODA levels.