A new report examining political risk proves Trinidad's FDI viability

Posted by Investt

Kelvin Mahabir

The 2012 World Investment and Political Risk report produced by the  Economist Intelligence Unit (EIU) of behalf of the Multilateral Investment Guarantee Agency (MIGA) underscores a recurring foreign investment reality for developing economies: political risks serve to exacerbate already strong headwinds affecting the global economy, ultimately weakening investor confidence and limiting FDI. 

The good news is Trinidad and Tobago’s safe business environment and strong regulatory framework over the years have averted many of the dangers identified in the EIU-MIGA report.

The comprehensive report looks at several factors that pose the greatest threat to foreign direct investment by over 400 C-suite executives looking to developing countries. 

Over the short to medium term, these include macroeconomic shocks, access to financing and qualified people and political risk . Not surprisingly, political risk topped the list of potential constraints to investment when respondents were asked about their decisions for the next three years.

The survey identifies the types of political risk that are of greatest concern to companies investing in emerging markets. Adverse regulatory changes ranked highest followed by breach of contract, transfer and convertibility restrictions, civil disturbance, non-honoring of government guarantees, expropriation, terrorism and war. 

On these material points, Trinidad ranks as a safe and viable place to do business.

The country’s rich, cosmopolitan makeup has been a blessing and I don’t think anybody takes it for granted given the volatility we see in daily life in many places around the globe. 

To its credit, the political establishment has managed, in our 50 years of Independence, to create a stable, business-friendly environment devoid of the many threats identified in this EIU-MIGA report. This, in the face of a spate of general elections in the past decade that has seen changes in government but without upheaval or threats to foreign investment. 

In economic freedom, Trinidad ranks among the best countries in Latin America and the Caribbean according to this year’s Economic Freedom of the World Report

Compiled by Canadian think-tank, the Fraser Institute, the report places Trinidad and Tobago above the global average: 76 out of 144 countries.

The World Bank’s Doing Business report also confirms Trinidad’s business-friendly climate and scores us highly for investor protection and contract enforcement, directly minimising political risk to foreign investment.

In fact, most international reports score Trinidad favourably for its legal system and commitment to investor protection, despite our other challenges.

In the EIU-MIGA survey, my attention was drawn to the number of respondents operating in the financial sector— more than 25 per cent. 

These investors will do well to consider Trinidad’s strong economy and our current progress with the establishment of an international financial centre. 

Already, two multinationals—Scotiabank and Royal Bank Canada—have confirmed investments in Trinidad-based headquarters for back office operations, basing their decisions, among other things, on our political stability and strong investor protection framework. 

And this recent announcement of regulatory and securities reform is proof that the government is serious about doing business.

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