Foreign direct investment

Foreign direct investment and private capital flows are highly concentrated geographically, with almost half of them reaching five top destinations. These flows tend to evade many high-risk countries. Regulatory and contractual risks, particularly in infrastructure, have inhibited investments in many parts of the developing world. A core objective of the World Bank Group (WBG) has been to support the flow of private investment for development; guarantees and insurance have been among the instruments that the WBG has used to pursue this objective.

Guarantees have been effective in promoting key WBG strategic objectives, particularly in facilitating the flow of investment to high-risk sectors and countries. They remain important instruments for achieving WBG’s priorities.

The use of guarantee products in each of the three institutions has fallen short of expectations, because of both external and internal factors. Internal constraints include (i) competition among the three WBG institutions that imposes additional transaction costs on clients and reputational risks to the WBG; (ii) weaknesses in marketing; (iii) supply-driven policy and mandate restrictions; (iv) limited internal awareness, skills, or incentives in the World Bank and IFC; and (v) inconsistent pricing of the WBG political risk-mitigation products.