INCREASED foreign direct investment (FDI) from developing economies into emerging markets will shape the political risk insurance industry (PRI), says the World Investment and Political Risk 2009 report released yesterday by the World Bank Group's Multilateral Investment Guarantee Agency (MIGA).

This trend could mean that Singapore, from which many investments are made into the region's emerging markets, 'will evolve as a hub for political risk insurance in Asia', said IE Singapore, which helped produce the report.

'While India, China and South-east Asia continue to offer attractive investment opportunities to Singapore-based investors amid the global recovery, the financial crisis has increased their awareness of risk and their interest in risk-mitigation instruments,' said IE Singapore deputy chief executive Chua Taik Him.

From 2003 to 2008, FDI outflows from developing to emerging countries rose more than seven-fold, says the report. And investors from developing countries now appear bullish in their investment plans.

The political risk insurance industry is adapting to these needs by tailoring products such as Syariah-compliant insurance for these investors. 'But we still need to improve awareness of PRI among this key segment of the investor community,' said MIGA's chief operating officer James Bond.

At the global level, the report found that investors were more concerned about political risk than factors such as macro-economic stability and access to finance - a trend expected to support the expansion of the PRI industry.

'Before the economic crisis, issues such as resource nationalism, the increased prominence of sovereign entities, and concerns about political violence were on the minds of investors,' said MIGA's executive vice-president Izumi Kobayashi. But the crisis has exacerbated concerns over conversion and transferring currency in countries where liquidity has been severely undermined, he added.

MIGA and IE Singapore's survey of Singapore-based companies indicated similar results locally - political risk is one of the top two concerns of investors here.

Foreign direct investors buy PRI to guard against risks such as expropriation, war and civil disturbance, or capital controls preventing the convertibility of earnings.

MIGA itself provides risk mitigation guarantees against such risks, with the aim of encouraging FDI into developing countries to support growth and reduce poverty. The report launched yesterday is its first such publication, and will be produced annually.