Main political risks in Southeast Asia

The main risks for private infrastructure investments in Southeast Asia are Adverse regulatory changes/creeping expropriation and Breach of Contract (BoC), according to the survey on Project Risks and Mitigation (Link to explanation of the survey). These findings correspond with the global MIGA-EIU Political Risk Survey 2013.


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Main Findings:

  • The risk of adverse regulatory changes/creeping expropriation in Southeast Asia is of greatest concern to private infrastructure investors, according to the survey. The risk appears to be especially acute for PPP projects, where previously subsidised tariffs for services such as water, sewerage and electricity are envisaged to increase towards cost-recovery levels. Political pressures from end users rejecting the tariff rises could entice governments or regulators to prohibit operators from increasing tariffs, even if contractual arrangements had foreseen the tariff rises. In the absence of public compensation payments, the prohibition of tariff rises would likely threaten the commercial viability of PPP projects. When cost-recovery prices have the potential to limit access to affordable public services for the poorest, direct public financial support might be considered.
  • Expropriation is viewed as a relatively minor risk, despite its potentially severe negative impact. Possible reasons might be increased protections against expropriation in domestic laws, as well as adherence to international investment agreements. Governments might also refrain from outright expropriation due to both its high visibility and its adverse impact on the country’s attractiveness for FDI.
  • Force majeure is considered to be the least important risk; in a region prone to natural disasters including earthquakes, flooding and tsunamis, this is an interesting result.
  • Transfer risks and currency inconvertibility are seen as minor risks, since investors are able to freely repatriate capital and profits in most Southeast Asia countries.


Political risk level by country

  1. Singapore, followed by Brunei Darussalam and Malaysia, are perceived to be low risk investment destinations;
  2. Political risk levels in the Philippines, Thailand and Indonesia have a minor constraining effect on the investment climate;
  3. Political risk levels in Viet Nam have declined over the past few years, however they still constrain the investment environment for PPPs;
  4. Myanmar, Cambodia and Lao PDR are perceived to have high risk levels, bearing a negative impact on their investment climates.

These findings match those of the OECD Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits, which measure country risk. The classifications include transfer and convertibility risks, war, expropriation, civil disturbance and natural disasters. Singapore, Brunei Darussalam and Malaysia have scores indicating low country risks. The Philippines, Thailand and Indonesia belong to the middle risk group. The CLMV countries (Cambodia, Lao PDR, Myanmar and Viet Nam) each score 4 or higher, reflecting major challenges to accessing export credits and attracting foreign investment.

OECD Country Risk

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Perceived political risks are lower in countries with a robust and transparent legal framework for investment. Important policy areas that can influence the investment climate and levels of political risk include: the rule of law, property rights, investor protection and an accessible and efficient court system. Most countries have over time reduced perceived political risks, progressively improving their domestic investment climates.

Risk mitigation instruments such as political risk insurance and credit guarantees can help to ‘bridge the gap’ by mitigating risks that remain, whilst countries strengthen their domestic investment climates: more information on these can be found here.