The Importance of Investment Insurance on Foreign Direct Investments

Abstract

Liberation of flows of goods and capital has taken place as a result of structural policy changes in economics, adapted since 1980 in the world economy. As a result of these liberalization movements, foreign direct investments increased rapidly. According to World Investment Report issued by UNCTAD, global FDI has fallen 23 per cent in 2017 to an amount of 1,43 trillion dollars compared to 1,87 trillion dollars in 2016. On the other hand investors who invest in foreign countries face significant commercial and political risks for their investments. There are various instruments developed against the risks that investors face, including international arbitration mechanisms and investment insurances provided by investment guarantee institutions, like MIGA and ICIEC. In addition, overseas investment insurance is carried out by investment guarantee institutions located in countries such as Sweden, Finland and Belgium, mainly in Japan and China whose foreign direct investments are significantly high. With the investment insurance made by the mentioned institutions, foreign investments are protected from the risks they may face in the country where they invest. In the meantime, currently, there is no service provided by investment guarantee institution in Turkey to guarantee the political and commercial risks facing Turkish investors abroad. For this reason, this study aims to underline the need and the deficiency of this area in Turkey.