Data & Intelligence
Investment Treaties and Investor-State Arbitration:Tools to Manage Political Risk in Emerging Markets
By Justin Williams, Partner and Head of International Arbitration, Akin Gump Strauss Hauer & Feld LLP
COVID-19 and record oil price volatility are likely to increase political risk for investments in emerging markets. This will be the result of recessions and strains on government finances worldwide, made worse in oil producing countries by plunging revenues and the possibility in some states of resulting political instability. Therefore, there is no better time for investors to consider how they can manage political risk. Among the various tools available, there is one that is often overlooked but which can be highly effective. It is also free.
Investors can obtain political risk protection for international investments if they structure to take advantage of investment treaties. If a host state expropriates, discriminates, or acts contrary to investors’ legitimate expectations, then treaties may give investors the right to compensation. This has real value in reducing the risk of problems emerging in the first place and in providing a platform for agreed resolution. If compensation cannot be agreed, then investors may have the right to bring claims in international arbitration proceedings; to date, there have been almost 1,000 investor-state arbitrations, most of these involving investments in emerging markets. Where claims succeed, there are limited grounds for states to challenge arbitral awards or resist enforcement, and it is often possible to enforce against the debtor state’s commercial assets located in other jurisdictions.
However, to obtain these benefits, investments must be structured at the outset to take advantage of investment treaties.
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Brian Lim | Partner and Head of Asia and Emerging Markets, Pantheon Ventures
David Rubenstein | Co-Founder and Co-Executive Chairman, The Carlyle Group
Dr. Andrew Kuper | Founder and CEO, LeapFrog Investments
Torbjorn Caesar | Senior Partner, Actis
Drew Guff | Managing Director & Founding Partner, Siguler Guff & Company