Risk Mitigation Guide

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Charter cities are new cities granted a special jurisdiction to create a new governance system focused on enabling economic development. Building charter cities requires a significant capital investment. Like all investments, there are risks involved. The Charter Cities Institute has created this document to help charter city developers mitigate those risks.

Social risks are the first set of risks discussed. The creation of a charter city can lead to social tension and disruptions. For example, a charter city will likely alter interpersonal relations in the surrounding area by creating new sources of employment and opportunity that did not exist before. Thus, a charter city may be seen as a threat by other industrialists or large employers in the region. A charter city may also cause traditional family disruptions or anti-immigration backlash if there is an influx of foreign labor. Developers must anticipate these risks and plan for them.

Security risks are the second set of risks discussed. The physical security of a charter city is guaranteed by the host country. However, as charter cities will often be in emerging markets with a history of political instability, it is important for investors to be aware of the security situation of the host country and the region at large. Developers must also find ways to ensure that the host country is fully invested in the security of the charter city.

Currency risks are the third set of risks discussed. Many large infrastructure projects like charter cities are financed with dollars or other currencies not used by the host country. With debts denominated in dollars or another international currency and revenue denominated in the local currency, devaluation of the local currency risks the financial viability of a charter city. Developers must understand the different tools available to help them to mitigate this risk.

Lastly, we discuss the risk of expropriation. A successful charter city might lead to the host country rescinding some of the concessions that made the charter city successful. Mitigating such risk is necessary to attract investment as well as ensure the long-term success of a charter city.