Investing in Emerging Markets: Overcoming Unverstainity in Foreign Direct Investment - A Case Study on Power-to-X in Morocco

Abstract

By studying the Moroccan Power-to-X industry, this thesis investigates how international investors can understand and manage uncertainty in the context of the location choice. Foreign direct investment in the Power-to-X sector in emerging markets is pivotal to accelerating the global energy transition. Yet, investors have been reluctant to commit capital to Power-to-X projects in suitable locations, such as Morocco, due to high uncertainty, which is a critical barrier to investments in emerging markets. The current body of theory and literature lacks a thorough investigation of strategies to understand and manage uncertainty in the context of the location choice for the investment. To address this gap, the thesis analysed ways to manage uncertainty through scenario planning, a questionnaire, and expert interviews. The regulatory environment was identified as a key uncertainty for the location choice in the industry. This case study found that under specific conditions, investors can effectively reduce uncertainty in the regulatory environment, influence regulation, and mitigate its impact by utilising regulatory risk management strategies. Building relationships and engaging with local stakeholders were revealed as particularly relevant in understanding and influencing regulation. A firm’s ability to navigate uncertainty in a country was found to be important for its location choice. The findings guide international investors in uncertain investment environments, facilitating capital flows to markets where funding is crucial, particularly emerging economies.