MIGA Facilitates $5.4 Billion in Foreign Direct Investment in FY00: Small agency has a big impact

MIGA Facilitates $5.4 Billion in Foreign Direct Investment in FY00: Small agency has a big impact

Washington, DC, September 13, 2000 — Foreign direct investment in developing countries, a key driver of growth, got a huge boost in fiscal 2000 from the Multilateral Investment Guarantee Agency, which facilitated some $5.4 billion in FDI by offering political risk insurance totaling $1.6 billion, finds the MIGA Annual Report 2000.

"This was another record year for MIGA," said the agency’s Executive Vice President, Motomichi Ikawa. "We’ve achieved significant results in the amount of foreign direct investment facilitated and investment promotion services offered. But most importantly, we have focused more on projects in poor countries."

The coverage is for 53 new contracts in 26 developing countries, including first-time guarantees in Albania, Armenia, Bosnia and Herzegovina, Croatia, Lesotho, FYR Macedonia, Moldova, Nicaragua, Swaziland, and Turkmenistan. Twelve projects are guaranteed for $460 million in poor countries eligible for International Development Association (IDA) credit, with Africa accounting for a fifth of the year’s portfolio. The agency also covered nine cross-border investments between developing countries.

Projects covered are in the agribusiness, telecommunications, financial services, infrastructure, manufacturing, mining, services, and tourism sectors. Guarantees for infrastructure projects grew at the fastest rate, rising from 19 percent of the portfolio at the end of fiscal 1999 to 29 percent at the end of fiscal 2000.

The projects are expected to have a high developmental impact, meeting social needs and creating opportunities in host countries through foreign direct investment, export generation, job creation, technology transfer, and enhanced domestic competition. For example: 

• A $40 million investment in a Kenyan geothermal power plant, guaranteed by MIGA, will reduce the country’s severe power shortage, the ongoing effects of which have serious economic and social impacts. The 8 megawatt plant will help cut back Kenya’s dependence on hydroelectric power, which is subject to repeated droughts and accounts for 80 percent of the country’s power production. Power production could eventually be increased, boosting Kenya’s overall power generation by up to 10 percent.
• MIGA’s involvement in a project to support equipment leasing in Argentina will help finance agricultural machinery, transportation, and construction equipment, and provide working capital for farmers and their suppliers. This should enhance the overall productivity of the agriculture and construction sectors.
• A banking project in Moldova, MIGA’s first guarantee in this emerging economy, will introduce a package of new financial services ranging from trade financing to providing efficient international payments. The project aims to increase the availability of capital and other services to small- and medium-sized firms, while providing privatization and advisory services to more than 100 companies a year. The project is expected to promote best practices in the country’s newly liberalized banking sector.

According to the report, the demand for political risk insurance continues to grow, with increased flows of foreign direct investment to developing countries following the global financial crisis. But the public and private insurance market has not been able to keep pace with the demand, and the availability of coverage is unequal, often leaving out the world’s poorer economies.

"MIGA plays a crucial role in this environment, supporting foreign direct investment into countries most in need, and working with other insurers to increase the capacity of the insurance industry as a whole," said Ikawa.

Fiscal year 2000 saw new coverage of more than $257 million issued for four projects under the Cooperative Underwriting Program, a coinsurance arrangement that helps mobilize additional political risk insurance and thus broaden MIGA’s reach. Four new private insurers were brought into the program. And the agency also signed partnership agreements with three national insurers.

MIGA has also taken a leadership position in the use of new technologies to disseminate information on investment opportunities and business operating conditions in developing countries. Fiscal 2000 saw a relaunch of the agency’s flagship website, IPAnet, which together with Privatization​Link, another award-winning online service, is recognized as a leading tool for doing business in the new global economy. MIGA also designed and developed two additional Internet services, focused on investment opportunities in the Russian Federation and in African telecommunications.

Demand continued to grow for MIGA’s hands-on technical assistance and advisory services, which extend to more than 40 countries. One of the highlights of this outreach is a program funded by the Japanese government that supports Indonesia, Korea, Malaysia, the Philippines, and Thailand—countries hard hit by the Asian financial crisis—in developing and implementing strategies to attract foreign direct investment.

In working to meet the needs of its clients, MIGA also reviewed its growth strategy and future directions last fiscal year. "The findings confirmed our focus on developmental effectiveness, financial soundness, client orientation, and partnerships," said Ikawa. "They also pointed to the need for continued investments not usually supported by other insurers, namely those in IDA-eligible countries, Africa, cross-border between developing countries, and small- and medium-sized enterprises. We will be discussing these issues further at the Annual Meetings next week in Prague."

Since its inception in 1988, MIGA has covered investment projects in 75 developing countries, providing more than $7.1 billion in guarantees. These guarantees have facilitated an estimated $36 billion in foreign direct investment to emerging economies all over the world. Increasingly, these flows are being directed to the world’s poorest, with MIGA’s gross exposure in IDA countries at a record $1.2 billion.

For a copy of the annual report, visit here. For more on the agency’s work, visit www.miga.org.

MIGA, formed in 1988, is a member of the World Bank Group. Its mandate is to encourage foreign direct investment into developing countries by providing political risk insurance against such risks as transfer restriction, expropriation, breach of contract, and war and civil disturbance. MIGA also offers investment marketing services to help developing member countries promote their own private investment opportunities more effectively.

For information:
Moina Varkie, mvarkie@worldbank.org, tel. (202) 473-6170
Angela Gentile, agentile@worldbank.org,
tel. (202) 473-3509