MIGA Issues $1.4 Billion of Guarantee Coverage in 2003

MIGA Issues $1.4 Billion in Guarantee Coverage in Fiscal Year 2003: Results highlight agency's unique role in catalyzing investment

WASHINGTON, DC, September 16, 2003—Against a backdrop of global financial woes, war, and the SARS epidemic in Asia, the Multilateral Investment Guarantee Agency (MIGA) issued close to $1.4 billion in guarantee coverage during the fiscal year that ended June 30, 2003. The coverage was for 37 projects, a 12 percent increase over the previous year. In dollar terms, the amount guaranteed was only marginally higher.
The results were well on target when it came to MIGA's priority areas: eight of the projects were in Africa, 19 in IDA-eligible (the world's poorest) countries, 12 involved investors from developing countries, and 10 were investments in small and medium-size enterprises. Fifteen of the projects were in conflict-affected countries.

In relative terms, MIGA's performance was strong, with the agency recording the second highest amount of new coverage issued in calendar year 2002 among all the members of the Berne Union (an international union of credit and investment insurers, consisting of 51 member organizations from 42 countries). Among the public insurers, MIGA underwrote the most business.

"MIGA demonstrated the counter-cyclical role it can play in challenging times-encouraging investors, lenders, and insurers to venture into markets where they may not have otherwise felt comfortable, to ensure that foreign investment benefits those who need it most," said Motomichi Ikawa, executive vice president of MIGA. "Of particular note, projects in sub-Saharan Africa now account for nearly a fifth of our outstanding guarantees portfolio, a reflection of our intense efforts over the past few years to underwrite more business in the region."

The results from fiscal year 2003 bring total coverage issued since MIGA's inception to $12.4 billion, and the amount of additional foreign direct investment facilitated into developing countries to an estimated $50 billion. Gross outstanding exposure dropped, however, from $5.3 billion in fiscal 2002 to $5.1 billion at the end of the fiscal year, due in part to contract cancellations.

MIGA's efforts to diversify its regional portfolio continued to show positive results, with the Europe and Central Asian and sub-Saharan African regions reaching 26 and 19 percent of the portfolio. Europe and Central Asia benefited from buoyant investor activity in several countries, as well as increased political stability in southeastern Europe. The Middle East and North Africa region's share of the portfolio increased to 3 percent, despite a difficult regional political and economic situation. While still modest, this growth is a reflection of MIGA's concerted outreach efforts over the past three years. The Asian share of the portfolio also increased, reaching 12 percent, while the Latin American and Caribbean region dropped from 55 percent of the gross outstanding portfolio to 43 percent, due to the economic difficulties and political uncertainties experienced by several countries.

During the year, MIGA offered first-time coverage for projects in Burundi, Serbia and Montenegro, and Syria, and welcomed five new members: Afghanistan, Gabon, Rwanda, Tajikistan, and Timor-Leste.

Changes in sectoral coverage were influenced by a decrease in guarantees for financial projects, which fell from 35 percent of the outstanding portfolio in fiscal year 2002 to 29 percent in fiscal year 2003, primarily due to cancellations in Latin America. Coverage for infrastructure projects, a strategic priority for the agency, grew to 41 percent of the portfolio from 36 percent in the previous fiscal year. Manufacturing, oil and gas, and tourism projects registered slight gains in portfolio representation.

The MIGA-supported projects are expected to generate significant developmental impacts, creating social benefits as well as opportunities through job creation, export and tax generation, technology transfer, spin-off business development, and enhanced domestic competition, and more. For example:

A new MIGA-backed airport slated for Quito will replace the current airport, which no longer meets travel industry requirements and has constrained the region's economic development. MIGA is providing $66.5 million in guarantee coverage to a group of investors for the undertaking. Among the expected benefits are improved public safety and reduced noise pollution, as well as additional tourism and foreign exchange earnings generated by the increased export of perishable goods.
MIGA teamed up with the Asian Development Bank to back the construction and operation of a new power plant to help meet Vietnam's need for more reliable electricity. MIGA is providing $123 million in guarantees to cover an investment in a 716.8 megawatt gas-fired power plant to be constructed near the town of Phu My. In addition to creating jobs and procuring most of the construction materials locally, the reliable supply of electricity is expected to help attract additional private capital flows into the country. 
In Burundi, MIGA has provided a $910,612 guarantee for a project that aims to alleviate the acute shortage of telephones by developing, operating, and maintaining a nationwide mobile telephone network. The addition of a new competitor in the cell phone business is expected to help lower prices, broaden geographic penetration, and improve the quality of service.

MIGA's guarantees and investment marketing services can also play a critical role when it comes to bringing investors back into war-torn countries. "In countries like Bosnia-Herzegovina, Mozambique, and Nicaragua, we have already developed a strong track record in this regard," said Ikawa. "We look forward to expanding our work in this area, particularly in countries such as Afghanistan." Since inception, MIGA has supported 66 projects in 18 conflict-affected countries with more than $1.6 billion in guarantees.

Partnerships continued to play an important strategic role in the agency's work. MIGA signed memoranda of understanding (MOUs) with a number of entities, including the Asian Development Bank and EXIM Bank of Romania. The agreements call for MIGA and the organizations to collaborate on promoting foreign investment into particular regions and countries by jointly supporting potential projects. This brings the number of MOU partners to 33.

The same adverse elements in the general operating environment were also instrumental in increasing demand for MIGA's technical assistance services during the fiscal year, as developing countries sought help in attracting scarce FDI inflows. MIGA's investment marketing portfolio for fiscal year 2003 encompassed 28 projects in 30 countries, in addition to several global initiatives. Partnering with others is also a key element of MIGA's strategy to heighten the development impact of its technical assistance efforts. For example:

MIGA was one of the first organizations on the ground in Kenya after the inauguration of the new government, responding to a request from the Office of the Vice President and the Ministry for National Reconstruction to craft a strategy for promoting critical projects left undeveloped by the previous administration. Working with the government and the World Bank, MIGA is supervising the preparation and posting of five project proposals for online marketing via the FDI Xchange, an email-based investment promotion tool.
Working with the International Finance Corporation in Panama on the conversion of the former Howard Air Force Base to civilian use, MIGA's efforts helped attract a large United States high-tech company as the anchor tenant. This investment is expected to create significant local employment, contribute to technology transfer, and have a demonstration effect for other potential investors.

Demand for MIGA's online services also continued to increase, while the number of content providers doubled for FDI Xchange. The services draw in nearly 20,000 registered users worldwide, providing an attractive outreach mechanism for developing country clients.

The importance of MIGA's field presence continues to grow, as witnessed by the opening of a new office in Singapore during fiscal year 2003. This adds to those recently established in Paris, Tokyo, and Johannesburg. "Our field offices are proving to be crucial in bringing us closer to the markets, and allowing us to more closely gauge the needs of our host country stakeholders and clients alike," said Ikawa. Plans are currently underway to set up a Central and West African office.

Also during the year, MIGA continued efforts to enhance its risk and financial management capabilities to better model the agency's portfolio risk. This ongoing work, initiated in fiscal year 2001, aims to ensure long-term financial sustainability.

MIGA registered one claim for a project in Argentina during the fiscal year. The claim, which is under review, is closely related to the financial crisis that the country has been weathering, and MIGA is working with the investor and the Argentine government to resolve the matter. "This claim is only the second to have been registered with MIGA, which reflects our ability to settle investment problems that do occur before they become full-fledged disputes. In this regard, we have been working closely with a number of other clients in Argentina during the past fiscal year, and alongside the government, to protect their interests," noted MIGA's Legal Vice President and General Counsel, Luis Dodero.

"Considering the difficult operating environment encountered during the past fiscal year, we are pleased with our results in the priority areas," said Ikawa. "We will step up our efforts to facilitate more projects and diversify our portfolio in Africa, the Middle East, and Asia, while continuing to focus on those priority areas where we have added value. We will also center our capacity-building resources on those countries that have the greatest potential and need to translate our assistance into increased FDI flows."
For information:
Moina Varkie, mvarkie@worldbank.org, 202.473.6170
Angela Gentile, agentile@worldbank.org, 202.473.350