MIGA Posts Strong Results in Overlooked Markets

MIGA Posts Strong Results in Overlooked Markets

WASHINGTON, DC, September 24, 2007—The Multilateral Investment Guarantee Agency, MIGA, a private sector arm of the World Bank Group, today said it issued $1.4 billion in investment guarantees (insurance) for 29 projects in developing countries during the fiscal year ending June 30, 2007. Total guarantees approved by the Board during the year reached $1.9 billion. The results bring total coverage issued since MIGA’s inception in 1988 to more than $17 billion. (See MIGA's 2007 Annual Report.)

The results came at a time of robust foreign direct investment (FDI) into developing countries. But even in markets flush with liquidity, the poorest countries continued to lose out due to perceptions of higher risk, with only 10 percent of developing country flows going to low-income countries.

MIGA’s mission is to encourage investment in markets that traditional investors and insurers shy away from. During the fiscal year, MIGA registered strong results in its priority markets—Africa, “frontier markets” (high-risk/low-income), conflict-affected countries, and IDA-eligible (the world's poorest) countries—often seen by foreign direct investors as too risky for business. Nearly half (48 percent) of projects supported by the agency in fiscal year 2007 were in IDA-eligible countries. And thirty-eight percent of the projects were in Africa—home to 30 percent of the world’s poor.

“These achievements point to the institution’s strong dedication to confronting poverty—especially where it is most dire,” said World Bank Group President Robert B. Zoellick. “MIGA’s activities have been guided by the Bank Group’s commitment to results, working with all partners who strive with us to achieve the Millennium Development Goals by 2015.”

As part of the World Bank Group, MIGA aims to support economic growth, reduce poverty, and improve people’s lives by encouraging FDI where it is needed most. MIGA does this by providing political risk insurance; dispute resolution services; online investor information services; and technical assistance. Investments supported by MIGA can play a critical role in helping economies grow by generating jobs and building essential infrastructure, for example, while allowing governments to focus funds on urgent social needs.

“I see MIGA’s role as a catalyst to investment, encouraging private sector involvement where it matters most,” said Zoellick.

In FY07, MIGA also provided $387 million in coverage for 14 projects in frontier markets. In addition, eight projects in conflict-affected countries received MIGA’s support with guarantees of $302 million.

In Afghanistan, for example, MIGA facilitated an investment that will bring state-of-the-art telecommunications services into the country. This project alone is expected to bring as much as a third of the total amount of FDI received by the country in the past year. In addition, the project is expected to signal to other investors that the country is ripe for investment with the appropriate mitigation of risks.  

"Helping investors overcome their concerns about potential political risks is precisely why MIGA exists," said Yukiko Omura, Executive Vice President of MIGA. "We are constantly seeking ways to meet investor and developing country needs in a continually shifting global investment landscape."

Results Reveal Agency’s Niche in Challenging Environment

The last financial year witnessed slower growth in the political risk insurance market compared to previous years. In the face of this challenging external environment, MIGA focused on its niche strengths of encouraging investment in underserved emerging markets; deterring harmful actions that might negatively affect a project; providing coverage for longer periods than the private market; pulling together financing for complex projects; providing country and sectoral knowledge and expertise on environmental and social issues; and helping to lower risk ratings, and therefore the cost of financing.

Complex Infrastructure Projects Remain MIGA Priority

Infrastructure development is an important priority for MIGA, given the estimated annual need for $230 billion in new investment alone to address developing country demand. During the fiscal year, MIGA issued close to $500 million in guarantees for infrastructure investments, accounting for more than a third of all coverage issued.

Over the past year, MIGA helped facilitate several critical infrastructure projects, including the Bujagali hydropower project in Uganda. The project, which involves three agencies of the World Bank Group, is designed to help Ugandaaddress a severe energy crisis. MIGA’s $115 million guarantee was considered essential to pulling together a key part of the project’s financing.

In Latin America, Brazil’s electricity distribution network received a much needed boost with $61.4 million in MIGA coverage for investments in three transmission line projects that will help offset the current lack of consistent energy supply.

In China, the agency is supporting several innovative investments in solid waste management, helping the country meet growing demand for these services. “Managing scarce resources and environmental challenges is a key focus of the World Bank Group in China,” said Omura. “The projects are particularly exciting because they are conserving Beijing’s limited landfill capacity while introducing advanced waste treatment technology and generating electricity.”

Guarantees for South-South Investments on the Rise

The 2007 report also illustrates MIGA’s commitment to supporting investors in developing countries interested in establishing businesses in other developing countries—a growing source of foreign direct investment known as “South-South.” In fiscal 2007, MIGA guarantees for South-South investment projects increased from 14 percent of business underwritten in the previous year to 18 percent (a total of $249 million). Nine of the 12 South-South projects supported by MIGA this year involved sub-Saharan investors, including South Africa, Mali, Mauritius, and Senegal. And during the year, South Africabecame MIGA’s fourth largest investor country.

“There is no doubt that developing countries will reshape the trajectory of FDI flows in the near and medium term,” said Omura. “That is why support for this important group of investors remains a priority for MIGA.”

Agency Gives a Helping Hand to Small Businesses

Over the past year, MIGA issued seven contracts totaling $7 million in coverage in support of medium-size enterprises (SMEs). All of the projects were in frontier markets, including three in Africa and two in Afghanistan. Among the projects is a new commercial bank in Cameroon, which is set to provide micro-credit and other financial services to clients, including SMEs, with the help of $1.8 million in MIGA guarantees. Another $1.5 million guarantee is expected to address the lack of microfinance available to small entrepreneurs in Afghanistan.

Portfolio Continues to Diversify

In terms of the number of projects supported, sub-Saharan Africa was the top guarantee recipient, with 18 contracts in support of 11 projects, totaling $311 million in coverage. Three projects—a telecommunications project in Guinea and two electricity projects in Uganda—accounted for two-thirds of the guarantee amount. MIGA guaranteed eight projects, backed by ten contracts totaling $125 million in coverage in Asia. Latin America generated the third highest number of projects supported, with 12 contracts in support of six projects, totaling $501 million in coverage. Four projects in Europe and Central Asia benefited from MIGA guarantees, resulting in $430 million in coverage. Although the agency did not guarantee any projects in the Middle East and North Africa  during the fiscal year, important groundwork was laid, enabling the agency to begin guaranteeing projects backed by an Islamic financing structure.
 

During the fiscal year, the agency added four new countries to its list of host countries: Djibouti, Guinea-Bissau, Liberia, and Montenegro.

Dispute Resolution Keeps Investments on Track

In addition to its guarantee services, MIGA works with member countries and investors to resolve disputes and claims that may have an adverse impact on investments guaranteed by the agency. In fiscal 2007, MIGA paid no claims relating to the projects it guaranteed. Three claims were filed during the year. Overall, MIGA’s proactive facilitation efforts have been pivotal in the resolution of more than 50 disputes related to MIGA-guaranteed projects, ultimately keeping the projects—and their development impacts—on track.

Technical Assistance Registers Solid Year, Integrates with FIAS

Fiscal 2007 was also a strong year for MIGA’s non-guarantee activities, with 44 technical assistance projects conducted in 29 countries in all regions, in addition to several regional and global initiatives. The agency’s technical assistance services were integrated during the year into the Foreign Investment Advisory Service (FIAS), a World Bank Group entity. Combining the investment climate reform work of FIAS with MIGA’s investment promotion work will allow the World Bank Group to help countries get the framework right for investment, and then market the improved environment, from a single platform. The integration also creates a more coordinated, single interface for clients, donors, and other partners.

The fiscal year also registered important innovations in MIGA’s delivery of investment-related information, with the launch of two new knowledge websites on foreign investment and political risk insurance—www.fdi.net and www.pri-center.com.

For more on MIGA and its fiscal year results, visit www.miga.org.

For information:
Angie Gentile, agentile@worldbank.org, 202.473.3509
Farah Hussain, fhussain@worldbank.org, 202.473.2540
Rebecca Post, rpost@worldbank.org, 202.473.1964