World Bank's MIGA Sees Solid Results in FY02: Plays counter-cyclical role in challenging environment

World Bank's MIGA Sees Solid Results in FY02: Plays counter-cyclical role in challenging environment

WASHINGTON, DC, September 16, 2002 — Flows of foreign direct investment to developing countries are likely to continue slowing down over the next year, further hampering the development of many of the world's poorest countries.

"The fallout of the global economic slowdown and the events of September 11 are depressing foreign investment. Even very strong deals in countries with relatively developed legal and economic structures are having problems closing," said Motomichi Ikawa, executive vice president of the Multilateral Investment Guarantee Agency (MIGA), launching the 2002 Annual Report.

"MIGA plays an important role in environments such as this, encouraging 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."

MIGA's counter-cyclical role was demonstrated over the past year, with the issuance of $1.4 billion in guarantee coverage for projects in developing countries, facilitating an estimated $4.7 billion in foreign direct investment (FDI).

"These numbers are quite strong, given the exceptional hurdles we faced this year," said Roger Pruneau, MIGA's vice president for underwriting. Not only were investors more skittish, but the private investment insurance market was adversely affected as well, he said. Overall, their capacity was reduced, terms shortened, and premiums increased.

During the fiscal year, MIGA provided guarantees for 33 projects in 24 countries. Its priorities were to support foreign direct investments in countries eligible for support from the International Development Association (IDA-those with a per capita income threshold of $885 or less), in Africa, among developing countries ("South-South"), and in small and medium-size enterprises (SMEs). Despite the hurdles faced over the past 12 months, MIGA was able to offer coverage for 14 projects in IDA-eligible countries, worth $507 million in coverage, or 37 percent of the total issued. In sub-Saharan Africa, MIGA issued $315 million in guarantees for 9 projects, representing 23 percent of the total issued. The agency also provided guarantees for 11 "South-South" projects and 11 for investments into SMEs.

In terms of numbers of projects guaranteed, the top sectors were infrastructure (11), financial (7), telecommunications (6), and services (4). Regionally, Latin America accounted for the largest share of coverage, with 11 projects guaranteed for $621 million, followed by Europe and Central Asia, with 11 projects worth $319 million in coverage. Asia hosted two MIGA-guaranteed projects, with coverage of $102 million.

MIGA also provided first-time coverage for projects in Benin, Mauritania, Nigeria, and Senegal, bringing the total number of member countries that have hosted MIGA-backed projects to 82.

The projects are expected to have high developmental impacts, creating social benefits as well as opportunities in host countries through job creation, export and tax generation, technology transfer, spin-off business development, and enhanced domestic competition. For example:

One "South-South" deal involves a $130 million MIGA guarantee for an investment by Keppel Fels Energy Pte. Ltd. of Singapore in the installation, operation, and maintenance of a barge-mounted emergency power facility in Bahia, Brazil. The project responds to an urgent need for electricity, addressing short-term demand until new, permanent gas-fired power projects are brought on line. In addition to benefiting residents, the project is expected to generate $35 million in tax revenue during its three years of operation, employ up to 300 local people for construction and an estimated 185 during operation, and provide staff training.

Benin, one of the world's poorest countries, is the location of a new investment in a GSM mobile telephone network. MIGA is providing an $8 million guarantee to the project sponsors: Investcom Holding S.A. and Investcom Global Ltd., owned by Lebanese investors. Benin suffers from a severe shortage of reliable telephone lines-less than one percent of residents have phone service. The project will help increase teledensity and improve connections, voice quality and clarity, and is expected to be particularly beneficial to the local business community. The project should generate some $6.5 million in tax revenues over the first five years of operation, employ 54 people, provide staff training, and benefit local businesses through in-country procurement of various goods and services.

The annual report showcases the agency's development work in four areas-supporting basic infrastructure, rebuilding conflict-affected countries, encouraging cross-border investment among developing countries, and strengthening institutional capacity. The section highlights MIGA's unique role, and provides concrete examples of projects and activities that MIGA has undertaken in each of these areas.

Fiscal year 2002 yielded solid results on other fronts as well. The global downturn in FDI led growing numbers of developing countries to seek MIGA's help in promoting their countries as desirable FDI destinations. As a result, the agency undertook 34 technical assistance projects in 27 countries. The year also saw the launch of FDI Xchange, a customized service that provides investors with free email updates on investment opportunities in developing countries, as well as the publication of an extensive survey of investors' overseas business plans.

The agency's legal team was successful in helping an investor avert an insurance claim for a project in China, and made good progress on helping dozens of parties involved in investment disputes in Ethiopia come closer to a resolution.

Other fiscal year highlights include the establishment of an office in South Africa to encourage more investments into the region, and an internal reorganization to strengthen regional representation, client outreach and service, and risk management. The agency's Operations Evaluation Unit became fully independent in fiscal 2002. And Chad, the Federal Republic of Yugoslavia, and the Syrian Arab Republic all finalized their requirements to become members of MIGA. The agency also partnered with the Corporate Council on Africa's US-Africa Business Summit, Asia Pacific Political Risk, Project Finance, and Trade Credit Summit 2001 on a number of major international events.

"We are encouraged by these results, and look forward to even better ones this year," says Ikawa. "The impact of last year's events has underscored the importance of MIGA's role in the marketplace-in terms of providing investors with the special assurance they need to venture into emerging markets, helping countries attract limited FDI, and working with investors and host countries to find a joint solution to potential disputes."

For information

Angela Gentile, agentile@worldbank.org,
t. 202.473.3509 (in USA)