Kobayashi Reflects on Year-End Results

Kobayashi Reflects on Year-End Results

MIGA concluded its fiscal year 2010 on June 30th, a year marked by continued economic uncertainty throughout the world. In the interview below, MIGA Executive Vice President Izumi Kobayashi reflects on the year—as well as the agency’s direction for the future.

July 31, 2010—Q: According to many economists, the world is slowly emerging from the global economic and financial crisis. What are your thoughts on this stage of recovery and how it relates to MIGA’s work?

A:  I would go further to point out that certain parts of the world are emerging quite strongly. The World Bank’s recent Global Economic Prospects report notes that several regions, specifically in the developing world, are experiencing solid growth. Specifically, GDP in developing countries is expected to grow by 6.2, 6.0, and 6.0 percent in 2010, 2011, and 2012. This is more than twice the projection for high-income countries.

I see this as an important point for MIGA’s work. Our mission is to foster developmentally beneficial foreign direct investment by providing political risk insurance to investors. I see the impact of the data I just mentioned as two-fold. First, with higher growth (and presumably investment returns) in the developing world while there are still undercurrents of uncertainty in high-income countries, our services should be more in demand than ever. Second, last year’s pattern with regard to a very low rate of cancellations of existing policies continued in fiscal year 2010. This is an indication to us that investors are sticking with their projects, but they are also keeping risk-mitigation instruments in place.

Q: Izumi, how did MIGA support recovery from the economic and financial crisis last year? 

A:  Just as fiscal year 2009, MIGA supported the recapitalization of banks in Eastern Europe and Central Asia as part of the World Bank Group’s Financial Sector Initiative that responded to the crisis. We also saw a slow but steady return to supporting investments in infrastructure. Notably, MIGA supported investments in three different ports on three different continents this year. We also conducted extensive environmental and social due diligence on several additional proposed projects in infrastructure and mining.

Q: Do you have other observations on MIGA’s 2010 portfolio, and how it reflects the agency’s strategy? 

A:  Absolutely. Twenty three percent of our projects were located in sub-Saharan Africa this past year. That is very much in line with our strategic priorities that target the world’s poorest and conflict-affected environments. About 20 percent of our projects were South-South investments—another strategic priority for MIGA.  I’m particularly pleased to see a healthy pipeline of complex projects. MIGA’s involvement in these projects can help secure financing for desperately-needed infrastructure and also ensures that these investments are carried out with the best environmental and social safeguards.

I also want to point out MIGA’s innovation success. During our previous fiscal year, MIGA began issuing master contracts of guarantee as part of our ongoing support to private equity funds. These contracts reserve MIGA capacity and provide up-front pricing to the funds’ general partners for a specific period. The idea is that fund managers can use these contracts to raise capital from institutional investors.   

I’m proud to note that in fiscal year 2010 we continued this work with private equity funds and we’re using the model in one of the world’s most difficult environments—Sierra Leone. This year, MIGA supported small-scale investments in transport and banking that bring very direct impact to local economies in that country.

I mention these initiatives to point out that this kind of adaptation to the marketplace is a very powerful way to support small investments that have immediate impact. MIGA will continue to look for new ways to foster sound development.

Q: How do you see the positioning of the agency in the medium term? 

An important aspiration of mine is to focus MIGA simultaneously on our development mission and our business goals. The latter is important, because we are a part of the World Bank Group that is financially self-sustaining. On that note, I’m pleased to report that at $7.7 billion, this year’s gross portfolio is at its highest.

Our mandate as a development institution sets us apart. MIGA’s bottom line differs from that of private providers in that we must be willing to take on risks that the private market won’t bear for the purpose of supporting economic growth and reducing poverty. This is our added value. This is also why, going forward, I will be looking for ways that we can address the development impact of our work more directly in our performance indicators and resulting goals.