Working Today for Tomorrow

Working Today for Tomorrow

June 08, 2009—The global economic crisis remains a challenge that continues to adversely impact the lives of millions of people, their jobs and livelihoods. But, economists are beginning to talk about the possibility of a turn-around starting next year. As everyone continues to move forward through the uncertainty, MIGA is proactively positioning for the recovery it expects will take place -- enhancing its flexibility and effectiveness. MIGA is driven by its mission to promote foreign direct investment (FDI) into developing countries, achieving this by assisting would-be sponsors of projects to better mitigate their risks, so that investment opportunities become more attractive and more good projects get done.

MIGA has supported joint initiatives and programs for Eastern Europe, Africa, and Latin America to help economies in these regions emerge from the current turmoil. MIGA recently adopted substantial changes to its operational regulations in order to respond to the crisis more flexibly and to meet rapidly changing market conditions.

Operationally, MIGA is developing its business strategy in four main sectors: Infrastructure; Finance and Telecommunications; Agribusiness, Manufacturing, and Services; and Oil, Gas, Mining, Chemicals and Energy. Recently appointed sector leaders for these areas discuss here their initial views on the main challenges facing MIGA and look to the agency’s future.

Margaret Walsh, Sector Leader for Infrastructure

One of the challenges MIGA is facing today is to raise awareness that political risk insurance is a structured instrument and that MIGA’s underwriters have significant experience in structuring PRI transactions and are able to anticipate issues during a project’s preparation. We want investors to know that MIGA can bring expertise at the beginning of transactions, thus bringing to the project not only insurance, but risk mitigation as well. We also need to ensure that investors are aware of MIGA’s various product offerings.

One of the key pillars of our strategy in infrastructure is client relations. We want to reach out to our main potential clients in transport and water in particular, and work with them to anticipate their needs. Working on the deals that may come to fruition only in a year or two will not yield immediate project closings, but is an appropriate overture to building long-term relationships. That is what MIGA is doing in anticipation of markets opening up.

After the crisis is over I would see the increased participation of municipalities and state-owned enterprises in infrastructure projects. Those trends originated before the crisis and it is reasonable to assume that they will resume post-crisis.

Olivier Lambert, Sector Leader for Finance and Telecom

Our challenges are both internal and external. Internally, we need to be more thoughtful, reflect on what we’ve done well over the past 20 years, and then focus on delivering more and more efficiently. Externally we need to have an even better understanding of the investors from both our developed and developing member countries.

Currently, we are helping financial institutions to stabilize and to make sure that country financial systems are stable, particularly in the Eastern European region. After the crisis, capital will flow again. In the financial sector we will focus our assistance on supporting banks to reorganize and restructure their operations so that they can develop better access to credit. In the post-crisis world I would see some convergence of telecom and banking, such as mobile banking, which will lead to the development of a modern, efficient and adapted financial sector in developing countries.

Local and regional banks are becoming more prominent, in Africa for instance. We should support these local groups. I would probably see less FDI from the North into the South, but more South-South investments.

With regard to telecom, our aim is to contribute to reducing the digital divide. I would like to focus our strategy not only on mobile technology, but both also to support long-term heavy investments that will lay the foundations for broad information access in the developing world and also on smaller internet project that can make an impact in the short run on people’s life by reducing cost of communications, bringing TV to homes and allowing distance learning for instance.

Nabil Fawaz, Sector Leader for Agribusiness, Manufacturing and Services

During this crisis investors have become much more selective about their projects and about the use of their capital. They tend to shy away from the countries that would be a priority for MIGA: countries in sub-Saharan Africa, IDA-eligible countries (the world’s poorest countries), conflict, and post-conflict countries as well. They would like to go to “safer” places. However, MIGA’s priority countries abound with commercial opportunities for investors. MIGA, as a multilateral institution, is well positioned to assist and provide the comfort level required to move forward with these new investments.

We are focusing on increased collaboration with our partners. First of all I am talking about the World Bank and IFC. We should also look at our country partners – local investment promotion agencies. MIGA should be an added tool in their efforts to attract private sector investors. And our third priority is increased cooperation with the investor community. We need to identify the critical areas of investor interest for the next year or so. Finally, I would also add that we will focus further on assisting investors from our developing member countries moving into opportunities outside their own countries, as well as small and medium size investors who can take advantage of MIGA’s Small Investment Program.

With the economic recovery, I would see a pickup in such market segments as cement, hotel industry, and pulp and paper as areas with high investment potential, and where investors are looking for opportunities. Investors are preparing their plans and identifying the markets to move into tomorrow. Within a year or two the projects that have been envisaged will materialize. MIGA is ready to step in at the earliest stage of project preparation, assist in improving the investment’s financing terms and risk profile, while contributing to the development and economic recovery of the country.

Antonio Barbalho, Sector Leader for Oil, Gas, Mining, Chemicals and Energy

The global credit shock has forced us to rethink what we have done, how we have to conduct our business, and consider potential opportunities and challenges that will surface from the current crisis. The investor community is changing, with increased risk mitigation requirements, including some large corporations which are now asking for PRI support in business areas they have never considered before. MIGA’s support would enable investments in significant and important energy projects, ranging from renewable energy to basic infrastructure.

Historically we have not been very active in oil and gas. Oil and gas projects are like any other infrastructure projects, and it is important for MIGA to be able to provide support for investors coming to emerging economies and to assist them at the early stage of project preparation.

MIGA has taken steps to enhance its flexibility of its products and work even more proactively with clients. We want to improve our visibility and raise awareness of what we can bring to the table. MIGA is sometimes seen by some investors as a bureaucratic entity, a market perception which is needs to be overcome. We need to help clients understand that MIGA’s transactions are not different from any other PRI transactions. Our guarantees have more specific terms and conditions because we care about the development impact, as well as environmental and social impact. We think this approach adds value to a project and it is an important aspect of risk mitigation.

Another important priority is to foster even better cooperation with the World Bank and IFC. The combined effort of these three entities is extremely powerful and can make a difference for projects in developing countries, large energy projects in particular.