WASHINGTON, DC, January 2, 2008—The Multilateral Investment Guarantee Agency (MIGA), a World Bank Group member, said today it has provided its first-ever guarantee for Shariah-compliant project financing. The $427 million guarantee will support investments into a new container terminal in Djibouti, which is expected to significantly improve port facilities and help the country become a major business hub in East Africa.
The nation of Djibouti is strategically located on one of the fastest-growing East-West international shipping routes at the crossroads of Asia, Europe, the Gulf region, and East Africa. Development of the port and transport sector is at the heart of Djibouti’s poverty reduction strategy.
The terminal is being developed jointly by Dubai Port World, one of the largest marine terminal operators in the world—and a state-owned port company. When construction is completed, the port will have an annual capacity of 1.5 million TEU (twenty-foot equivalent container units).
“Djibouti’s port is the economic backbone for growth and employment in the country,” says Elena Palei, Acting Head of Infrastructure at MIGA. “We are pleased to be able to work in partnership with Dubai Port World and its financiers to help Djibouti meet the full potential of its location.
MIGA’s guarantees are protecting the investments of Dubai Port World as well as those of the financing banks, Dubai Islamic Bank PJSC, Standard Chartered Bank and West LB, against the risks of transfer restriction, war and civil disturbance, expropriation, and breach of contract.
By improving container facilities in Djibouti, the project is expected to increase port traffic and open up new opportunities for investment and growth, including attracting other African countries to use the port as a gateway too. Currently more than 85 percent of total traffic in the port is destined for, or originates from, landlocked Ethiopia.
A state-of-the-art container terminal could establish Djibouti as a gateway for the Common Market for Eastern and Southern Africa (COMESA) members, and in light of trade flows through that part of the world, promote regional integration through trade development.
MIGA’s participation is allowing the syndication of a significant amount of financing provided by several banks on favorable terms and conditions under an Islamic financing structure. MIGA will reinsure $50 million with the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) under MIGA’s facultative reinsurance program. This is MIGA’s first collaboration with ICIEC at the project level.
MIGA’s presence played an important role in mitigating perceived political risks for the banks and enabled the project sponsors to raise the financing needed to make the project a reality. This is the first project MIGA has supported in Djibouti, which joined the agency in January 2007.
“Increased liquidity in Islamic financial markets is leading to growing demand for guarantees that can support Shariah-compliant deals,” says Executive Vice President of MIGA, Yukiko Omura. “We are very pleased to support this deal, which we hope is just the first of many such transactions.”