Year-End Results Demonstrate MIGA’s Niche in Challenging Environment
October 07, 2008—Fiscal year 2008 was marked by turmoil in the global financial markets. High energy and food prices had devastating effects on the lives of poor people. In this very difficult environment, MIGA ramped up its support for member countries with the largest amount of guarantees (political risk insurance) issued in its history.
As governments face the challenge of protecting the most vulnerable of their citizens in a fiscally responsible and sustainable manner, they need to rely on private sector investment and FDI to support economic growth.
“As liquidity dries up, the risk appetite of international investors for projects in emerging economies is tested,” said James Bond, Acting Executive Vice President and Chief Operating Officer of MIGA. “MIGA’s products and services are more critical than ever before at times like this, encouraging foreign investors to overcome risk concerns and invest in these markets.”
MIGA guarantees for projects that foster growth in developing countries increased by 50 percent this year compared to FY07. As a result, gross portfolio exposure increased from $5.3 billion to $6.5 billion. (See 2008 Annual Report.)
“2008 has been an exceptionally good year for MIGA,” said World Bank Group President Robert B. Zoellick. “New guarantee issuance reached $2.1 billion—a gauge of the need and demand for MIGA’s investment guarantees.”
Creating Opportunities for the World’s Poorest
MIGA’s activities contribute to the World Bank Group’s overall vision to achieve inclusive and sustainable globalization. Its products and services support economic growth, reduce poverty, and improve people’s lives by encouraging foreign direct investment where it is needed most.
Roughly 63 percent of MIGA's projects in FY08 were located in the world’s poorest countries. Nine projects in sub-Saharan Africa were backed with $218 million of guarantees. For the first time, MIGA provided a guarantee for investments in the Central African Republic. The guarantee is supporting a telecommunications project, considered critical for the poverty-stricken, landlocked country.
Another notable telecommunications project this year was in Guinea-Bissau, which became a MIGA member country in 2007. The project, for which MIGA issued guarantees of $25.9 million, is an excellent example of MIGA’s value-added in promoting investments from one developing country into another—also known as “South-South” investment.
“MIGA projects can play a critical role in advancing social and economic development,” said Zoellick. “These projects provide opportunities for our clients by engaging communities in partnership with the private sector; by creating jobs, providing water, electricity, and other basic services, transferring skills and technological know-how, and tapping natural resources in an environmentally sustainable way.”
Prioritizing Complex Infrastructure Projects
Modern, cost-effective, reliable, and affordable infrastructure services are critical for sustainable development. Today 1.1 billion people in the world live without access to safe water, 1.6 billion people without electricity, 2.4 billion people without sanitation services, and an estimated one billion people without access to an all-weather road.
Infrastructure development is an important priority for MIGA. At 41 percent, guarantees issued for infrastructure projects accounted for the largest gross exposure in the agency’s portfolio in fiscal year 2008.
“MIGA helps mitigate the risks that typically affect infrastructure investments, such as contract breaches when dealing with local governments,” said Edith Quintrell, Director of Operations at MIGA. “By removing noncommercial risks, our guarantees also help investors secure the large amounts of financing, often at better rates and for longer terms, needed for infrastructure investments.”
Over the past year, MIGA helped facilitate several critical infrastructure projects, including OrPower 4, Inc. in Kenya. The geothermal power plant is expected to help alleviate severe power shortages in Kenya, while offsetting greenhouse gas emission.
MIGA also provided more than $158 million in guarantees for the first Public Private Partnership toll road concession in Costa Rica. The landmark project—Autopistas del Sol S.A. in Costa Rica—is expected to be the first highway concession in the country to successfully reach financial closing and begin operations.
Leveraging Investments from Emerging Economies
The 2008 results also illustrate MIGA’s commitment to supporting South-South investments. The amount of guarantees issued for such projects went up from $249 million in fiscal 2007 to more than $520 million this year.
“There is no doubt that developing countries will reshape the trajectory of FDI flows in the near and medium term,” says Bond. “That is why support for this important group of investors remains a priority for MIGA.”
Supporting Small Investors and Businesses
SMEs account for over 60 percent of GDP and 70 percent of total employment in countries with GNP per capita between $100 and $500. Facilitating the growth and development of SMEs by encouraging foreign investors to invest in or lend to smaller ventures is an important role for MIGA.
During the year, MIGA issued guarantees in support of six such projects. Among them was the BRAC Afghanistan Bank—a fully regulated microfinance bank that will provide financing and savings instruments to micro-enterprises in the country.
Innovating to Maximize Value
Over the past year, MIGA took part in several groundbreaking transactions. Among these was the agency’s first guarantee for an investment with a Shariah-compliant project finance structure. The $427 million guarantee is supporting investments into a new container terminal in Djibouti, which is expected to help the country become a major business hub in East Africa. Development of the port and transport sector is at the heart of the country’s poverty reduction strategy.
“We are constantly seeking ways to meet investor and developing country needs in a continually shifting global investment landscape,” says James Bond. “These innovations help us to fulfill our mandate by facilitating critical, developmentally beneficial investments into developing countries.”
All these activities are guided by MIGA’s commitment to results. In two decades of service, the agency has reached a number of milestones. It has issued close to $20 billion in guarantees for investments going into 100 countries, which have facilitated an estimated $80 billion in overall FDI. But many challenges lie ahead, including the ongoing fight against poverty and hunger amidst soaring food prices, and increased volatility in equity markets and exchange rates.
Going forward, MIGA’s guarantees will be playing an increasingly important role in encouraging foreign investors to invest in emerging markets, creating value in terms of jobs, basic infrastructure and transfer of technology.