MIGA Sees Gradual Recovery in Foreign Direct Investment
WASHINGTON, DC, September 30, 2010—The Multilateral Investment Guarantee Agency, MIGA, the political risk insurance arm of the World Bank Group, noted a gradual recovery in foreign direct investment (FDI) when it announced today that it issued $1.5 billion in investment guarantees (insurance) for 19 projects in developing countries during the fiscal year ending June 30, 2010. The results bring total guarantee coverage issued since MIGA’s inception in 1988 to $22.4 billion. The agency also closed the year with an outstanding gross portfolio of $7.7 billion, surpassing last year’s record high of $7.3 billion. (See MIGA's 2010 Annual Report)
"After a substantial decline in FDI flows as a result of the global financial crisis, we began to see renewed interest from investors, particularly in infrastructure and extractive industry projects. Notably, we provided political risk cover for investments in ports in China, Senegal, and Turkey," says MIGA’s Executive Vice President, Izumi Kobayashi. MIGA also supported its first project in Ethiopia. The project, involving the production of tropical fruit juices, is expected to create over 900 jobs in five years.
During the year, MIGA continued its support to financial institutions in Europe and Central Asia by issuing $918 million in guarantees to support the banking sector in Croatia, Kazakhstan, Latvia, and Serbia. MIGA’s cover is supporting financial flows from banks to their subsidiaries in countries that were hit by the crisis, allowing for recapitalization and addressing near-term liquidity needs.
MIGA did not pay any claims during the year, and worked to facilitate resolutions with governments and guarantee holders in eight countries. Overall, MIGA’s proactive facilitation efforts have been pivotal in the resolution of more than 80 disputes related to MIGA-guaranteed projects, ultimately keeping the projects—and their development impacts—on track.
Responding to Market Demand
"We remain committed to our mandate of supporting FDI into the countries that need it most, and are continuously looking for ways to increase our effectiveness for investors and lenders," says Kobayashi. "I’m particularly pleased to report that during the fiscal year MIGA’s Board concurred with recommended amendments to MIGA’s Convention that will greatly enhance our effectiveness as a multilateral provider of political risk insurance in a constantly evolving marketplace." These amendments will be announced and take effect in mid-November.
Building on an initiative launched in fiscal year 2009, MIGA continued to support private equity funds seeking to raise investment capital in a weary market. This year the agency signed master contracts of guarantee with Sierra Investment Fund LLC, ManoCap Soros Fund LLC, and Chayton Atlas LLP. MIGA’s conditional cover is helping these funds attract scarce capital for investments into sub-Saharan Africa. MIGA also signed individual contracts of guarantee for two projects under a master contract of guarantee—both in Sierra Leone.
Another key milestone this year was the Basel Banking Supervision Committee’s decision to classify MIGA a highly-rated multilateral under the Basel II Framework. "This recognition increases MIGA’s value as a risk mitigator," says Kobayashi. "We hope this classification, and the additional value it brings, spurs developmentally sound investments in some of the more fragile countries."
New Report Highlights Perceptions of Political Risk
MIGA also extended its research and knowledge agenda this fiscal year with the launch of its publication World Investment and Political Risk. The report addressed corporate perceptions of political risk in the context of the financial and economic crisis, as well as the effects of the crisis on the political risk insurance industry’s public and private providers. A key finding was that investors worldwide, whether from developed or developing countries, consider political risk to be the most important constraint for investment in emerging markets today, and this is expected to become an even more prominent obstacle in the medium term. "We felt the report filled an important information gap, and hope that it proves to be an effective resource for investors," says Kobayashi. The next report, slated for publication in December 2010, will focus on political risk and foreign direct investment in conflict-affected and fragile states.
"Although the effects of the global financial crisis still linger," says Kobayashi, "we were encouraged by the number of developmentally significant investments coming into our pipeline this year. For our part, we worked hard to position ourselves to be a more effective partner in helping investors reach some of the world’s most challenging markets."
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment into emerging economies to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders, covering risks including expropriation, breach of contract, currency transfer restriction, war and civil disturbance, and non-honoring of sovereign financial obligations.
MULTILATERAL INVESTMENT GUARANTEE AGENCY
A Member of the World Bank Group
1818 H Street, NW, Washington, DC 20433
Mallory Saleson, MIGA
Tel: +1 202 473-0844
Rebecca Post, MIGA
Tel: +1 202-473-1964
Cara Santos Pianesi