Fiscal Year 2012 Results are In: MIGA’s Business and Development Impact Reach New Levels
July 18, 2012— In the interview below, MIGA Executive Vice President Izumi Kobayashi discusses MIGA’s results for fiscal year ending June 30, 2012 and the global investment outlook in general.
Q. This year MIGA issued $2.7 billion in guarantees, which continues a strong growth trend from the previous year. What factors are at play in the Agency’s growth at a time when the investment outlook, on the whole, remains shaky?
A. We’re attributing our strong results this year to both internal and external factors. Amendments to MIGA’s Convention that became effective at the end of 2010 have broadened the universe of investments we are able to insure. In the past few years we have also increased client outreach, set up hubs in Asia and Europe, cooperated more closely with the IFC and other parts of the World Bank Group, forged additional strategic partnerships, and created a strong Marketing Agent and Business Finder Program. All these initiatives are starting to bear fruit.
The external financial environment has also helped our business. According to the OECD, at $1.5 trillion, flows of global FDI exceeded pre-financial crisis levels in 2011—so this was an important milestone. However, this recovery is expected to level off this year. And certainly, the world’s eyes are still on Europe as it struggles with its sovereign debt. With international financial markets so unstable, many investors are taking a "wait and see" approach.
Nevertheless, some investors are looking for opportunity to achieve higher returns in the more challenging markets that are still very attractive, and they are reevaluating their risk-mitigation strategies. It is this subset of investors that have contributed strongly to the increase in demand for MIGA guarantees in 2012.
Q. What effect have shifting poles of economic growth had on MIGA’s business?
The story here is that, like last year, more FDI is originating from emerging markets due to their remarkable growth record over the last few years. As the traditional sources of investment in Europe and the United States have dealt with the economic slowdown, new investors from countries such as Brazil, China, India, Korea, Malaysia, Singapore, and South Africa have emerged. At the same time, developing countries are also recipients of a larger share of global FDI flows. The last point here is that South–South (one developing country to another) investment is outpacing traditional investment as a source of new FDI. We are seeing this impact at MIGA: this year 22 percent of our business covered investors from emerging markets.
These trends are particularly important to MIGA and we are monitoring and responding to these trends. As we have seen increased opportunities in Africa, we have committed human resources (notably from our Europe hub) to develop them. As we see the increase of public-private partnerships for infrastructure projects in Africa and Asia, MIGA has met with government authorities to make our value for these transactions known.
Q. If you had to choose one achievement to be most proud of in the past fiscal year, what would it be?
This is a very difficult question to answer this year. From the purely financial side, MIGA’s fiscal year issuance is 27 percent higher than the previous year; we supported 52 projects compared to last year’s 38; and our gross portfolio (which includes guarantees issued under the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund) stands at an all-time high of $10.3 billion. But the Agency’s success is not measured only (or even most importantly) by our financial results. So here I’d like to point out that 58 percent of MIGA’s new projects addressed at least one of MIGA’s four strategic priority areas: supporting investments in the poorest countries; investments in countries affected by conflict; complex, transformational projects; and South-South investments. Almost half of new projects supported the world’s poorest countries.
I am also very pleased to note the strengthened diversification of our portfolio in fiscal year 2012. This year’s portfolio was highly diversified across regions and sectors—a very important goal that we sought to achieve.
In the case of the Middle East and North Africa, we have a very compelling story to tell. In the past, the region was underrepresented in our portfolio for several reasons. First, inbound investment into the region has simply been low; other regions have attracted a much higher share of FDI compared to their GDP. Second, traditional risk mitigation in the Middle East and North Africa focused on having appropriate local contacts that would protect investments. And, while political concerns about the region were not absent, most investors saw their outlook as stable.
In the wake of the Arab Spring, recognizing the significance of the moment for investment, MIGA mobilized $1 billion in insurance capacity to retain and encourage FDI in the region. And we made significant progress on this front, issuing guarantees in Jordan, Morocco, Tunisia, and West Bank and Gaza totaling $441.6 million, the highest amount of support ever in a given year in the region.
I’d also like to comment on the quality of this year’s investments. In sub-Saharan Africa we insured critical infrastructure investments in Côte d’Ivoire, Ghana, Kenya, Rwanda, and Senegal. We also guaranteed hydropower projects in Albania and Pakistan and the construction of an important metro line in Panama. In Uzbekistan, MIGA participated in the country’s first project finance transaction through its guarantees for the LUKOIL Gas Development project. These are all very important projects that make me feel confident that our work is having an impact on people’s lives.
Perhaps I can summarize all these achievements to answer the question: I’m proud of our efforts to be the political risk insurance provider of reference for high-impact projects in difficult contexts. This is what fulfills our mission.