Innovation Marks Solid Performance of World Bank's MIGA
WASHINGTON, DC, September 12, 2006—The Multilateral Investment Guarantee Agency, MIGA, a private sector arm of the World Bank Group, today said it issued $1.3 billion in investment guarantees (insurance) for 41 projects in developing countries during the fiscal year ending June 30, 2006. The results bring total coverage issued since MIGA's inception in 1988 to $16 billion. (See MIGA's 2006 Annual Report at www.miga.org/2006annualreport.)
The results came during a year in which foreign direct investment (FDI) into developing countries reached record levels in all regions of the world, spurred by healthy global economic conditions and improved investment conditions.
Many of the projects supported focused on MIGA's priority areas: 23 were in "frontier markets" (high-risk/low-income), 15 involved investments from one developing country into another ("South-South"), 10 were in conflict-affected countries, and 21 supported investments in IDA-eligible (the world's poorest) countries.
"MIGA's niche is that its political risk insurance helps to assuage investor concerns about the safety of investments and encourages them to establish businesses in countries where they would otherwise not venture on their own," said World Bank Group President Paul Wolfowitz.
"This is important given the critical role that the private sector can and does play in reducing poverty, by providing the vast majority of jobs in the developing world, generating tax revenue for governments, and providing essential basic infrastructure," Wolfowitz said.
MIGA's support for infrastructure investment, a World Bank Group priority, reached a record high during the year, with projects in telecommunications, transportation, water, waste management, and power accounting for 36 percent of guarantees issued. In fact, guarantees issued for infrastructure projects since 1990 now surpass the $5 billion mark. The agency has also placed a special focus on infrastructure in Africa, where in the telecommunications sector, for example, its political risk insurance is helping nations move directly to cell phones and leapfrog the need for more expensive landlines.
"Helping investors overcome their concerns about potential political risks is precisely why MIGA exists," said Yukiko Omura, Executive Vice President of MIGA. "We are constantly seeking ways to meet investor and developing country needs in a continually shifting global landscape that impacts investor perceptions of risk."
Innovation Caps Year's Results
Over the past year, MIGA took part in several groundbreaking transactions. Among these were a waste management project in El Salvador financed by the sale of carbon credits and a project that takes aim at the moribund cotton industry in northern Afghanistan, marking MIGA's first guarantee through a special trust fund for that country. The agency was also instrumental in encouraging investors to move forward with a number of innovative capital markets deals, helping to raise project funds in Kazakhstan through the securitization of a portfolio of mortgages. Another emerging market project that raised funds from private capital sources in the form of a private placement guaranteed by MIGA is a toll road project in the Dominican Republic—a limited recourse transaction backed by future toll revenues.
"In addition to encouraging investors to move forward with projects that offer strong developmental potential, our involvement helped lower the projects' risk ratings and therefore drove down the financing costs," said Omura.
Adapting to Changing Global Conditions
The challenge today for many developing countries is to continue to encourage the return of traditional investors—troubled by concerns about political risk and failed privatizations in the 1990s—while offering support for the growing vanguard of "South-South" investors making cross-border investments between developing countries.
"MIGA tailors its support to meet the needs of different investor groups," said Omura. "For example, our insurance helps investors who are partnering with local government entities in public-private partnerships by providing very specific coverage against the types of contract violations that can take place when working with an untested, less business-savvy entity."
The agency also works to support smaller investors. During the year, MIGA kicked off its Small Investment Program, which offers a more streamlined, user-friendly underwriting process to this special set of investors. Nine contracts worth $24 million in coverage were signed under the new program.
MIGA was also instrumental in encouraging 15 South-South investments during the year, supported by $389 million in guarantees.
"These types of innovations and commitment to tailoring products to meet demand are helping MIGA achieve its mission of encouraging foreign direct investment to promote responsible and sustainable economic growth to make a positive difference in people's lives," said Wolfowitz.
Portfolio Continues to Diversify
In terms of the number of guarantees issued, sub-Saharan Africa was the top guarantee recipient, with 21 contracts worth $180 million in coverage issued in support of 13 projects. Most of the contracts were small in dollar terms, but are seen as holding significant development potential. Latin America generated the second highest number of guarantees, with 19 contracts in support of 13 projects, totaling $242 million in coverage. Europe and Central Asia was the third most popular destination, with 10 guarantees totaling $599.8 million issued in support of six projects. Guarantees for two large projects—the Kupol mining project in Russia ($305 million) and the Maritza power project in Bulgaria ($118 million)—accounted for the majority of the coverage. Asia and the Pacific benefited from six guarantees worth $150 million in coverage, while the Middle East and North Africa region had 10 contracts in support of three projects, for a total of $131 million in coverage.
During the fiscal year, MIGA added four new countries to its list of host countries: Afghanistan, Iran, Mongolia, and Sierra Leone.
In terms of guarantee size, support for infrastructure projects reached $469 million, or 36 percent of guarantees issued during the year, followed by projects in oil, gas and mining, which together totaled $427 million in coverage, or 33 percent of issuance. Meanwhile, financial services contracts reached $238 million (18 percent), tourism and services totaled $104 million (8 percent), and agribusiness, manufacturing, and construction accounted for $64 million, or 5 percent of the portfolio.
Technical Assistance in Demand
In addition to its guarantee services, MIGA provides technical assistance to help governments and other intermediaries involved in promoting investments improve their ability to respond effectively to investor needs. In fiscal 2006, demand for MIGA's technical assistance services continued to be strong, resulting in a technical assistance portfolio that included 45 projects in 28 countries.
"MIGA helps investment promotion intermediaries develop their capacity to attract and retain foreign investment, particularly in priority sectors," says Omura.
In addition to country-specific assistance, MIGA was active in a number of global programs, such as the European Investor Outreach Program, a regional initiative designed to increase FDI flows into the Western Balkans. Other global activities included the "Investing in Development" publication series, as well as the Enterprise Benchmarking Program, which gauges a country's ability to compete with other potential sites and locations for foreign investment.
MIGA also conducted a performance benchmarking study of the effectiveness of 114 investment promotion agencies (IPAs) from developing and transition economies around the world. The results of this study are being used to advise each participating agency of its performance relative to that of other IPAs and to industry best-practice standards.
This year also saw the launch of a new initiative between MIGA and NEPAD, the New Partnership for African Development, involving the development of an online project management and reporting system. The new system will allow development partners in Africa to securely share key information and documents on regional projects, as well as disseminate updated project information and relevant tenders to the business community and civil society through the NEPAD website, and through MIGA's online investor information services.
Claims and Mediation
During the year, MIGA paid no claims relating to the projects it guaranteed, although claims are pending for investments in Argentina. MIGA is currently working to resolve about eight other disputes related to investments guaranteed by the agency. Of special note is the successful mediation by MIGA of a dispute involving an investment relating to a water treatment plant in China. The project is now providing potable water to 450,000 people. More recently, MIGA facilitated the negotiated settlement of claims filed with respect to two projects in the Kyrgyz Republic.
Release no. 2007/101