MIGA Reinsures Agribusiness Investment in Zambia
WASHINGTON DC, May 22, 2017 — MIGA, a member of the World Bank Group, announced today reinsurance of $15.2m for an equity investment in Silverlands Zambia Ltd., which has acquired, and is developing farms and other agribusiness assets into an integrated commercial farming unit to grow crops such as maize, soy, wheat and barley, and also rear cattle.
In accordance with a prior agreement with the Overseas Private Investment Corporation (OPIC), MIGA is reinsuring 60 percent of $25m in coverage OPIC is providing to the investor, SilverStreet Private Equity Strategies Soparfi (SilverStreet).
MIGA's support plays a central role in this transaction, and is a key component of SilverStreet's overall risk management strategy across multiple projects in Sub-Saharan Africa. The reinsurance offtakes liabilities from OPIC for up to 5.5 years against the risks of currency inconvertibility and transfer restriction, expropriation, and war and civil disturbance.
Agribusiness has been identified by the government as the industry with the highest potential for job creation in the next five years, and exports are expected to enjoy strong demand within Zambia and the region.
A 'Hub – Outgrower' model currently being developed by Silverlands Zambia will help improve crop yields and agronomic practices of small-holder farmers, thereby achieving positive social impact. Once fully operational in about three years from now, the project is expected to yield about 650 tons of seed maize, 12,300 tons of soya beans, and 24,800 tons of wheat.
"Investing in commercial agriculture and agribusiness offers tremendous opportunity for Zambia to meet domestic demand, and we're glad to provide our support," said MIGA Executive Vice President and CEO Keiko Honda.
MIGA executed a Master Reinsurance Contract with OPIC and Silverstreet in 2014, wherein MIGA reserves capacity to reinsure 60 percent of OPIC's Master Insurance Contract with SilverStreet. The arrangement sets aside a total $350m to cover downstream agricultural investment in 13 countries across Sub-Saharan Africa.
The total cost of the project is estimated at $28m.
Gary Vaughan-Smith of SilverStreet said, "Political Risk Insurance is an important comfort for US and European institutions looking to invest into Africa. They value the mediation benefits provided by MIGA and the World Bank in the event of any future dispute and, the financial backstop provided by the insurance. The insurance allows us the ability to plan projects over the long term and to increase the production of food in Africa."
Zambia's foreign direct investment regime is among the most open in Sub-Saharan Africa, and political stability is among the major factors driving investments to the country.
As of April 30, 2017, MIGA's active gross exposure in Zambia was $76.85m, split between agribusiness, energy and manufacturing.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders.
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