-Unlocking Private Finance and Investment in EMDEs with Jessica Erickson Stiefler
Today we’re pleased to tell you a little bit more about MIGA’s contributions towards development its results and impact and how we use various instruments within the agency and across World Bank group to mobilize private finance. So what products does MIGA issue and how does it leverage these instruments to mobilize private finance? Well for both private sector projects and private public partnerships MIGA offers a suite of political risk insurance products which includes expropriation currency inconvertibility and transfer restriction breach of contract and war and civil disturbance.
MIGA’s expropriation cover provides protection against losses arising from government actions that deprive the investor of its rights to ownership control for other rights related to the insured investment. In addition to outright nationalization and confiscation MIGA’s guarantees provide protection against creeping expropriation a series of facts that over time have an expropriation fact. MIGA’s currency inconvertibility and transfer restriction cover provides protection against losses arising from an investor’s inability to legally convert local currency into hard currency such as dollars euros or yen or to transfer that hard currency outside the host country whether in the form of share capital dividends interest principal profits royalties or other remittances where such a situation results from a government action or failure to act simple currency depreciation alone however is not covered.
MIGA’s breach of contract cover provides protection against losses arising from the government’s breach a repudiation of a contract with an investor. For example concession or power purchase agreement. In certain circumstances cover may be extended to contractual obligations of state owned enterprises. protection against losses damage or the destruction of or disappearance of the projects tangible assets caused by politically motivated acts of war or civil disturbance in the country including a revolution instruction could attack sabotage or terrorism In addition the war and civil disturbance cover offers protection against losses due to a total business interruption which is the total inability to conduct operations essentials for project’s overall financial viability by Turkey’s ministry of health. How do we apply these political risk insurance instruments to an investment?
Let’s look at a few examples. In twenty fourteen MIGA issued a political risk insurance guarantee in support of Meridiam’s investment in the Adana integrated health campus. A one thousand three hundred bed hospital campus in Turkey. The project is part of the Turkish health PPP program developed This program is expected to contribute to better health outcomes through the replacement of aging and obsolete infrastructure with more efficient buildings and modern technologies. The project involves the construction and operation of a new health campus under long term contract. In addition to facility management and clinical support services. As a PPP project the investor was concerned with the potential risks expropriation and a government breach of the projects agreements.
The investor was concerned that potential macroeconomic issues in Turkey could impact its ability to convert its profits into hard currency and transfer them out of the country. MIGA’s political risk insurance solutions provide an effective remedy to these concerns and support of the mobilization of this critical investment. Following on the success of the Adana integrated health campus MIGA supported several additional integrated health campuses in Turkey including Meridiams.
As another example in twenty eighteen MIGA issued guarantees in support of investments in the Rikweda raisin processing project in Afghanistan. MIGA support is critical given the country’s cut current context which is quite challenging for an investor to contemplate a project there. The project is a green field raisin processing plant in Kabul province with a production capacity fifteen thousand tons per year. Historically the majority of Ganna stands exported raisins were traded deep discounts. The quality disadvantages are limited access to processing facilities. Through the implementation of the projects modern processing technology and food safety practices the investor with MIGA support has helped create a new export market for high quality locally processed Afghan raisins.
The project will process raisins procured from about three thousand local farmers and will export to wholesalers and retailers in Eastern Europe and Central Asia As a project is located in a fragile and conflict affected state the investors are most concerned about the risks of war and civil disturbance and the impact of physical damage on their investment. They make a guaranteed mitigated this key concern and supported the investors decision to implement the projects. If the project tomorrow suffers from losses arising out of such events the MIGA guarantee will kick in to make up the loss. The project is also a good example of how media collaborates with our other World Bank institutions and the maximizing finance FOR development approach or MFT.
First this was the first MIGA project to deploy the private sector window facility which supports MIGA’s ability to issue guarantees and the riskiest of countries by sharing risks with IDA. Second IDA is engaged with targeted interventions in the raisin sector and in strengthening Afghanistan’s agricultural productivity through upstream analytical regulatory work and third the Rikweda project itself was developed with the support of IFC’s advisory services and IFC working capital facility. Now turning to public sector projects MIGA’s non-honoring of financial obligations or NHFO coverage provides credit enhancement in transactions involving sovereign and sub sovereign entities as well state owned enterprises. The primary beneficiaries of this cover are commercial lenders to provide loans to public sector entities for infrastructure projects and other productive investments. The NHFO cover protects the lenders against losses resulting from the government entities failure to make a payment on due under an unconditional financial payment obligation or guarantee.
A good example of MIGA’s non honoring of sovereign financial obligations coverage is the line one metro project in Panama City The project which is sponsored by the government of Panama consisted of the greenfield construction and operation of a thirteen point seven climate line between the north of Sandy’s and southwest outbreak areas of Panama City. In twenty twelve and twenty thirteen MIGA provided guarantees to HSBC Citibank Brazil and bank of Tokyo Mitsubishi which supported the mobilization of commercial bank financing the line one metro product. Specifically the non-honoring coverage protected these lenders against non-payments by the government of Panama of the loans principal interest and fees.
The line one metro project provided a strong development impact through increased access to public transportation reduce travel time and reduction of congestion. As you can see MIGA suite of non-commercial risk solutions can help mobilize a variety of funding sources and often on improved financial terms and conditions. While MIGA guarantees provide protection against losses arriving from non-commercial risks a key benefit on MIGA’s coverage is our ability to resolve conflicts before they become a claimable event. This unique strength is derived from being a part of the World Bank group and from its structure as an international organization whose shareholders represent most countries in the world.
When a project faces challenges MIGA leverage the World Bank group network which includes an in country presence and strong relationships with the host country government. MIGA utilizes the World Bank group’s convening power and its reputation as an honest broker to resolve issues before they become a claimable event. And even more importantly bring the project back on a path to success for the benefit of both the investors and the host country. This approach ensures that the project continues to deliver on its expected development benefits. MIGA has a strong track record of managing risks and preventing them from cascading into a project termination with more than one hundred pre- claims managed across over eight hundred fifty projects our global presence enables us to provide an umbrella deterrence against government actions that can disrupt foreign direct investment.
As a multilateral development agency MIGA only supports investments that are developmentally sound and meet high social and environmental standards. Over the last few years MIGA strategy has been to one reaffirm our focus on the poorest through support for projects in IDA countries. Two continue our emphasis on fragile and conflict affected states where MIGA have the opportunity to have the greatest impact where private insurers are often unwilling to go. Three expand our commitment to climate change mitigation and adaptation targeting twenty eight percent of new issuance related to climate change mitigation adaptation of twenty twenty. And four target a fiscal year twenty issuance of six to seven billion US dollars a fourfold increase from ten years prior and more than double our guarantee issuance in twenty thirteen. This growth was achieved despite more than five consecutive years of declining emerging market FTI flows.
In twenty eighteen nearly sixty percent of MIGA supported projects contributed to climate change mitigation and adaptation activities for example MIGA supported several projects at the Benban solar park in Egypt which would be the world’s largest solar installation once construction is complete. Also in twenty eighteen for the first time we began using the IDA private sector window which aims to help draw private investment to most challenging situations in the world. Using this facility in our own resource we have covered an equity investment in mobile telephone operator in Sierra Leone back to project in Myanmar that will install and maintain four thousand cameras of fiber optic cable across the country and provided political risk insurance for new raisin processing plant in Afghanistan. They modernized raisin production and help improve the lives of three thousand local farmers.