Article is an extract from S. Vijay Iyer & Jessica Erickson Stiefler’s video for the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)
Hello my name is S Vijay Iyer I’m the vice president and chief operating officer of the multilateral investment guarantee agency or MIGA for short which is one of five member organizations that collectively constitute the World Bank group When individuals or companies are looking at investing the capital in foreign less developed markets they often face a number of risks and uncertainties such as the potential inability to repatriate that dividends the possibility of expropriation possible physical threats to their assets through political acts of water in civil disturbance or a government’s willingness or ability to fulfill their obligations under a contract with the investor.
These are political risks which often deter investors and stand in the way of good projects being realized in emerging market countries MIGA was created in nineteen eighty eight as a direct response to these investment challenges with the aim of promoting foreign direct investment into developing countries and in doing so contribute to boosting economic growth and reducing poverty MIGA’s role in de-risking private investment by ensuring investors against political risks is critical to growing the flow of capital into much needed infrastructure manufacturing agriculture services and other sectors.
This is important in the context of meeting the sustainable development goals as well Let me put it in one sentence MIGA’s mandate, to promote cross-border investment into emerging markets in developing countries and help finance that development to achieve the sustainable development goals MIGA fulfills this mandate by offering political risk insurance commonly known as guarantees and great enhancement instruments which help investors in lenders manage specific risks associated with their investment in emerging markets in developing economies.
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 or 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 acts that over time have an expropriator effect.
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 s 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 a government’s breach or repudiation of a contract with an investor For example, a concession or a power purchase agreement.
In certain circumstances, cover may be extended to contractual obligations of state-owned enterprises MIGA’s war, terrorism and civil disturbance cover provides protection against losses, damage, or the destruction or disappearance of the project’s tangible assets caused by politically motivated acts of war or civil disturbance in the country including a revolution, insurrection, coup d’etat, 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 essential to a project’s overall financial viability.
Well in most developing countries markets and regulations are not sufficiently developed enable the private sector to reach their full potential perceptions of risks are often high compounded by lack of information and transparency governance challenges are limited price discovery investors often face difficulties in assessing and balancing the risks and rewards represented by new opportunities in developing markets or maybe uncertain of how the risk can be adequately managed as a result of private capital does not flow easily at the scale required to meet the development needs of countries.
So MIGAs guarantees products play a valuable role in helping investors mitigate investment risks allowing the agency to mobilize private sector investment in challenging environments that would otherwise be beyond the risk tolerance of private investors. At MIGA we recently celebrated our thirtieth year of operation over this time we have become the third leading institution among the MDBs (Multilateral Development Banks) in terms of mobilizing direct private capital the low and middle income countries MIGA is at a turning point in our history in nineteen ninety four for the first time FDI inflows into low and middle income countries are passed official development assistance.
However after peaking in twenty thirteen in six times of overseas development assistance FDI inflows have been declining again The ongoing tightening of global financial conditions the escalation of trade tensions the volatility of commodity prices and the rise of conflict around the globe pours us increasing the risks to private investors private foreign investors given these developments MIGAs role in mobilizing private investment for development is now even more critical than ever In twenty eighteen MIGA issued a record five point three billion in political risk insurance and credit enhancement guarantees helping finance nearly seventeen point nine billion dollars’ worth of projects in developing countries New issuances and gross outstanding exposure at twenty one point two billion dollars this year as almost double less compare to the year twenty thirty We hope that this session has provided you with an insightful introduction to MIGA its products our development impact and the critical role we play as a member of the World Bank group in promoting investment and development in member countries if you would like additional information on our products or our projects would be delighted to engage with you and also please visit our website at miga.org
