Tuesday, October 1, 2013

Multilateral Investment Guarantee Agency (MIGA) – Promote foreign direct investment into developing countries


MIGA is one to the very few organizations, where it makes sense to look at what its shortcut means: MIGA is a Multilateral Agency (i.e. an international organization) that Guarantees foreign direct Investments. What you can’t abstract from its name is that MIGA only supports projects in developing countries.

Organization and Mission






MIGA is a member of the World Bank group but legally and financially independent. Thus, it is governed by a proper convention and issues its own financial statements, in accordance with US GAAP and IFRS. The agency has been established in 1988 and currently joins together 177 member countries. The voting rights of the member countries depend on the amount of capital stock subscribed. The most influent countries are shown in the graph below.





MIGA’s funding sources are

  • Subscribed capital: Roughly 20 % are paid-in, either through cash or through non-interest bearing negotiable promissory notes. The additional 80 % are made available by member states to MIGA when needed.
  • Retained Earnings
  • Accumulated and other comprehensive income
  • Net insurance portfolio reserve



MIGA’s has a simple mission:


Promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people's lives.”


According to the World Bank president, Robert B. Zoellick, MIGA's four strategic priorities are to

  • invest in the poorest countries (41 % of guarantee volume in FY 2012);
  • invest in countries affected by conflict;
  • carry out complex and transformational projects;
  • do south-south investments (22 % of guarantee volume in FY 2012).


Business

MIGA provides, through guarantees, the comfort necessary for international investors to invest in developing countries. It plays especially a countercyclical role here, as the agency supports banks and other financiers in times of stress. To be eligible, projects must be economically, environmentally, and socially sustainable and promise a strong development impact.




MIGA’s core business is to grant political risk insurance (PRI). It this sector, its guarantees can cover any or all of the below:

  • Transfer restriction / inconvertibility: Local currency is either inconvertible or cannot be transferred outside the host country.
  • Expropriation: The host government reduces or eliminates ownership or control over the insured investment.
  • Breach of contract: The investor cannot obtain or enforce an arbitral or judicial decision recognizing the breach of an obligation by the host country.
  • War and civil disturbance
    Non-honoring of financial obligation: A sovereign fails to honor an unconditional financial payment obligation or guarantee. Contrary to the breach of contract cover, this insurance does not require a final judicial or arbitral decision.









MIGA’s PRI can cover equity investments, shareholder and non-shareholder loans, loan guarantees, and other forms of investment such as technical assistance and management contracts, franchising and licensing agreements.

Besides PRI, MIGA offers dispute resolution services, technical assistance (= help governments design and implement reforms to improve their business environment and attract foreign investment), and research and knowledge services.

A very useful section in MIGA’s annual report is the description of exemplary projects:

  • Guarantee of an investment of a 20 MUSD investment by Deutsche Bank in its Bangkok branch in Thailand.
  • Guarantee of an equity investment of 121 MEUR by EVN to build a 53 MW hydropower plant in in Albania.
  • Guarantee of a 250 MUSD shareholder loan by UniCredit to a subsidiary in Croatia.
  • 132 MUSD guarantee for the benefit of ProCredit Holding of central bank deposits for mandatory bank reserves carried out by its subsidiaries Bolivia, El Salvador, Georgia, Serbia, and Ukraine.
  • Guarantee of an investment in a Coca Cola bottler in Turkmenistan in the amount of 9 MUSD.
  • 120 MUSD guarantee for a non-shareholder loan provided by a banking pool for an upstream gas project in Uzbekistan.
  • 320 MUSD guarantee to cover the financing of the construction of a metro line in Panama City by a banking pool.
  • Guarantee of a 2 MEUR Spanish private equity investment in Morocco and a 4 MEUR Spanish private equity investment in Tunisia.
  • Guarantee of a 12 MUSD investment by ADC Financial Services in banking subsidiaries in Botswana.


Finance




 







Resource:

MIGA Annual Report 2012