Transcript Document

Supporting foreign financing in the Arab Region
through mitigation of political risk
DIFC – MIGA Program for Political Risk Insurance
October 2009
Who is MIGA
Multilateral Investment Guarantee Agency
 Member of The World Bank Group
 Founded 1988
Mission
 MIGA's mission is to promote foreign direct investment (FDI) into developing
countries to help support economic growth, reduce poverty, and improve
people's lives.
How?
 Encourage Foreign Investment through issuance of Political Risk Guarantees
MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
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How we help to facilitate FDI flows to emerging markets
Gross Exposure, by Region
%, as of November 30, 2008
Africa 15%
Asia 10%
ECA 46%
LAC 15%
MENA 10%
Since its inception in 1988, MIGA
has issued more than 900
guarantees worth more than
$17.4 billion for projects in 96
emerging markets.
Gross Exposure, by Sector
%, as of November 30, 2008
Infrastructure 39%
Financial 40%
Oil, Gas, Mining, Chemicals 9%
AMS 12%
MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
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Why Political Risk Guarantees?

Political risk is a major roadblock for foreign investment into emerging
markets
Most important constraints for investing in emerging markets
This year
Next 3 years
80%
70%
60%
50%
40%
30%
20%
10%
0%
Political risk
Economic environment Enabling environment
Access to financing
Source: MIGA’s Political Risk Survey 2009
MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP
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Why Political Risk Guarantees?


The universe of political risks is wide
Concerns vary by region and economic sector
The most concerning perils by sector and home region of
investors
What is the type of political risk of most concern to
investors?
Region
Africa
Asia
Eastern Europe
Latin America
Middle East
North America
Western Europe
Restrictions on FDI outflows in home…
Terrorism
Expropriation
Other adverse regulatory changes
Highest concern
Breach of contract
Terrorism
Transfer & convertibility
Expropriation
War and civil disturbance
Breach of contract
Breach of contract
Proportion
67%
39%
56%
57%
50%
47%
46%
Non-honouring of government…
War and civil disturbances
Transfer and convertibility restrictions
Breach of contract
0%
10%
20%
30%
40%
50%
Sector
Financial sector
Manufacturing
Primary
Services
Utilities, communications
Highest concern
Transfer & convertibility
Breach of contract
Expropriation
Breach of contract
Breach of contract
Proportion
49%
43%
46%
45%
50%
Source: MIGA’s Political Risk Survey 2009
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Why political risk guarantees?
Political risks do translate into significant losses to investors, but these can be
mitigated through insurance
Aggregate amount and number of claims paid by the insurance industry
Total claims ($ Million)
Number of claims by year
180.0
12
160.0
10
140.0
120.0
8
100.0
6
80.0
60.0
4
40.0
2
20.0
-
0
1992
1993
1994
1995
1996
1997
1998
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2000
2001
2002
2003
2004
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MIGA’s areas of expertise
Priority areas:
 Infrastructure development – estimated $230 billion a year needed for new
investment to deal with rapidly growing urban centers and underserved rural
populations in developing countries.

Frontier markets — high-risk and/or low-income countries. Markets with most
need that stand to benefit the most from foreign investment, but not well served
by the private market.

Conflict-affected countries and fragile states - once conflict ends, aid flows
eventually start to decline, making private investment critical for reconstruction
and growth, but most investors are wary of potential risks.

South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows, but south-based investors are
equally concerned about political risk

Capital markets development – enhancement of overall creditworthiness of
cross-border rated bonds.
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Why investors choose MIGA?
Umbrella of deterrence
 MIGA is part of the World Bank Group
 MIGA’s shareholders are 176 sovereigns including both host countries and
investor countries
Shareholders in the Middle East
Afghanistan
Libya
Algeria
Morocco
Bahrain
Oman
Egypt
Pakistan
Djibouti
Qatar
Iran
Saudi Arabia
Iraq
Syrian Arab Republic
Jordan
Tunisia
Kuwait
United Arab Emirates
Lebanon
Yemen
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Why investors choose MIGA?
Facilitation of settlement of disputes
 Host Country tends to be motivated to find a solution, otherwise its
reputation in the international investment community might be damaged
 Project sponsors and financiers have a vested interest in continuing success
of project
 3 claims paid out of 556 projects supported (Indonesia, Argentina, Nepal)
Extensive resources and in-depth knowledge of emerging economies from all
parts of the World Bank Group
Environmental and social expertise, particularly for extractive industries where
a company’s reputation is at stake
Experience helping clients in emerging markets to obtain financing
 Lower costs of borrowing
 Longer tenor of loans
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Why investors choose MIGA?
MIGA can facilitate the participation of private insurers as insurer of record

Augmenting the capacity of other
insurers through coinsurance or
reinsurance

one contract

pricing and tenor by tranche

Insuring investment in countries
restricted or excluded by policies
of other national insurers
Serving investors who do not have
access to other official political risk
insurers
Providing coverage to investors of
different nationalities in a
multinational syndicate
Client
MIGA
MIGA
Private
Insurance
Companies
a
b
c
d
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The risks we cover

Expropriation
– nationalization and confiscation
– creeping expropriation, partial expropriation (limited coverage) e.g.
changes in production sharing or royalty agreements
– non-discriminatory measures may not be covered

Currency Transfer Restriction and Inconvertibility
– inability to convert local currency into forex for transfer outside the host
country
– inability to transfer/excessive delays in acquiring forex (currency
depreciation not covered)
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The risks we cover

War and Civil Disturbance (Political Violence)
– damage/disappearance of tangible assets due to war or civil
disturbance (including revolution, insurrection, coups d'état, sabotage,
and terrorism)
– can extend to situations when an investor is forced to abandon a
project and assets are not damaged

Breach of Contract/Arbitration Award Default
– breach or repudiation of an agreement with the investor
and non-enforcement of an arbitration award
– revocation of concessions or production sharing agreements, etc.

Non-Honoring of Sovereign Financial Obligations
– failure by the Host Government to pay an amount due under a
Sovereign Financial Obligation
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MIGA in the Arab Region
Post-conflict guarantee facilities for investment in:
 West Bank and Gaza
 Afghanistan
Regional partnerships to facilitate development: MIGA has signed Memoranda
of Understanding with 39 partners from 31 countries worldwide, including:
 Inter-Arab Investment Guarantee Corporation (IAIGC), Kuwait
 Islamic Development Bank (IDB), Saudi Arabia
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Our unique value-added to Islamic Financiers…

Can issue “Shariah-friendly” contract wording

Can provide cover which accommodates for the complex back-to-back instrument
nature of an Islamic project finance structure (e.g. Musharaka - Istisna’a - Ijara
Financing Structure)

Transfer Restriction cover can result in credit rating boost for cross-border Sukuk
security issues

War and Civil Disturbance Damage risk cover perfectly suited to address political
violence risk to “quasi” owned assets of the Islamic Financier

Can provide cover to address specific political risks to Islamic Hedging instruments
(e.g. Profit Rate Swaps)
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Types of investments covered

Eligible Investments
– Minimum 3 years, up to 20 years
– Cross-border from one member country into another
developing member country
– New, or, if an existing investment, must be associated with an
expansion, modernization or a financial restructuring
– Need equity element in order to cover loans

Investment types
– Equity
– Shareholder loans
– Loan guaranties
– Non-shareholder loans (i.e. loans from financial institutions)
– Non-equity direct investment
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Types of investments covered
Amounts and Coverage
 MIGA typically can arrange cover for all amounts, either on its own
books or through co/reinsurance
– Small Investment Program: Fast track process for investments
of up to US$10 million
 No minimum amount for guarantee or size of investment
 Equity covered up to 90% & third-party debt up to 95%
Other considerations for eligible projects
 Developmental impact
 Reputational risks
 Economic, financial and technical viability.
 Environmental soundness
 Compliance with host country’s laws and regulations
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Steps to contract guarantees
Investor
MIGA
8-14 weeks
Investor
and MIGA
• Preliminary Application
• Definitive Application
• Initial Approval Committee
• Underwriting and risk assessment
- Disclosure
- Host Country Approval
- Environmental clearance
•Board approval
• Sign contract of guarantee
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For more information, please contact:
Emanuel Salinas, Senior Investment
Officer and Program Manager for DIFC –
MIGA program
[email protected]
or
Ileana Boza, Global Head of Partnerships
[email protected]
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