investment, an important driver of growth in emerging economies, is on the rise.
But the vast majority goes to relatively few countries, leaving the world's
poorest and least developed largely ignored. Moreover, concerns about uncertain
policy environments and perceptions of political risk often inhibit interest in
investing in these countries. So too does the lack of awareness of the many
investment opportunities, often due to the limited capacity or ability of
emerging countries to effectively market and promote themselves.
The Multilateral Investment Guarantee Agency (MIGA) was
created in 1988 as part of the World Bank Group to address these concerns. MIGA
is the newest member of the World Bank Group and underwrote its first guarantee
in 1990. MIGA's mandate is to encourage foreign direct investment in developing
countries by providing guarantees (political risk insurance) to foreign private
investors against the risks of expropriation, transfer restriction, breach of
contract, and war and civil disturbance, and by providing investment marketing
services to host governments on means to improve their ability to attract
foreign direct investment.
Since its inception, MIGA has issued 597 guarantees for
projects in 82 developing countries. Total coverage issued exceeds $11 billion,
bringing the estimated amount of foreign direct investment facilitated to more
than $47 billion.
Projects supported by MIGA have widespread benefits:
local jobs are created, tax revenue is generated, skills and technological
know-how are transferred. Local communities often receive significant secondary
benefits through improved infrastructure, including roads, electricity,
hospitals, schools, and clean water. Foreign direct investment supported by MIGA
also encourages similar local investments and spurs the growth of local
businesses that supply related goods and services. As a result, developing
countries have a greater chance to break the cycle of
MIGA complements the activities of other investment
insurers and works with partners through its coinsurance and reinsurance
programs to expand the capacity of the political risk insurance industry's
MIGA both supports and draws on the extensive resources
of the World Bank Group, applying unparalleled knowledge of emerging economies
to the projects it guarantees. MIGA's unique strengths also derive from its
structure as an international organization that acts as an umbrella of
deterrence against government actions that could disrupt investments, and allows
it to influence the resolution of potential disputes. MIGA's capacity to serve
as an objective intermediary enhances investor confidence that an investment
going into an emerging economy will be protected against non-commercial risks.
MIGA's Investment Guarantee Services
MIGA has a capital stock of SDR1 billion. In March 1999,
MIGA's Council of Governors adopted a resolution for a capital increase of
approximately $850 million. The agency received another $150 million in
operating capital from the World Bank.
MIGA provides investment guarantees against certain
non-commercial risks (i.e., political risk insurance) to eligible foreign
investors for qualified investments in developing member countries. MIGA's
coverage is against the following risks:
Protects against losses arising from an investor's
inability to convert local currency (capital, interest, principal, profits,
royalties and other remittances) into foreign exchange for transfer outside the
host country. The coverage insures against excessive delays in acquiring foreign
exchange caused by host government action or failure to act, by adverse changes
in exchange control laws or regulations, and by deterioration in conditions
governing the conversion and transfer of local currency. Currency devaluation is
On receipt of the blocked local currency from an investor,
MIGA pays compensation in the currency of its Contract of
Protects against loss of the insured investment as a
result of acts by the host government that may reduce or eliminate ownership of,
control over, or rights to the insured investment. In addition to outright
nationalization and confiscation, "creeping" expropriation-a series of acts
that, over time, have an expropriatory effect-is also covered.
is available on a limited basis for partial expropriation (e.g., confiscation of
funds or tangible assets). Bona fide, non-discriminatory measures by the host
government in the exercise of legitimate regulatory authority are not
For total expropriation of equity investments, MIGA pays the net
book value of the insured investment. For expropriation of funds, MIGA pays the
insured portion of the blocked funds. For loans and loan guaranties, MIGA
insures the outstanding principal and any accrued and unpaid
Compensation will be paid upon assignment of the investor's
interest in the expropriated investment (e.g., equity shares or interest in a
loan agreement) to MIGA.
Breach of Contract
Protects against losses arising from the host
government's breach or repudiation of a contract with the investor. In the event
of an alleged breach or repudiation, the investor must be able to invoke a
dispute resolution mechanism (e.g., an arbitration) in the underlying contract
and obtain an award for damages.
If, after a specified period of time,
the investor has not received payment or if the dispute resolution mechanism
fails to function because of actions taken by the host government, MIGA will pay
compensation. MIGA may make a provisional payment pending the outcome of the
dispute resolution mechanism.
War and Civil Disturbance
Protects against loss from damage to, or the destruction or
disappearance of, tangible assets caused by politically-motivated acts of war or
civil disturbance in the host country, including revolution, insurrection, coups
d'état, sabotage, and terrorism.
For equity investments, MIGA will pay
the investor's share of the least of the book value of the assets, of their
replacement cost, or of the cost of repair of damaged assets.
and loan guaranties, MIGA will pay the insured portion of the principal and
interest payments in default as a direct result of damage to the assets of the
project caused by war and civil disturbance.
War and Civil Disturbance
coverage also extends to events that, for a period of one year, result in an
interruption of project operations essential to overall financial viability.
This type of business interruption is effective when the investment is
considered a total loss; at that point, MIGA will pay the book value of the
total insured equity investment. For loans and loan guaranties, MIGA pays the
insured portion of the principal and interest payments in default as a result of
business interruption caused by covered events.
Investments: MIGA insures new cross-border investments originating in
any MIGA member country, destined for any other developing member country. New
investment contributions associated with the expansion, modernization, or
financial restructuring of existing projects are also eligible, as are
acquisitions that involve the privatization of state-owned enterprises. Other
investments may be eligible and are considered on a case-by-case basis.
Types of foreign investments that can be covered include equity,
shareholder loans, and shareholder loan guaranties, provided the loans have a
minimum maturity of three years. Loans to unrelated borrowers can be insured,
provided a shareholder investment in the project is insured concurrently or has
already been insured. Other forms of investment, such as technical assistance
and management contracts, and franchising and licensing agreements, may also be
eligible for coverage.
New investments are those that have neither been
made nor irrevocably committed on the date of submission to MIGA of a
Preliminary Application for Guarantee signed by the investor. In keeping with
MIGA's objective of promoting economic growth and development, investment
projects must be financially and economically viable, environmentally sound, and
consistent with the labor standards and other development objectives of the host
Eligible investors: Eligible investor's include
nationals of a MIGA member country from a country other than the country in
which the investment is to be made. Under certain conditions, investments made
by nationals of the host country can also be eligible. A corporation is eligible
for coverage if it is either incorporated, and has its principal place of
business, in a member country, or if it is majority-owned by nationals of member
countries. A state-owned corporation is eligible if it operates on a commercial
Terms: Investors may choose any combination of
the four types of coverage. Equity investments can be covered up to 90 percent,
and debt up to 95 percent, with coverages typically available for up to 15
years, and in some cases, for up to 20. MIGA may insure up to $200 million, and
if necessary more can be arranged through syndication of insurance. Pricing is
determined on the basis of both country and project risk, with the effective
price varying depending on the type of investment and industry sector. The
investor has the option to cancel a policy after three years, however MIGA may
not cancel the coverage.
Coinsurance and Reinsurance:
MIGA's guarantee program complements national and private investment
insurance schemes, through coinsurance and reinsurance arrangements to provide
investors more comprehensive investment insurance coverage worldwide. The agency
recently revised its broker's program to encourage closer cooperation between
investment brokers and MIGA.
Applicants seeking MIGA coverage should submit a confidential preliminary
application before the investment is irrevocably committed. There is no fee
charged. Once investment and financing plans are established, applicants submit
a definitive application along with any relevant project documentation. A fee is
charged for the definitive application.
MIGA Operations in
MIGA's Guarantees Department (Guarantees) has been very
active in supporting foreign direct investment into China. MIGA's current
portfolio in China consists of 15 contracts for a maximum liability of US$113.23
million, representing approximately 2.7% of MIGA's total gross exposure. These
guarantees benefit foreign direct investment in infrastructure and
manufacturing. Guarantee Holders come from various countries, including Cayman
Islands, Germany, the Netherlands, Switzerland and the United States of America.
MIGA is planning on making more efforts to encourage the
flow of investments between developing countries. In this regard, in fiscal year
2002, MIGA increases its promotion activities in China to increase the awareness
of Chinese investors on MIGA's guarantee program and how it can benefit their
investments into other developing countries by mitigating some of their
perceived political risks.
MIGA's Investment Marketing Services (IMS) Department has
supported capacity building for investment promotion, such as organizing
workshops for Chinese delegations on strategies and techniques to attract
foreign direct investment. During 1999, IMS initiated two investment promotion
advisory projects in China. First, an IMS team evaluated investment promotion
institutional structures in Guizhou Province in Southwest China from the
standpoint of investor assistance, and proposed improvements to the newly
established promotion agency. An IMS expert and an outside consultant presented
these proposals directly to the governor of the province at a workshop that
focused on improving investor attraction and assistance skills at the provincial
and city level. MIGA paid for the full costs of the assignment.
Second, IMS collaborated with the UNDP Beijing
Secretariat and the World Bank's foreign Investment Advisory Service (FIAS) on
cross-border technical assistance program designed to promote investment in the
Tumen River area region of far-eastern Russia, a zone in DPR Korea and
north-east China, as well as Mongolia. Under the Tumen River Development
Program, IMS staff evaluated the existing institutional structures of the
agencies in Yanbian Korean Autonomous Prefecture in China, Primorksy territory
in Russia, and the Rajin Sonbong Economic Zone in DPR Korea, and Mongolia. IMS
then proposed an action plan for the Tumen River Investor Service Network -- a
cross-border partnership between these agencies to realize scale economies
through regional promotion. The UNDP Secretariat is currently implementing the
Network in partnership with local governments.
China has also been particularly well-represented in IMS'
online information services. Currently, nearly 300 China-based individuals and
organizations are members of IPAnet, an Internet marketplace created by MIGA to
offer information on investment opportunities worldwide. IPAnet's databases
feature over 200 documents related to business and investment conditions in
China, and potential projects for development, and links to some 20 national and
sub-national investment promotion agencies.
Addr: 1818 H Street, N.W. Washington, D.C. 20433,