Name of Organization

Multilateral Investment Guarantee Agency

Address

1818 H Street, N.W. Washington, D.C. 20433, U.S.A.

Zip code

Phone

Fax

001-202-522-2650

Website

www.miga.org

E-mail

migaweb@worldbank.org

MIGA in Brief

Foreign direct 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 poverty.

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 income.

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:

l Transfer Restriction

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 not covered.

On receipt of the blocked local currency from an investor, MIGA pays compensation in the currency of its Contract of Guarantee.

l Expropriation

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.

Coverage 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 covered.

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 interest.

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.

l 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.

l 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.

For loans 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.

Qualified 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 country.

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 basis.

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.

Guarantee Application: 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 China

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.

Contact Information

Addr: 1818 H Street, N.W. Washington, D.C. 20433, U.S.A.
Tel: 001-202-473-2707
Fax: 001-202-522-2650
URL: www.miga.org
Email: migaweb@worldbank.org

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