Risk Mitigation for Investments

1
Risk Mitigation for Investments In
Africa Motomichi Ikawa Executive Vice
President June 26, 2003
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What is MIGA?

• World Bank Group Agency
• Created in 1988
• Mission - promote FDI to developing countries
• Instruments
• non-commercial risk guarantees for investors
• investment promotion assistance to host countries
• on-line investment information dissemination
• mediation of investment disputes
• Complement national and regional investment
  guarantee programs and private insurers of
  non-commercial risks

3
MIGA Priorities

• Africa
• IDA-eligible countries
• South-South investments
• SMEs
• Complex infrastructure projects
• Conflict-affected countries
• Many projects in Africa fall into 3 or more of
  the priority areas

4
MIGA Guarantees Portfolio in Africa
Gross exposure ( million)
893

• Total issuance Over 1.1 billion in 23 countries
• FDI facilitated 5.3 billion (est.)
• FY99 8 of portfolio FY03 18
• FY99-03 58 projects covered

788
621
524
294
FY99
FY00
FY01
FY03
FY02
estimate
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FDI Trends for Sub-Saharan Africa
FDI ( million)
13,814

• Less than 1 of global FDI flows
• Less than 5 of FDI flows into developing
  countries
• Majority of FDI into only 3 countries South
  Africa, Angola, Nigeria

8,092
7,000
6,506
6,076
1998
1999
2000
2002
2001
estimate
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Investment Climate and Risks

• RISKS
• Commercial risks
• Market risk
• Credit risk
• Liquidity risk
• Operating risk
• Legal risk
• Non-commercial risks
• War and civil disturbance
• Transfer restriction and inconvertibility
• Expropriation
• Breach of contract

• INVESTMENT CLIMATE
• Macroeconomic environment
• Political stability
• Legal and judicial framework
• Governance including corruption
• Efficacy of the regulatory framework
• Labor market
• Capital market
• Basic infrastructure
• Dispute settlement mechanism

7
MIGAs Value Added

• Umbrella of deterrence
• Mediation of investment disputes
• Prospect of compensation for valid claim
• Credit enhancement
• Lower financing costs
• Longer tenors
• Piercing the sovereign ceiling

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MIGA and IBRD Guarantees
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CASE STUDIES Telecoms in Nigeria

• Goal
• Deal with acute shortage of reliable phone service

• Investor
• Mobile Telephone Networks (South Africa)
• 50 million coverage
• 10 years
• war and civil disturbance
• Cooperation with IFC
• South-South, IDA investment

• Investors
• Econet (South Africa) Ericsson Credit (Sweden)
• 80 million coverage
• 5 years
• transfer restriction, expropriation, war and
  civil disturbance
• 30 million syndicated
• South-South, IDA investment

Development impact Government revenues of 570
million license fees plus taxes, economic growth,
job creation, training
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CASE STUDY Sasol/Mozambique

• Investors
• Sasol Gas Holdings Sasol Petroleum International
  (South Africa)
• gas field and pipeline
• equity coverage
• 72 million in guarantees for 15 years against
• transfer restriction
• expropriation
• war and civil disturbance
• breach of contract
• South-South, IDA, post-conflict investment
• Joint project with WB, IFC

• Development Impact
• Over 2 billion in payments, taxes, etc. to
  Mozambique
• Local purchases over 1 million/year
• Job creation
• Improved infrastructure
• Landmine removal

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CASE STUDY Agriflora/Zambia

• Investor
• Industrial Development Corp. (South Africa)
• 3.6 million equity coverage
• 10 years
• transfer restriction
• expropriation
• war and civil disturbance
• SME, South-South investment
• Objectives
• expansion of horticulture production
• meet increased international demand, esp. in
  Europe

• Development Impact
• Over 2400 additional direct jobs
• Training and management experience
• Foreign exchange earning
• Upstream and downstream effects

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MIGA AND AFRICA Partnering for success

• Work with African institutions and initiatives
  (NEPAD, AfDB, BOAD, ATI, etc.)
• Partner with multilateral and bilateral groups
  (WBG, USAID, Proparco, KfW)
• Build confidence among private, public investment
  insurers through
• co- and reinsurance
• 32 public partners
• 2 billion in private capacity mobilized with 25
  partners
• presence in frontier markets

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MIGA AND AFRICA Proactive presence

• Field offices in Johannesburg and West/Central
  Africa
• Frequent high-level mobile offices to Africa
• Leveraging WB, IFC presence throughout the
  continent
• On-going relationships with investors and lenders
  in the U.S., Europe, Asia, and Africa

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thank you!
www.miga.org

• Contacts
• HQ Johannesburg Office
• Mansour E. Kane David Bridgman Kenneth Kwaku
• Regional Manager Program Manager Chief
  Representative,
• Guarantee Program Investment Marketing Services
  Africa
• 202-458-0677 t. 202-473-0775 t.
  27-11-341-9000
• mkane2_at_worldbank.org dbridgman_at_worldbank.org kkwa
  ku_at_worldbank.org