Supporting foreign financing in the Arab Region through mitigation of political risk

1. Supporting foreign financing in the Arab Regionthrough mitigation of political risk DIFC – MIGA Program for Political Risk Insurance October 2009

2. 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

3. How we help to facilitate FDI flows to emerging markets Gross Exposure, by Region %, as of November 30, 2008 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

4. Why Political Risk Guarantees? • Political risk is a major roadblock for foreign investment into emerging markets Source: MIGA’s Political Risk Survey 2009 Most important constraints for investing in emerging markets

5. 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 Source: MIGA’s Political Risk Survey 2009

6. 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

7. 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.

8. 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

9. 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

10. 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 Private Insurance Companies MIGA a b c d

11. 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)

12. 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

13. 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

14. 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)

15. 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

16. 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

17. Steps to contract guarantees • Preliminary Application • Definitive Application • Initial Approval Committee • Underwriting and risk assessment • - Disclosure • - Host Country Approval • - Environmental clearance • Board approval • Sign contract of guarantee Investor MIGA 8-14 weeks Investor and MIGA 17

18. For more information, please contact: Emanuel Salinas, Senior Investment Officer and Program Manager for DIFC – MIGA program esalinas@worldbank.org or Ileana Boza, Global Head of Partnerships Iboza@worldbank.org