The FINANCIAL — The Executive Vice President of the Multilateral Investment Guarantee Agency (MIGA), the political risk insurance arm of the World Bank Group, will travel to Uzbekistan, Kazakhstan and Georgia at the end of August.
Izumi Kobayashi’s fact-finding mission begins August 25th and wraps up on September 1st. In all three countries Ms. Kobayashi will meet with government officials and private industry leaders to consider investment potential and ways that MIGA can encourage and support foreign direct investment (FDI) for projects in these countries. During her visit to Tbilisi, Ms. Kobayashi is expected to sign a Memorandum of Understanding with the Investment Risk Management Agency (IRMA) establishing a joint outreach program to encourage and promote FDI into Georgia.
The World Bank estimates that FDI flows to developing countries will decline by 30 percent in 2009 to approximately $385 billion – down from an estimated $583 billion in 2008 and $520 billion in 2007.
“MIGA can act as a stabilizing influence in the market. It can help investors mitigate risks in these uncertain times and play an important role in helping countries attract FDI,” says Kobayashi.
MIGA is currently supporting the financial sector in Kazakhstan, recently providing guarantees to ATF Bank and Raiffeisen Leasing Kazakhstan LLP. MIGA’s gross exposure in Kazakhstan totals $225 million. MIGA currently does not have any active projects in Uzbekistan or Georgia.
Acording to Bloomberg foreign direct investment fell to $125 million in the first quarter from $538 million a year earlier after the economy suffered about $1 billion in damage from the five-day war over the separatist region of South Ossetia and Abkhazia. Georgia won pledges of $4.55 billion in international aid in the wake of the war, including a two-year, $1 billion offer from the U.S.
The creditworthiness of Georgia’s “small and underdeveloped” banking industry is “highly risky,” Standard & Poor’s said, citing factors including political instability and sensitivity to external shocks.
S&P’s rating reflects “significant industry and economic difficulties” facing Georgian banks, such as high inflation and the “substantial dollarization of operations,” credit analyst Magar Kouyoumdjian said in a report published today. S&P rates Georgia at “B,” five levels below investment grade.
David Amaglobeli, deputy governor of the National Bank of Georgia, rejected the report.
In May, the IMF said Georgia’s economic performance this year “largely” depends on donated cash.
It is expected that MIGA will issue guarantees for Georgia.
MIGA issues guarantees for periods of up to 15 years, and occasionally, 20 years. The minimum length of a guarantee is three years. In guarantees that cover loans, MIGA usually issues coverage to match the length of such loans.
Investor can cancel a guarantee after the first three years of coverage, or as of the date of notice when the project enterprise is liquidated, declared bankrupt, or placed on receivership, or the guarantee holder has no legal interest in the guaranteed project.
MIGA does not finance projects. It covers only equity interests, loans related to an investment project (shareholder and non-shareholder loans), and certain types of transactions in which the investor’s remuneration depends on the revenues or production of the investment project.
Investments must be new and of at least three years in duration. New investments include start-ups, those associated with the expansion, modernization, or financial restructuring of existing projects, and acquisitions involving privatization of state enterprises. Projects eligible for guarantees must support the host country’s development goals, comply with MIGA’s guidelines on the environment, labor conditions, and corruption, and also be financially viable.
Forms of eligible investments include equity interests, shareholder and non-shareholder loans, loan guarantees, as well as certain types of transactions in which the remuneration of the investor largely depends on the revenues or production of the investment project (e.g., technical assistance contracts, management contracts, operating leases, profit sharing contracts, and franchising agreements).
Over 70% of Countries May Be Missing on Foreign Investment Projects and Jobs
World Bank Group finds that over 70 percent of government investment-promotion intermediaries miss out on investment and job-creating opportunities
by failing to provide accurate and timely information to potential investors.
Global Investment Promotion Benchmarking 2009 shows how effectively government agencies are promoting their countries to foreign investors. The report examines the ability of 181 countries to influence foreign investors’ site-selection process. It assesses the response of these agencies to two potential projects—a software developer and a beverage-manufacturing company seeking to expand operations in each country. According to the report, only 10 out of 181 countries followed up with potential investors to secure projects.
“If country information is hard to obtain, investors will simply go elsewhere,” said Cecilia Sager, a manager for the World Bank Group’s Investment Climate Advisory Services. She also noted that in the global slowdown, foreign direct investment offers prospects for growth and employment. Attracting investment, however, requires professional facilitation which, unfortunately, many countries do not provide.
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