In Georgia, an Indian energy giant commissioned to build the nation’s first hydropower plant worried about potential instability. In South Africa, the national electricity utility struggled to attract loans for a large-scale renewables push, while in Burundi, brutal political violence had foreign coffee investors thinking about pulling out — imperiling small farmers across the country.
In each country, the projects went ahead after receiving risk insurance or credit enhancement from the World Bank’s Multilateral Investment Guarantee Agency.
Through its political risk insurance guarantees, MIGA has long played a key role in facilitating private sector investment in nations deemed too risky or unstable for traditional foreign direct investment. It is a model the agency hopes will be emulated as the development sector examines how to bridge the financing gap needed to reach the Sustainable Development Goals in a world that is likely to get more unstable.
“With the new SDGs, if you look at what needs to be accomplished to achieve those, the cost of it is so large that if you look at the fiscal budgets of the countries, the multilateral development banks, and even the donors — it’s not enough,” said Karin Finkelston, MIGA’s vice president and chief operating officer. “The key has to be: How do we take the billions of dollars that are in that subset of the world and then catalyze or mobilize the money from the markets — which is trillions of dollars?”
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With global political instability on the rise, climate change exacerbating food insecurity, and disease outbreaks and natural disasters undermining development, the world’s poorest countries are often deemed far too risky for the type of traditional investment that spurs economic growth. But MIGA provides a model for encouraging blended finance and putting much-needed foreign investment into struggling nations. Its four-year-old Conflict-Affected and Fragile Economies Facility — funded by $90 million from the United Kingdom, Sweden and Canada — is being used to provide guarantees and reinsurers for $1 billion worth of projects in countries such as Afghanistan, Burundi and Côte d'Ivoire. By leveraging limited public money to bring in large scale private investment, the facility helps serve as a much-needed financial multiplier.
“They’re more complicated environments but when you look at the poverty numbers in the future, it’s really going to be in these lower income, fragile and conflict-afflicted countries. So we really have to make an effort to figure out how we can help them at this stage. If we wait until everything is fine — first, it could take a while, second, we might have missed an opportunity to help them get out of fragility more quickly.”
This model is getting a boost this month, when MIGA, the International Finance Corporation, and the International Development Association roll out their $2.5 billion Private Sector Window — which aims to catalyze private investment in the world’s 77 poorest countries. The PSW lets different areas of the World Bank Group offer various types of risk management and support to outside investors with projects that would help IDA countries achieve the SDGs.The MIGA arm involves a $500 million MIGA Guarantee Facility, that offers shared first loss coverage, aimed at lowering risk for private investors as well as for the reinsurers.
“We’re both mobilizing the financing, the equity investor and the debt providers. But then we’re also mobilizing the private reinsurers. So we’re kind of mobilizing on the front and the back of the project. And hopefully over time creating markets for these people to enter without us, or with reduced subsidy,” said Finkelston.
“We bridge this idea that there’s a perception of risk and then when you get on the ground you realize it’s not there. They might not have come if MIGA hadn’t been there,” she added.
Editor’s note, July 22, 2017: Since this interview and beginning July 1, 2017, Ms. Finkelston has rejoined IFC as vice president of communications & outreach
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