Hiroshi Matano, executive vice president of the Multilateral Investment Guarantee Agency (MIGA), is in Cairo this week, leading the World Bank Group delegation attending the second Egypt International Cooperation Forum (ICF) and Meeting of African Ministers of Finance and Environment.
Bringing together global policymakers, ministers, development partners, the private sector, civil society and academics ahead of the COP27, the meetings provide an opportunity to discuss a wide range of subjects including climate action and green transition, innovative and blended finance, food security and South-South cooperation, all with a special focus on Africa.
The World Bank Group delegation’s main objectives, according to Matano, are to support Egypt’s green agenda, including the Nexus of Water, Food and Energy (NWFE) Initiative Programme, and encourage efforts to attract the private sector to undertake climate change projects.
“Our strong presence at this conference shows the importance of the private sector in this area,” he said.
MIGA supports investment in developing countries by providing guarantees and insurance policies against specific types of risk. It offers insurance products that help investors manage four kinds of risk they may be worried about when investing in a developing country — breach of contract, currency inconvertibility and transfer restriction, expropriation, and war and civil disturbance — as well as protection against possible defaults on loans to sovereign states.
Recent transactions MIGA has guaranteed in Egypt cover the risks of breach of contract; currency inconvertibility and transfer restriction; expropriation; and war and civil disturbance, said Matano.
During this week’s visit Matano will be visiting one of the projects guaranteed by MIGA: the Lekela Wind Power project in the Gulf of Suez. In 2019, MIGA guaranteed a $122 million investment in the wind farm against all four political risks. The project has the potential to add 1120 GWh of generation capacity annually while diversifying Egypt’s fuel mix and mitigating greenhouse emissions by replacing over 500,000 tons of carbon dioxide annually.
MIGA’s Egypt portfolio currently stands at $498 million and spans 17 projects in the solar generation, wind generation, and manufacturing sectors.
“Egypt’s projected growth rate is quite strong, and coupled with the exchange rate adjustment and the government’s plans to reduce the state’s footprint in the economy, there are reasons to expect Egypt to be an attractive destination for investment,” Matano told Al-Ahram Weekly.
World Bank economists expect Egypt’s growth to slow from 6.6 per cent last year to around five per cent this fiscal year (2022-23) on the back of the war in Ukraine and persisting Covid-related disruptions. Mantano said, however, that while key sectors are thriving, especially gas extractives, which are benefiting from higher global prices, and the communications, agriculture and construction sectors, other activities, including tourism and manufacturing, are expected to perform below potential.
MIGA, which counts 154 developing countries among its members, insures cross-border investments made by investors from a MIGA member country into a developing member country, explained Matano. In certain cases, the agency may also insure an investment made by a national of the host country provided the funds originate from outside that country. The types of foreign investments covered include equity, shareholder loans, shareholder loan guarantees and non-shareholder loans. Projects in all sectors — energy and extractive industries, transport, water, telecommunications, agriculture, manufacturing and services, and the financial sector — are eligible. Matano stressed, however, that projects must have a development impact and meet MIGA’s underwriting policies including the Performance Standards on Environmental and Social Sustainability.
MIGA has many projects in the pipeline around the world. According to Matano, 28 per cent of MIGA’s guaranteed investment in fiscal year 2022 contributed to climate change adaptation or mitigation — it delivered $1.1 billion of guarantees in climate finance in fiscal year 2022 — and aims to increase the figure to 35 per cent by 2025.
MIGA is seeing more projects in renewable energy generation (solar, wind, and hydro), mini-grids, energy storage, energy efficiency, green buildings, and mass/urban transport (electric mobility). It is also seeing more foreign direct investment in adaptation projects related to forestry or agribusiness. In addition, says Matano, “we support financial sector clients to create and expand their lending to climate finance operations.”
MIGA does not impose conditions on the host country. “We guarantee investments or loans made by the private sector… The only requirement is host country approval of the investment and MIGA’s involvement,” he points out.
Since the Russian invasion of Ukraine in February 2022 there has been a reduction in demand for MIGA’s political risk insurance products, with investors reacting to increased global uncertainty by limiting foreign direct investment. But there has, he says, been an increase in demand for credit enhancement products to guarantee against the non-honouring of loans to sovereign and sub-sovereign governments and state-owned enterprises.
Matano believes that in a world full of risk, uncertainty, and conflict MIGA has an important role to play. “We try to ensure that foreign direct investment can continue to flow to the countries that need it most, including low-income countries and those affected by conflict or with fragile governments,” he says.
In the Middle East and North Africa region, MIGA has a $3.5 billion portfolio with 29 active projects across the infrastructure, energy, services, and manufacturing sectors. In Sub-Saharan Africa, MIGA’s portfolio is $6.2 billion, with 120 active projects across the infrastructure (power, telecom, transport, and water), renewable energy, extractive industries, finance and capital markets, manufacturing, agribusiness, and services sectors.
*A version of this article appears in print in the 8 September, 2022 edition of Al-Ahram Weekly.