Africa, Development & Aid, Economy & Trade, Headlines

AFRICA-DEVELOPMENT: World Bank Risk Insurers ‘Too Bureaucratic’

LONDON, Jul 18 1996 (IPS) - Foreign direct investment in Africa could be considerably boosted if the World Bank affiliate responsible for political risk insurance in developing countries increased its portfolio involvement in the region, investors and analysts say.

Since its founding almost a decade ago with a portfolio worth two billion dollars, the main role of the Multilateral Investment Guarantee Agency (MIGA) has been to provide cover for foreign investors against non-commercial risks such as expropriation and war and civil strife in developing and transition economies.

But the agency is now criticised because of its perceived lack of commitment to Africa at a time when the region is experiencing investment drought — a situation analysts believe could change if more political risk cover was offered to investors.

“Investment is driven by many factors, but there is no doubt that if the underlying economic conditions are present, there will be a sharp rise in investment should MIGA increase its role in Africa,” says Sanjay Lall, the Oxford University economist.

Statistics released recently by the World Bank itself show that Africa’s share of the record 231 billion dollars of foreign investment in developing countries as a whole in 1995 was less than one percent, at about two billion dollars. This figure is disputed by many analysts who say it is closer to one billion dollars.

MIGA’s own figures reveal that investments in Sub-Saharan Africa insured by the agency account for just over one percent (34 million dollars) of its portfolio. In contrast MIGA, as of March 1996, had provided insurance cover of 416 million dollars, 22 percent of its portfolio, for projects in former Soviet bloc countries.

MIGA spokeswoman Shaila Fernandes said this non-commercial risk cover facilitated an estimated one billion dollars of Western investment in the Czech Republic, Bulgaria, Hungary, Kazakstan, Kirgizstan, Russia, Poland, Slovakia and Uzbekistan.

Fernandes nevertheless accepts that they need to do more in Africa. “We are very keen to cover more investments to the region and we hope our various marketing efforts will improve things,” she says.

Critics, however, charge that the problem has nothing to do with marketing but with a lack of political will and a bureaucracy which has effectively fettered investment instead of working actively to counter the fears of investors who associate the region with high levels of political risk.

“I would say the ideas behind MIGA are well-meaning, but in practice it has become conservative, long-winded and bureaucratic,” says Michael Power of investment house Barings Asset Management.

“It should do much more in Africa. The bureaucracy is not responsive to the immediacy of the situation facing Africa.”

Power and others say that most macro economic conditions for a rise in investment in Africa — such as lower trade barriers, privatisations and liberal tax regimes — were more or less in place and that the agency must move now move to assure investors their investments would be protected against political risk.

Most institutional investors, with an eye on future relations with MIGA, only agreed to speak about the agency off the record. One said: “They are very uncooperative.” “They should be out there providing cover for wary investors, not wasting people’s time on red tape,” another said.

But Simon Raikes, who works on the Africa desk at Standard Chartered Bank in London said his group’s experience with MIGA was not good. “Our investments in Tanzania are no longer insured by MIGA. We tried it and didn’t like it. There was no dispute involved.”

The World Bank dismisses these criticisms, claiming that the main reason for the agency’s relatively limited role in the region is attributable to the low level of investor interest.

“The number of contracts it (MIGA) can guarantee depends on the amount of interest,” says Geoff Lamb, the Bank’s representative in London. “Investors are interested in Eastern Europe. In Africa there is a much lower level of interest.”

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