Sunday, February 15, 2009

$150m investment support for African small firms

9th February 2009

The political risk insurance arm of the World Bank, the Multilateral Investment Guarantee Agency (Miga), is facilitating the investment of $150-million to small businesses in sub-Saharan Africa, as part of its ongoing response to the global financial crisis.

Miga said that it had entered into a contract with the African Development Corporation (ADC), which would allow it to provide political risk coverage for up to 20 of ADC’s planned small-scale investments in the banking, real estate, information technology, telecommunications, agriculture, and service sectors in countries throughout sub-Saharan Africa.

“This blanket commitment of Miga’s guarantee capacity will help ADC raise risk capital at a critical juncture. The precipitous decline in foreign direct investment is threatening to erode the significant gains in growth that the African subcontinent has seen in the last several years. These investments will benefit small- and medium-sized enterprises, which generate the vast majority of jobs,” said Miga executive vice president Izumi Kobayashi.

The contract governs the issuance of future guarantees for a maximum aggregate liability of $150-million, and the risk covered included transfer restrictions, expropriation, war, and civil disturbance.

Miga’s underwriter for contracts, Hal Bosher, said that the master contract would facilitate the rapid issuance of Miga’s coverage. “We will, however, review each investment to ensure eligibility and compliance with our underwriting standards, including the environmental and social impact.”

Bosher added the ADC was specifically chosen for the organisation’s commitment to Africa’s sustained development. “ADC’s value-added is that they invest substantial know-how together with capital. These are the types of investments that will help drive innovation and growth.”

Kobayashi said that the contract was one of several initiatives to address the financial crisis, and to ensure liquidity in the financial sector. “Miga expects that this guarantee structure will be replicated for other similar funds or investors seeking to attract capital in today’s difficult financial environment.”

“This is a global crisis and we need to do our part to help ensure there is financing available to spur innovation and help countries continue on a path of growth,” she concluded.