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MIGA in Libya: Boldly Going Where No Political Risk Insurer Has Gone Before

Hoda Atia Moustafa's picture

The New Libyan FlagLast month, MIGA signed its very first contract of guarantee for a project in Libya. The guarantee covers an investment by Jafara Company to expand a beverage and harissa plant outside of Tripoli. (Harissa, if you have never had it, is sometimes known as the "ketchup of North Africa" — a hot chili sauce used to spice up North African foods.) The €7 million contract, underwritten through MIGA's Small Investment Program, provides cover against losses due to expropriation, war and civil disturbance, and transfer restriction. The project came to MIGA through a private equity fund out of Tunisia, AfricInvest, which is indirectly investing in Jafara through a partial acquisition from its previous owner, the MIMS Group of Bosnia-Herzegovina. 

There were some difficult hurdles to overcome in this project. For one thing, MIGA was first approached just shortly before the February 2011 uprising and subsequent civil war. Once the war began, the project team had to tell the investor that, in line with the rest of the World Bank Group, activities in Libya would be put on hold until further notice. After the official end of the war in October 2011, the World Bank resumed operations and MIGA began underwriting the project, which had survived relatively intact.

The next hurdle was getting the necessary documentation in place for covering an investment in Libya. Although it has long been a member country, Libya never signed MIGA's ancillary documentation, the Legal Protection Agreement and Local Currency Agreement, which should be in place prior to issuance of a contract. In addition to the Legal Protection Agreement being missing, there was also no bilateral investment treaty between the investor country and the host country to which MIGA would be subrogated to in the event of a claim. Therefore, MIGA had no way of ensuring adequate legal protection in Libya, and needed to get the documentation in place.

In a post-conflict state, what would otherwise be simple administrative tasks can be quite overwhelming. The project team consulted with the World Bank country office and the office of the MIGA’s Executive Director for Libya.  MIGA’s Executive Vice President even met with the Libyan Deputy Prime Minister, to explain the importance of getting these documents signed. There was clearly full support from the highest levels of government, but actually getting the right official to sign the documents proved increasingly challenging as outbursts of violence continued in 2012.

At one point we were told that the only person with the authority to sign these documents was unavailable. "It's impossible to reach him," my source told me. "Oh, he's that busy?" I replied. "No, it's literally impossible to reach him. He's hiding in a bunker somewhere."  The high-level official had gone into hiding after he put a halt to a controversial scheme to compensate those who fought against the former regime.

Nearly giving up hope, the project team relayed to the increasingly anxious investor that we once again had to put the contract on hold. And then one day in early September, thanks to the tireless efforts of the World Bank country office, we received the news that the ancillary documents had been signed! Before the end of the month, we were able to issue the contract, MIGA's very first project in Libya.  Under the Gaddafi regime, private sector investment in Libya was limited to the oil and gas sector and is just now beginning to open up in other sectors.  In fact, this contract represents the first time any World Bank Group lending or guarantee instrument has ever been used in the country.

I don't know of any other insurer that would provide political risk coverage in a country less than a year after a civil war, where violence continues to erupt (including the most recent attack on the U.S. consulate in Benghazi), and where the newly established government is still very much in transition. But that is precisely what is meant by "frontier" states --due to our development mandate, we are truly operating at the frontier.  As a result of MIGA's contract, Jafara was able to receive much-needed funds to continue operations, create over 150 jobs, and— we must not forget — provide Libyans with their beloved ketchup.

Comments

Submitted by Mazen Bouri on
Hoda, I am glad to learn of MIGA's pioneering and important work in spurring investments in the new Libya. Mabrouk! Mazen

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