Worldwide demand for food is increasing, but agricultural investments can be risky business, especially in emerging markets. Opaque laws on property ownership may affect profits. Restrictions on transferring money out of the country can dissuade investors. And political uncertainties and armed conflicts add a new layer of risk, potentially derailing even the most promising of investments. The result? Economic growth is stunted, and people lose out on the opportunities to build jobs and create better lives.
That’s why guarantees matter. For AgriConnect, political risk insurance and other types of guarantees are part of the toolkit being deployed to make agribusiness work for farmers, create jobs, and boost food security. The World Bank Group Guarantee Platform, housed at the Multilateral Investment Guarantee Agency (MIGA), brings together guarantee products from across the World Bank Group. We spoke to MIGA agribusiness expert Nabil Fawaz on how these products can make a difference.
What is one common risk you see holding up agribusiness investments in emerging markets?
It’s hard to generalize, but a common challenge is the risk of not being able to convert local currency into foreign currency so the investor can repay its debt or repatriate earning dividends. Sometimes capital controls by the government make it hard to convert currency. Other times it could be limits on foreign exchange trading, or there is simply a shortage of foreign currency in the country. The hard truth is that if investors can’t get money out of the country, then it really doesn’t matter how much revenue a business will generate. Investors need to be able to repatriate earnings or repay debts. MIGA can insure against this risk, helping investors put their money where it will have the biggest impact.
Is there an example of guarantees in action that are changing things for businesses and people?
Definitely. Each guarantee is a story of economic development and jobs creation. Take Togo. The government wanted to strengthen the agribusiness sector, which employs almost half the country’s workforce, and it needed liquidity to support the import of fertilizers. But foreign banks have been hesitant to lend. MIGA made it possible. We provided a guarantee last year to the France-based Société Générale to cover the risk of non-payment by the government of Togo on a short-term trade facility to help businesses in the country import fertilizer and other products. Now the government is in a good place to support an improved agribusiness sector, which in turn boosts food security and jobs.
Where do you see the Guarantee Platform doing business differently when it comes to AgriConnect?
We want to be better at proactively identifying -- as one World Bank Group team -- the big agribusiness-related infrastructure projects that will need foreign private capital to succeed. These are usually public-private partnerships carried out by the private sector with government funding. For example, projects for irrigation systems, transport, cold storage and processing facilities, and special agro-economic zones. These initiatives often require a government commitment to pay over a long period of time, like 10, 15, or 20 years. The government signing certainly is committed, but what happens down the line? Investors want protection against the risk that a contract could be broken. MIGA can provide that. A MIGA guarantee also means that we will step in to try to help the two sides find a solution, avoiding the need for arbitration. So we even go beyond insurance.
Tell me something people might not know about MIGA guarantees.
We’re not just about guaranteeing repayment – working with us helps investors get better financing terms. Because when MIGA steps in, the bank is lending on the back of the World Bank Group’s debt rating, which is triple A, and not on the basis of the sovereign government’s debt rating. So it makes it cheaper to borrow and get a longer repayment period.
After hearing all this, I have one last question – why don’t more people utilize guarantees? Sounds like it’s very much a win-win for investors in emerging economies.
Bonne question. To be honest, the World Bank Group has a rigorous review process. Investors fear that the process will be complicated, lengthy and – or -- costly. These guarantees might not make sense for someone with a smaller ticket, like a $5 million project. But with us, you do get more than a guarantee. Investors need to adopt our environmental, social, and governance standards, which strengthens their reputation and operations. As part of this, we help investors look closely at the environmental and social impacts of their projects and make adjustments. Ultimately, partnering with the World Bank Group can bring a host of benefits.
The interview was conducted by Aliza Marcus, IFC Senior Communications Officer
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