Addis Ababa (HAN) July 16, 2014 – Updating political risk insurance for investment issues in Ethiopia. In this weeks Addis Fortune interview Tamarat G. Giorgis (Managing Editor) with Michel Wormser of COO discusses the institutions of Ethiopia and crosscutting issues, such as governance and human rights.
One of the five agencies of the World Bank Group, a multilateral financial institution, the Multilateral Investment Guarantee Agency (MIGA), specialists in political risk insurance. With private investors becoming overly cautious in their investment decision in these days of global economic crisis and increasing political uncertainty, MIGA’s role is becoming more important with each day. With Africa being perceived as the last frontier of investment – typified by high returns – the Agency is seen increasing its presence on the continent. No wonder, then, that its senior executives take the time to discuss with governments on the continent about possible ways to enhance cooperation. It is with such a mission in mind that Michel Wormser, vice president and chief operations officer (COO) of the Agency came to Ethiopia last week. An experienced bureaucrat with over 36 years in the World Bank Group, Wormser became COO of MIGA in 2011. A French national, trained in both France and the US, Wormser is a cautious optimist. is Risk Matters:Is Is Multilateral ism the Way Out?
FORTUNE: I understand that the World Bank Group, in general, is under reform and restructuring. I believe this will affect the way you do business. To what extent will that impact on your activities? Or has it already affected you?
Michel Wormser: The Multilateral Investment Guarantee Agency (MIGA) is one part of the World Bank Group. It a part of the Group and provides political risk insurance to investors. And for us, change in the World Bank Group is going to make one big difference, which is that the three parts of the group are going work better together.
That is one of the major directions being perused by the President. What he affirmed is that a few years back you had the World Bank working in one direction, then you had the International Financial Corporation (IFC) providing its services to private companies and then you had MIGA. What was missing was much more of these three organisations coming together to propose to the clients some solutions, which combine both the public and the private to advance their purpose.
And, the other thing which is also going to be different is that the organisations are going to work on different ways to facilitate knowledge transfer across the entire World Bank Group. In the past, if you are working with the African region, you could dispose of the knowledge and capacities of the people working in the Africa region. The expectation is that, with the organisations effectively working together, it will be easier for a country to get access to the knowledge and the best practices we might have as a solution.
Q: Among the five agencies within the Group, yours is the least understood and known. I am wondering, does this bother you?
We do care that the countries understand the impact that they can get out of MIGA. Today, a number of countries understand that the public sector can do so much. But when it comes to the creation of jobs, transfer of knowledge, investment and infrastructure, they know that the priority is private investment and its modern solutions.
Countries understand that MIGA can provide sound support and is very useful to compliment what the WB and IFC are providing.
And, in the same way, we have considerably increased our involvement in Africa and we have seen the doubling engagement of MIGA over the last 35 years. Last year, alone we have put in 3.2 billion dollars of guarantees, which is now becoming a very important compliment towards what the other organisations are doing.
Hence, it does matter that your country should know about what MIGA is doing and the reason for my visit is precisely to discuss with government of Ethiopia how we can complement the WB and IFC in some of the subject areas important to them.
Q: Here you are in Ethiopia. And you are dealing with a government that prides itself on its achievement in putting the country on the map of international investors. They are talking quite a lot about FDI coming into the country and the nation being one important FDI destination. The narrative out there is that Ethiopia is growing and everything is going well. You, being a person who has been here before, do you see that narrative fitting to the reality down on the ground?
I have certainly seen a huge amount of progress that Ethiopia can be proud of. There are very few countries in the world that have grown by double digits for such a long period of time.
There are few countries in the world that can pride themselves on meeting six of the eight millennium development goals (MDGs) two years early and probably due to meet all of them in just a short while. And there are very few countries where life expectancy has increased by 10 years in a 12-year period.
For me, there is an incredible level of success that this country can be proud of. But it is also true that, when you look at the rest of the continent, Ethiopia is not the country where the private investors are going as a priority.
In fact, the country has not been; I mean it is looking forward to attracting much more private investment in some of the areas that create jobs. I had a discussion in the last couple of days with members of the government. They were mentioning to me how important the light manufacturing sector is for them.
They know that textiles and agro-processing could be creators of jobs. And they also know that, in order to get the private sector enough, an agency like MIGA can be an additional support to convince investors to choose one country over another.
So, they were telling us that they were welcoming MIGA into the country because, while the public sector has been greatly helpful in generating that growth and cross checking infrastructure, they also see the role of the private sector increasing in the future. And that was not only in job creating companies, but also in some of the renewable energies.
We talked about geothermal and wind resources, which are available in this country and we have a private sector that has a lot of experience and could do so much here as well.
Q: Basically, MIGA provides risk insurance and, in order to provide that, you have to assess as to whether a particular country is stable, politically risky or otherwise. Considering this, how do you see Ethiopian institutions? Are you comfortable with their shape and nature, especially in view of inclusiveness and sustainability?
We have been here for years and in fact we have even guaranteed some projects here. We have supported a cement factory in this country; more than 23 million dollars of guarantees have been provided by MIGA in Ethiopia.
We have provided a guarantee, for example, for a project involving juice – Africa Juice. That project was very interesting because it was creating more than 3,000 jobs, half of them were women and it is a company that is going to be an example for the rest of the county in terms of the knowhow that it is going to use and with the inclusion of the organic farming it is developing. So, that is the sort of project we would like to provide support to.
Projects that are environmentally and socially sustainable, oriented towards development and help the country achieve some of its goals. The risk that investors are usually concerned is concerning the availability of foreign currency. Some investors, when they go to foreign country, are worried about expropriation, wars, civil disturbances and the like. This country is not high risk in many of these areas.
But, at the same time, an investor looking to the long term will find it very comforting if MIGA is there. That is what our role is.
Our volume has been low. But as our volume of the exposure increases on the African continent, there is no reason why the most populous country, which is seeking right now to attract foreign direct investment, could not avail investors with more than they have received in the past from the services that MIGA can offer.
Q: Do you have any target as to how much you are prepared to guarantee for investments coming to Ethiopia?
We do not have target as such, but we can tell you that there is ample capacity to serve the needs of Ethiopia. Certainly, in all of these manufacturing companies that I mentioned, the industrial parks that are currently being created, many of them with the support of the WB, we have a lot to offer.
Q: Let me ask you this question about a continent, in general. Do you share this narrative that, “Africa is Rising”?
Africa is definitely a region of great opportunity for investors. It has been growing at more than six percent for more than a decade. And, therefore, when investors, located in Europe or the US, look at Africa, they see it as a great destination of opportunity, which they cannot find in their home countries. It is, therefore, not surprising to see that there has been a lot more interest in Africa, even though some countries are going through difficulties. But there is opportunity. With opportunities come risk and I see these countries trying to find ways to diffuse this, whilst improving the returns on investment.
Africa is such an expanding part of our portfolio. It shows both the interest of investors and the greater need for ways to absorb or mitigate risks.
Q: But how do you reconcile the fact that there still are pockets of problems, from Somalia to the Democratic Republic of Congo (DRC), and risks of instability in countries as varying as Kenya and Nigeria, amidst this enthusiasm about the expansion in GDP and the subsequent narrative about a continent rising?
Investors have become much savvier about risks. They know that if a pocket of a country is in trouble, it does not mean the whole country has difficulties. And it does not mean that there is no opportunity in that country.
They also know that if something happens in another country, it does not mean that the next country cannot have a verifiable position at the time. There is a maturing sense of analysing risks on the side of investors.
But they also understand the role that organisations, such as MIGA, can play in helping them to become key investment destinations. Banks have become very cautious. They have regulations that are determining how much money they can put into emerging countries, in general, and that includes Africa.
Thus, both from the banking side and the investors’ side, they are looking for a different way of building partnerships, which allows them to keep them afoot and develop their exposure in emerging countries, while, at the same time, taking reasonable risk. For the countries, it is a great opportunity, because the time when the public sector and development assistance offered the only solutions has gone.
They know that part of the solution will come from the private sector. And if they set the conditions right and if they are sufficiently welcoming, investors will come and contribute to the job creation and improvement of their services.
Q: Working with all these different types of investors, wherever they come from, one of the outstanding issues has been MIGA’s accountability policies. I am sure that you remember the issues related with the “Risky Business” Report of the early 2000s, prepared by a coalition of civil society groups, that criticised your disclosure and accountability policies. Since then, has anything changed in your conduct and policies?
One of the prides of MIGA is to make sure that every project that we are getting involved in is scrutinised on both its environmental and social aspects. We have the same norms with the IFC and are consistent with the World Bank. We also have very close oversight of our processes by civil society and our internal processes.
This is true in our engagement in Africa. We carefully look into issues with the environment, community and the relationships with the beneficiaries. By doing that, we make sure that the projects are not only financially viable, but also provide benefits to the society.
Q: Close to 30pc of your portfolio goes to the financial sector, which itself is criticised as having done little to the greater cause of poverty reduction in developing countries. Is there any discussion within your organisation with regards to how to address that issue as it relates to impact?
Actually, since 2008, we have substantially increased our portfolio in the financial sector. And this is mostly in Europe and Central Asia, at the time of the substantial financial crisis.
At the time, we had a key role in stabilising the financial sector and ensuring it reained operational, especially in countries which were highly exposed. More recently, we have seen our role in infrastructure, especially in the power sector, increasing in Africa. We are also seeing our engagement increasing in job creating sectors, such as manufacturing and value-adding companies. The latter has even become one of the most important segments that we are looking into.
We have also been working with banks, which are serving the small and medium scale enterprises (SMEs) and are trying to find a way to work with equity funds that are supporting agro-processing in Africa. We have done that in Zambia and we are doing it in Tanzania, and we will do it in other countries.
But we are essentially taking a wholesale approach to support SMEs that create jobs on the continent.
Q: The whole climate, if one could generalize, that is emerging in Africa is a case where states are emerging as major forces of investment in economies. Much of the things one sees in these countries are state-driven. And a large part is driven by finance coming from China. As MIGA strives to work with the private sector, which are largely being pushed out, does the emergence of China as an alternative source of finance to the traditional modes bother you?
I see China as a very important force, not only on this continent, but everywhere in the world. Certainly, when you look at the need for investments in Africa, I think governments need the Chinese contribution.
When you look at the growth of infrastructure on the continent, the Chinese contribution has been enormous. But that does not take anything away from the need to also bring the private sector and private financing into the continent, to introduce new technology and diversify the sources of growth.
In that respect, organisations, such as MIGA, are very helpful. We do not put conditions on the projects we support. What it does is to make sure that the projects are sustainable, from an environmental and social point of view. That is exactly why I came to Ethiopia – to present how MIGA could help in achieving the ambitious development goals that the government has set.
Q: How about the issues of human rights and governance? Much of the investment would be affected by to what extent governments are accountable to their own constituents and the extent to which they observe their international obligations in governance and respect to human rights. Are you comfortable by the way these things are handled in Ethiopia?
I do not have a view about the overall situation. What I can tell you is that the World Bank Group standards on human rights requires us to look at the situation carefully in the way our projects are conducted. This is an aspect that we are going to continue to look into. And we are not going to engage in any project that contradicts these standards.
Q: Personally, what kind of project would you like your agency to get involved in for five years or ten years to get a sense of pride?
I would take a great sense of pride if we could manage to complement the public investment the government is undertaking with investments by the private sector. I see an enormous need for energy in the country.
The government has the drive to diversify the sources of energy, including renewable sources. This is one area where MIGA is well positioned to support.
I would also like to see MIGA helping to change the view of investors, who used to see Ethiopia as an unattractive destination for investors, to the contrary.
Q: Am I right in sensing that you actually share the view of the World Bank and the IMF that the Ethiopian private sector is not given its rightful place in the economy?
I think there is a larger role that could be played by FDI in this country. The government is ready to get more of that in the contribution to the creation of jobs, especially in light manufacturing. And we can help in that transformation.
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