Multilateral investment guarantee agency

Multilateral investment guarantee agency

Assignment on MIGA, (multilateral investment guarantee agency)

Considerable attention has been focused in recent years on the need to remove barriers impeding the growth of foreign investment in developing countries. The concept of providing foreign investors with financial guarantees against non-commercial risks in developing countries has emerged as a means of improving the investment climate in these countries.

There is need for a multilateral investment guarantee agency to improve the investment climate by issuing guarantees and engaging in other investment promotion activities.

The idea of establishing a multilateral investment guarantee agency emerged in the 1950s. President Clausen revived the concept in his first address to the Bank's Annual Meeting in 1981. And a paper entitled "Main Features of a Proposed Multilateral Investment Guarantee Agency" was distributed to the Executive Directors in May 1984. On the basis of that document, consultations were held with member governments of the Bank (IBRD). In September 1985, the Executive Directors finalized the draft Convention and recommended to the Board of Governors that it adopt a resolution opening the Convention for signature. The Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) was submitted to the Board of Governors of the International Bank for Reconstruction and Development on October 11, 1985, and went into effect on April 12, 1988.

The Multilateral Investment Guarantee Agency is an autonomous international organization with "full juridical personality" under international law (Article 1) with the mission to promote foreign direct investment (FDI) into developing countries and to help, support, economic growth, reduce poverty, and improve people's lives.

Objective;

MIGA’s main objective is encouraging the flow of investments for productive purposes among its member countries and in particular to its developing member countries (Article 2).

As its mentioned in the convention;

CONVENTION

ESTABLISHING THE

MULTILATERAL INVESTMENT

GUARANTEE AGENCY

Preamble

The Contracting States

Considering the need to strengthen international cooperation for economic development and to foster the contribution to such development of foreign investment in general and private foreign investment in particular;

Convinced that the Multilateral Investment Guarantee Agency can play an important role in the encouragement of foreign investment complementing national and regional investment guarantee programs and private insurers of non-commercial risk.

Article 2. Objective and Purposes

The objective of the Agency shall be to encourage the flow of investments for productive purposes among member countries, and in particular to developing member countries, thus supplementing the activities of the International Bank for Reconstruction and Development (hereinafter referred to as the Bank), the International Finance Corporation and other international development finance institutions.

To serve its objective, the Agency shall:

(a) issue guarantees, including coinsurance and reinsurance, against non-commercial risks in respect of investments in a member country which flow from other member countries

(b) carry out appropriate complementary activities to promote the flow of investments to and among developing member countries; and

(c) exercise such other incidental powers as shall be necessary or desirable in the furtherance of its objective.

The reference to "investments for productive purposes" emphasizes the Agency's concentration on concrete projects and programs in all sectors of the economy. In addition to guaranteeing investments in these member countries against non-commercial risks, the Agency is to carry out complementary activities to promote investment flows (Article 2(b)). Article 23 of the Conventions sets out the promotional activities the Agency will provide.

MIGA focus on insuring investments in the areas where it can make the greatest difference.

• Countries eligible for assistance from the International Development Association (the world’s poorest countries)
• Fragile and conflict-affected environments
• Transformational Projects – large scale and significant investments, with the potential for bringing about transformational change in the host country
• Energy Efficiency and Climate Change - complex energy and infrastructure projects that improve energy capacity as well as transportation projects that have a positive impact on pollution control (such as mass transport)
• Middle Income Countries where it can have strong impact

As a multilateral development agency, MIGA only supports investments that are developmentally sound and meet high social and environmental standards.

MIGA fulfill its mission by providing political risk insurance guarantees to private sector investors and lenders. MIGA’s guarantees protect investments against-non-commercial risks and can help investors obtain access to funding sources with improved financial terms and conditions. Its unique strength is derived from our standing as a member of the World Bank Group and its structure as an international organization with our shareholders including most countries of the world. Since its inception in 1988, MIGA has issued more than $28 billion in political risk insurance for projects in a wide variety of sectors, covering all regions of the world.

In concluding; MIGA's mission is to support economic growth, reduce poverty, and improve people's lives. In order to achieve this, the Agency needs a clear understanding of the development outcomes of the projects it supports. MIGA's Development Effectiveness Indicator System (DEIS) collects a common set of indicators from clients to demonstrate results across all projects; volume of investment catalyzed, direct employment, taxes paid, and value of locally procured goods. And it also measures sector-specific indicators.

Why international trade is important

Why international trade is important

Introduction;

International trade is an activity of strategies importance in the development process of a developing economy. In the modern world no country is completely self-sufficient. Self -sufficiency, in the sense used here, means the proportion of the goods and services consumed to their total output produced with in a country.

International trade is the backbone of our modern, commercial world, and there are many reasons that trade across national borders occurs, including lower production costs in one region versus another, specialized industries, lack or surplus of natural resources and consumer tastes.

Defining international trade;

“The term 'trade' refer to exchange of goods and services. When trade takes place across the country, it's international trade.”

“The buying and selling of goods and services across national borders is known as international trade” (www.moneyinstructor.com)

“International trade is the exchange of services, goods, and capital among various countries and regions, without much hindrance.”( www.economywatch.com)

Explanation;

International trade has flourished over the years due to the many benefits it has offered to different countries across the globe. International trade among different countries is not a new a concept. History suggests that in the past there where several instances of international trade. Traders used to transport silk, and spices through the Silk Route in the 14th and 15th century.

The extension of foreign trade, according to Ricardo “will very powerfully contribute to increase the mass of commodities, and therefore, the sum of enjoyments”. This will be true for each trading nation. In modern terminology, “trade is a positive sum game”.

The Need of International Trade:

There is always a need for because the countries have different capabilities and they specialize in producing different things. To compensate for what they don’t produce, then have to involve trade with other countries.

The importance of international trade;

One fundamental principle international trade is that one should buy and services from a country which has the lowest price and sell his goods and services to a country which has the highest price. This is good for buyers and sellers and also the developed countries. International Trade is that kind of trade that give s rise to the economy of the world.

International trading lets the developed countries use their resources effectively like technology, capital and labour. As many of the countries are gifted with natural resources and different assets (labour, technology, land and capital) they can produce many products more efficiently. Sell at cheaper prices than other countries. A country can obtain an item from another country if it can’t effectively produce it within the national boundaries. This is the specialty of international trade.

The benefits of international trade have been the major drivers of growth for the last half of the 20th century. Nations with strong international trade have become prosperous and have the power to control the world economy.

David Ricardo, a classical economist, in his principle of comparative advantage explained how trade can benefit all parties such as individuals, companies, and countries involved in it, as long as goods are produced with different relative costs. The net benefits from such activity are called gains from trade. This is one of the most important concepts in international trade.

Adam Smith, another classical economist, with the use of principle of absolute advantage demonstrated that a country could benefit from trade, if it has the least absolute cost of production of goods, i.e. per unit input yields a higher volume of output.

Some important benefits of International Trade

• Enhances the domestic competitiveness
• Takes advantage of international trade technology
• Increase sales and profits
• Extend sales potential of the existing products
• Maintain cost competitiveness in your domestic market
• Enhance potential for expansion of your business
• Gains a global market share
• Reduce dependence on existing markets
• Stabilize seasonal market fluctuations

Here are some Importance of International Trade :

1) International Trade enables the fuller utilization of resources. Underdeveloped countries are not in a position to use their mineral resources, so they export their raw materials to developed countries where the same are needed the most.

2) Because of International Trade the trading partners gets goods cheaper than otherwise. Because every country produce those goods in the production of which it has to occur less comparative cost.

3) By virtue of International Trade consumers gets an opportunity to consume a large variety of goods produced by different countries. This improves the quality of life.

4) International trade enables every country to dispose off their surplus production. Some countries produce more than their own requirement. They sell this surplus production in other countries and avoid the occurrence of deflationary pressures in the domestic economy.

5) International Trade encourages countries to compete with each other in the production of different kinds of goods at low cost of production. Competitiveness stimulates productivity.

6) It widens the extent of market. Every country makes an attempt to produce different goods in large quantity. This induces production on large scale and thereby generates economies of scale.

7) International Trade stimulates the spirit of competition among the entrepreneurs. Novel techniques of production are devised to produce quality goods at low cost. Advancement of technology is the key to economic development.

8) International Trade promotes mutual cooperation among different countries. It creates an atmosphere of goodwill and friendship among the trading countries.

International Trade has positively influenced the economic growth of a country in the

following ways:

·

International trade injects global competitiveness and hence the domestic business units tend to become very efficient being exposed international competition. Due to the integration with the world economy the entrepreneurs can have easy access to the technological innovations. They can utilize the latest technologies to enhance their productivity.

·

The developing countries have higher trade protectionism measures as compared to the developed countries. The countries that have adopted such measures are seen to reap the benefits of an open trade regime.

·

The products that are labour intensive like clothing, footwear, textiles etc are exported by the developing countries to both developed and underdeveloped countries. Such exports earn heavy tax revenue in countries like Mexico, India, China and many more.

·

International Trade has also brought in a reduction in the poverty level. India was a closed economy in the 1960s and 70s. There was not even 1% decline in the poverty level. The entire scenario changed with globalization and international trade. According to Prof. Jagadish Bhagwati the reduction in the poverty level is due to a pull up rather than a trickledown effect. The economic growth brought about by international trade can generate financial resources. Such resources can be used to set up anti poverty programs. Better education and health facilities can also be provided to the poor.

·

The exclusion of all types of trade barriers in the agricultural products of the developed countries will lead to a decline and rise in production and world prices.