Overcoming Challenges in the Multilateral Investment Guarantee Agency's Risk Insurance Coverage to Private Water Investors: Corruption and Consumer Risks
Okaru-Bisant, Valentina, South Dakota Law Review
This paper discusses the ongoing controversial problems about how to make the World Bank Group more responsive to corruption in its financed investments and how to reduce corruption and consumer conflicts resulting in failed water supply privatization investments in developing countries. The negative health and economic impacts of such failed investments on poor consumers in developing nations increases the urgency for resolving the problems. There are no accurate statistics on the financial losses to private investors from corruption and consumer conflicts in global water projects. But it is undisputed that the amount (however great or small), threatens the economic existence of private investors and are sufficient to deter them from participating in the delivery of such services in Africa. (1) The World Bank estimates that corporations pay $1 trillion in bribes to foreign officials, annually. (2) According to Transparency International, in Africa alone, $148 billion is paid annually in bribes. (3) The existence of such corruption and consumer conflicts as demonstrated in three high profile water investment dispute cases (The Kingdom of Lesotho v. Acres International and Masupha Ephraim Sole, Aguas del Tunari v. Bolivia and Biwater v. Tanzania) increase the urgency for reforming the World Bank's Multilateral Investment Guarantee Agency's ("MIGA" or "the agency") risk insurance and mediatory role and its Center for Settlement of Investment Disputes' mediatory function.
Accordingly, this paper proposes innovative ways to overcome deficiencies in the scope and contents of MIGA's guarantee program, particularly: 1) absence of corruption and consumer conflicts risk insurance and 2) absence of development based due diligence and risk assessment ("DDRA") strategies. These deficiencies stifle the agency's ability to encourage private participation in the African water supply services sector because honest, but risk averse corporations, are reluctant to invest in those countries that are bedeviled with corruption and consumer conflicts. But the proposal comes with opposition from some experts. Contrary to opponents of corruption risk insurance who assert that providing such insurance coverage will promote the vice and sanction bad behavior, MIGA providing the coverage will reduce corruption and consumer conflict. But as a precondition to providing risk insurance coverage to investors, MIGA must develop and implement DDRA strategies. Similarly, MIGA should also require that investors seeking its risk insurance guarantee for water supply investments, develop and implement such strategies as a precondition to receiving insurance coverage. MIGA should also develop an accountability and punitive system, including increasing insurance premiums and maintaining a database of blacklisted corporate guarantee holders that are found guilty of corruption and disregarding consumer participation. Consequently, the threats of incurring social and economic costs of engaging in corrupt practices and disregarding consumer voices will incentivize the companies to avoid corruption and respect consumer interests. Similarly, MIGA will also have an incentive to avoid providing risk insurance coverage to corrupt companies. The aforementioned requirements are critical to creating a level playing field that companies desire, including encouraging sound corporate governance, government accountability, and due regard to poor consumer voices/needs in water investments.
II. BACKGROUND AND INTRODUCTION
A. GLOBAL CRISIS, REDUCE TAX BURDENS, AND THE WORLD BANK GROUP LEADING ROLE
Given the current global financial crisis, both economic aid suppliers (4) and aid recipients are facing internal financial crisis and pressures in their respective nations. Therefore these economic aid suppliers and recipients are seeking ways to best deal with foreign aid and private investment promotion concerns. Particularly, they seek ways that reduce tax burdens on taxpayers in aid supplier nations while producing real positive results on the ground in recipient nations. …