The Multilateral Investment Guarantee Agency (Miga), a member of the World Bank Group, has issued US$7.2mn in investment insurance for a manufacturing project in China. The guarantee covers an investment by Mahindra Overseas Investment Company (Mauritius) in a tractor manufacturing and export project.

Total project cost is US$10mn. The guarantee, for up to 15 years, will protect the investment against the risk of expropriation.

The project involves the creation of a joint-venture company as well as the acquisition of the tractor manufacturing assets of a state-owned company in Nanchang, Jiangxi Province, to manufacture small tractors and parts for domestic and export markets. The project will also import larger tractors from India and assemble them for sale in the Chinese market. The plant’s initial capacity is for 6,000 tractor units per year. Production is expected to reach 11,000 in 2008, and 18,000 at full capacity in year 2012.

“This project aims to meet growing market demand for more powerful tractors, encouraged by Chinese policies that have created incentives for farm mechanisation and boosted the demand for more sophisticated products,” says Miga’s project underwriter, William Dadzie.

“At the same time, the project is expected to bring benefits for the people of China, through the generation of tax revenue, improved product quality and diversity, and the procurement of goods locally.”

The project also supports the World Bank Group’s country assistance strategy for China, which identifies as one of its key priorities an improved business environment and acceleration of China’s transition to a market economy.

The investor is a wholly-owned subsidiary of Mahindra & Mahindra of India, which has entered into the joint venture agreement with Jiangling Motor Company Group of China.

Mahindra and Mahindra is a first-time Miga client. The emergence of a new and growing force – so-called ‘South-South’ investors, such as Mahindra – is making notable inroads on the global investment landscape. Investment from developing countries now accounts for a third of all foreign direct investment going into the developing world.

“For these investors, political risk insurance (PRI) can make a difference in the decision to go ahead or not,” says Yukiko Omura, executive vice-president of Miga.

Miga is encouraging the growing trend of South-South investment by offering its political risk insurance products, alone or in partnership with other insurers, and by offering a streamlined underwriting process through its Small Investment Program, which is proving popular with this investment group.

“Our coverage offsets the perceived risks that may be inhibiting investment and sends a very important signal to the markets that private investments in such countries are in fact safe and profitable,” says Omura.