Notes to Financial Statements 36

MIGA __ Public Disclosure Authorized ANNUAL REPORT 199-2 FILE COPY Public Disclosure Authorized Report No. :11613 Type: (PUB) Title: MIGA ANNUAL REPORT Author: Ext.: 0 Room: Dept.: BOOKSTORE 1992 Public Disclosure Authorized M.LGA8 MultilateralInvestment Guarantee Agency E 2' Public Disclosure Authorized M I G A_ ANNUAL REPORT 1992 Multilateral Investment Guarantee Agency 6FA L s MIGA in brief * - The Multilateral Investment Guaran- tee Agency (MIGA), a member of the l - * *. * World Bank Group', commenced op- - l erations in April 1988 to promote private foreign direct investment for economic a * l development in its member countries. 3X " MIGA does this by: 2 * * * * * * * Guaranteeing investments made by foreign investors against political risks in developing member countries. * Providing promotional and advisory services to assist member countries in creating an attractive climate for private foreign direct investment. MIGA is owned by its member countries and is capitalized at SDR 1.0 billion ($1.082 billion)3 . Membership is open to all member countries of the World Bank. 2 2 :-. g %~~~~~~~~~~~~~i~ i~ vA L , S * S _~~-*,DrcosAtrae _ isj hiaaAuaa .Kiag - ThainA AIAsfAmdM IOani a~~~~~~~~~~~aa Haa AI$1a Moae W on 3s~~~~~~~~~~~~oal boaogi Fenad S. Carne * s * l _ Cfis-PtikoayMrM r ~~~~~~~~~~~~~rtFice Haal Rehin W~~~~~~~~~~~~NclsZai ParEj Rubiane=s _ I _ 0 Ela Ma_se ora abu - ~~~~~~~~~~~~~JnsMartonl Nu.rcan.'Akturk, ' . U s t~~~~~~~~~~~aidgPeret, l-z- Rober;' Graaml';ig0g't' Harrison 2 S iSS---~~~~~~~Frank PotterWi Hub er0)ftfE-Deangl0 ; 4 Letter to the Council of Governors June 30, 1992 The Board of Directors of the Multilateral Investment Guarantee Agency is pleased to report that MIGA's insurance, investment promotion, and advisory services grew faster than planned during fiscal 1992. MIGA 'sprograms are designedto encouragetheflow ofprivateforeign direct investment for productive purposes among its member countries, especially to developing member countries. MIGA facilitates capitalflows to developing countries by providing insurance for private investors against political risks, by promoting investment activity, and by assisting countries to create an attractive investment climate. MIGA thus complements the development activities of the other members of the World Bank Group. Lewis T. Preston, President of the Agency and Chairman of the Board of Directors, submits this report and the accompanying auditedfinancial statementsfor thefiscal year ending June 30,1992 on behalf of the Board to the Council of Governors in accordance with the bvlaws of the Agency. L- NEM.;31 MIGA Board of Directors, March 1992. 5 ¼,AL/ Foreigndirect investment and MIGA's role factors affecting investment decisions. For- eign investors are also influenced by factors such as relative costs, domestic market size, Through its investment guarantee program quality of infrastructure, and level of indus- and its promotional and advisory services, trialization. MIGA promotes the flow of private invest- The global environment for investment ment resources to developing countries for has undergone significant change in the last productive purposes. Private foreign direct few years. Many developing countries have investment brings in capital, generates em- emerged from the stagnation and decline of ployment, and is an important means of fa- the 1980s and resumed positive real growth. cilitating technology transfer and foreign The general policy environment in many of market access. Through training of local staff, these countries has also become more favor- foreign direct investment helps diffuse prod- able toward foreign direct investment, with uct and process technologies and enhances the adoption of more pragmatic attitudes that local management and marketing skills as are conducive to private investment. Public well. Thus, flows of investment resources authorities worldwide are increasingly be- into developing countries help fuel economic coming aware that prospective foreign inves- growth and development. Developing coun- tors are interested in an investment climate tries are increasingly recognizing the myriad they perceive as stable and hospitable and benefits of foreign direct investment, and that tangible progress in policy reform helps today most countries welcome foreign in- create such positive perceptions. vestment as a valuable addition to domestic The changes in Central and Eastern Europe investment. and in the former republics of the Soviet Union have increased global competition for The global environment for foreign foreign direct investment and made develop- direct investment ing countries more keenly aware of the need to improve their investment climate. That In recent years foreign direct investment awareness is evidenced by the heavy demand has outpaced other forms of foreign capital for the services of the Foreign Investment inflows to developing countries. In 1991 it is Advisory Service (FIAS), a jointly spon- estimated to have reached $24.8 billion (on a sored program of MIGA, the International cash flow basis) in developing countries - Finance Corporation (IFC), and the World about three times its size in 1986. Argentina, Bank, which advises governments on im- China, Brazil, Mexico, Malaysia, and provingpolicies, regulations, and procedures Thailand were some of the largest recipients to attract foreign investment. of foreign direct investment among develop- Despite the positive changes in the global ing countries in 1991. environment, uncertainty continues about the Whether, where, and how foreign direct prospects for increasing the flows of foreign investment occurs depends on scores of fac- direct investment to developing countries in tors. World economic conditions and a the 1990s, and investors' concerns about the country's policy, legal, and political environ- many risks of doing business in foreign coun- ment are among the more important macro- tries remain. Increasing numbers of prospec- 6 tive investors are turning to investment in- * Developingcountrieshavebecomemore surers, including MIGA, for assistance in acutely aware of the implications of the in- implementing their projects. The demand for creasingly competitive environment for at- MIGA's services - guarantees and promo- tracting orretaining foreign investment.More tional and advisory work-is rising steadily. governments realize that they must promote The indications of the potential magnitude of their business opportunities with foreign in- this business, as demonstrated in fiscal 1992 vestors and reform inappropriate national and highlighted in this report, are very posi- policies, unsound financial and economic tive. laws and regulations, and ineffective institu- tions. The result has been a growing demand MIGA's role for MIGA's promotional and advisory services. MIGA's role in promoting the flow of MIGA also has a unique role to play with investment resources to developing coun- other members of the World Bank Group as tries is unique in that MIGA directly assists they increasingly focus on strengthening the both investors and host country governments. contributions of the private sector to eco- The changing environment for foreign direct nomic growth and development. MIGA's investment - and the concerns it arouses in staff have broadened and deepened their in- prospective investors - is affecting MIGA volvement with otherparts of the Bank Group in two ways: in the past year. MIGA often consults with * Foreign investors are clearly concerned staff of the World Bank, IFC, and the Interna- with reducing the risks and uncertainties as- tional Centre for Settlement of Investment sociated with prospective projects in devel- Disputes on specific economic, technical, oping countries. This concern is evidenced legal, and environmental questions and is by the growing number of inquiries and ap- increasingly consulted by them on the design plications MIGA receives for its political of private sector initiatives. risk insurance coverage. 7 > Country membership IM.I.G.. q ___________ In fiscal 1992, 14 more countries signed the MIGA Convention, bringing the number of signatories to 115.India became the thirteenth Asian country to sign the Convention. Many republics of the former Soviet Union are ex- pected to become signatories shortly. Twenty-one countries completed MIGA membership procedures, bringing the number of full members to eighty-five. The new members are Albania, Argentina, Belize, Bolivia, Republic of Congo, Dominica, El Salvador, Ethiopia, Honduras, Israel, Luxembourg, Malaysia, Nicaragua, Papua New Guinea, Paraguay, Peru, Sudan, Tanza- nia, Uganda, Yugoslavia, and Zimbabwe. The increase in membership raised MIGA's subscribed capital by 7 percent to $844 million. A total of sixty-nine Category II member countries are entitled to receive guarantee and promotional and advisory assistance (see map). Country membership in MIGA is illus- trated in figure 1. Figure 1. MIGA Membershipgrowth * MEMBER COUNTRIES 120- J2Convention Signatories Albania Czech and Slovak Fed.Rep. Ireland Angola Denmark Israel 100 - * Full Members _ Argentina Dominica Italy Bahrain Ecuador Jamaica 80 - Bangladesh Egypt, Arab Republic of Japan :3 El Salvador Jordan 0 ~~~~~~~~~~~~Barbados 60 -Beliie Ethiopia Kenya dB 60 - l l i Bolivia Fiji Korea, Rer a) Botswana Finland Kuwait E 40 Burkina Faso France Lesotho Z | I | ICameroon E i Germany Luxembcg.. Canada ~~Ghana Madagas-c 20- Chile Grenada Malawi China Guyana Malaysia 0 * I I I Congo, Republic of Honduras Malta April FY FY

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