POST-CANCUN: What’S on the Table for Investors?
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Multilateral Investment Guarantee Agency World Bank Group VOL 11 | NO 3 | COVERING JUL AUG SEP 2003 Ministers Up on Global Economy, Down on Cancun, at Annual World Bank-IMF Meet | 3 Tanzania: MIGA-Supported Mining Project Focuses on Long-Term Social Benefits | 4 MIGA Benchmarks FDI Costs and Conditions in Asia | 9 Project Highlights | 10 POST-CANCUN: What’s on the Table for Investors? FOOD FOR THOUGHT Wrapping up the recent annual World and responsibly, is an important driver for Today, restrictive foreign investment Bank/IMF meetings in Dubai, World Bank economic growth and poverty reduction. policies are being progressively dismantled President James Wolfensohn and IMF The issue of an international invest- around the world as governments work to Managing Director Horst Kohler called for ment agreement has been on the table for attract foreign investors, with policy barri- a renewed spirit of multilateralism and discussion by the WTO since 1996. The ers being lowered in sector after sector in equality between rich and poor countries. idea is to launch a multilateral framework an attempt to increase competition and Wolfensohn highlighted the need for a new to secure transparent, stable, and pre- spur growth, and speed up the pace of balance between developed and developing dictable conditions for long-term cross- technological progress.A positive outcome countries on aid and trade,and urged lead- border investment that will expand trade. in Cancun would have accelerated this ers to renew their commitment to fighting “The drive to include an international process. world poverty. “This is essential not just for investment agreement in the WTO accords Realizing high potential FDI gains in poverty reduction and prosperity—but for comes against a backdrop of one of the most developing countries requires more than security and peace,”he said. impressive waves of foreign direct invest- liberalization, however. It also needs a reg- Wolfensohn pointed to the commit- ment in history,”says Richard Newfarmer, a ulatory framework that, where possible, ments made by both rich and poor coun- World Bank economic adviser. permits competition and disciplines natu- tries to help reach the Millennium But the question of what’s in the cur- ral monopolies in network industries, as Development Goals—including cutting rent round of WTO negotiations, the so- well as pro-poor regulation that ensures global poverty in half by 2015. He said called “Doha Development Agenda,” for access and cross-subsidies to the poor. actions so far had not matched those com- investors really goes beyond the issue of an Increased investor protections, built mitments, and called on governments to investment agreement, Newfarmer adds. into a global investment agreement,“would fulfill their responsibilities and help rebal- While an international agreement might arguably help participating developing ance an inequitable global system.He noted contribute to increasing stable flows of countries send a positive signal to potential that the recent World Trade Organization investment—by increasing market access foreign investors regarding the perma- (WTO) meeting in Cancun had been a for investors to permit enhanced competi- nence of policy changes,the expected stan- wake-up call because poor nations had tion, and by augmenting protection of dard of treatment afforded to foreign refused to accept the trade proposals put investors’ rights to reduce risks—investors investors, and recourse to a dispute settle- forward by the rich countries. would probably benefit more from the ment procedure,”says Newfarmer. Unbalanced trade policies impact greater market access through new deals on But protections resulting from a mul- many things, including foreign direct services and new investment opportunities tilateral investment agreement alone investment, which, when done sustainably in developing countries’ export industries. would probably not produce much addi- tional investment flow. That’s because bilateral investment treaties already cover about half of investment to developing countries, and any new multilateral protec- tions are unlikely to be superior—and therefore additive—to these bilateral investment treaties. “The benefits of a multilateral invest- ment agreement for developing countries ironically hinge on the increased market access such an agreement would leverage for their exporters and on the additional domestic reforms it leverages at home, par- ticularly in services,” says Newfarmer. “Evidence suggests that trade liberaliza- tion,combined with clear investment rules, as well as new access to markets abroad, holds the largest potential for increasing investment in developing countries.” The next meeting in the Doha round is set for Hong Kong at an as yet undeter- mined date. MIGA NEWS | JUL AUG SEP 2003 page 1 Spotlight on Guarantees in the Middle East and North Africa Investors from the region are increas- At year-end, MIGA’s total gross guar- ingly turning to MIGA for guarantee sup- antee exposure for projects within the port of their investments going into other region stood at $167 million. developing countries. One project involves $50 million in In fiscal year 2002, for example, MIGA reinsurance for Spain’s export credit provided guarantees to Investcom Holding agency (CESCE), covering its guarantee for S.A., of Luxembourg, and to its wholly an investment in the Rhourde el Khrouf oil owned subsidiary, Investcom Global Ltd., field. The project entails one of the first of the British Virgin Islands (both owned production sharing agreements ever by Lebanese investors), totaling $8.06 mil- signed by the state and a foreign firm in lion, to cover their respective investments Algeria.The project is expected to generate in Spacetel Benin S.A.R.L. Spacetel. The an average of $315 million a year in royalty project involves the operation of a new payments to the government from 2004- GSM mobile telephone network in Benin, 2009, which will allow the country to fund which suffers from a shortage of reliable programs in other sectors,including health telephone lines. and education. Also in the same period, the agency Another project, the first in Syria, provided, in cooperation with Tunisia’s involves a $23 million guarantee to national insurer, COTUNACE, $21.6 Kingdom 5 KR 71 Ltd. for its quasi-equity million and EUR43.2 million in guarantees contribution to a company that will devel- to the Office National des Télécommu- op a 297-room hotel in Damascus. With nications of Tunisia for its investment Syria’s rich historical and cultural back- in Société Mauritano-Tunisienne des ground, the government views the tourism Télécommunications in Mauritania. Until industry as a significant source of foreign- the year 2000, Mauritania had only one exchange and growth. The hotel will also phone operator, which had a capacity of have a positive impact on local industries, approximately 32,000 fixed lines, serving a such as transportation, food processing, population of 2.5 million people. The proj- and tour operations. ect involves the installation, operation, and MIGA will continue its focus on the maintenance of a new GSM telephone region in coming years, and will seek to network. increasingly collaborate with its regional In addition, in 2003, MIGA provided a partners—including the Islamic total of $75 million in guarantees for Development Bank in Saudi Arabia, the Increasing investor interest in the Investcom Holdings and Tele Invest, a Inter-Arab Investment Guarantee Middle East and North Africa British Virgin Island company owned by Corporation in Kuwait, and the Islamic over recent years has led the Saudi Conglomerates, for their respective Corporation for the Insurance of region to claim a growing share equity investments in Spacetel Syria. The Investment and Export Credit in Saudi of MIGA’s outstanding portfolio. project involves the installation and opera- Arabia. Since its inception in 1988, MIGA tion of a new mobile telephone network in Syria, based on the GSM technology. This has supported 13 projects in the project is one of the first two privately held region with guarantees worth startup GSM telecom projects in Syria. $280 million. Projects range from Spacetel will help the government of Syria financial services to oil and gas, address the shortage of telephone lines in and from manufacturing to the country.MIGA’s support for the project tourism. The portfolio rise, is expected to contribute to the develop- ment of a more efficient telecommunica- though modest, is especially tions infrastructure in Syria, and will also noteworthy when considering the have a positive impact on the economic difficult political and economic activities of the country in general. situation faced by the region dur- The growth in guarantees for projects ing this time. within and from the Middle East and North Africa is a reflection not only of ris- ing investor interest, but also of the agency’s concerted outreach efforts over the past three years. MIGA’s “mobile PHOTOS | World Bank photo library, offices”—a way to reach out to member Marcus Williams, MIGA countries where it does not yet have a field presence—form a key element of the agency’s marketing and business outreach. In fiscal year 2003, MIGA conducted two such visits to the Middle East and North Africa, complementing a series of targeted visits begun in 2000. MIGA NEWS | JUL AUG SEP 2003 page 2 PHOTO | Suzanne Pelland, MIGA Ministers Up on Global Economy, Down on Cancun, at Annual World Bank-IMF Meet MIGA HEAD DISCUSSES INFRASTRUCTURE WITH INVESTORS Optimism among finance ministers that countries, they are also an essential motor and development banks. They’re attractive the global economy is in recovery, however for further economic growth that is needed to countries that host investments,because fragile,but disappointment with the failure to reduce poverty,”said Ikawa. this type of arrangement allows them to of trade ministers in Cancun to reach But while the need for investment in continue owning the project while gaining agreement, were the two key messages infrastructure grows, private participation critical knowledge on how to operate, emerging from the annual World has dramatically decreased.