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. At its peak in maintain, and manage a facility. Investors Bank/IMF meetings, held in Dubai, UAE, 1997, infrastructure investment was $128 benefit primarily by not having to lay down during the last week of September. The billion. Only four years later, the amount a capital investment, while generating rev- meetings were attended by delegates had fallen more than 50 percent to $58 bil- enue through the operation of the facility. from 184 countries, business leaders, civil lion. Similarly, project finance lending was MIGA can play an important role in society representatives, academics, and only $76 billion in 2002—43 percent lower diminishing the overall risk profile of pub- journalists. than the year before. And the investments lic-private partnerships. Since 1988, MIGA The World Bank used the bully pulpit which are moving forward tend to be con- has issued 166 guarantees for infrastruc- to sound a wake-up call for delivering on centrated in just a handful of countries, ture projects—or 31 percent of its gross the Millennium Development Goals especially China, Brazil, and a few other portfolio—for $3.7 billion in coverage.The (MDGs),which aim to halve the number of Asian and European countries. 87 projects covered by these guarantees people living in poverty by 2015. With the “This decrease in private infrastruc- involved an estimated $19.3 billion in FDI. target date just over a decade away, now is ture investment is the result of the eco- Infrastructure is now MIGA’s biggest sec- the time for global leadership on action for nomic and political difficulties facing tor, at 41 percent of the gross exposure, up reaching the goals.“It is clear that progress many infrastructure projects in the 1990s,” from 12 percent in 1996. While these proj- on the MDGs needs to be accelerated,”said Ikawa said. “Unrealistic government and ects have mainly been in power and tele- World Bank-IMF Annual Meetings public expectations in developing coun- coms, MIGA has increasingly seen interest Chairman Kaspar Villiger, Swiss Minister tries,and from foreign investors,have left a in coverage for projects in transportation of Finance, during the closing press bitter aftertaste for many.” (roads, ports and airports) and water and conference. In the early 1990s, governments tend- sanitation. One of the cornerstones of the MDGs ed to agree to generous terms due to des- “While there have been many difficul- is the provision of adequate infrastructure. perate needs, and the general expectation ties in recent years for projects in some “There is the tremendous need in develop- was often that privatizations would lead to developing countries,there is no doubt that ing countries and emerging markets for the elimination of huge subsidies and more FDI is forthcoming if the investment investment in infrastructure,”said MIGA’s increase the efficiency of services. climate is improved and residual risks are Executive Vice President, Motomichi Investors often expected high returns due shared by the parties involved,”Ikawa said. Ikawa, during his annual meetings speech. to high perceived risks. But events fre- “Even governments that have become more By very conservative estimates, these quently developed very differently.Another cautious about privatizations are not try- countries need $465 billion in annual contributing factor is that privatizations ing to reverse the trend.We are seeing more investment in infrastructure to maintain have often been taking place against a public-private partnerships. UNCTAD’s existing stocks and support annual GDP backdrop of inadequate legal and regulato- World Investment Report, which was just growth of 2 percent. ry frameworks. released, also suggests that there may be While the power and telecommunica- Ye t it i s b e cause of the huge need for some moderate rebound in FDI flows in tions sectors occupy a large proportion of infrastructure investment and the signifi- 2003 and 2004.” the investment needs, water and sanitation cant returns that investors are still willing “The bottom line is that there are projects also need sizeable investments. To to go ahead in this sector—if the risks are many ripe opportunities for forward-look- reach the MDG of halving the number of shared and mitigated appropriately. ing investors in emerging markets and people without access to potable water by A key way of mitigating some of these developing countries. And MIGA can help 2015, at least $30 billion—and possibly risks is through public-private partner- ensure that these ripe fruits do not turn much more—is needed on an annual ships. These partnerships provide a mech- sour after they are harvested. That harvest basis. anism for sharing responsibilities and should benefit all involved—investors, “Not only are these investments vital risks among countries that host invest- lenders,and the public and governments of to improve the lives of people in these ments, businesses, financial institutions, host countries.”

MIGA NEWS | JUL AUG SEP 2003 page 3 TANZANIA

MIGA-Supported Mining Project Focuses on Long-Term Social Benefits

BARRICK GOLD SUBSIDIARY DEMONSTRATES BEST PRACTICE

Increasingly today, developing countries tering gains in literacy, access to water, and The project’s construction phase cre- are seeking to capitalize on their natural per capita GDP growth. ated approximately 1,500 jobs. Today, the resources in a more sustainable and equi- During fiscal years 2000 and 2001, enterprise employs over 1,200 people table way, and this is particularly true for MIGA provided a total of $172 million in (excluding contractors) as part of its ongo- the mining sector. investment guarantees to Barrick Gold ing operations, and pays $15 million a year Where governments were once con- Corporation of Canada and a consortium in salaries.In addition, the number of peo- tent to benefit from the employment, of international banks, for their respective ple indirectly employed is estimated at licensing fees, royalties, and tax revenues equity investment and non-shareholder 7,500. The company provides extensive resulting from mining investments, today loans to the Bulyanhulu mining project in training to local staff at all levels of opera- there are often expectations for far more rural northern Tanzania. Private insurers tion, while working to replace expatriate comprehensive benefits.Governments,and provided reinsurance, while the Export employees with Tanzanians. The project many of the world’s progressive mining Development Corporation of Canada co- pays roughly $15 million a year in royalties companies, realize that attending to the insured the project with MIGA. Located and taxes to the government, and spends intangible elements of a mining venture— approximately 30 miles south of Lake another $37 million each year in the pro- the noncommercial social and environ- Victoria in the Shinyanga region, the proj- curement of local goods and services. mental aspects that are implicit to all ect consists of the establishment and oper- One of the project’s key benefits isn’t enterprises—is good not only for develop- ation of a state-of-the-art underground measurable in terms of jobs or tax revenue ment and responsible corporate citizen- mine and mill complex, operated by generated, but rather relates to efforts to ship, but for business as well. Barrick’s subsidiary, Kahama Mining build local capacity to take over and main- Historically,the focus has been prima- Corporation Limited (KMCL). tain community development advance- rily on mitigating negative impacts,togeth- The Tanzanian government had long ments once KMCL finishes operations. er with the provision of some visible infra- intended to develop the potential deposit Beyond the economic benefits result- structure such as a new hospital or road. as a commercial venture. From time to ing from the mining operation, the project There is, however, a growing recognition time,the area was mined by artisanal min- has brought much-needed support to the that companies need to focus on making ers who commonly worked in violation of local community. Most of the 30,000 peo- much more positive contributions to devel- basic safety standards. In addition, access ple in the Bulyanhulu area live in poverty. opment: fostering the development of to the newly discovered underground The region lacks modern health care, an health and education systems that actually deposit required massive investment and adequate education system, infrastructure work, developing community capacity to the training of the local workforce, not and viable employment opportunities, and manage assets such as water resources and used to large-scale mining. disease rates are high. When KMCL water and sanitation systems,and enabling The Bulyanhulu mine started produc- arrived, it set up a social development pro- the development needs of local communi- tion under KMCL management in April gram that focused on these issues.“Mining ties to be met. 2001.Today,all aspects of the mining oper- companies have traditionally assumed that This is the case in Tanzania, where the ation are conducted in accordance with providing jobs alone would be enough, but government recently opened the mining international environmental and safety it is increasingly clear that the industry sector to private investors.There,poverty is standards. In many cases, the company needs to do much more on community widespread despite the abundance of land surpasses these standards, playing a lead- development,”says Rene Marion, vice pres- and natural resources.Per capita income in ing role in establishing industry best prac- ident and general manager of Kahama 2003 is estimated to be about $277, life tices in the country. At the same time, Mining. expectancy dropped to only 44 years in Kahama Mining has taken steps to allevi- Marion adds that there was a business 2001, and infant mortality remains high. ate potentially negative side effects, using need behind the effort.“We also needed to Despite its poverty, the country has made innovative approaches to dispose of tail- ensure that the mining industry would be substantial progress in terms of human ings, including paste technology and back- accepted, and we wanted to reduce the development over the past few years, regis- filling in the underground mine. expatriate workforce by 70 percent over a

MIGA NEWS | JUL AUG SEP 2003 page 4 >> “Because of its focus on capacity-building, there is every prospect that Kahama Mining will be able to stand back from its current leadership role and contribute to local society on a more equal and sustainable footing with its government and civil society partners.”

PHOTOS | Courtesy Barrick Gold Corporation and Kahama Mining Corporation Ltd. five-year period, which meant we needed ticipation in the scheme, so that all can to have the infrastructure in place to make own a home at the end of seven years. As the location attractive to Tanzanian man- with every aspect of the company’s com- agers and their families.” munity development program, KMCL held of modern water treatment equipment has The social development program has extensive consultation with local residents, contributed to the prevalence of water- been underpinned by a partnership government agencies,and mineworkers to borne diseases. approach, drawing on a series of multi- ensure that the program reflects the needs Thanks to the project, a reliable water party steering committees that work with of the area. Along with the housing supply is now widely available in the area KMCL, local communities, the district scheme, the company has constructed for the first time. To meet the water needs council, nongovernmental organizations access roads, a sustainable water system, of the mining operation, KMCL construct- (NGOs), and donors. which is being managed by the communi- ed a 30-mile pipeline from Lake Victoria to “KMCL has recognized the impor- ty,and has improved other necessary infra- Bulyanhulu,when mine construction start- tance of communicating with the local structure, such as schools. ed. At the same time, the company worked community, not just at the district level,” Kahama Mining is also working with with local communities to include 15 outlet says Ally Manyama, a local village execu- Habitat for Humanity to establish an affili- points at intervals along the pipeline to tive officer. ate agency in nearby Igwamanoni Village. provide water for the communities along One of the most important aspects of Under a three-year pilot, the affiliate plans the route. Community-based water user the program is that it focuses on long-term to construct about 20 houses in the first groups are responsible for managing usage health results, with a strong focus on edu- year, and more each year as the affiliate at the water points and for educating resi- cation, capacity-building, and disease pre- grows. In addition, the community will be dents about safe and appropriate uses. vention. The project initiated the country’s provided with training on leadership, com- Other infrastructure needs have been first private-public sector health education munity activism, household management, addressed as well. KMCL invested $15 mil- program when it partnered with the and construction. lion in a turnkey project with the Tanzania African Medical and Research Foundation KMCL is also partnering with CARE Electric Supply Company to extend the (AMREF) to develop,fund,and staff public International in Tanzania—a humanitari- national electricity grid from its nearest health education programs in the area.The an NGO that fights global poverty—to point, 148 km way in Shinyanga, to the program focuses on disease prevention develop educational facilities in the com- mine site. KMCL is now working with the and improving treatment, particularly for munities around the project site. The six- government and other partners to begin HIV/AIDS, other sexually transmitted dis- year joint undertaking, begun in 2001, has the process of extending the line for domestic and commercial use by local communities, which will bring mains elec- tricity to the area for the first time. Roads >> “KMCL’s social development program is a best-practice model for have been upgraded, and financial support two reasons,” says Sullivan. “First, the company is focusing on the is improving rail facilities and ports—all key development issues faced by the local community in a manner necessary for the efficient operation of the that is likely to provide long-term, sustainable benefits. Second, the project, but also designed with community focus on capacity building maximizes the likelihood that the commu- development needs in mind. “Kahama Mining could have elected nity will continue to function effectively and successfully, even after to implement a development program mining operations cease.” alone, or by establishing a local company- managed foundation,” says Rory Sullivan, director for Investor Responsibility, Insight eases, tuberculosis, and malaria. Together, included school room construction, train- Investment, the asset management arm of KMCL and AMREF have refurbished a ing, and improved resources and teaching HBOS plc in the UK. nearby dispensary and the Kahama dis- materials. Results to date have been excep- “Instead, the company chose to adopt trict hospital, which serves 30,000 local tional,with national primary school exam- a multi-sector partnership approach, residents and has eased pressure further ination pass rates improving by 240 involving not just different parties, but up the referral chain. percent in the first year alone. actually pooling their resources and com- KMCL has also developed the coun- KMCL’s social development program petencies.By being closely aligned with the try’s first private sector housing program, is also tackling the water scarcity and unre- goals of the Kahama District Development which provides interest-free loans to liability problems that plague the region.In employees, for up to 600 new houses. The the past, most of the water came from program design allows full employee par- unsafe, low-yielding open wells. This lack See TANZANIA, p. 8

MIGA NEWS | JUL AUG SEP 2003 page 5 Afghanistan Joins World Bank Group’s MIGA

PHOTOS | Courtesy World Bank Group’s South Asia Region

AGENCY POISED TO SUPPORT RECONSTRUCTION AND ECONOMIC PROGRESS

Afghanistan took the final step in June to repairs, as do most of the country’s pri- concerned about the safety of their invest- secure its membership in the Multilateral mary roads. Reconstruction alone is ments.” Investment Guarantee Agency with its sub- expected to cost about $15 billion over the MIGA is currently in the process of scription to the agency’s capital base. next decade,underscoring the need for pri- setting up a guarantee trust fund for The move marks a critical step for- vate sector help in meeting the challenge. Afghanistan, with donor and other outside ward in the country’s efforts to rebuild in There are many areas in need of funding. “This will allow us to more fully the wake of two decades of conflict. The urgent attention, particularly basic infra- deploy our guarantee products in membership allows MIGA to provide polit- structure, says Afghan Finance Minister Afghanistan, as well as increase our flexi- ical risk insurance for investments going Ashraf Ghani. Investment priorities are bility in the types of deals and transactions into and out of Afghanistan, as well as to primarily in the power, roads, telecommu- we’ll be able to support,”says Ikawa. help the country develop its ability to nications, industry, and tourism sectors. “We are pleased to become a member attract investment. Agriculture, too, which has suffered due to of MIGA.We look forward to a fruitful rela- After 23 years of conflict, the Afghan an extended drought, is an area that stands tionship that will help us attract and retain people are working to restore peace and to benefit from investment. more foreign investment, promote eco- prosperity. But daunting challenges Since its inception, MIGA has sup- nomic growth, and ultimately benefit the remain: 70 percent of the population is ported 66 projects with guarantees worth people of our country,”says Ghani. malnourished, and only 23 percent have nearly $1.7 billion in 18 conflict-affected access to safe water, 12 percent to adequate countries. This represents 13 percent of the sanitation, and just 6 percent to electricity. agency’s gross portfolio.“MIGA can bridge More than 70 percent of schools need the gap between investors’ concerns and a country’s desire to attract good investors to help reconstruct the economy,” says Motomichi Ikawa, MIGA’s executive vice president. “We have a healthy pipeline of inquiries from investors who are interested in doing business in Afghanistan, but are

GUARANTEES ISSUED 2004 first quarter Investor Investor Host Sector Gross Country Country Coverage ($ m)

Raiffeisen Zentralbank Osterreich AG AustriaBosnia and Herzegovina Financial 21.95 Raiffeisen Zentralbank Osterreich AG Austria Romania Financial 30.54 Noway Registers Development Norway Former Yugoslav Republic of Macedonia Services 0.3 Can-Pack S.A. Poland Ukraine Manufacturing 44.7 * International Dialysis Centers B.V. The Netherlands Bosnia and Herzegovina Services 1.4 Investcom Holding S.A. Luxembourg Syrian Arab Republic Telecommunications 56.0 Teleinvest Limited Cayman Island Syrian Arab Republic Telecommunications 19.0 Raiffeisen Zentralbank Osterreich AG AustriaBosnia and Herzegovina Financial 21.8 Raiffeisenverband Salzburg Austria Russian Federation Financial 18.1 * WTE Wassertechnik GmbH Germany Russian Federation Water 51.8 *

* Represents two contracts

MIGA NEWS | JUL AUG SEP 2003 page 6 AFRICAN TRADE INSURANCE AGENCY AND MIGA Join Forces to Boost African Private Sector Investment

Africa’s bid to stimulate private sector-led concerned about perceived political risks. strengths to bring even more FDI into growth and increase cross-border trade Bernie de Haldevang, chief executive Africa. Together, we offer an unrivalled received a major boost with the signing of and managing director of ATI, welcomed partnership and a clear message—Africa a Memorandum of Understanding the announcement, saying it heralded “a is open for business.” between the African Trade Insurance major breakthrough in the bid to increase Highlights of the Memorandum of Agency (ATI)—the continent’s only pan- African private sector growth as a tool for Understanding include: African, multilateral import and export reducing poverty. It will also serve to r Risk-sharing through coinsurance credit and political risk agency—and ensure that ATI can better fulfill its man- and reinsurance contracts. MIGA. The agreement calls for the two date to encourage and support new invest- r An agreement to refer potential clients agencies to jointly promote foreign invest- ments into and among African countries. to each other, where appropriate, and ment within Africa. “The expertise of MIGA, with its share information. ATI and MIGA will help each other in proven ability to draw on the World Bank r Underwriting assistance, where ATI the areas of business development, market- Group’s extensive resources, together with and MIGA will support each other in ing and knowledge-sharing, as well as ATI’s engagement of the private market to filing applications, analyzing risk, engaging in risk-sharing arrangements support trade political risk, where ATI conducting contract drafting negotia- through coinsurance and reinsurance proj- member states have put up their own tions, collecting premiums, and col- ects. The partnership with MIGA will put funds as risk capital, is a compelling and lecting all requested information for ATI in a stronger position to offer political persuasive proposition.With the support of the determination of a claim. risk insurance for longer-term, equity- governments, the private sector and multi- r Selective joint missions for business based foreign direct investments to com- laterals,Africa can start to fulfill its invest- development and marketing within plement its products for physical damage ment potential. We are already working on Africa, especially in regard to small- resulting from war and terrorism and for two significant joint deals, and we expect and medium-sized business enter- debt-related project and trade transactions. many more to follow.” prises in Africa or those enterprises The partnership aims to further the Motomichi Ikawa,head of MIGA,rein- engaged in intra-African trade and/or development and growth of the private forced this: “Africa is a priority area for investment. sector in Africa by providing the addition- MIGA, and the region now represents 19 al confidence needed by companies that percent of our gross portfolio,a number we see commercial opportunities in the region hope to see grow over the next few years. but where they or their financiers remain MIGA and ATI can draw on each other’s

MIGA Registers Solid Development Record in Fiscal Year 2003

Despite the turmoil of fiscal year The fiscal year saw good progress in “A n ot h e r successful aspect of the fis- 2003, MIGA issued $1.4 billion in supporting priority investments: The cal year is the substantial increase in the guarantee coverage for 37 new agency guaranteed 17 projects in IDA-eli- estimated direct employment created by projects in its developing mem- gible (the world’s poorest) countries, seven new projects,up 50 percent over last year to ber countries, facilitating an esti- in sub-Saharan Africa, ten south-south 5,660 jobs,” says Ikawa. “Projections of investments (those among developing indirect employment,provided by ten proj- mated $3.9 billion in foreign countries), ten small and medium-size ect sponsors,point to an additional sub- direct investment. projects, and 14 projects in conflict-affect- stantial increase in the number of jobs to ed countries. be created in complementary sectors over This brings the cumulative amount of “MIGA’s involvement in conflict- the next five years.” FDI facilitated since the agency’s inception affected countries showed a dramatic The estimated annual amount of to an estimated $49 billion. While the increase over the previous year, and repre- exports to be generated by MIGA-support- amount of FDI facilitated is not as high in sented more than a third (39 percent) of all ed projects also increased significantly, up fiscal 2003 as in previous years, other new projects guaranteed by MIGA,” says to nearly $350 million, with another $70 development indicators show good results. Motomichi Ikawa, MIGA’s executive vice million added to the tally when the indirect president. The agency also supported more effects of financial services projects are south-south and IDA investments than in considered. the previous three years.

MIGA NEWS | JUL AUG SEP 2003 page 7 MIGA Offers Online Users and Partners New Features to Access Content

Users of the Investment Promotion Partner organizations that refer users r Information on upcoming tenders for Network (www.ipanet.net), MIGA’s portal to MIGA’s websites can now link to “co- manufacturing enterprises being pri- site for international corporate investors, branded” versions of both the Investment vatized in Croatia and Serbia are now able to search content by five new Promotion Network and FDI Xchange. r Shedding New Light on Africa’s major topic categories—business, legal, “Essentially this gives other organizations Investment Opportunities,a new MIGA markets, opportunities, and events—as that promote direct investment into the publication outlining sector-specific well as by country and sector. IPAnet and developing world access to new informa- opportunities in selected African its companion site, FDI Xchange tion resources, which they can build into countries (www.fdixchange.com), an email alert their own web offerings,”says Wille,adding r Opportunities on the Last Frontier service delivering current investment that this access to MIGA’s content is intend- (Guizhou Province)–China, from information matched to users’ interests, ed to drive new segments of users to part- EuroBiz Magazine have also been linked with simple visual ners’ sites while increasing the numbers r Dubai–At a Crossroads of the Global cues representing each of the five new cat- frequenting MIGA’s sites. MIGA’s partners Economy,from International Reports egories. The new icons, now common include organizations such as chambers of throughout the two sites, guide users in commerce and business associations, The Investment Promotion Network finding information about investing in the country and regional investment promo- (IPAnet), established in 1995, is MIGA’s developing world. tion and privatization agencies,and private flagship site serving the foreign investment “We wanted to streamline the access sector business information providers. community, including multinational cor- and navigation, so that even a first-time MIGA partners are already finding the porations, investment promotion agencies, user can easily locate a specific piece of upgrades effective in broadening their mar- policymakers and supporting organiza- information in a few clicks,”explains John kets. Investe Brasil’s Director of Marketing tions. FDI Xchange delivers periodic, cus- Wille, head of MIGA’s online information and Communication, Clementino Fraga tomized email alerts containing links to services. “The upgraded design accom- Neto, considers MIGA’s online services as new investment opportunities, market plishes that objective, while allowing for extensions of the Brazilian investment pro- research, and country analysis from public planned growth and specialization in our motion agency’s main marketing and com- and private sector sources worldwide. For database of resources, and further munication tools—allowing them to more information on MIGA’s online infor- enhancement of our services.” achieve maximum impact in their target mation services, contact Courtney Roberts community. “[Both the new IPAnet and] at 202.458.2924, or at ipanet@world- FDI Xchange enable us to reach a larger bank.org. public for our bimonthly bulletin Scenario. Using MIGA services as channels for dis- semination helps put us in contact with investors and opinion-makers,” says Frago Neto. Investe Brasil is the agency responsi- ble for providing information about invest- ment opportunities in Brazil. Highlights of recent content available through MIGA’s online services:

TANZANIA, from p. 5 take over. However, to get things started, community,and that each area of the com- Kahama Mining has had to adopt a role that pany should be as committed to communi- is closer to that of an NGO.” ty objectives as to business objectives. Plan, the development program has met “Because of its focus on capacity- “KMCL’s social development program local infrastructure priorities as well as the building, there is every prospect that is a best-practice model for two reasons,” government’s policy for a ‘bottom up’ Kahama Mining will be able to stand back says Sullivan.“First, the company is focus- approach to community planning.” from its current leadership role and con- ing on the key development issues faced by KMCL’s establishment of steering tribute to local society on a more equal and the local community in a manner that is groups to oversee the development pro- sustainable footing with its government likely to provide long-term, sustainable gram is part of a deliberate strategy to and civil society partners,”adds Sullivan. benefits. Second, the focus on capacity develop capacity and ensure that assets For Kahama Mining, the process of building maximizes the likelihood that the can be handed over to local groups once operating a mine entails a deeper commit- community will continue to function effec- mining operations wrap up. “KMCL has ment to involvement in the community. tively and successfully, even after mining actively sought to reduce long-term Community development also makes good operations cease.” dependency on the company while provid- operating sense. Providing modern health- ing the necessary development benefits,” care and safe working conditions leads to a This article is based on a field visit conduct- says Sullivan. more stable and reliable workforce, and ed by MIGA in 2003, and on a report pre- “The approach adopted by Kahama providing housing and education benefits pared by Rory Sullivan, then an independ- Mining aims to bridge the gap by address- helps to attract and retain the best nation- ent consultant for Business Partners for ing areas where there is a real need and al employees. These benefits aside, there is Development (BPD). where the project can make a real differ- a moral imperative, and progressive com- ence,” says Aida Kiangi, KMCL’s panies recognize this imperative. Firms Community Development and Localisation such as Kahama Mining understand that Manager.“The ultimate aim of the project is socially responsible companies must align for government,communities,and NGOs to their strategic objectives with those of the

MIGA NEWS | JUL AUG SEP 2003 page 8 MIGA Benchmarks FDI Costs and Conditions in Asia

Capacity Building and Investment geting the most likely potential new Facilitation. “It captures the dynamics of investors. This sort of study also helps offi- the competitive environment, and brings a cials in participating countries to see lot of clarity to a complex decision. An which infrastructure improvements and investor typically needs to evaluate many procedural and policy reforms matter most considerations, which influence the deci- from the investors’ perspective.We see this sion to varying degrees, based on the cor- as an enormous benefit to both potential poration’s strategy and preferences.” investors and those already operating in Senior Investment Promotion Officer, the region.” Bill Luttrell, spearheaded project design Study researchers drew from and implementation. “We designed this multiple data sources, including publicly study to analyze the factors most impor- available sources for information about tant to investors, and interviewed investors labor and real estate costs and considera- directly,”he says, “so we are confident the tions, utilities, market access, taxes, trans- results will help the participating countries portation and shipping infrastructure, and understand how international businesses business and living conditions. They also view their locations relative to the compe- interviewed 64 companies operating in the tition.” participating countries and asked respon- The study reveals a competitive land- dents to rate various aspects of these fac- scape ripe for the six countries to differen- tors from their own experience. tiate their locations as distinctive “prod- The study revealed significant differ- A new MIGA study of business operating ucts” for potential investors. No one coun- ences in many cases between the data col- costs and conditions in two key industries try emerged as the clear leader in all fac- lected from public sources, and the infor- in Asia—electronics manufacturing and tors and both sectors, nor is any one coun- mation obtained directly from current so-called shared services—reveals a try too inexperienced, or too late, to com- investors. For several factors, including diverse competitive landscape with plenty pete for FDI in either field. The study sug- many considered critical, the interviewees of niche market opportunities. The exer- gests however,that there is ample opportu- reported significantly different costs or cise looked at China, Indonesia, Malaysia, nity for each of the individual countries to conditions than in published sources. the Philippines, Thailand, and Vietnam, focus on different niches in both industries Investor responses were often more posi- and offers a number of across-the-board by building on their comparative tive than the data pulled from the web and recommendations to help countries attract strengths. research directories. The most dramatic more foreign investment in these sectors. Strengths commonly identified were example is in labor costs.For an electronics The first in MIGA’s “snapshot”series of large pools of available skilled or unskilled manufacturing operation, the information regional sectoral analyses,Benchmarking workers, relatively low labor costs, and a collected from interviewees placed labor FDI Competitiveness in Asia distills practi- proficiency in the English language or costs at an average of 30 percent less than cal information collected from investors “back office” trades. Weaknesses included the costs reported in the public informa- and published sources into a “snapshot” of challenges related to power and trans- tion sources. the business operating environment. portation infrastructure, government “Investors should be careful to not Benchmarking is a research methodology transparency and procedures, lack of lan- eliminate potential locations on the basis commonly adopted by corporations to help guage or technical skills and underdevel- of desktop research alone, because it is evaluate potential investment locations. oped supplier networks. often too generic to give an accurate read- MIGA’s benchmarking exercise set stan- China, for example, boasts the best- ing,”says Luttrell. dards by which the participating countries developed supply base among the coun- Benchmarking FDI Competitiveness could be measured and compared in quan- tries surveyed: low-cost labor,and low-cost in Asia was funded under the Miyazawa titative terms across a range of critical fac- real estate and construction. Among its Initiative, a special element of the Japanese tors, such as political and social stability, challenges are onerous labor regulations foreign assistance program intended to labor costs and availability, and access to that burden employers with heavy costs, promote economic recovery in the coun- affordable infrastructure and services. and perceived differences in business cul- tries most affected by the 1997 Asian “Benchmarking is a very pragmatic ture that may make management more dif- financial crisis. The study served as the tool for both investors and countries com- ficult. pilot for a broader competitive bench- peting for foreign direct investment (FDI),” Meanwhile, Vietnam’s relatively well- marking program that MIGA will soon says David Bridgman, MIGA’s manager for educated workforce and ample supply of launch to analyze specific industry sectors low-cost unskilled labor have helped in Southeastern Europe, Africa, and the attract a base of major Japanese and Middle East. Korean electronics manufacturers. To access the study online, visit Underdeveloped infrastructure, a shortage www.ipanet.net/snapshotasia. For more of management-level employees, and an information, contact MIGA Investment inadequate base of supporting industries Marketing Services at 202.458.2076, or fax were identified as weaknesses. 202.522.2650. “The objective of the study was not to find winners and losers among the six countries already active in both indus- tries,” Luttrell emphasizes, “but rather to provide each country participant with a broad-based and informed context for tar-

MIGA NEWS | JUL AUG SEP 2003 page 9 PROJECTHIGHLIGHTSPROJECTHIGHLIGHTSPROJECTHIGHLIGHTSPROJECTHIGHLIGHTS Demand in C Clinic in Kidney DiseasePatientstoGetNew an Production Bosnia-Herzegovina Ukraine aktsaei h kan,Rsi,and Russia, market share inthe Ukraine, allow it to andwill in the maintain Ukraine the growing demand for cannedbeverages capa production Pack’s It increase Can- will can production plant. analuminum beverage and operation of premises for th for premises communitylocal by refurbishing the hospital—w existing The center’s location—within an patients. life for dialysis of andquality expectancy the project help will to improve life stat Using kidney where rons, Bije dialysis treatment to of the city services located inBanjaLuka—will provide renal lier MIGA-underwritten healthcare facility for for od of and the management contract cover aperi- The guarantees for the investment equity andtransfer restriction. disturbance, civil ri the against three guarantract.All management andtechnical assistance con- sh $8.65million for an$11million earnings), and associated dividends andretained lion incoverage (for the equity investment Li Can-Pack Ukraine subsidiary, Ukrainian fo Poland of Republic the of $48.75 million to Can-Pack S.A. struction pha struction will be involv employees local Fifty nomic development. make modest contributions to eco- local t services, healthcare of risk the against of Herzegov and Bosnia Center BanjaLuka of equity investment inInternational Dialysis B. million to EUR1.26 MIGA hasissued aguarantee of MIGA hasissued three guarantees totaling V. mited.The guarantees include $36.5mil- mited.The ar eido five years. of a period seven years andprovides coverage jn,Republika Srps ljina, of eh The project involves the construction In addition In anear- The project—an expansion of 15 years andthe shareholder is loan the Netherlands for its EUR2million ol de n.The guarantee hasaduration ina. e-of-the-art medicalequipment, on and $2.25 million for a r loan, International Dialysis Center Dialysis International s Plant toMeet eo h aiiy Moreover, the facility. se of so xrpito,war and expropriation, ks of ed inthe design and con- e new facility.

raho contract. of breach to providin to tees provide coverage provide tees disease isendemic. he project will also will project he ill also benefitill the r its support for its city in ordercity to meet a and its envi- ka, g critical pr C States. Independent th of members other h uaino the project. the duration of will provide ongoing andCan-Pack S.A the construction phase, five additional created be jobs will during One hundred andforty- direct jobs. local he will project MIGA’s toUkraine date. involvement inthe the largest Polish investment inthe be andwill minute operational, when fully term. sustainabilitying social inthe medium healthcare asafundam like andaccessible high-quality services strategy, Bank Gr co the affect th in tortions below th dial the operative, once Fe Republik the population in that 25percent of Standard vide permanent country’s domestic heal domestic country’s fuelin suppliers, g also procure anestimated $100,000in above loca the 50percent paidsalaries be whom will tec oods and od ns de ncas and administrators—all of hnicians, istent Bosnia’s with andthe World The WorldBank aino Bosnia Herzegovina live ration of uce approximately 2,600cans per IANW | JULAUGSEP2003page10 MIGA NEWS| e poverty lineand that serious dis- a Srpska and16percent inthe oup’s assistance country latest which regards promoting social s Measurement System shows epo epe This project is se poor people. services every month every fromservices local Growing e social safety netadversely safety e social lp create ap create lp tnad The project will l standard. g upstream growth inthe jobs to managers, 39local e Commonwealth of training throughout an-Pack to expects ysis center ysis ental step inbuild- th services sector.th services Group’s Living proximat will pro- ely 110 MIGA’s 2003 MIGA to Launch PRI Symposium Annual Report Publication

Highlights Support for November will see the publication of International Political Risk Management: The Brave New World—the second in a

Water and Community series of volumes based on the bi-annual SYMPOSIUM MIGA-Georgetown Symposium on interna- tional political risk management. Development The 18 contributors to this volume PRI consider The Brave New World of the polit- ical risk insurance industry in the wake of September 11, 2001, the Argentine eco- nomic crisis, and other upheavals. The Against a backdrop of global financial woes, war, and the SARS epidemic in book begins with the supply-side perspec- Asia, MIGA issued close to $1.4 billion in guarantee coverage during the fiscal tive of insurers and then turns to the con- year that ended June 30, 2003, reveals the agency’s 2003 Annual Report. The cerns of investors and lenders,in particular coverage was for 37 projects, a 12 percent increase those involved in large infrastructure proj- over the previous year, while in dollar terms, the ects in emerging markets. amount guaranteed was only marginally higher. An in-depth analysis of international polit- SYMPOSIUM The results were well on target when it came to ical risk management from the frontlines of MIGA’s priority areas: eight of the projects were in the industry, this book will be a valuable

Africa, 19 in IDA-eligible (the world’s poorest) coun- guide to those considering private sector PRI tries, 12 involved investors from developing coun- investments and privatizations in the tries, and 10 were investments in small and medi- developing world, whether as equity spon- um-size enterprises. Fifteen of the projects were in sors, lenders, or insurers. It should also be conflict-affected countries, and MIGA offered first- of interest to independent analysts and time coverage for projects in Burundi, Serbia and scholars working in the field of political Montenegro, and Syria. risk management. This year’s report showcases the agency’s work in The work is 230 pages long and is supporting projects in the water and sanitation sec- priced at $30 per copy.Orders and ordering tor, mining and community development, and lever- inquiries for International Political Risk aging information technology to facilitate foreign Management: The Brave New World (ISBN direct investment. 0-8213-5649-6) should be sent to: SYMPOSIUM To order a free copy of the report, available on CD or hard copy, contact Ms. Wyfield Chow, 1818 H Street, NW,Washington, DC World Bank Publications PRI 20433, t. 202.458.9595, or email [email protected]. P. O. B ox 960 Herndon,VA 20172-0960 USA t. 800.645.7247 Email: [email protected] Online orders can be place at: www.worldbank.org/publications

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CORPORATE RELATIONS Moina Varkie Mansour Kane Paris, France MIGA News is published quarter- Chief Finance, agribusiness, Christophe Bellinger ly by the Multilateral Investment t. 202.473.6170 manufacturing, services, and mining t. 331.40.693.275 Guarantee Agency,a member of [email protected] t. 202.458.0677 [email protected] [email protected] the World Bank Group. UNDERWRITING Singapore Peter Jones INVESTMENT MARKETING Philippe Valahu EDITOR Manager Tessie San Mar t in t. 65.63244825 Operational Strategy, Director [email protected] Angela Gentile Syndication/Reinsurance t. 202.458.4876 t. 202.458.0443 [email protected] Tokyo, Japan DESIGN [email protected] Mari Kogiso John Wille t. 81.3.3597.9100 Suzanne Pelland Regional Managers Program Manager [email protected] Information Products and Services EDITORIAL COMMITTEE Latin America and Caribbean, t. 202.473.2707 FOR GENERAL INQUIRIES Europe and Central Asia [email protected] AND APPLICATIONS Moina Varkie Federica Dal Bono David Bridgman Patricia Veevers-Carter David Bridgman Corporate Relations Officer Angela Paris Infrastructure,oil and gas, Program Manager t. 202.458.9292 and mining Capacity Building and Investment [email protected] Carlos Mestre t. 202.473.0600 Facilitation Alpona Banerji [email protected] t. 202.473.0775 FOR MAILING [email protected] 1818 H Street, NW Ileana Boza Washington, DC 20433 To request additional copies, Finance, manufacturing, POLICY AND ENVIRONMENT USA be added to the MIGA News agribusinesses, and services Gerald West mailing list, or t. 202.473.2807 Director [email protected] t. 202.473.2060 receive MIGA News [email protected] electronically, contact: Africa,Asia and the Middle East Wyfield Chow REPRESENTATIVE OFFICES Philippe Valahu Johannesburg, South Africa t. 202.458.9595 Infrastructure,oil and gas, Ken Kwaku [email protected] and mining t. 27.11.341.9000 t. 65.63244825 [email protected] [email protected]

MIGA NEWS | JUL AUG SEP 2003 page 11

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to improve people’s lives and reduce poverty. reduce and lives people’s improve to

MIGA: Promoting foreign direct investment into emerging economies emerging into investment direct foreign Promoting MIGA:

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overing C

JUL AUG SEP 2003

INSIDE THIS ISSUE

onditions in Asia | C Ministers Up on| Global MIGA Economy,Benchmarks Down FDI on Costs Cancun, and

Mining Project Focuses on Long-Term Social Benefits at Annual World Bank-IMF Meet | Tanzania: MIGA-Supported