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POST-CANCUN:What’s on the Table for Investors?
FOOD FOR THOUGHT
Today, restrictive foreign investmentpolicies are being progressively dismantledaround the world as governments work toattract foreign investors, with policy barri-ers being lowered in sector after sector inan attempt to increase competition andspur growth, and speed up the pace oftechnological progress. A positive outcomein Cancun would have accelerated thisprocess.
Realizing high potential FDI gains indeveloping countries requires more thanliberalization, however. It also needs a reg-ulatory framework that, where possible,permits competition and disciplines natu-ral monopolies in network industries, aswell as pro-poor regulation that ensuresaccess and cross-subsidies to the poor.
Increased investor protections, builtinto a global investment agreement,“wouldarguably help participating developingcountries send a positive signal to potentialforeign investors regarding the perma-nence of policy changes, the expected stan-dard of treatment afforded to foreigninvestors, and recourse to a dispute settle-ment procedure,” says Newfarmer.
But protections resulting from a mul-tilateral investment agreement alonewould probably not produce much addi-tional investment flow. That’s becausebilateral investment treaties already coverabout half of investment to developingcountries, and any new multilateral protec-tions are unlikely to be superior—andtherefore additive—to these bilateralinvestment treaties.
“The benefits of a multilateral invest-ment agreement for developing countriesironically hinge on the increased marketaccess such an agreement would leveragefor their exporters and on the additionaldomestic 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 increasinginvestment in developing countries.”
The next meeting in the Doha round isset for Hong Kong at an as yet undeter-mined date.
Multilateral Investment Guarantee AgencyWorld 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 | 3Tanzania: MIGA-Supported Mining Project Focuses on Long-Term Social Benefits | 4MIGA Benchmarks FDI Costs and Conditions in Asia | 9Project Highlights | 10
MIGA NEWS | JUL AUG SEP 2003 page 1
Wrapping up the recent annual WorldBank/IMF meetings in Dubai, World BankPresident James Wolfensohn and IMFManaging Director Horst Kohler called fora renewed spirit of multilateralism andequality between rich and poor countries.Wolfensohn highlighted the need for a newbalance between developed and developingcountries on aid and trade, and urged lead-ers to renew their commitment to fightingworld poverty. “This is essential not just forpoverty reduction and prosperity—but forsecurity and peace,” he said.
Wolfensohn pointed to the commit-ments made by both rich and poor coun-tries to help reach the MillenniumDevelopment Goals—including cuttingglobal poverty in half by 2015. He saidactions so far had not matched those com-mitments, and called on governments tofulfill their responsibilities and help rebal-ance an inequitable global system. He notedthat the recent World Trade Organization(WTO) meeting in Cancun had been awake-up call because poor nations hadrefused to accept the trade proposals putforward by the rich countries.
Unbalanced trade policies impactmany things, including foreign directinvestment, which, when done sustainably
and responsibly, is an important driver foreconomic growth and poverty reduction.
The issue of an international invest-ment agreement has been on the table fordiscussion by the WTO since 1996. Theidea is to launch a multilateral frameworkto secure transparent, stable, and pre-dictable conditions for long-term cross-border investment that will expand trade.
“The drive to include an internationalinvestment agreement in the WTO accordscomes against a backdrop of one of the mostimpressive waves of foreign direct invest-ment in history,” says Richard Newfarmer, aWorld Bank economic adviser.
But the question of what’s in the cur-rent round of WTO negotiations, the so-called “Doha Development Agenda,” forinvestors really goes beyond the issue of aninvestment agreement, Newfarmer adds.While an international agreement mightcontribute to increasing stable flows ofinvestment—by increasing market accessfor investors to permit enhanced competi-tion, and by augmenting protection ofinvestors’ rights to reduce risks—investorswould probably benefit more from thegreater market access through new deals onservices and new investment opportunitiesin developing countries’ export industries.
MIGA NEWS | JUL AUG SEP 2003 page 2
Increasing investor interest in theMiddle East and North Africaover recent years has led theregion to claim a growing shareof MIGA’s outstanding portfolio.Since its inception in 1988, MIGAhas supported 13 projects in theregion with guarantees worth$280 million. Projects range fromfinancial services to oil and gas,and from manufacturing totourism. The portfolio rise,though modest, is especiallynoteworthy when considering thedifficult political and economicsituation faced by the region dur-ing this time.
Spotlight on Guarantees in the Middle East and North Africa
At year-end, MIGA’s total gross guar-antee exposure for projects within theregion stood at $167 million.
One project involves $50 million inreinsurance for Spain’s export creditagency (CESCE), covering its guarantee foran investment in the Rhourde el Khrouf oilfield. The project entails one of the firstproduction sharing agreements eversigned by the state and a foreign firm inAlgeria. The project is expected to generatean average of $315 million a year in royaltypayments to the government from 2004-2009, which will allow the country to fundprograms in other sectors, including healthand education.
Another project, the first in Syria,involves a $23 million guarantee toKingdom 5 KR 71 Ltd. for its quasi-equitycontribution to a company that will devel-op a 297-room hotel in Damascus. WithSyria’s rich historical and cultural back-ground, the government views the tourismindustry as a significant source of foreign-exchange and growth. The hotel will alsohave a positive impact on local industries,such as transportation, food processing,and tour operations.
MIGA will continue its focus on theregion in coming years, and will seek toincreasingly collaborate with its regionalpartners—including the IslamicDevelopment Bank in Saudi Arabia, theInter-Arab Investment GuaranteeCorporation in Kuwait, and the IslamicCorporation for the Insurance ofInvestment and Export Credit in SaudiArabia.
Investors from the region are increas-ingly turning to MIGA for guarantee sup-port of their investments going into otherdeveloping countries.
In fiscal year 2002, for example, MIGAprovided guarantees to Investcom HoldingS.A., of Luxembourg, and to its whollyowned subsidiary, Investcom Global Ltd.,of the British Virgin Islands (both ownedby Lebanese investors), totaling $8.06 mil-lion, to cover their respective investmentsin Spacetel Benin S.A.R.L. Spacetel. Theproject involves the operation of a newGSM mobile telephone network in Benin,which suffers from a shortage of reliabletelephone lines.
Also in the same period, the agencyprovided, in cooperation with Tunisia’snational insurer, COTUNACE, $21.6 million and EUR43.2 million in guarantees to the Office National des Télécommu-nications of Tunisia for its investment in Société Mauritano-Tunisienne desTélécommunications in Mauritania. Untilthe year 2000, Mauritania had only onephone operator, which had a capacity ofapproximately 32,000 fixed lines, serving apopulation of 2.5 million people. The proj-ect involves the installation, operation, and maintenance of a new GSM telephone network.
In addition, in 2003, MIGA provided atotal of $75 million in guarantees forInvestcom Holdings and Tele Invest, aBritish Virgin Island company owned bySaudi Conglomerates, for their respectiveequity investments in Spacetel Syria. Theproject involves the installation and opera-tion of a new mobile telephone network inSyria, based on the GSM technology. Thisproject is one of the first two privately heldstartup GSM telecom projects in Syria.Spacetel will help the government of Syriaaddress the shortage of telephone lines inthe country. MIGA’s support for the projectis expected to contribute to the develop-ment of a more efficient telecommunica-tions infrastructure in Syria, and will alsohave a positive impact on the economicactivities of the country in general.
The growth in guarantees for projectswithin and from the Middle East andNorth Africa is a reflection not only of ris-ing investor interest, but also of theagency’s concerted outreach efforts overthe past three years. MIGA’s “mobileoffices”—a way to reach out to membercountries where it does not yet have a fieldpresence—form a key element of theagency’s marketing and business outreach.In fiscal year 2003, MIGA conducted twosuch visits to the Middle East and NorthAfrica, complementing a series of targetedvisits begun in 2000.
PHOTOS | World Bank photo library,Marcus Williams, MIGA
MIGA NEWS | JUL AUG SEP 2003 page 3
Optimism among finance ministers thatthe global economy is in recovery, howeverfragile, but disappointment with the failureof trade ministers in Cancun to reachagreement, were the two key messagesemerging from the annual WorldBank/IMF meetings, held in Dubai, UAE,during the last week of September. Themeetings were attended by delegates from 184 countries, business leaders, civilsociety representatives, academics, andjournalists.
The World Bank used the bully pulpitto sound a wake-up call for delivering onthe Millennium Development Goals(MDGs), which aim to halve the number ofpeople living in poverty by 2015. With thetarget date just over a decade away, now isthe time for global leadership on action forreaching the goals.“It is clear that progresson the MDGs needs to be accelerated,” saidWorld Bank-IMF Annual MeetingsChairman Kaspar Villiger, Swiss Ministerof Finance, during the closing press conference.
One of the cornerstones of the MDGsis the provision of adequate infrastructure.“There is the tremendous need in develop-ing countries and emerging markets forinvestment in infrastructure,” said MIGA’sExecutive Vice President, MotomichiIkawa, during his annual meetings speech.By very conservative estimates, thesecountries need $465 billion in annualinvestment in infrastructure to maintainexisting stocks and support annual GDPgrowth of 2 percent.
While the power and telecommunica-tions sectors occupy a large proportion ofthe investment needs, water and sanitationprojects also need sizeable investments. Toreach the MDG of halving the number ofpeople without access to potable water by2015, at least $30 billion—and possiblymuch more—is needed on an annualbasis.
“Not only are these investments vitalto improve the lives of people in these
Ministers Up on Global Economy, Down onCancun, at Annual World Bank-IMF Meet
countries, they are also an essential motorfor further economic growth that is neededto reduce poverty,” said Ikawa.
But while the need for investment ininfrastructure grows, private participationhas dramatically decreased. At its peak in1997, infrastructure investment was $128billion. Only four years later, the amounthad fallen more than 50 percent to $58 bil-lion. Similarly, project finance lending wasonly $76 billion in 2002—43 percent lowerthan the year before. And the investmentswhich are moving forward tend to be con-centrated in just a handful of countries,especially China, Brazil, and a few otherAsian and European countries.
“This decrease in private infrastruc-ture investment is the result of the eco-nomic and political difficulties facingmany infrastructure projects in the 1990s,”Ikawa said. “Unrealistic government andpublic expectations in developing coun-tries, and from foreign investors, have left abitter aftertaste for many.”
In the early 1990s, governments tend-ed to agree to generous terms due to des-perate needs, and the general expectationwas often that privatizations would lead tothe elimination of huge subsidies andincrease the efficiency of services.Investors often expected high returns dueto high perceived risks. But events fre-quently developed very differently.Anothercontributing factor is that privatizationshave often been taking place against abackdrop of inadequate legal and regulato-ry frameworks.
Yet it is because of the huge need forinfrastructure investment and the signifi-cant returns that investors are still willingto go ahead in this sector—if the risks areshared and mitigated appropriately.
A key way of mitigating some of theserisks is through public-private partner-ships. These partnerships provide a mech-anism for sharing responsibilities andrisks among countries that host invest-ments, businesses, financial institutions,
and development banks. They’re attractiveto countries that host investments, becausethis type of arrangement allows them tocontinue owning the project while gainingcritical knowledge on how to operate,maintain, and manage a facility. Investorsbenefit primarily by not having to lay downa capital investment, while generating rev-enue through the operation of the facility.
MIGA can play an important role indiminishing the overall risk profile of pub-lic-private partnerships. Since 1988, MIGAhas issued 166 guarantees for infrastruc-ture projects—or 31 percent of its grossportfolio—for $3.7 billion in coverage. The87 projects covered by these guaranteesinvolved an estimated $19.3 billion in FDI.Infrastructure is now MIGA’s biggest sec-tor, at 41 percent of the gross exposure, upfrom 12 percent in 1996. While these proj-ects have mainly been in power and tele-coms, MIGA has increasingly seen interestin coverage for projects in transportation(roads, ports and airports) and water andsanitation.
“While there have been many difficul-ties in recent years for projects in somedeveloping countries, there is no doubt thatmore FDI is forthcoming if the investmentclimate is improved and residual risks areshared by the parties involved,” Ikawa said.“Even governments that have become morecautious about privatizations are not try-ing to reverse the trend.We are seeing morepublic-private partnerships. UNCTAD’sWorld Investment Report, which was justreleased, also suggests that there may besome moderate rebound in FDI flows in2003 and 2004.”
“The bottom line is that there aremany ripe opportunities for forward-look-ing investors in emerging markets anddeveloping countries. And MIGA can helpensure that these ripe fruits do not turnsour after they are harvested. That harvestshould benefit all involved—investors,lenders, and the public and governments ofhost countries.”
PHOTO | Suzanne Pelland, MIGA
MIGA HEAD DISCUSSES INFRASTRUCTURE WITH INVESTORS
TANZANIA
BARRICK GOLD SUBSIDIARY DEMONSTRATES BEST PRACTICE
tering gains in literacy, access to water, andper capita GDP growth.
During fiscal years 2000 and 2001,MIGA provided a total of $172 million ininvestment guarantees to Barrick GoldCorporation of Canada and a consortiumof international banks, for their respectiveequity investment and non-shareholderloans to the Bulyanhulu mining project inrural northern Tanzania. Private insurersprovided reinsurance, while the ExportDevelopment Corporation of Canada co-insured the project with MIGA. Locatedapproximately 30 miles south of LakeVictoria in the Shinyanga region, the proj-ect consists of the establishment and oper-ation of a state-of-the-art undergroundmine and mill complex, operated byBarrick’s subsidiary, Kahama MiningCorporation Limited (KMCL).
The Tanzanian government had longintended to develop the potential depositas a commercial venture. From time totime, the area was mined by artisanal min-ers who commonly worked in violation ofbasic safety standards. In addition, accessto the newly discovered undergrounddeposit required massive investment andthe training of the local workforce, notused to large-scale mining.
The Bulyanhulu mine started produc-tion under KMCL management in April2001. Today, all aspects of the mining oper-ation are conducted in accordance withinternational environmental and safetystandards. In many cases, the companysurpasses these standards, playing a lead-ing role in establishing industry best prac-tices in the country. At the same time,Kahama Mining has taken steps to allevi-ate potentially negative side effects, usinginnovative approaches to dispose of tail-ings, including paste technology and back-filling in the underground mine.
MIGA NEWS | JUL AUG SEP 2003 page 4
The project’s construction phase cre-ated approximately 1,500 jobs. Today, theenterprise employs over 1,200 people(excluding contractors) as part of its ongo-ing operations, and pays $15 million a yearin salaries. In addition, the number of peo-ple indirectly employed is estimated at7,500. The company provides extensivetraining to local staff at all levels of opera-tion, while working to replace expatriateemployees with Tanzanians. The projectpays roughly $15 million a year in royaltiesand taxes to the government, and spendsanother $37 million each year in the pro-curement of local goods and services.
One of the project’s key benefits isn’tmeasurable in terms of jobs or tax revenuegenerated, but rather relates to efforts tobuild local capacity to take over and main-tain community development advance-ments once KMCL finishes operations.
Beyond the economic benefits result-ing from the mining operation, the projecthas brought much-needed support to thelocal community. Most of the 30,000 peo-ple in the Bulyanhulu area live in poverty.The region lacks modern health care, anadequate education system, infrastructureand viable employment opportunities, anddisease rates are high. When KMCLarrived, it set up a social development pro-gram that focused on these issues.“Miningcompanies have traditionally assumed thatproviding jobs alone would be enough, butit is increasingly clear that the industryneeds to do much more on communitydevelopment,” says Rene Marion, vice pres-ident and general manager of KahamaMining.
Marion adds that there was a businessneed behind the effort.“We also needed toensure that the mining industry would beaccepted, and we wanted to reduce theexpatriate workforce by 70 percent over a
MIGA-Supported Mining Project Focuseson Long-Term Social Benefits
Increasingly today, developing countriesare seeking to capitalize on their naturalresources in a more sustainable and equi-table way, and this is particularly true forthe mining sector.
Where governments were once con-tent to benefit from the employment,licensing fees, royalties, and tax revenuesresulting from mining investments, todaythere are often expectations for far morecomprehensive benefits. Governments, andmany of the world’s progressive miningcompanies, realize that attending to theintangible elements of a mining venture—the noncommercial social and environ-mental aspects that are implicit to allenterprises—is good not only for develop-ment and responsible corporate citizen-ship, but for business as well.
Historically, the focus has been prima-rily on mitigating negative impacts, togeth-er with the provision of some visible infra-structure such as a new hospital or road.There is, however, a growing recognitionthat companies need to focus on makingmuch more positive contributions to devel-opment: fostering the development ofhealth and education systems that actuallywork, developing community capacity tomanage assets such as water resources andwater and sanitation systems, and enablingthe development needs of local communi-ties to be met.
This is the case in Tanzania, where thegovernment recently opened the miningsector to private investors. There, poverty iswidespread despite the abundance of landand natural resources. Per capita income in2003 is estimated to be about $277, lifeexpectancy dropped to only 44 years in2001, and infant mortality remains high.Despite its poverty, the country has madesubstantial progress in terms of humandevelopment over the past few years, regis-
MIGA NEWS | JUL AUG SEP 2003 page 5
five-year period, which meant we neededto have the infrastructure in place to makethe location attractive to Tanzanian man-agers and their families.”
The social development program hasbeen underpinned by a partnershipapproach, drawing on a series of multi-party steering committees that work withKMCL, local communities, the districtcouncil, nongovernmental organizations(NGOs), and donors.
“KMCL has recognized the impor-tance of communicating with the localcommunity, not just at the district level,”says Ally Manyama, a local village execu-tive officer.
One of the most important aspects ofthe program is that it focuses on long-termhealth results, with a strong focus on edu-cation, capacity-building, and disease pre-vention. The project initiated the country’sfirst private-public sector health educationprogram when it partnered with theAfrican Medical and Research Foundation(AMREF) to develop, fund, and staff publichealth education programs in the area. Theprogram focuses on disease preventionand improving treatment, particularly forHIV/AIDS, other sexually transmitted dis-
eases, tuberculosis, and malaria. Together,KMCL and AMREF have refurbished anearby dispensary and the Kahama dis-trict hospital, which serves 30,000 localresidents and has eased pressure furtherup the referral chain.
KMCL has also developed the coun-try’s first private sector housing program,which provides interest-free loans toemployees, for up to 600 new houses. Theprogram design allows full employee par-
ticipation in the scheme, so that all canown a home at the end of seven years. Aswith every aspect of the company’s com-munity development program, KMCL heldextensive consultation with local residents,government agencies, and mineworkers toensure that the program reflects the needsof the area. Along with the housingscheme, the company has constructedaccess roads, a sustainable water system,which is being managed by the communi-ty, and has improved other necessary infra-structure, such as schools.
Kahama Mining is also working withHabitat for Humanity to establish an affili-ate agency in nearby Igwamanoni Village.Under a three-year pilot, the affiliate plansto construct about 20 houses in the firstyear, and more each year as the affiliategrows. In addition, the community will beprovided with training on leadership, com-munity activism, household management,and construction.
KMCL is also partnering with CAREInternational in Tanzania—a humanitari-an NGO that fights global poverty—todevelop educational facilities in the com-munities around the project site. The six-year joint undertaking, begun in 2001, has
included school room construction, train-ing, and improved resources and teachingmaterials. Results to date have been excep-tional, with national primary school exam-ination pass rates improving by 240 percent in the first year alone.
KMCL’s social development programis also tackling the water scarcity and unre-liability problems that plague the region. Inthe past, most of the water came fromunsafe, low-yielding open wells. This lack
of modern water treatment equipment hascontributed to the prevalence of water-borne diseases.
Thanks to the project, a reliable watersupply is now widely available in the areafor the first time. To meet the water needsof the mining operation, KMCL construct-ed a 30-mile pipeline from Lake Victoria toBulyanhulu, when mine construction start-ed. At the same time, the company workedwith local communities to include 15 outletpoints at intervals along the pipeline toprovide water for the communities alongthe route. Community-based water usergroups are responsible for managing usageat the water points and for educating resi-dents about safe and appropriate uses.
Other infrastructure needs have beenaddressed as well. KMCL invested $15 mil-lion in a turnkey project with the TanzaniaElectric Supply Company to extend thenational electricity grid from its nearestpoint, 148 km way in Shinyanga, to themine site. KMCL is now working with thegovernment and other partners to beginthe process of extending the line fordomestic and commercial use by localcommunities, which will bring mains elec-tricity to the area for the first time. Roadshave been upgraded, and financial supportis improving rail facilities and ports—allnecessary for the efficient operation of theproject, but also designed with communitydevelopment needs in mind.
“Kahama Mining could have electedto implement a development programalone, or by establishing a local company-managed foundation,” says Rory Sullivan,director for Investor Responsibility, InsightInvestment, the asset management arm ofHBOS plc in the UK.
“Instead, the company chose to adopta multi-sector partnership approach,involving not just different parties, butactually pooling their resources and com-petencies. By being closely aligned with thegoals of the Kahama District Development
>> “Because of its focus on capacity-building, there is everyprospect that Kahama Mining will be able to stand back fromits current leadership role and contribute to local society on amore equal and sustainable footing with its government andcivil society partners.”
>> “KMCL’s social development program is a best-practice model fortwo reasons,” says Sullivan. “First, the company is focusing on thekey development issues faced by the local community in a mannerthat is likely to provide long-term, sustainable benefits. Second, thefocus on capacity building maximizes the likelihood that the commu-nity will continue to function effectively and successfully, even aftermining operations cease.”
See TANZANIA, p. 8
PHOTOS | Courtesy Barrick GoldCorporation and Kahama MiningCorporation Ltd.
AGENCY POISED TO SUPPORT RECONSTRUCTION AND ECONOMIC PROGRESS
Afghanistan took the final step in June tosecure its membership in the MultilateralInvestment Guarantee Agency with its sub-scription to the agency’s capital base.
The move marks a critical step for-ward in the country’s efforts to rebuild inthe wake of two decades of conflict. Themembership allows MIGA to provide polit-ical risk insurance for investments goinginto and out of Afghanistan, as well as tohelp the country develop its ability toattract investment.
After 23 years of conflict, the Afghanpeople are working to restore peace andprosperity. But daunting challengesremain: 70 percent of the population ismalnourished, and only 23 percent haveaccess to safe water, 12 percent to adequatesanitation, and just 6 percent to electricity.More than 70 percent of schools need
Afghanistan Joins World Bank Group’s MIGA
MIGA NEWS | JUL AUG SEP 2003 page 6
Investor Investor Host Sector GrossCountry Country Coverage
($ m)
Raiffeisen Zentralbank Osterreich AG Austria Bosnia and Herzegovina Financial 21.95Raiffeisen Zentralbank Osterreich AG Austria Romania Financial 30.54Noway Registers Development Norway Former Yugoslav Republic of Macedonia Services 0.3Can-Pack S.A. Poland Ukraine Manufacturing 44.7 *International Dialysis Centers B.V. The Netherlands Bosnia and Herzegovina Services 1.4Investcom Holding S.A. Luxembourg Syrian Arab Republic Telecommunications 56.0Teleinvest Limited Cayman Island Syrian Arab Republic Telecommunications 19.0Raiffeisen Zentralbank Osterreich AG Austria Bosnia and Herzegovina Financial 21.8Raiffeisenverband Salzburg Austria Russian Federation Financial 18.1 *WTE Wassertechnik GmbH Germany Russian Federation Water 51.8 *
* Represents two contracts
GUARANTEES ISSUED
first quarter2004
repairs, as do most of the country’s pri-mary roads. Reconstruction alone isexpected to cost about $15 billion over thenext decade, underscoring the need for pri-vate sector help in meeting the challenge.
There are many areas in need ofurgent attention, particularly basic infra-structure, says Afghan Finance MinisterAshraf Ghani. Investment priorities areprimarily in the power, roads, telecommu-nications, industry, and tourism sectors.Agriculture, too, which has suffered due toan extended drought, is an area that standsto benefit from investment.
Since its inception, MIGA has sup-ported 66 projects with guarantees worthnearly $1.7 billion in 18 conflict-affectedcountries. This represents 13 percent of theagency’s gross portfolio.“MIGA can bridgethe gap between investors’ concerns and acountry’s desire to attract good investors tohelp reconstruct the economy,” saysMotomichi Ikawa, MIGA’s executive vicepresident. “We have a healthy pipeline ofinquiries from investors who are interestedin doing business in Afghanistan, but are
concerned about the safety of their invest-ments.”
MIGA is currently in the process ofsetting up a guarantee trust fund forAfghanistan, with donor and other outsidefunding. “This will allow us to more fullydeploy our guarantee products inAfghanistan, as well as increase our flexi-bility in the types of deals and transactionswe’ll be able to support,” says Ikawa.
“We are pleased to become a memberof MIGA.We look forward to a fruitful rela-tionship that will help us attract and retainmore foreign investment, promote eco-nomic growth, and ultimately benefit thepeople of our country,” says Ghani.
PHOTOS | Courtesy World BankGroup’s South Asia Region
MIGA NEWS | JUL AUG SEP 2003 page 7
Africa’s bid to stimulate private sector-ledgrowth and increase cross-border tradereceived a major boost with the signing ofa Memorandum of Understandingbetween the African Trade InsuranceAgency (ATI)—the continent’s only pan-African, multilateral import and exportcredit and political risk agency—andMIGA. The agreement calls for the twoagencies to jointly promote foreign invest-ment within Africa.
ATI and MIGA will help each other inthe areas of business development, market-ing and knowledge-sharing, as well asengaging in risk-sharing arrangementsthrough coinsurance and reinsurance proj-ects. The partnership with MIGA will putATI in a stronger position to offer politicalrisk insurance for longer-term, equity-based foreign direct investments to com-plement its products for physical damageresulting from war and terrorism and fordebt-related project and trade transactions.
The partnership aims to further thedevelopment and growth of the privatesector in Africa by providing the addition-al confidence needed by companies thatsee commercial opportunities in the regionbut where they or their financiers remain
AFRICAN TRADE INSURANCE AGENCY AND MIGA
Join Forces to Boost AfricanPrivate Sector Investment
Despite the turmoil of fiscal year2003, MIGA issued $1.4 billion inguarantee coverage for 37 newprojects in its developing mem-ber countries, facilitating an esti-mated $3.9 billion in foreigndirect investment.
This brings the cumulative amount ofFDI facilitated since the agency’s inceptionto an estimated $49 billion. While theamount of FDI facilitated is not as high infiscal 2003 as in previous years, otherdevelopment indicators show good results.
The fiscal year saw good progress insupporting priority investments: Theagency guaranteed 17 projects in IDA-eli-gible (the world’s poorest) countries, sevenin sub-Saharan Africa, ten south-southinvestments (those among developingcountries), ten small and medium-sizeprojects, and 14 projects in conflict-affect-ed countries.
“MIGA’s involvement in conflict-affected countries showed a dramaticincrease over the previous year, and repre-sented more than a third (39 percent) of allnew projects guaranteed by MIGA,” saysMotomichi Ikawa, MIGA’s executive vicepresident. The agency also supported moresouth-south and IDA investments than inthe previous three years.
“Another successful aspect of the fis-cal year is the substantial increase in theestimated direct employment created bynew projects, up 50 percent over last year to5,660 jobs,” says Ikawa. “Projections ofindirect employment, provided by ten proj-ect sponsors, point to an additional sub-stantial increase in the number of jobs tobe created in complementary sectors overthe next five years.”
The estimated annual amount ofexports to be generated by MIGA-support-ed projects also increased significantly, upto nearly $350 million, with another $70million added to the tally when the indirecteffects of financial services projects areconsidered.
strengths to bring even more FDI intoAfrica. Together, we offer an unrivalledpartnership and a clear message—Africais open for business.”
Highlights of the Memorandum ofUnderstanding include:r Risk-sharing through coinsurance
and reinsurance contracts.r An agreement to refer potential clients
to each other, where appropriate, andshare information.
r Underwriting assistance, where ATIand MIGA will support each other infiling applications, analyzing risk,conducting contract drafting negotia-tions, collecting premiums, and col-lecting all requested information forthe determination of a claim.
r Selective joint missions for businessdevelopment and marketing withinAfrica, especially in regard to small-and medium-sized business enter-prises in Africa or those enterprisesengaged in intra-African trade and/orinvestment.
concerned about perceived political risks.Bernie de Haldevang, chief executive
and managing director of ATI, welcomedthe announcement, saying it heralded “amajor breakthrough in the bid to increaseAfrican private sector growth as a tool forreducing poverty. It will also serve toensure that ATI can better fulfill its man-date to encourage and support new invest-ments into and among African countries.
“The expertise of MIGA, with itsproven ability to draw on the World BankGroup’s extensive resources, together withATI’s engagement of the private market tosupport trade political risk, where ATImember states have put up their ownfunds as risk capital, is a compelling andpersuasive proposition.With the support ofgovernments, the private sector and multi-laterals, Africa can start to fulfill its invest-ment potential. We are already working ontwo significant joint deals, and we expectmany more to follow.”
Motomichi Ikawa, head of MIGA, rein-forced this: “Africa is a priority area forMIGA, and the region now represents 19percent of our gross portfolio, a number wehope to see grow over the next few years.MIGA and ATI can draw on each other’s
MIGA Registers Solid DevelopmentRecord in Fiscal Year 2003
Users of the Investment PromotionNetwork (www.ipanet.net), MIGA’s portalsite for international corporate investors,are now able to search content by five newmajor topic categories—business, legal,markets, opportunities, and events—aswell as by country and sector. IPAnet andits companion site, FDI Xchange(www.fdixchange.com), an email alertservice delivering current investmentinformation matched to users’ interests,have also been linked with simple visualcues representing each of the five new cat-egories. The new icons, now commonthroughout the two sites, guide users infinding information about investing in thedeveloping world.
“We wanted to streamline the accessand navigation, so that even a first-timeuser can easily locate a specific piece ofinformation in a few clicks,” explains JohnWille, head of MIGA’s online informationservices. “The upgraded design accom-plishes that objective, while allowing forplanned growth and specialization in ourdatabase of resources, and furtherenhancement of our services.”
Partner organizations that refer usersto MIGA’s websites can now link to “co-branded” versions of both the InvestmentPromotion Network and FDI Xchange.“Essentially this gives other organizationsthat promote direct investment into thedeveloping world access to new informa-tion resources, which they can build intotheir own web offerings,” says Wille, addingthat this access to MIGA’s content is intend-ed to drive new segments of users to part-ners’ sites while increasing the numbersfrequenting MIGA’s sites. MIGA’s partnersinclude organizations such as chambers ofcommerce and business associations,country and regional investment promo-tion and privatization agencies, and privatesector business information providers.
MIGA partners are already finding theupgrades effective in broadening their mar-kets. Investe Brasil’s Director of Marketingand Communication, Clementino FragaNeto, considers MIGA’s online services asextensions of the Brazilian investment pro-motion agency’s main marketing and com-munication tools—allowing them toachieve maximum impact in their targetcommunity. “[Both the new IPAnet and]FDI Xchange enable us to reach a largerpublic for our bimonthly bulletin Scenario.Using MIGA services as channels for dis-semination helps put us in contact withinvestors and opinion-makers,” says FragoNeto. Investe Brasil is the agency responsi-ble for providing information about invest-ment opportunities in Brazil.
Highlights of recent content availablethrough MIGA’s online services:
MIGA Offers Online Users and PartnersNew Features to Access Content
MIGA NEWS | JUL AUG SEP 2003 page 8
Plan, the development program has metlocal infrastructure priorities as well as thegovernment’s policy for a ‘bottom up’approach to community planning.”
KMCL’s establishment of steeringgroups to oversee the development pro-gram is part of a deliberate strategy todevelop capacity and ensure that assetscan be handed over to local groups oncemining operations wrap up. “KMCL hasactively sought to reduce long-termdependency on the company while provid-ing the necessary development benefits,”says Sullivan.
“The approach adopted by KahamaMining aims to bridge the gap by address-ing areas where there is a real need andwhere the project can make a real differ-ence,” says Aida Kiangi, KMCL’sCommunity Development and LocalisationManager.“The ultimate aim of the project isfor government, communities, and NGOs to
r Information on upcoming tenders formanufacturing enterprises being pri-vatized in Croatia and Serbia
r Shedding New Light on Africa’sInvestment Opportunities, a new MIGApublication outlining sector-specificopportunities in selected Africancountries
r Opportunities on the Last Frontier(Guizhou Province)–China, fromEuroBiz Magazine
r Dubai–At a Crossroads of the GlobalEconomy, from International Reports
The Investment Promotion Network(IPAnet), established in 1995, is MIGA’sflagship site serving the foreign investmentcommunity, including multinational cor-porations, investment promotion agencies,policymakers and supporting organiza-tions. FDI Xchange delivers periodic, cus-tomized email alerts containing links tonew investment opportunities, marketresearch, and country analysis from publicand private sector sources worldwide. Formore information on MIGA’s online infor-mation services, contact Courtney Robertsat 202.458.2924, or at [email protected].
take over. However, to get things started,Kahama Mining has had to adopt a role thatis closer to that of an NGO.”
“Because of its focus on capacity-building, there is every prospect thatKahama Mining will be able to stand backfrom its current leadership role and con-tribute to local society on a more equal andsustainable footing with its governmentand civil society partners,” adds Sullivan.
For Kahama Mining, the process ofoperating a mine entails a deeper commit-ment to involvement in the community.Community development also makes goodoperating sense. Providing modern health-care and safe working conditions leads to amore stable and reliable workforce, andproviding housing and education benefitshelps to attract and retain the best nation-al employees. These benefits aside, there isa moral imperative, and progressive com-panies recognize this imperative. Firmssuch as Kahama Mining understand thatsocially responsible companies must aligntheir strategic objectives with those of the
community, and that each area of the com-pany should be as committed to communi-ty objectives as to business objectives.
“KMCL’s social development programis a best-practice model for two reasons,”says Sullivan. “First, the company is focus-ing on the key development issues faced bythe local community in a manner that islikely to provide long-term, sustainablebenefits. Second, the focus on capacitybuilding maximizes the likelihood that thecommunity will continue to function effec-tively and successfully, even after miningoperations cease.”
This article is based on a field visit conduct-ed by MIGA in 2003, and on a report pre-pared by Rory Sullivan, then an independ-ent consultant for Business Partners forDevelopment (BPD).
TANZANIA, from p. 5
A new MIGA study of business operatingcosts and conditions in two key industriesin Asia—electronics manufacturing andso-called shared services—reveals adiverse competitive landscape with plentyof niche market opportunities. The exer-cise looked at China, Indonesia, Malaysia,the Philippines, Thailand, and Vietnam,and offers a number of across-the-boardrecommendations to help countries attractmore foreign investment in these sectors.
The first in MIGA’s “snapshot”series ofregional sectoral analyses, BenchmarkingFDI Competitiveness in Asia distills practi-cal information collected from investorsand published sources into a “snapshot” ofthe business operating environment.Benchmarking is a research methodologycommonly adopted by corporations to helpevaluate potential investment locations.MIGA’s benchmarking exercise set stan-dards by which the participating countriescould be measured and compared in quan-titative terms across a range of critical fac-tors, such as political and social stability,labor costs and availability, and access toaffordable infrastructure and services.
“Benchmarking is a very pragmatictool for both investors and countries com-peting for foreign direct investment (FDI),”says David Bridgman, MIGA’s manager for
Capacity Building and InvestmentFacilitation. “It captures the dynamics ofthe competitive environment, and brings alot of clarity to a complex decision. Aninvestor typically needs to evaluate manyconsiderations, which influence the deci-sion to varying degrees, based on the cor-poration’s strategy and preferences.”
Senior Investment Promotion Officer,Bill Luttrell, spearheaded project designand implementation. “We designed thisstudy to analyze the factors most impor-tant to investors, and interviewed investorsdirectly,” he says, “so we are confident theresults will help the participating countriesunderstand how international businessesview their locations relative to the compe-tition.”
The study reveals a competitive land-scape ripe for the six countries to differen-tiate their locations as distinctive “prod-ucts” for potential investors. No one coun-try emerged as the clear leader in all fac-tors and both sectors, nor is any one coun-try too inexperienced, or too late, to com-pete for FDI in either field. The study sug-gests however, that there is ample opportu-nity for each of the individual countries tofocus on different niches in both industriesby building on their comparativestrengths.
Strengths commonly identified werelarge pools of available skilled or unskilledworkers, relatively low labor costs, and aproficiency in the English language or“back office” trades. Weaknesses includedchallenges related to power and trans-portation infrastructure, governmenttransparency and procedures, lack of lan-guage or technical skills and underdevel-oped supplier networks.
China, for example, boasts the best-developed supply base among the coun-tries surveyed: low-cost labor, and low-costreal estate and construction. Among itschallenges are onerous labor regulationsthat burden employers with heavy costs,and perceived differences in business cul-ture that may make management more dif-ficult.
Meanwhile, Vietnam’s relatively well-educated workforce and ample supply oflow-cost unskilled labor have helpedattract a base of major Japanese andKorean electronics manufacturers.Underdeveloped infrastructure, a shortageof management-level employees, and aninadequate base of supporting industrieswere identified as weaknesses.
“The objective of the study was not tofind winners and losers among the sixcountries already active in both indus-tries,” Luttrell emphasizes, “but rather toprovide each country participant with abroad-based and informed context for tar-
MIGA Benchmarks FDI Costs and Conditions in Asia
MIGA NEWS | JUL AUG SEP 2003 page 9
geting the most likely potential newinvestors. This sort of study also helps offi-cials in participating countries to seewhich infrastructure improvements andprocedural and policy reforms matter mostfrom the investors’ perspective. We see thisas an enormous benefit to both potentialinvestors and those already operating inthe region.”
Study researchers drew frommultiple data sources, including publiclyavailable sources for information aboutlabor and real estate costs and considera-tions, utilities, market access, taxes, trans-portation and shipping infrastructure, andbusiness and living conditions. They alsointerviewed 64 companies operating in theparticipating countries and asked respon-dents to rate various aspects of these fac-tors from their own experience.
The study revealed significant differ-ences in many cases between the data col-lected from public sources, and the infor-mation obtained directly from currentinvestors. For several factors, includingmany considered critical, the intervieweesreported significantly different costs orconditions than in published sources.Investor responses were often more posi-tive than the data pulled from the web andresearch directories. The most dramaticexample is in labor costs. For an electronicsmanufacturing operation, the informationcollected from interviewees placed laborcosts at an average of 30 percent less thanthe costs reported in the public informa-tion sources.
“Investors should be careful to noteliminate potential locations on the basisof desktop research alone, because it isoften too generic to give an accurate read-ing,” says Luttrell.
Benchmarking FDI Competitivenessin Asia was funded under the MiyazawaInitiative, a special element of the Japaneseforeign assistance program intended topromote economic recovery in the coun-tries most affected by the 1997 Asianfinancial crisis. The study served as thepilot for a broader competitive bench-marking program that MIGA will soonlaunch to analyze specific industry sectorsin Southeastern Europe, Africa, and theMiddle East.
To access the study online, visitwww.ipanet.net/snapshotasia. For moreinformation, contact MIGA InvestmentMarketing Services at 202.458.2076, or fax202.522.2650.
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MIGA has issued a guarantee of EUR1.26million to International Dialysis CenterB.V. of the Netherlands for its EUR2 millionequity investment in International DialysisCenter Banja Luka of Bosnia andHerzegovina. The guarantee has a durationof seven years and provides coverageagainst the risk of breach of contract.
The project—an expansion of an ear-lier MIGA-underwritten healthcare facilitylocated in Banja Luka—will provide renaldialysis treatment services to the city ofBijeljina, Republika Srpska, and its envi-rons, where kidney disease is endemic.Using state-of-the-art medical equipment,the project will help to improve lifeexpectancy and quality of life for dialysispatients. The center’s location—within anexisting hospital—will also benefit thelocal community by refurbishing thepremises for the new facility.
In addition to providing criticalhealthcare services, the project will alsomake modest contributions to local eco-nomic development. Fifty local employeeswill be involved in the design and con-struction phase of the facility. Moreover,
Kidney Disease Patients to Get NewClinic in Bosnia-Herzegovina
MIGA has issued three guarantees totaling$48.75 million to Can-Pack S.A. of theRepublic of Poland for its support for itsUkrainian subsidiary, Can-Pack UkraineLimited. The guarantees include $36.5 mil-lion in coverage (for the equity investmentand associated dividends and retainedearnings), $8.65 million for an $11 millionshareholder loan, and $2.25 million for amanagement and technical assistance con-tract.All three guarantees provide coverageagainst the risks of expropriation, war andcivil disturbance, and transfer restriction.The guarantees for the equity investmentand the management contract cover a peri-od of 15 years and the shareholder loan isfor a period of five years.
The project involves the constructionand operation of an aluminum beveragecan production plant. It will increase Can-Pack’s production capacity in order to meetthe growing demand for canned beveragesin the Ukraine and will allow it to maintainmarket share in the Ukraine, Russia, and
other members of the Commonwealth ofIndependent States. Can-Pack expects toproduce approximately 2,600 cans perminute when fully operational, and will bethe largest Polish investment in theUkraine to date. MIGA’s involvement in theproject will help create approximately 110direct local jobs. One hundred and forty-five additional jobs will be created duringthe construction phase, and Can-Pack S.Awill provide ongoing training throughoutthe duration of the project.
Can Production Plant to Meet GrowingDemand in Ukraine
MIGA NEWS | JUL AUG SEP 2003 page 10
once operative, the dialysis center will pro-vide permanent jobs to 39 local managers,technicians, and administrators—all ofwhom will be paid salaries 50 percentabove the local standard. The project willalso procure an estimated $100,000 ingoods and services every month from localsuppliers, fueling upstream growth in thecountry’s domestic health services sector.
The World Bank Group’s LivingStandards Measurement System showsthat 25 percent of the population inRepublika Srpska and 16 percent in theFederation of Bosnia Herzegovina livebelow the poverty line and that serious dis-tortions in the social safety net adverselyaffect these poor people. This project isconsistent with Bosnia’s and the WorldBank Group’s latest country assistancestrategy, which regards promoting socialservices like high-quality and accessiblehealthcare as a fundamental step in build-ing social sustainability in the mediumterm.
MIGA NEWS | JUL AUG SEP 2003 page 11
CORPORATE RELATIONSMoina VarkieChieft. [email protected]
UNDERWRITINGPeter JonesManagerOperational Strategy,Syndication/Reinsurancet. [email protected]
Regional Managers
Latin America and Caribbean,Europe and Central Asia
Patricia Veevers-CarterInfrastructure, oil and gas,and miningt. [email protected]
Ileana BozaFinance, manufacturing,agribusinesses, and servicest. [email protected]
Africa, Asia and the Middle East
Philippe ValahuInfrastructure, oil and gas,and miningt. [email protected]
Mansour KaneFinance, agribusiness,manufacturing, services, and miningt. [email protected]
INVESTMENT MARKETINGTessie San MartinDirectort. [email protected]
John WilleProgram ManagerInformation Products and Servicest. [email protected]
David BridgmanProgram ManagerCapacity Building and InvestmentFacilitationt. [email protected]
POLICY AND ENVIRONMENTGerald WestDirectort. [email protected]
REPRESENTATIVE OFFICESJohannesburg, South AfricaKen Kwakut. [email protected]
Paris, FranceChristophe Bellingert. [email protected]
SingaporePhilippe Valahut. [email protected]
Tokyo, JapanMari Kogisot. 81.3.3597.9100 [email protected]
FOR GENERAL INQUIRIES AND APPLICATIONS
Federica Dal BonoCorporate Relations Officert. [email protected]
FOR MAILING1818 H Street, NWWashington, DC 20433USA
MIGA News is published quarter-ly by the Multilateral InvestmentGuarantee Agency, a member of
the World Bank Group.
EDITORAngela Gentile
DESIGNSuzanne Pelland
EDITORIAL COMMITTEEMoina Varkie
David BridgmanAngela Paris
Carlos MestreAlpona Banerji
To request additional copies,be added to the MIGA News
mailing list, or receive MIGA News
electronically, contact:Wyfield Chow
C O N T A C T M I G A C O N T A C T M I G A C O N T A C T M I G A
MIGA to LaunchPRI SymposiumPublication
November will see the publication ofInternational Political Risk Management:The Brave New World—the second in aseries of volumes based on the bi-annualMIGA-Georgetown Symposium on interna-tional political risk management.
The 18 contributors to this volumeconsider The Brave New World of the polit-ical risk insurance industry in the wake ofSeptember 11, 2001, the Argentine eco-nomic crisis, and other upheavals. Thebook begins with the supply-side perspec-tive of insurers and then turns to the con-cerns of investors and lenders, in particularthose involved in large infrastructure proj-ects in emerging markets.An in-depth analysis of international polit-ical risk management from the frontlines ofthe industry, this book will be a valuableguide to those considering private sectorinvestments and privatizations in thedeveloping world, whether as equity spon-sors, lenders, or insurers. It should also beof interest to independent analysts andscholars working in the field of politicalrisk management.
The work is 230 pages long and ispriced at $30 per copy. Orders and orderinginquiries for International Political RiskManagement: The Brave New World (ISBN0-8213-5649-6) should be sent to:
World Bank PublicationsP.O. Box 960Herndon, VA 20172-0960 USAt. 800.645.7247Email: [email protected] orders can be place at:www.worldbank.org/publications
MIGA’s 2003 Annual ReportHighlights Support forWater and CommunityDevelopment
Against a backdrop of global financial woes, war, and the SARS epidemic inAsia, MIGA issued close to $1.4 billion in guarantee coverage during the fiscalyear that ended June 30, 2003, reveals the agency’s 2003 Annual Report. The
coverage was for 37 projects, a 12 percent increaseover the previous year, while in dollar terms, theamount guaranteed was only marginally higher.
The results were well on target when it came toMIGA’s priority areas: eight of the projects were inAfrica, 19 in IDA-eligible (the world’s poorest) coun-tries, 12 involved investors from developing coun-tries, and 10 were investments in small and medi-um-size enterprises. Fifteen of the projects were inconflict-affected countries, and MIGA offered first-time coverage for projects in Burundi, Serbia andMontenegro, and Syria.
This year’s report showcases the agency’s work insupporting projects in the water and sanitation sec-tor, mining and community development, and lever-aging information technology to facilitate foreigndirect investment.
To order a free copy of the report, available on CDor hard copy, contact Ms. Wyfield Chow, 1818 H Street, NW, Washington, DC20433, t. 202.458.9595, or email [email protected].
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MIGA: Promoting foreign direct investment into emerging economiesto improve people’s lives and reduce poverty.
www.miga.org
Multilateral Investment Guarantee Agency1818 H Street, NW Washington, DC 20433, USA
World Bank Group
INSIDE: POST-CANCUN: WHAT’S ON THE TABLE FOR INVESTORS?
. . . AND MORE
