34446 Fiscal 2005 Highlights Table 1 Guarantees Issued 2000 2001 2002 2003 2004 2005 FY90-05 STHGILHGIH Number of Guarantees Issued 53 66 59 59 55 62 773 Number of Projects Supported 37 46 33 37 35 33 486 Amount of New Issuance, Gross ($ B) 1.6 2.0 1.2 1.4 1.1 1.2 14.0 Amount of New Issuance, Total ($ B)1 1.9 2.2 1.4 1.4 1.1 1.2 14.7 Gross Exposure ($ B)2 4.4 5.2 5.3 5.1 5.2 5.1 - Net Exposure ($ B)2 2.8 3.2 3.2 3.2 3.3 3.1 - 1 Includes amounts leveraged through the Cooperative Underwriting Program (CUP). 2 ii Gross exposure is the maximum aggregate liability. Net exposure is the gross exposure less reinsurance. Membership Injoined MIGA, bringing the number of member countries to 165 fiscal year 2005, the Maldives Note:All dollar amounts used in this Annual Report are current US dollars unless otherwise specified. Coverage for MIGA's Four Priority Areas1 q 20 projects in frontier markets q 12 projects in conflict-affected countries q 7 infrastructure projects q 4 South­South investments2 Highlights q 20 guarantee projects and 20 technical assistance projects in IDA­eligible countries3 q Eight new guarantee projects and 11 technical assistance projects in sub-Saharan African countries q First guarantee coverage for investors from Lebanon and India q Six new host countries: Belarus, Burkina Faso, Democratic Rep. of Congo, Lao PDR, Latvia, and Thailand q Supported three waste management projects, the agency's first involvement in this subsector q Launched investment guarantee facility for Afghanistan, in partnership with the Islamic Republic of Afghanistan, Asian Development Bank, UK government, and IDA q 84 technical assistance activities conducted in 33 countries, along with several regional and global ini- tiatives q e4.5 million trust fund partnership with the European Agency for Reconstruction to cover technical assistance activities in the Balkans q Launched Enterprise Benchmarking Programs in Afghanistan, Africa, the Balkans, and China iii Partnerships q Facultative reinsurance provided to MIGA by other insurers: $353 million for 11 projects; and by MIGA: $3.6 million for one project q Cooperative Underwriting Program: $6.8 million placed in the market q Through the European Investor Outreach Program, partnered with investment promotion intermediaries in the Western Balkans and with development partners from countries interested in investing in the region World Bank Group Cooperation q WorkedwiththeWorldBankguaranteesprogramontheWestAfricaGasPipelineproject(Ghana),mortgage securitization project (Latvia), as well as on the Umeme (Uganda) and Nam Theun 2 (Lao PDR/Thailand) power projects q Coordinated with the Foreign Investment Advisory Service (FIAS) in Ethiopia, Fiji, Azerbaijan, Tajikistan, China, Peru, and Bangladesh, and globally on a series of investment promotion case studies q Worked with the World Bank on promoting private sector business opportunities in Afghanistan, and on the Gambia Gateway Project q Conducted joint work with the International Finance Corporation (IFC) on technical assistance projects in Panama and Morocco q Participated in various World Bank fora, including the Private Sector Development Forum for Latin America, annual Knowledge Forum for Europe and Central Asia, and co-organized the Africa Forum convened in South Africa Claims and Mediation q Two claims, totaling $1.54 million, paid to investors for losses in Argentina and Nepal 1Some projects address more than one priority area. 2Investments made from one developing country to another developing country. 3The International Development Association (IDA), a member of the World Bank Group, helps the world's poorest countries reduce poverty by pro- viding "credits" ­ which are loans at zero interest ­ and grants. Letter from the President to the Council of Governors STHGILHGIH to play with the rapidly growing developing countries, the so-called "middle-income" countries that nevertheless still have hundreds of millions of people living in extreme poverty. Finally, as a multilateral development institution, the World Bank is uniquely positioned to help the world iv address some of the concerns of the "global commons," such as the development of sustainable energy and the alleviation of global health crises. This Annual Report records the achievements of the For its part, MIGA's investment insurance, dispute Multilateral Investment Guarantee Agency during the mediation services, and technical assistance generated last year of the tenure of my distinguished predecessor, strong results this fiscal year. The agency issued 62 guar- Jim Wolfensohn. It is an enormous responsibility to be antees totaling $1.2 billion for 33 new projects. entrusted with the leadership of this extraordinary insti- tution, and I am grateful to Jim for having done so much In all of this work, the Bank is blessed with an excep- to strengthen it over the past decade. tionally dedicated and qualified professional staff. It is an honor and a privilege to work with them on a daily basis. While much has been accomplished by the World Bank Group and its development partners, much remains to be done. The G-8 Summit at Gleneagles at the beginning Paul D. Wolfowitz of this new fiscal year has brought a welcome focus on June 30, 2005 the challenges of global development, particularly in Africa. It has also reaffirmed the central role of the World Bank in so much of that work, and has given us even more to do. As we move forward, we need to keep a balance among the different development priorities. The first priority must be to pay special attention to the needs of the poorest people in the poorest countries in the world. At the same time, the World Bank still has an important role Board Activities Highlights A Council of Governors and a Board of Directors, rep- tiveness with a view to monitoring progress towards resenting 165 member countries, guide the programs MIGA's mission of poverty reduction. The Personnel and activities of the Multilateral Investment Guarantee Committee advises the Board on compensation and other Agency. Each country appoints one governor and one significant personnel policy issues. In addition, directors alternate. MIGA's corporate powers are vested in the serve on the Committee on Governance and Executive Council of Governors, which delegates most of its powers Directors' Administrative Matters. to a board of 24 directors. Voting power is weighted according to the share capital each director represents. During fiscal year 2005, MIGA's Board of Directors The directors meet regularly at the World Bank Group reviewed and concurred with investment guarantees headquarters in Washington, DC, where they review and for 37 projects. The Board also oversaw and reviewed decide on investment projects and oversee general man- MIGA's budgeting and planning process for the agement policies. upcoming fiscal year. The Board approved MIGA's FY05- 08 strategy document (see message from the Executive Directors also serve on one or more of five standing Vice President) and, along with the Council of Governors, committees, which help the Board discharge its oversight endorsed a five-year review of the agency's activities responsibilities through in-depth examinations of policies during FY00-04. A new provisioning methodology for the v and procedures. The Audit Committee advises the Board agency also received Board approval. In addition, during on financial management and other governance issues to the 2004 Annual Meetings, the Council of Governors facilitate Board decisions on financial policy and control approved a mechanism to achieve voting parity between issues. The Budget Committee considers aspects of Category 1 and Category 2 countries. Last, the Board business processes, administrative policies, standards, reviewed the 2004 Review of Development Effectiveness and budget issues that have a significant impact on the in MIGA and approved the 2005 Annual Report, both cost effectiveness of the Bank Group operations. The prepared by the Operations Evaluation Unit, which inde- Committee on Development Effectiveness advises the pendently evaluates MIGA's activities. Board on operations evaluation and development effec- MIGA's Board of Executive Directors, as of June 30, 2005 Standing, left to right: Robert Holland*, Herwidayatmo, Pietro Veglio, Eckhard Deutscher, Mathias Sinamenye, Thomas John Austin, Tom Scholar, Chander Mohan Vasudev, Thorsteinn Ingolfsson, Sid Ahmed Dib, Yahya A. M. Alyahya, Nuno Mota Pinto*, Otaviano Canuto, Pierre Duquesne, Paulo Fernando Gomes, Gino Pierre Alzetta, Gobind Ganga*, Alexey G. Kvasov, Luis Marti Sitting, left to right: Mahdy Ismail Aljazzaf, Jiayi Zou, Jaime Quijandria, Yoshio Okubo, Adrianus P.W. Melkert Absent: Biagio Bossone, Marcel Massé * Alternate Message from the Executive Vice President activities of others. This implies a focus on areas that public and private entities cannot serve as well, such as higher-risk markets and other areas where MIGA has a unique comparative advantage. STHGILHGIH The business model consists of three principal elements that reinforce each other to form an integrated strategy: proactive marketing and complementary products; a comprehensive risk management framework; and stepped-up collaboration with the World Bank Group. Indeed, our closer cooperation with the World Bank Group is yielding good results, as illustrated by our joint collaboration on a number of high-profile projects during the past year. And we expect that this is just vi the beginning of a more integrated approach to devel- opment, to become an ever more defining feature of the way we do business. Fiscal year 2005 has been an important year, both in As part of the shift to a new business focus, we also terms of the amount of foreign direct investment to brought together our operational units--guarantees reach the developing world and for MIGA, with regard and technical assistance--under one director in a new to its role in mitigating risks to ensure maximum value- Operations Department. The move recognized that added for foreign investors and host countries alike. addressing the challenges of attracting and retaining FDI requires more than just political risk insurance. It Globally, foreign investors signaled their willingness requires that MIGA provide client countries an inte- to once again invest abroad, with FDI into developing grated package of products to address risk and related countries reaching $165 billion in 2004, the first increase factors affecting an investment. in three years. This willingness was tempered, however, by ongoing concerns about political risks. Changes in Along with this realignment came a revised operational the political risk insurance market were relevant in that strategy that plays to our foremost strength in the mar- insurance capacity increased but providers' tolerance for ketplace--attracting investors and private insurers risk was limited, which inhibited participation in certain into difficult operating environments. The new strategy countries and sectors. These issues highlighted the focuses on specific areas where we can make the greatest important contribution MIGA continued to make in pro- difference: moting FDI where it is needed most. r Infrastructure development is an important priority This fiscal year has also been an important one for MIGA, for MIGA, given the estimated need for $230 billion which implemented significant internal changes aimed a year solely for new investment to deal with the at strengthening the agency's development impact and rapidly growing urban centers and underserved added value for our shareholders and clients. The agency rural populations in developing countries. has undergone a significant transition, with the intro- duction of a new business model and a revised opera- r Frontier markets--high-risk and/or low-income tional strategy. countries and markets--represent both a challenge and an opportunity for the agency. These markets MIGA's new business model centers on the agency's typically have the most need and stand to benefit unique role as a multilateral risk mitigator, drawing on the most from foreign investment, but are not well its governance structure to support investments with served by the private market. the greatest development impact and complement the r Investment into conflict-affected countries is actions of the Mengistu government in Ethiopia more another operational priority for the agency. While than 30 years ago. The resolution of many of these long- these countries tend to attract considerable donor standing foreign investment claims should encourage goodwill once conflict ends, aid flows eventually the flow of additional investment into Ethiopia. We also start to decline, making private investment critical engaged in more than a dozen investment disputes for reconstruction and growth. With many investors involving clients during the fiscal year, and paid two wary of potential risks, political risk insurance claims. becomes essential to moving investments forward. Fiscal year 2005 also saw MIGA conduct a five-year r South-South investments (investments between review of its activities, which was accepted by the Board developing countries) are contributing a greater pro- of Directors and put forward to the agency's Council of portionofFDIflows.Buttheprivateinsurancemarket Governors for their approval. in these countries is not sufficiently developed or national export credit agencies lack the ability and Looking forward, I am excited about the prospects for the capacity to offer political risk insurance. coming fiscal year. Some of the new initiatives we have in the works--such as a post-conflict guarantee facility vii MIGA offers comparative advantages in all of these for Africa and our Small Investment Program--hold tre- areas--from our unique package of products and ability mendous potential for getting critical investment into to restore the business community's confidence, to nontraditional markets. our ongoing collaboration with the public and private insurance market to increase the amount of insurance Last, I would like to take this opportunity to thank the available to the business community. Board of Directors for their ongoing assistance with the development of our strategy this past year. In addition, I All of these changes were integral to our 2005 fiscal would like to express my gratitude to former World Bank year operational results. During the year, the amount of Group President James D. Wolfensohn, for his leadership guarantees issued reached $1.2 billion--representing and vision as the head of MIGA during the year, and the first, albeit modest, increase in total new issuance welcome his successor, President Paul Wolfowitz. since fiscal year 2001. By the end of the fiscal year, five commitment letters were outstanding, totaling an addi- tional $123.2 million in coverage. Many of the contracts focus on our priority areas: 20 are for projects in frontier Yukiko Omura markets, four support South-South investments, 12 are June 30, 2005 for projects in conflict-affected countries, and seven support infrastructure investments. MIGA's work in the area of technical assistance also garnered good results. During the year, we conducted 84 technical assistance activities in 33 countries, along with several regional and global initiatives, including the Enterprise Benchmarking Programs in Africa, Afghanistan, the Balkans, and China. Our technical assistance complements the work of the Bank and IFC, with which we collaborated on an array of fronts, including joint investment promotion case studies and the promotion of private sector business opportunities in Afghanistan and The Gambia. On the mediation front, we completed the review and resolution of 49 claims stemming from the expropriatory MIGA Officers and Managers STHGILHGIH viii Moina Varkie Luis Dodero Frank Lysy Director General Counsel and Chief Economist and External Outreach Vice President Director and Partners Legal Affairs and Claims Economics and Policy Amédée Prouvost Yukiko Omura Marcus Williams Director and Executive Vice President Adviser Chief Financial Officer Strategy and Operations Tessie San Martin W. Paatii Ofosu-Amaah Aysegul Akin-Karasapan Director Vice President and Director Operations Corporate Secretary Operations Evaluation Unit 1 DEVELOPMENT IMPACT MIGA in Frontier Markets MIGA in Frontier Markets Bringing new investment into a country char- acterized by low incomes and high risk is a chal- TCAP lenging task. Private investors, driven by the bottom line, are understandably reluctant to invest in MI TNE nations where infrastructure may be questionable or non-existent, where laws governing contracts and MPOLEVED land ownership are not clear, and where relatively simple financial transactions such as obtaining a line of locally denominated commercial credit can be a major ordeal. And for countries emerging from conflict, taking even the smallest steps toward renewed entrepreneurial energy and investment can 2 be an almost overwhelming task. But success stories attest to the value of the cause. these tasks, the private sector can help economies grow, For example, Mozambique, which attracted $337 while allowing governments to use funds to address acute social needs. million in FDI in 2003, has seen an overall 16 percent reduction in poverty since the end of conflict FDI flows to the developing world reached $165 billion in 1997, spurred in large part by the massive foreign in 2004, up by nearly $13 billion from the year before. While the news is good, a look beneath the numbers investment in the Mozal aluminum smelter. The reveals that within the large group of developing nations, project's success, in turn, has encouraged others to benefits are concentrated among a relative few. More invest in a poor country still recovering from a dev- stable nations, or regions within nations, such as China's astating civil war, leading to today's more positive coastal industrial corridor, are getting the lion's share of FDI, while others are seeing little interest. Worth noting, outlook. however, is that despite the FDI concentration in a handful of countries, the investment that does go into other developing countries generates significant benefits, when considered from an FDI-GDP ratio perspective. The Case for Foreign Investment in the Developing World A new consensus is emerging among thinkers and leaders at diverse ends of the development spectrum, that attracting new, sustainable private investment is critical to improving the quality of life for all citizens--including the poorest--in emerging nations. They have drawn an inextricable link between economic growth and declining poverty, and between increased foreign direct investment and improved local economies. In addition to donor aid and public sector investment, the private sector can play a key role in reducing poverty, for example, by building roads, providing clean water and electricity, and above all, providing jobs. By taking on Frontier Countries Stand to Benefit the Most and business opportunity is now understood as the best chance for long-term improvements in the quality of life Frontier countries are defined as high-risk and/or low- for the billions living in poverty today. income countries.4 These are the markets that have the most need and stand to benefit the most from foreign investment, but which most investors are wary of and MIGA in Frontier Markets therefore attract little foreign business. These are also markets where other investment insurers are rarely MIGA's role is complex, reflecting the complicated task of prepared to enter. improving the economic prospects of poor countries and increasing the incomes of poor people. The availability of Frontier countries, or sometimes regions within MIGA's political risk insurance is often the determining countries, are often underserved by companies that are factor in whether or not a private investor decides to go just beginning to understand the business opportunities forward with a key project. MIGA's technical assistance in the developing world, as well as ways to mitigate per- and dissemination of investment information to private ceived risks. These markets typically exist in low-income companies and public officials alike, helps to improve the countries where the risks of doing business are perceived chances that projects will bring in positive returns--for to be high, and where there is a lack of readily available both the company and the local community. information about the investment opportunities that do exist. A sub-set of frontier nations are those emerging MIGA focuses on projects and activities that make a con- from a war or conflict, which for investors influenced by tribution to the overall strategy of the World Bank Group. years of negative news generated by the conflict, may be This means working closely with the Bank, investors, and seen as holding additional risk. host governments to identify projects and programs that fit within the context of country assistance strategies and And herein lies MIGA's role. MIGA is uniquely positioned World Bank regional strategies. It also means focusing through its investment insurance program to facilitate on countries where there is a strong commitment to the powerful development impact that private investment improving the investment climate, a critical factor in the 3 can make, as well as the strong business case for bottom site selection process. line profit. This combination of development impact Improving the Attractiveness of Frontier Markets MIGA's outward focus also brings to the development table an understanding of what private investors are looking for when they seek new locations for business expansion. Companies want nations that offer a good institutional framework--with political and macro- economic stability, a transparent and non-discriminatory legal and regulatory environment, and non-bureaucratic procedures and institutional processes. Theyalsosearchforalocationthatoffersaviablebusiness opportunity--a strong economic and social framework, a big and growing market, an efficient communications system, a qualified labor force, efficient local suppliers, and a good incentives policy. Frontier nations may lack some or all of these attributes. On top of this, investors often are not even aware of investment opportunities in developing countries, let alone those considered "frontier." 4MIGA uses the IFC's definition of frontier countries: High-risk countries are those with an Institutional Investor Country Credit Rating of 30 or less. Low-income countries are classified by the World Bank according to gross national income per capita using the World Bank Atlas method. Reassuring Investors through Political Risk Two cases in particular illustrate the comprehensive, far- Insurance reaching effect MIGA can have when it comes to getting frontier, conflict-affected countries back on their feet: MIGA's political risk insurance is at the core of the MIGA's support for investments in Bosnia-Herzegovina agency's product offerings. Guarantees to investors and Mozambique. and lenders cover the risks of expropriation, breach of contract, currency transfer restriction, and war and civil disturbance. MIGA guarantees boost investor confidence Bosnia: From `Mattress Money' to and can result in lowered borrowing costs, ultimately Mortgages, a Banking Sector Success reducing overall project costs. MIGA, through its expro- priation coverage, also mitigates sub-sovereign risk, a The banking sector is at the core of a nation's health. major obstacle preventing increased private investment Aside from physical infrastructure, one of the first things TCAP TCAP in the critical infrastructure sector. a corporate site selection team considers when evaluating location options is the country's financial set-up. And MI MI In fiscal year 2005, MIGA provided guarantees for 20 companies in search of a good location do not want to TNE TNE projects in 11 frontier countries. invest in places where routine banking is a major ordeal. MPOLEVED MPOLEVED At the end of the war in 1995, few banks operated in Tailoring Solutions for Countries Recovering Bosnia. Those that did--mostly small, locally owned from War enterprises--set loan rates very high, making borrowing next to impossible for the average citizen. In addition, Donor assistance alone is not enough to rebuild countries with the requirement of multiple guarantors to co-sign at the end of war. The private sector is critical in laying a loans, many people avoided the process altogether. The new foundation for sustainable growth, from rebuilding difficulty of getting loans and the high cost of credit also the infrastructure needed to get production going again, deterred many would-be business owners, adding to the 4 to creating jobs. MIGA's efforts combine guarantees to country's post-war economic woes. mitigate the very real political risks the private sector faces when it invests in such nations, with technical Mismanagement of banks was common, as was outright assistance to guide government officials on how to let theft by corrupt insiders. Others were faced with massive investors know about opportunities for investment and war-related debts and ended up in collapse, taking with createanattractiveinvestmentclimate.Thesecustomized them people's life-savings. Many citizens didn't trust the solutions are being developed in collaboration with safety of the institutions, preferring instead to stuff what other members of the World Bank Group to address the money they had under their mattresses and into other old- specific needs of countries under stress. For example, the fashioned household financial repositories. In the years fol- agency is now looking at industrial estate development lowing the war, scores of new banks started to spring up, as a solution available to conflict-affected countries with with minimal capitalization requirements and regulations highly unstable policy and security environments. to keep them in check. The banking sector--the lynchpin of a well-functioning economy--was in a state of crisis. Today, the sector stands transformed. An influx of activity by foreign banks, purchasing locally owned banks or starting anew, has brought a vibrancy and competitive edge to the moribund industry, spurring a wide range of new economic and consumer activity. "The transformation of the banking sector has been quite remarkable. I have to remind myself of the situation in 1997. There were four currencies in use then, 76 banks, none of which were national, and three banking systems that weren't being used by the citizens," says Peter Nicholl, former Governor of the Central Bank. The dramatic shift in the banking landscape is in part a result of the introduction of a new Central Bank in 1997, mandated by the Dayton Peace Accord, which estab- lished strict capitalization requirements and regulations. Combined with a new law calling for the privatization of all banks, these changes paved the way for an influx of foreign banks. But banking sector reform isn't the whole picture. Foreign banks, which tend to finance expansions through loans from parent banks, generally do not have the risk appetite of their local competitors and therefore tend to seek political risk insurance. In fact, three of the country's top four banks, in terms of market share, have received political risk insurance from MIGA. The banks agree that the agency's coverage was essential to the decision to issue loans from the parent banks. The impact of foreign banks on the domestic banking scene has been highly beneficial, from a commercial and developmental standpoint. Foreign banks helped reduce interest rates, increased consumer confidence in the banking system, instituted a more aggressive marketing approach with a wide range of services, introduced new tools, such as leasing, and brought in new ways of doing business, making loans accessible to everyday citizens and not just those with connections. Loan rates, which hovered around 30 percent in 2000, now average 9 percent. Foreign banks have opened up financing options, including long-term loans for big bor- Individual consumer loans, the centerpiece of HVB's rowers, who provide key goods and services and tend to portfolio, have traditionally helped finance the recon- be the country's largest employers. Retail banking has struction of property damaged during the war. But now also seen radical change, with banking deposits and demand for home mortgages is on the rise, along with 5 loans growing rapidly. new home construction activity--a strong driver of economic growth. With default rates low and demand for Banks supported by MIGA are driving these changes. its products climbing, the bank has uncovered a hidden HVB Central Profit Bank took over a bankrupt domestic opportunity to build a strong revenue stream while con- bank, with MIGA's support, and is now a market leader tributing to the growth and stabilization of an economy whenitcomestonewproductsandservices.Forexample, that had been in tatters just a few years ago. the bank unleashed a torrent of demand with the recent introduction of a new low-interest personal loan that does MIGA guarantees have also played a critical role in not require additional signatories. Within weeks of the Raiffeisen Zentralbank's commitment to Bosnia. When product's unveiling, eager consumers had received KM the Austrian bank first invested in the country, few other 15 million (roughly e7 million) in new loans, well above banks were operating. Today, RZB is Bosnia's largest the bank's target. bank, with KM 2 billon in assets, 424,000 customers, and 66 branches. One of RZB's key clients and a critical cog in the daily life of Sarajevo's citizens is Gras, the city's public trans- portation authority, providing transportation services to nearly a half a million customers a day. Gras' assets were severely damaged during the war, to the tune of some KM 100 million. RZB is supporting the company's repair and modernization plans, which include the ongoing replacement of vehicles, which generally have a 10-year street life, and the introduction of natural-gas powered buses and additional railway tracks for trams. So far, Gras has received KM 20 million in MIGA-guaranteed loans from RZB. "All of these projects are necessary for the city of Sarajevo," says Todorovic Predrag, Deputy General Technical Manager of Gras. "These loans are the only way to achieve a sustainable situation and modernize the fleet." And because of the new availability of commercial credit and other banking services, as well as the sector's sta- bility, other companies are growing too, adding jobs and social and economic indicators to tumble even further. contributing to the public coffers so that the country can And what little formal business economic activity that continue to rebuild its infrastructure and improve its took place came to a near total halt. services. Following the war, the new government actively worked to enact new laws and reform old ones, setting an example Despitestrongpotential,foreigninvestmentinBosniahas for others with its strict adherence to the legislation. The yet to take off in other sectors. Investors point to imped- gradual changes and increased political stability allowed iments such as an onerous business registration process, investors--and the world--to begin to see the country a complicated and inconsistent regulatory structure, not just in terms of a haunting conflict, but in terms of and high labor costs. Important reforms are underway, what it had to offer. And indeed, Mozambique, with its however. For example, the country will be implementing abundance of natural resources and ideal agricultural a new value-added tax system in 2006. In addition, the climate offers tremendous business opportunities for the TCAP TCAP World Bank is currently advising the government on other right investors. reforms affecting investment climate, and a program is in MI MI the works to privatize utilities, which are expensive to end- The careful structuring of one foreign investment in a TNE TNE users and add to the cost of running a business. These massive aluminum smelter project, known as Mozal, has reforms, along with the opportunities afforded by a fully begun to rejuvenate a devastated economy. MIGA played MPOLEVED MPOLEVED functional banking sector, are important steps towards a role in the project, the largest foreign investment in increasing foreign investments in the country. the nation to date, by providing $40 million in guarantee coverage to the Industrial Development Corporation of South Africa Ltd. With the World Bank Group's help, the The Mozambique Story project sent an all-important signal to other investors that Mozambique was not only open for business, but This is a story that has to do with resilience and the offered viable commercial opportunities as well. Mozal recapturing of entrepreneurial spirit. It is an example of has also encouraged the growth of a local small business 6 how investment from the outside--and the confidence supplier network while providing the kind of social, envi- that this activity instills--can trigger tangible, long-lasting ronmental, and educational support that contributes to change and permanent improvements in the quality of sustainable growth and improved quality of life. life for a nation's citizens. It is also the story of MIGA in another frontier country. Following on the success of this ongoing project, MIGA shifted its focus into another promising sector for the Mozambique's prolonged civil war, lasting from 1977-92, country. A MIGA guarantee issued in FY01 is helping is one of many conflicts that have scarred the African con- to rehabilitate Mozambique's largest sugar estate, tinent. One of the world's poorest countries even before creating thousands of jobs and generating significant the war, the conflict caused life expectancies and other economic and social benefits in the country's underde- At a Glance MIGA in Bosnia and Mozambique Since its inception, MIGA has issued 32 guarantees totaling $335 million in coverage for projects in Bosnia. The country currently ranks eighth in terms of MIGA guarantee exposure. FDI into the country was $438.6 million in 2004. Mozambique ranks sixth in terms of guarantee exposure. To date, MIGA has issued 27 contracts for projects in the country, totaling $423 million in guarantee coverage. FDI into the country was $337 million in 2003. The project is one of the largest economic devel- opment undertakings and a main employer in northern Mozambique, which has historically attracted little FDI. It has resulted in extensive benefits to the local com- munity and country. The enterprise currently employs 5,000 people, more than half of whom work full-time on a permanent basis. A number of social benefits have made a critical difference for local residents, including higher incomes that allow residents to send their children to school, improve housing, and purchase bicycles. Employees also benefit from a small health clinic sponsored by Sena, while the nearby Beira hospital receives free water, electricity, equipment, and medicine from the company. Sena has itself built a water plant for the community, brought in its own electricity gen- erator, and built the refinery. The investor has also reha- bilitated a school that operates three shifts on a 24-hour basis to accommodate three separate classes. Buildings not used by the company are provided free-of-charge to others, including an NGO running an orphanage for HIV orphans. Sena continues to carry out all repairs and veloped Marromeu region. MIGA extended $65 million maintenance. in investment insurance to the "Sena Group"--a con- sortium of Mauritian companies--and to the Industrial This is just a small part of MIGA's ongoing commitment Development Corporation of South Africa Ltd., covering to Mozambique, where agency guarantees have offered their equity investments, management and technical protection for investments in a broad range of sectors 7 assistance contract, and loan for the project. including mining, oil and gas, manufacturing, agri- business, tourism, infrastructure, and financial services. The project, located on the Zambezi River, entails the rehabilitation and management of the former Sena Sugar MIGA is also active in helping the country market its Estate, which was severely damaged during the civil war. investment opportunities. For example, MIGA is sup- The investment has so far resulted in the processing porting the Mozambique Investment Promotion Centre of roughly 750,000 tons of sugar cane a year, for both in its efforts to attract foreign direct investment and domestic and foreign markets. strengthen linkages with the local business community. The agency is doing this in a number of ways, providing advice on the implementation of a free zone, conducting a tourism sector review, and undertaking an enterprise benchmarking exercise. Today, life is getting better for Mozambicans, a testament to their resilience and drive, as well as to the positive impact of investment promotion and thoughtful foreign investment, designed with the business needs of the investor and the development priorities of the country in mind. Afghanistan: Rebuilding a Nation and its Infrastructure Ask investors to rank top picks of countries with investment potential, and Afghanistan, stricken by decades of war and strife, probably would not appear on such a list. After all, much of the country's infrastructure has been destroyed. Political uncertainties remain. Financial markets are nascent. And the legal and regu- latory framework to support a well-functioning economy is only beginning to emerge. Now, with the hard work to rebuild the economy in its early stages, MIGA is playing a TCAP TCAP MI MI TNE TNE MPOLEVED MPOLEVED critical role in a phased approach, in close collaboration latory reforms that would improve the business climate, with other parts of the World Bank Group. all directed at attracting much-needed investment in industrial infrastructure and other areas. MIGA's To encourage more investment, MIGA is focusing on guidance is also providing Afghan officials with a road implementing changes that will make the country more map on what kinds of incentives would be most effective attractive from a private investor's perspective. MIGA in attracting appropriate investments. is working with the Afghan Investment Support Agency 8 to help build its capacity to work effectively with foreign This technical assistance complements a new investment investors, with a focus on marketing investment oppor- guarantee facility designed to help bridge the gap tunities in targeted sectors. Efforts aim to identify gaps between investors' desires to tap business opportunities in policies where new laws might be needed or regu- in the country and concerns about political risks. The Afghanistan Investment Guarantee Facility, administered by MIGA, will mitigate key risks for foreign investors by providing political risk insurance for their investments, while encouraging partnerships with local businesses.