2004 ANNUAL REPORT WORLD BANK GROUP Multilateral Investment Guarantee Agency Our Mission To promote foreign direct investment into developing countries, in order to support economic growth, reduce poverty and improve people's lives 2 Guarantees Through its investment guarantees, MIGA offers protection for new cross-border investments, as well as expansions and privatizations of existing projects, against the following types of non-commercial risks: q Currency inconvertibility and transfer restrictions q Expropriation q War and civil disturbance q Breach of contract, including the wrongful call of performance instruments Technical Assistance and Information Services MIGA helps countries attract and retain foreign direct investment through: q Advice and tailored assistance to investment promotion intermediaries q A suite of online services--FDI Xchange, IPAnet and PrivatizationLink-- about investment opportunities, business operating conditions and business partners Investment Dispute Mediation MIGA provides advice to encourage the settlement of disputes between investors and developing member countries Cover illustration Detail of Call My Name, 1999 Pacita Abad, The Philippines Contents i ii Fiscal 2004 Highlights iv Letter from the President to the Council of Governors v Board Activities Highlights vi Message from the Executive Vice President ix Partnerships Development Impact 3 Reaching Out to Small and Medium Enterprises 6 Benchmarking Country Competitiveness Operational Review 10 Guarantees 18 Legal and Claims 19 Investment Marketing Services 22 Operations Evaluation Regional Activities 24 Asia and the Pacific 28 Europe and Central Asia 41 Latin America and the Caribbean 45 Middle East and North Africa 48 Sub-Saharan Africa 54 Financial Overview 61 Financial Statements 77 Appendices Fiscal 2004 Highlights Table 1 Guarantees Issued Total 2000 2001 2002 2003 2004 FY90-04 Number of Guarantees Issued 53 66 58 59 55 711 Number of Projects Supported 37 46 33 37 35 453 HIGHLIGHTS Amount of New Issuance, Gross ($ B) 1.6 2.0 1.2 1.4 1.1 12.8 Amount of New Issuance, Total ($ B)1 1.9 2.2 1.4 1.4 1.1 13.5 Gross Exposure ($ B)2 4.4 5.2 5.3 5.1 5.2 - Net Exposure ($ B)2 2.8 3.2 3.2 3.2 3.3 - ii 1 Includes amounts leveraged through the Cooperative Underwriting Program (CUP). 2 Gross exposure is the maximum aggregate liability. Net exposure is the gross exposure less reinsurance. Figure 1 Earned Premium, Fee and Figure 2 Number of Technical Assistance Investment Income*, $ M Activities * Excludes other income Membership In fiscal 2004, the Islamic Republic of Iran and Suriname joined MIGA, bringing the number of member countries to 164. All dollar amounts used in this Annual Report are current US dollars unless otherwise specified. Coverage for Priority Areas1 q 20 projects and 35 technical assistance activities in IDA-eligible countries2 q 14 projects for small and medium enterprises (SMEs)3 q 8 "South­South" projects4 q 4 projects and 28 technical assistance activities in sub-Saharan Africa Highlights q First guarantee coverage for investors from the Czech Republic and Poland q Three water projects supported--two in China and one in Russia q 16 projects supported in conflict-affected countries q 65 technical assistance activities conducted in 29 countries, along with regional and global initiatives q New technical assistance work initiated in Afghanistan, China, Mali, Paraguay, South Africa and Tajikistan q The European Investor Outreach Program launched with co-funding from the Austrian government iii q FDI Promotion Center launched Partnerships q Five new cooperation agreements signed with: the African Trade Insurance Agency (ATI), Banque de Développement des États de l'Afrique Centrale (BDEAC), Export Guarantee Fund of Iran (EGFI), Jordan Loan Guarantee Corporation (JLGC) and Servizi Assicurativi del Commercio Estero of Italy (SACE) q Facultative reinsurance provided: to MIGA--$238 million for seven projects; and by MIGA--$4.0 million for one project q Training programs held for MIGA's partners from Europe and Canada. Regional training program held in Iran Cooperation with World Bank Group q Worked with the Foreign Investment Advisory Service in China, Fiji, the Pacific Islands and Tajikistan q Conducted investment promotion activities in Armenia, Honduras, Iraq and Mozambique with the World Bank q Worked with the World Bank to promote private sector business opportunities in Afghanistan q Board approval for joint MIGA-IDA Guarantee Facility, co-guaranteed by the Agence Française de Développement, to support investments in West Africa q Collaborated with the International Finance Corporation (IFC) and the World Bank on the Sasol oil and gas project in Mozambique q Worked with IFC on technical assistance projects in China and Panama Claims q Resolved six disputes involving investors insured by MIGA to the satisfaction of all parties 1Some projects address more than one priority area. 2The International Development Association (IDA), a member of the World Bank Group, helps the world's poorest countries reduce poverty by providing "credits"--which are loans at zero interest--and grants. 3A small and medium enterprise meets two of the following three conditions: up to 300 employees; total assets of up to $15 million; and total annual sales of up to $15 million. 4Investments made from one developing country to another developing country. Against the backdrop of falling FDI flows, MIGA was Letter from the President able to support a greater proportion of projects in the poorer countries eligible for financing from the to the Council of Governors International Development Association (IDA) and the small and medium enterprise sector in fiscal 2004. In addition, MIGA provided guarantees for 16 new projects in conflict-affected countries. Recognizing the importance of safe drinking water, the Agency also sub- stantially grew its exposure in the water sub-sector. MIGA's technical assistance program remained in high demand in fiscal 2004, as governments sought to compete fiercely in attracting and retaining scarce FDI inflows. Half of the 29 countries assisted in fiscal 2004 are IDA-eligible, and 28 activities took place in sub- Saharan Africa. To help investment promotion inter- HIGHLIGHTS mediaries--especially in remote areas--access state- of-the-art tools for attracting FDI, MIGA launched the web-based FDI Promotion Center. Fiscal 2004 has also been notable for a change of lead- James D. Wolfensohn, president of the Multilateral ership at MIGA. I would like to thank Mr. Motomichi iv Investment Guarantee Agency (MIGA) and chairman Ikawa for his dedicated service as executive vice of its Board of Directors, submits to the Council of president of the Agency for six years. Much of MIGA's Governors on behalf of the Board of Directors and growth and evolution happened during his tenure, with in accordance with MIGA's bylaws, this report and member countries increasing from 145 to 164 and audited financial statements for the fiscal year ending gross exposure increasing from $2.9 billion to $5.2 June 30, 2004. billion. In addition, Mr. Ikawa led the successful effort to double MIGA's capital base. Foreign direct investment (FDI) into developing countries fell for the second consecutive year in 2003, I would also like to warmly welcome Ms. Yukiko Omura, as war, terrorism and economic crises dissuaded who joined MIGA as the new executive vice president in many foreign investors from venturing into difficult or May of this year. Ms. Omura brings to her new position uncertain markets. The decline comes at a time when a unique combination of many years of investment the need for private investment in developing countries banking experience and a commitment to development has never been more urgent. While some progress has issues, including the global fight against HIV/AIDS. Her been made in the global fight against poverty, many dynamic leadership will be crucial in repositioning the countries in Africa, Latin America and the Caribbean Agency to more effectively promote FDI, especially into and Europe and Central Asia have seen the proportion difficult places such as conflict-affected countries, and of poor people growing or falling only slightly in recent to fully utilize the network of partnerships that MIGA years. As two billion more people, mainly in developing has--within the World Bank Group and outside. countries, are added to the global population in the next 25 years, there is a great risk that the world's poor Ms. Omura's appointment comes at a time when the will be left further behind. fight against poverty demands that the institutions of the World Bank Group scale up their development The institutions of the World Bank Group have identified impact. I have full confidence that MIGA, under her two strategic pillars that are key to reducing poverty: guidance, will make a positive difference in the lives of building the climate for investment, jobs and sus- poor people by broadening and deepening the flow of tainable growth, and empowering people to participate productive investments into developing countries. in development. By providing political risk insurance for foreign investments and technical assistance to James D. Wolfensohn developing countries, MIGA plays a critical role in sup- June 30, 2004 porting this strategy. (CODE) advises the Board on operations evaluation and Board Activities Highlights development effectiveness with a view to monitoring progress towards the World Bank Group's mission of poverty reduction. The Personnel Committee advises the Board on compensation and other significant per- sonnel policy issues. In addition, directors serve on the The Multilateral Investment Guarantee Agency's 164 Committee on Governance and Executive Directors' member countries, through a Council of Governors and Administrative Matters (COGAM). a Board of Directors, guide its programs and activities. Each country appoints one governor and one alternate. During fiscal 2004, MIGA's Board of Directors con- MIGA's corporate powers are vested in the Council curred with or approved 39 individual investment of Governors, which delegates most of its powers guarantee operations. It also oversaw and reviewed to a Board of 24 directors. Voting power is weighted MIGA's budget and planning process. In addition, the according to the share capital each director represents. Board took note of a report establishing MIGA's Small The directors meet regularly at the World Bank Group Investment Program (SIP) and approved a waiver of headquarters in Washington, D.C., where they review the requirement to circulate to the Board reports of and decide on investment projects and oversee general guarantees issued under the SIP prior to their approval management policies. by the President. The Board approved MIGA's contri- bution to the creation of a joint guarantee facility-- Directorsalsoserveononeormoreoffivestandingcom- involving IDA, the Agence Française de Développement mittees, which help the Board discharge its oversight and MIGA. The facility supports investments in West responsibilities through in-depth examinations of African states that are members of the Banque Ouest- policies and procedures. The Audit Committee advises Africaine de Développement (BOAD). In addition, the v the Board on financial management and other gov- Board approved a waiver of the requirement to circulate ernance issues to facilitate Board decisions on financial to the Board reports of guarantees issued by the facility policy and control. The Budget Committee considers prior to their approval by the President. The Board aspects of business processes, administrative policies, approved and submitted to the Council of Governors standards and budget issues that have a significant a proposal to achieve voting power parity between impact on the cost effectiveness of the Bank Group oper- MIGA's Category One (developed) and Category Two ations. The Committee on Development Effectiveness (developing) member countries. MIGA's Board of Executive Directors, as of June 30, 2004 Standing, left to right: Per Kurowski, Terry O'Brien*, Otaviano Canuto, Paulo F. Gomes, Nuno Mota Pinto*, Pierre Duquesne, Thorsteinn Ingolfsson, Tanwir Ali Agha, Tom Scholar, Gino Pierre Alzetta*, Eckhard Karl Deutscher, Alexey G. Kvasov, Louis A. Kasekende, Abdulrahman M. Almofadhi*, Rapee Asumpinpong Seated, left to right: Guangyao Zhu, Pietro Veglio, Carole Brookins, Mahdy Ismail Aljazzaf, Gobind Nauth Ganga*, Tamara Solyanyk*, Alieto A. Guadagni Absent: Chander Mohan Vasudev, Masakazu Ichikawa* * Alternate Message from the Executive Vice President of the most important ways out of poverty. Foreign direct investment plays an important role in pro- viding private capital, creating jobs, bringing technical expertise and managerial know-how, and connecting developing countries to global markets. In recent years, FDI into developing countries has been HIGHLIGHTS declining markedly. From an all-time high of $180 billion in 1999, FDI flows into developing countries have fallen by more than 25 percent. This comes at a time when developing country investment needs-- especially in basic infrastructure--are growing. The problem is even more acute than these broad sta- vi tistics indicate, because more than 60 percent of FDI into developing countries goes to just five countries. While East Asia, the EU accession countries, and a few Latin American states have attracted the lion's share of investment, the vast majority of countries-- especially in Africa and in conflict-affected areas--have not been able to attract and retain significant amounts of FDI. I am honored to have been appointed as executive vice president of MIGA in May of this year and to work with This difficult operating environment has led to mixed an organization that supports the World Bank Group's results for the Agency in fiscal 2004. While the total mission of reducing poverty by catalyzing foreign direct amount of guarantees issued fell slightly, to $1.1 investment into the developing world. billion, a greater proportion of projects supported were in the poorer countries eligible for financing from the As president Wolfensohn frequently emphasizes, the International Development Association (IDA). Indeed, scaleof thedevelopment challengeisindeeddaunting-- MIGA's effectiveness as a development agency lies but not nearly as steep as the price of failure. About 1.2 in the fact that it can play a role in supporting sound billion people still live on less than $1 a day, between 2 private investments in environments which would and 2.5 billion people do not have access to sanitation, otherwise be considered by investors to be excessively 1.5 billion people have no access to clean water, and risky. In such situations, MIGA can manage the risks as many do not have access to electricity. Success can better, particularly in relation to the private insurance only be achieved through a concerted and increased sector, and hence be able to provide coverage where commitment by multilateral organizations and others cannot. This role is particularly relevant when the governments of developing and developed FDI flows are declining or flat. countries alike. MIGA can also provide added value in complex trans- Although a small agency, MIGA has a broad mandate-- actions, particularly in infrastructure. We have seen to promote productive foreign direct investment (FDI) continued investor interest and concern about water flows into developing countries. As we have seen in projects in particular. MIGA's ability to cover sub- many of these countries, economic growth through sovereign risk can mitigate political concerns and the development of a thriving private sector is one encourage investment in this sub-sector. We have been building our base of experience, insuring three contribute to sustainable development even more water projects in the past year, two in China and one effectively. To this end, I have undertaken a number in Russia. We also see opportunities to work with of changes in MIGA's organization, structure and pri- investors in small infrastructure projects. Specifically, orities that will allow the Agency to be more nimble, we have worked with the World Bank, the Agence efficient and innovative. Française de Développement, and Banque Ouest- Africaine de Développement (BOAD) to establish a The merging of MIGA's technical assistance and guar- joint guarantee facility in West Africa that will support antees units into one operational department, based in smaller infrastructure projects in the sub-region. Washington, D.C., will allow more proactive outreach to our diverse but interrelated clients--host countries and MIGA increased its support for the small and medium foreign investors. With both activities now in one unit, enterprise sector by supporting 14 new projects in MIGA will be better able to serve member countries fiscal 2004. Although this sector accounts for most through unparalleled insight into what investors look private sector activity in developing economies, for when considering an investment and who those vii smaller foreign companies have particular problems investors might be. At the same time, MIGA will be in identifying cross-border risks and opportu- able to provide potential investors with the additional nities, and in finding adequate risk mitigation comfort that MIGA's staff are working in continuous instruments. MIGA's activities in fiscal 2004 reflect and close coordination with the relevant host country the continuing efforts that the Agency has made, to ensure that the right conditions exist, not just to and will continue to make, in supporting this under- attract, but also to retain foreign investment. served sector. In addition, a comprehensive risk management MIGA also plays an important role in encouraging framework will support MIGA's underwriting activities FDI into conflict-affected countries--this is where we by holistically assessing project risks, actively managing are most needed, since the perception of political risk the risk exposure of the Agency's portfolio and proac- is usually very high, and risk mitigation capacity is tively working to resolve potential claims before they quite limited. Bosnia and Herzegovina and Serbia and arise. We will also be working even more closely with Montenegro now rank among our top ten beneficiary our development partners, both within the World Bank countries. In fiscal 2004, MIGA supported 16 new Group and outside. projects in conflict-affected countries. MIGA's technical assistance work is a valuable resource Going forward, I am committed to improving our that can benefit the Agency's guarantees business. This regional distribution, particularly in sub-Saharan is especially relevant for difficult or frontier markets, Africa and the Middle East and North Africa, the two where the Agency has been particularly active. In fiscal regions that have received the least FDI, and where 2004, MIGA undertook 35 technical assistance activities the Agency's performance has remained below expec- in IDA-eligible countries. The Agency also launched tations, despite extensive outreach efforts. the European Investor Outreach Program, based in Vienna, which aims to increase investor awareness We are operating in a changing environment, where of the Western Balkans, a region whose image suffers the demands from both host countries and the private from past conflicts. MIGA's online activities support sector are evolving. If MIGA is to continue to play a the Agency's operations by linking investors with host leading role in promoting and catalyzing foreign direct countries through providing a single reference point investment, the Agency must both adapt to these for investment opportunities. Also, the launch of the changes and ensure that the projects it supports FDI Promotion Center, an online portal that builds on MIGA's well-known Investment Promotion Toolkit, that MIGA supports projects which contribute to sus- extends the reach of MIGA's training capabilities and tainable development; and to ensure that the products knowledge sharing. we offer our host countries and investor clients are relevant to the changing market environment. The best way to serve our shareholders is to focus even more closely on our clients and partners. Our goals must be to leverage MIGA's unique strengths Yukiko Omura in opening up difficult or frontier markets; to ensure June 30, 2004 HIGHLIGHTS viii MIGA's Management Luis Dodero Yukiko Omura Team General Counsel and Executive Vice President Vice President, (Left to right) Legal Affairs and Claims Tessie San Martin Director, Frank Lysy Operations Chief Economist and Director, Economics and Policy Amédée Prouvost Chief Financial Officer and Moina Varkie Director, Chief, External Outreach and Finance and Risk Management Partners Marcus Williams Special Assistant to the EVP Partnerships Partnerships continued to play an important role in helping MIGA extend its outreach and leverage its resources during fiscal 2004. The Agency engages in partnerships with other insurers, government agencies and international organizations with several goals in mind: to ensure complementary services and approach; to strengthen its technical assistance activities and online information services; to increase the capacity of the political risk insurance industry; and to encourage insurers into frontier markets where they may not feel comfortable venturing on their own. In fiscal 2004, MIGA signed Memoranda of activities with several partners, including the European Understanding (MOUs) with five partners, bringing Agency for Reconstruction in the Balkans, the the total number of MOUs to 37. Most of these Commonwealth Secretariat for the Pacific Islands, and partners are export credit agencies or development the European Community for its investment programs finance institutions. The partnerships encourage joint in Africa, Latin America and the Caribbean, and the ix marketing initiatives and cooperation in coinsurance Pacific Islands. In addition, MIGA worked closely with and reinsurance activities. MIGA regularly provides the Austrian and Swiss governments in designing training for its partners in an effort to build their insti- and implementing donor-funded investor outreach tutional capacity and capability to provide political risk programs for Africa and Europe and Central Asia, and insurance. In fiscal 2004, MIGA held training programs with the Japanese government, under the Development for partners from Europe and Canada and participated Gateway Foundation, for an online information service in a regional training program held in Iran. about FDI. MIGA also works closely with public and private insurance partners through reinsurance and coin- surance arrangements. The Agency has collaborated with several of these insurers and other partners to stimulate discussion and share knowledge about the challenges and best practices of the political risk insurance industry. In fiscal 2004, the results of a major symposium, co-sponsored by MIGA and Georgetown University in Washington, D.C., were published in a book, International Political Risk Management: The Brave New World. MIGA's online information services depend on part- nerships with content providers. In fiscal 2004, MIGA signed 17 content provider agreements, bringing the total number of such providers to 88. The Agency also PHOTO | Training program, Kish Island, concluded agreements to work on technical assistance Iran Table 2 Memoranda of Understanding Partners Partner Organization Date Signed Banque de Développement des États de l'Afrique Centrale (BDEAC)* April 2004 Jordan Loan Guarantee Corporation (JLGC) March 2004 Export Guarantee Fund of Iran (EGFI) February 2004 SACE S.p.A., Servizi Assicurativi del Commercio Estero, Italy October 2003 African Trade Insurance Agency (ATI)* August 2003 Agence Nationale Chargée de la Promotion des Investissements et March 2003 des Grands Travaux (APIX), Senegal Export-Import Bank of Romania January 2003 Asian Development Bank* September 2002 Compañía Española de Seguros de Crédito a la Exportación, S.A. (CESCE), Spain June 2002 HIGHLIGHTS Export Credit Insurance Corporation of South Africa Ltd. (ECIC) June 2002 Seguradora Brasileira de Crédito à Exportação S/A (SBCE), Brazil March 2002 Banco Nacional de Desenvolvimento Econômico e Social (BNDES), Brazil March 2002 Trade and Investment Development Corporation of the Philippines (TIDCORP) February 2002 Export Credit Guarantee Corporation of India, Ltd. (ECGC) February 2002 Österreichische Kontrollbank Aktiengesellschaft (OeKB), Austria January 2002 x Slovene Export Corporation (SEC), Slovenia December 2001 African Development Bank (AfDB)* November 2001 Export-Import Bank of Thailand (EXIM) November 2001 Fundación ProBarranquilla, Colombia October 2001 PROPARCO, France July 2001 Export Credit Insurance Organization (ECIO), Greece June 2001 Korea Export Insurance Corporation (KEIC) May 2001 PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC), Germany December 2000 People's Insurance Company of China (PICC-SINOSURE) November 2000 Finnvera plc, Finland October 2000 Austria Wirtschaftsservice Gesellschaft mbH (AWS) October 2000 Islamic Corporation for the Insurance of Investments and Export Credit (ICIEC)* October 2000 Eksport Kredit Fonden (EKF), Denmark May 2000 Malaysia Export Credit Insurance Berhad (MECIB) May 2000 Società Italiana per le Imprese all'Estero (SIMEST), Italy November 1999 Export Credit Bank of Turkey October 1999 Export Finance and Insurance Corporation (EFIC), Australia May 1999 Nippon Export and Investment Insurance (NEXI), Japan April 1999 ECICS Credit Insurance Ltd. of Singapore November 1998 Inter-Arab Investment Guarantee Corporation (IAIGC)* February 1997 Export-Import Bank of India March 1996 Compagnie Française d'Assurance pour le Commerce Extérieur (COFACE), France December 1994 * Denotes a regional multilateral organization DEVELOPMENT IMPACT 1 Reaching out to Small and Medium Enterprises Benchmarking Country Competitiveness For most developing countries, official development assistance and local private resources are not sufficient to stimulate economic growth and provide the opportunities needed for improved quality of life. With the right regulatory and policy climate, foreign investment is vital for bringing access to what is needed--capital, technology and managerial and environmental best practices--to spur development. MIGA's mission is to enable developing countries build up their local economies, reduce poverty and improve people's lives through promoting foreign direct investment. MIGA does this in two ways: its political risk insurance makes a difference between a productive foreign investment going ahead or not; and its technical assistance activities help equip countries with the tools necessary to attract and retain foreign investments. IMPACT MIGA-sponsored projects cover a range of sectors that convey many direct benefits to host countries, including local job creation, skills transfer and a general positive impact on the economy through fiscal revenues and export earnings. DEVELOPMENT MAKING A A significant portion of the Agency's portfolio is in support of financial services and infrastructure, fundamental building blocks of economic DIFFERENCE 2 development. Within the infrastructure sector, MIGA has been increasingly in demand for water projects, because the Agency is able to provide guar- antees at the sub-sovereign level--the level at which the vast majority of water concessions are handled. In fiscal 2004, MIGA supported two water projects in China and one in Russia. These projects ensure the supply of safe and reliable drinking water--a Millennium Development Goal-- helping reduce child mortality and the risk of disease. Without this basic service, economic activity cannot thrive. MIGA's increasing efforts to integrate its activities with the Country Assistance Strategies (CASs) of the World Bank Group will further enhance the Agency's development impact. As each CAS is prepared in consultation with government officials, civil society organizations, development partners and other stakeholders, MIGA is better able to ensure that its technical assistance activities and guarantee projects are consistent with country priorities and supportive of partner initiatives. During fiscal 2004, MIGA collaborated closely with World Bank Group country teams to develop innovative approaches to facilitate FDI in Indonesia, Kenya, Mozambique and Tanzania. The development themes discussed in this year's annual report focus on two important areas where MIGA has been active in promoting foreign direct investment. The first describes MIGA's support for small and medium enterprises. Smaller companies constitute most of the private business sector in developing countries and a thriving SME sector is therefore critical to creating long-term employment and alleviating poverty. The second theme highlights MIGA's efforts to help countries assess their competitiveness and develop improved strategies to attract and retain appropriate FDI. Reaching out to Small and Medium Enterprises Small and medium enterprises (SMEs) can jump-start economic growth in even the poorest of countries. Indeed, they offer what is often the only hope of a better livelihood for millions of entre- preneurs and workers in developing countries. In Africa, according to the United Nations Industrial Development Organization, SMEs constitute some 90 percent of all private commercial enterprises currently in operation. But SMEs face enormous obstacles, particularly in developing countries where lack of access to finance, insufficient internal resources and management capabilities, and legal and regulatory barriers pose significant challenges. Foreign direct investment (FDI) can play an important rently account for more than 70 percent of RBRO's role in SME development, either through joint ventures total lending portfolio. 3 with local partners or through the establishment of wholly foreign-owned enterprises. FDI brings access to One of RBRO's SME clients is Altipo Construction Ltd. finance, new technologies, modern business practices (Altipo), a company involved in importing, assembling and market links for smaller companies. To date, the and installing windows. Altipo started operations in bulk of MIGA's support for SMEs--more than 70 1997 with three employees. Today the company employs percent--has been through the provision of guarantees some 80 workers and in 2003 had an annual turnover to financial institutions that lend to SMEs. FDI into the of e1.6 million. The company needed fast access to financial sector of developing countries has not only financing in order to maintain its growth and turned helped improve access to capital by SMEs, but has to RBRO for a loan in 2003. "With RBRO we found the introduced new technologies, better services and new flexibility and willingness to offer solutions that would products in the banking systems of these countries. help our company grow," says Sorin Boureanu, Altipo's General Manager. Raiffeisen Bank S.A. Romania (RBRO), whose lending operations are supported by long-term loans from its Austrian parent, Raiffeisen Zentralbank Österreich AG (RZB), has been a beneficiary of MIGA's SME focus. Cumulatively, MIGA has provided guarantees worth around e80 million against the risks of currency transfer restrictions and expropriation of funds for RZB's loans and interest repayments to its Romanian subsidiary. A site visit and review of RBRO's oper- ations in fiscal 2004 confirmed that the bank is having a positive development impact. Its operations have helped improve the access of the Romanian SME sector to term financing and has provided a wide range of financial products and services to clients throughout the country through an extensive branch network. The bank has also introduced new products--such as leasing--along with modern methods of cash man- agement to the Romanian financial sector. SMEs cur- PHOTO | Altipo Construction Ltd., Romania Box 1 SME Support in Conflict-Affected Countries There are unique challenges involved in investing in SMEs in conflict-affected countries, and MIGA's expe- rience demonstrates that insurance can play a critical role in easing investors' concerns about the threat of renewed violence, lack of foreign exchange and the potential that laws will not be enforced. To date, MIGA has promoted FDI into several conflict- affected countries, including Azerbaijan, Bosnia and Herzegovina, Nigeria and Serbia and Montenegro. In fiscal 2004, the Agency supported 16 new projects in conflict-affected countries. One of these involves a e1.3 million guarantee to the International Dialysis Centers B.V. (IDC) of the Netherlands for its investment in a new renal dialysis facility in the Republika Srpska area of Bosnia and Herzegovina. This was the third guarantee to IDC. The 4 previous two, totaling $1.3 million, were provided in fiscal 2001 for the creation and management of a renal dialysis facility in the city of Banja Luka. The new facility will provide high-quality dialysis services for up to a quarter of all dialysis patients living in the Republika Srpska area. Using state-of-the-art medical equipment, the facility will help to improve patients' life expectancy and quality of life. The hospital that houses the new treatment center is also expected to benefit from refurbishments associated with the new facility. PHOTO | Banja Luka Dialysis Center, Bosnia and In addition, the project will supply a medical waste Herzegovinia and water treatment unit and is already providing extensive technical, medical and managerial training to facility staff. IDC's experience in Bosnia and Herzegovina is com- pelling--both for the impact the project has already made on a country ravaged by war and poverty, and for the power of a small investor to make a significant difference to a community. The new clinic replaced an existing dilap- idated facility, where services were poor and dangerous for patients. Today, the quality of treatment has undergone a complete turnaround. As the first private investor in the health care sector in the Balkans, IDC is paving the way for others, developing successful models that can be replicated elsewhere. "This is a story about change," says Dr. Vlastimir Vlatkovic, the clinic's medial director. "We have a rush here, not just to cure patients but also to educate them and change their way of thinking. This is very important in a post-war country, where many people have the impression that no one cares about them." To date, MIGA has supported 117 projects that directly benefit SMEs--14 projects in fiscal 2004 alone. One such project is in Uganda, where the SME sector has played a key role in the country's remarkable turn- around. In fiscal 1999, MIGA issued two guarantees worth $6.5 million in coverage, for an investment by Afriproduce Ltd. (a UK-based company) in Ugacof Ltd., a Ugandan coffee processing facility. The insurance covers the company against the risks of transfer restriction, expropriation, and war and civil disturbance. This support was critical at a time when Uganda was still facing economic difficulties. A site visit to the country in fiscal 2004 showed the project's significant impact on the local economy. The company has introduced cost-effective processing techniques to produce coffee for export, and buys the bulk of its coffee beans from small-scale farmers, paying cash on delivery. The company has made regular contributions to local schools and installed a facility to give the local community better access to water. With more than 200 PHOTO | Ugacof Ltd., Uganda employees on its payroll, the enterprise has been suc- cessful in encouraging knowledge transfer, training and a merit-based system of employment. A significant 5 number of management and supervisory positions are held by women. ventures involving mainland Chinese businesses and Hong Kong-based SMIs. In Europe, a large number The development of SMEs requires more than just of cross-border partnerships have emerged involving investment in the form of FDI or local financial support. German and Austrian SMIs that outsource to SMEs Technical assistance is critically needed, not just for in eastern European nations such as the Czech small businesses, but for the intermediaries that serve Republic, Hungary and Poland. And in Africa, smaller them, and the government authorities that have the South African businesses are beginning to invest in power to remove bureaucratic hurdles and enact laws attractive SME opportunities in neighboring countries. to create small business-friendly environments. But evidence suggests that many SMIs are unable to invest in developing countries because they are unable MIGA's capacity building activities help strengthen the to access the right types of financial products from facilitation, servicing and policy advocacy functions of financial institutions and are underserved by insurers. investment intermediaries. As a result, SMEs benefit Many are also simply unaware that political risk from more relevant and effective services and from insurance products exist. improvements in the investment climate. In addition, MIGA's online information dissemination services, To support a potentially growing source of FDI, MIGA such as FDI Xchange and IPAnet, provide a cost- developed a Small Investment Program (SIP) in fiscal effective mechanism to channel up-to-date information 2004. The SIP offers a simplified guarantees product, to and from SMEs. involving a standardized package of risk coverages and a quicker and more efficient underwriting process. It addresses many of the problems relating to under- Scaling up to Support Small and Medium-Sized writing processes and information requests that SMIs Investors (SMIs) have encountered in working with MIGA in the past. The pilot program will be implemented in close coop- Recent experience shows that smaller companies eration with external partner institutions such as com- with an eye toward expansion overseas can power mercial banks and export credit agencies. The program the economic development of a region through their aims to encourage more South-South investments, support of SMEs. The economic success of the southern as well as increase SMI investments in countries and provinces of China came about largely because of the regions that have not yet benefited significantly from highly efficient cross-border SMI alliances and joint FDI flows. Benchmarking Country Competitiveness As companies emerge from the belt-tightening and downsizing trends of the past few years, new investments in developing countries will be cautious and carefully considered. A company will IMPACT seek to mitigate risks by gathering as much quality information as possible on a country's business climate and government policies, specific industry factors, investment promotion services, infra- structure and labor. DEVELOPMENT Site selection teams typically consider hundreds of studies will help them make more informed decisions 6 factors as part of an increasingly rigorous due diligence about their investments and how to mitigate any asso- process designed to secure new locations that offer the ciated risks. MIGA developed a new methodology optimal mix of least cost and best value. As they evaluate for the studies, incorporating factors that companies and compare investment options, some factors will be consider when they conduct their own location com- easily quantifiable, such as expenses that fall directly to parative analyses. Benchmarks were established against the bottom line, including labor costs, taxes and build- which quantitative comparisons can be made across a out or leasing costs. Others require more qualitative range of critical factors, such as political and social sta- judgment, such as an assessment of the condition of bility, labor costs and availability, and regulatory envi- roads and the efficiency of government services. ronment. The analyses are designed to supplement the vast amount of diagnostic With competition for FDI as work already undertaken by the intenseasever,investmentpro- World Bank Group and to offer motion agencies in developing MIGA's study enables insight into investor priorities, countries must have a firm fine-tuned, targeted such as which infrastructure grasp on what investors are improvement and reforms are marketing programs that seeking. They must work most important. harder to understand what position a country's strategic sets them apart, what they can advantages from the perspective A business that relies on its offer and what might make interface with customers in of the investor. them the location of choice for another country, for instance, firms evaluating a variety of will value information investment options. regarding availability of an ample pool of trained local MIGA has launched a series of regional analyses to managers, reliable electricity for phone and computer benefit both investors and host countries by bench- systems, a labor supply with strong language skills and marking the critical factors foreign investors evaluate safe commuter transportation for night shift workers. when considering locations for their offshore projects. The studies provide a benefit to government officials The benchmarking studies provide investors with a in host countries as well with insight into where their "snapshot" of the business operating environment countries lag behind in the competition for foreign that they would have difficulty finding elsewhere. The investment and will help build better-targeted national marketing campaigns. The first in the series, Benchmarking FDI China, for example, boasts the best-developed supply Competitiveness in Asia, looks at the electronics and base among the countries surveyed, offering low-cost shared services industries in six Asian countries-- labor and low real estate and construction costs. There China, Indonesia, Malaysia, the Philippines, Thailand are challenges, however, including onerous labor regu- and Vietnam--and offers recommendations to help lations that burden employers with heavy costs, and these countries attract more foreign investment in perceived differences in business culture. Meanwhile, these sectors. Vietnam's relatively well-educated workforce and ample supply of low-cost unskilled labor have helped attract a For the study, researchers drew from multiple data base of major Japanese and Korean electronics manu- sources, including publicly available sources of infor- facturers. However, underdeveloped infrastructure, mation about labor and real a shortage of management-level estate costs, utilities, market employees, and an inadequate access, taxes, transportation base of supporting industries were and shipping infrastructure, as identified as challenges. 7 well as business and living con- ditions. They also interviewed 64 Benchmarking analysis B e n c h m a r k i n g F D I companies operating in the par- captures the dynamics of the Competitiveness in Asia was ticipating countries and asked funded by the Miyazawa Initiative, competitve environment, and respondents to rate various a special program under the aspects of these factors based brings insight into the Japanese foreign assistance on their own experiences. complex site selection program intended to promote economic recovery in the decision of investors The study reveals a com- countries most affected by the petitive landscape in which the Asian financial crisis of the late six countries can differentiate 1990s. The study serves as the their locations as distinctive pilot for a broader competitive "products" for potential investors. No one country benchmarking program which will include analyses of emerged as the clear leader in all factors and both industry sectors in Africa, Southeast Europe and the sectors, nor did any country appear to be in a position Middle East. Already, demand for the studies is strong. not to be able to compete for FDI. The study suggests, At the request of provincial officials in China's Sichuan however, that there is ample opportunity for individual province, MIGA will undertake a comparative study countries to focus on their comparative strengths in of 12 municipalities using the benchmarking meth- both sectors and develop niche markets. Strengths odology. The work will involve close collaboration with commonly identified were large pools of available International Finance Corporation (IFC) and its China skilled or unskilled workers, relatively low labor Project Development Facility, which builds the capacity costs, and a proficiency in the English language--all of local small businesses through technical assistance important factors for "back office" trades. Weaknesses and training. included challenges relating to power and transpor- tation infrastructure, government transparency and procedures, lack of language or technical skills, and underdeveloped supplier networks. Benchmarking Methodology MIGA's benchmarking process is comprised of three phases: desktop research, field interviews and interpretation of results. 8 Foreign Direct Investment Costs and Conditions for the Electronics and Shared Services Industries in Six Countries This study of foreign direct investment costs and con- ditions in China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam was funded under the Miyazawa Initiative, a special component of the Japanese foreign assistance program intended to promote economic recovery in the countries most affected by 1997 Asian financial crisis. The efforts of the Multilateral Investment Guarantee Agency (MIGA) under this ini- tiative also supported capacity building in the national investment promotion intermediaries of Korea, Thailand and the Philippines, and raised awareness of the importance of non-commercial risk insurance in fostering the flow of foreign direct investment. A copy of this publication is available at www.ipanet.net/snapshotasia. OPERATIONAL OVERVIEW 9 Guarantees Legal and Claims Investment Marketing Services Operations Evaluation Guarantees Although the global economy started to recover in fiscal 2004, the operating environment for the political risk insurance industry remained challenging. FDI into developing countries declined in 2003 for the second consecutive year, dropping to an estimated $135 billion from $175 billion in 2001, a fall of 23 percent. While some countries, such as China, experienced record inflows, most others encountered OVERVIEW sharp declines. In many countries, ongoing political and economic uncertainties limited the appetite of large foreign investors. Overall, investors were more reluctant to make new investments in developing TIONAL countries and to finance further expansions of their existing operations. OPERA Fiscal 2004 saw very little financing available to The results of this year bring total cumulative coverage 10 undertake projects on a limited recourse basis. issued (including amounts leveraged through the Infrastructure companies, particularly in telecommuni- Cooperative Underwriting Program) in the course cations and power, scaled back their investment plans of MIGA's history to $13.5 billion. As shown in considerably. Their investments in developing countries Figure 3, MIGA experienced an increase in gross realized lower profits than initially expected and many exposure, amounting to $5.2 billion in the year, investors underestimated the complexities of operating compared to $5.1 billion in fiscal 2003. Net exposure in a sector that is politically sensitive. Financial con- also increased slightly to $3.3 billion, compared to $3.2 straints, after recent years of sharply declining share billion last fiscal year. prices, also limited many companies' ability to make new investments in developing countries. In addition, Increases in gross exposure due to new business are commercial banks, especially those based in North offset by reductions, replacements, cancellations and America, continued their retreat from project finance expiries during the year. Reductions are normal run- in developing countries. offs of the portfolio, while replacements reflect con- tracts that are reissued due to new underwriting fol- The private political risk insurance market reflected lowing a change either in the investment parameters the uncertainties of the global environment in the first or in the guaranteed amount. In fiscal 2004, about 39 half of the fiscal year, being characterized by higher percent of the cancellations were related to projects premiums, shorter tenors and reduced capacity. being sold to other investors who decided not to keep However, conditions started to improve in the second MIGA's coverage. In several other instances, investors half of the fiscal year. MIGA was able to contribute to indicated an improved business environment and a industry capacity by issuing $1.1 billion in guarantee better risk profile as reasons to cancel the insurance. coverage for 55 contracts in support of 35 new projects in fiscal 2004. The Agency recorded a number of projects in its priority areas (see Table 3). Furthermore, MIGA supported three water projects--two in China and one in Russia--reflecting the Agency's ongoing commitment to facilitate investments in this important sub-sector. Figure 3 Gross Exposure ($ M), as of June 30, 2004 Portfolio Diversification Regional Diversification MIGA continued to show positive results in diver- sifying its portfolio in fiscal 2004, as shown in Figure 4. While gross exposure in the Latin America and the Caribbean region declined to 33 percent in fiscal 2004 from 43 percent in fiscal 2003, Europe and Central Asia's share of the portfolio increased for the second consecutive year, from 26 percent in fiscal 2003 to 38 percent in fiscal 2004. This increase was due largely to buoyant investment activity by Austrian banks, although investors also showed interest in the health services, manufacturing and water sectors. MIGA's portfolio share in the Middle East and North Africa region almost doubled, increasing to 5 percent from 3 percent in fiscal 2003 as a result of a large project sup- During the fiscal year, MIGA supported 20 projects in ported in the telecommunications sector. Sub-Saharan IDA-eligible countries, 14 SME projects, eight South- Africa's share of the portfolio decreased to 13 percent South investments and four projects in sub-Saharan in fiscal 2004, down from 19 percent the previous year, Africa (see Table 3). IDA-eligible countries accounted mainly due to subdued investment flows and a high for 33.7 percent of MIGA's gross exposure as at 2004 level of guarantee cancellations in the region; while the fiscal year end (see Table 7). Examples of projects in Asian share of the portfolio increased slightly, reaching 11 priority areas include the second phase of the Sasol oil 13 percent up from 12 percent the previous year. and gas project in Mozambique (see Box 3) and rein- surance provided to the Slovene Export Corporation for its coverage of an investment by Mercator (a Slovenian Figure 4 Outstanding Portfolio Distribution, supermarket chain) in Bosnia and Herzegovina. For By Host Region, in Percent, the first time, MIGA provided a guarantee to a Polish as of June 30, 2004 investor (Can-Pack) for a manufacturing project in Ukraine, a South-South project. During the year, MIGA developed a Small Investment Program (SIP), which offers a standardized political risk insurance package and streamlined underwriting process to small- and medium-sized investors, further increasing the Agency's support for SMEs in developing countries (see Reaching out to Small and Medium Enterprises, page 3). Table 3 Number of Projects in Priority Areas Note: Percentages add up to more than 100 percent because of multi-country agreements. Refer to Statements of Guarantees FY01 FY02 FY03 FY04 Outstanding in the Financial Statements. IDA-eligible projects 18 14 19 20 With respect to the 10 largest country exposures SME projects 18 11 10 14 (see Table 5) in MIGA's portfolio, two post- South-South projects 8 11 12 8 conflict countries--Bosnia and Herzegovina and Sub-Saharan Africa 8 9 8 4 Serbia and Montenegro--entered the list for the first time, as did Ukraine. Brazil remains MIGA's Note: Numbers reflect only new projects in each fiscal year. Some largest exposure, although its share in MIGA's projects address more than one priority area. portfolio decreased on a gross (net) basis to 12.1 (7.3) percent in fiscal 2004, from 16.3 (8.3) percent in fiscal 2003. Table 4 Projects Supported, Fiscal 2004 Host Country Guarantee Holder Investor Sector Amount Country $ M Asia and the Pacific China Compagnie Générale des Eaux France Infrastructure 70.0 China Darco Enviromental Pte. Ltd Singapore Infrastructure 7.1 Vietnam* Crédit Lyonnais, S.A. France Infrastructure 15.0 Europe and Central Asia Azerbaijan Fatoglu Gida Sanayi Ve Ticaret A.S. Turkey Manufacturing 0.3 Bosnia and Herzegovina Bank Austria Creditanstalt AG Austria Financial 20.4 Bosnia and Herzegovina Bank Austria Creditanstalt AG Austria Financial 20.4 Bosnia and Herzegovina* Hypo Alpe-Adria-Bank AG Austria Financial 4.7 OVERVIEW Bosnia and Herzegovina International Dialysis Centers B. V. The Netherlands Services 1.4 Bosnia and Herzegovina Raiffeisen Zentralbank Österreich AG Austria Financial 22.0 Bosnia and Herzegovina Raiffeisen Zentralbank Österreich AG Austria Financial 21.8 TIONAL Bosnia and Herzegovina Raiffeisen Zentralbank Österreich AG Austria Financial 29.0 Bosnia and Herzegovina Raiffeisen Zentralbank Österreich AG Austria Financial 5.7 Bosnia and Herzegovina Slovene Export Corporation (Mercator) Slovenia Services 4.0 OPERA FYR Macedonia Norway Registers Development AS Norway Services 0.3 Kyrgyz Republic* FINREP HANDELS GmbH, Italian Tech. Austria, Italy Services 0.9 and Innovations SRL Moldova Leon Construction International B.V. The Netherlands Services 0.9 12 (Turkey) Romania Bank Austria Creditanstalt AG Austria Financial 69.8 Romania Euromedic Diagnostic B.V. The Netherlands Services 11.3 Romania Raiffeisen Zentralbank Österreich AG Austria Financial 50.6 Russian Federation* Raiffeisenverband Salzburg Austria Financial 18.1 Russian Federation Raiffeisenverband Salzburg Austria Financial 56.0 Russian Federation Raiffeisen Zentralbank Österreich AG Austria Financial 28.5 Russian Federation WTE Wassertechnik GmbH Germany Infrastructure 51.7 Serbia and Montenegro Bank Austria Creditanstalt AG Austria Financial 9.0 Serbia and Montenegro Hypo Alpe-Adria-Bank AG Austria Financial 10.6 Serbia and Montenegro Raiffeisen Zentralbank Österreich AG, Austria, Financial (Leasing) 24.5 Raiffeisen A.S. Czech Republic Serbia and Montenegro Raiffeisenbank A.S. Czech Republic Financial (Leasing) 46.5 Serbia and Montenegro Raiffeisen Zentralbank Österreich AG, Austria, Financial (General 23.9 Raiffeisenbank A.S. Czech Republic Banking) Serbia and Montenegro Raiffeisenbank A.S. Czech Republic Financial (General 46.4 Banking) Ukraine Can Pack S.A. Poland Manufacturing 48.8 Ukraine Raiffeisen Zentralbank Österreich AG Austria Financial 95.0 Latin America and the Caribbean Brazil * ABN Amro Bank, N.V. The Netherlands Infrastructure 26.8 Brazil Cefla Capital Services, S.p.A. Italy Manufacturing 2.0 Brazil Elecnor S.A. Spain Infrastructure 11.0 Brazil Elecnor S.A. Spain Infrastructure 17.9 Middle East and North Africa Syrian Arab Republic Teleinvest Limited, Cayman Islands Infrastructure 75.0 Investcom Holding, S.A. (Saudi Arabia), Luxembourg (Lebanon) Sub-Saharan Africa Kenya Geosurvey International, LLC United States Services 1.4 Mozambique Mozambique Rice Growers Pty. Ltd. Australia Agribusiness 0.5 Mozambique Standard Bank of South Africa Ltd. South Africa Oil and Gas 113.5 Nigeria Accelon (Pty.) Ltd. South Africa Services 11.4 Nigeria * Ewekoro Power Plant Sales Ltd. United Kingdom Infrastructure 1.9 * Additional coverage provided to projects underwritten in previous fiscal years and counted towards projects supported in previous fiscal years Sectoral Diversification Europe and the Russian Federation. In addition, for As shown in Table 6, the changes in relative sector the first time, investors from the Czech Republic and shares in MIGA's portfolio were influenced mainly by Poland obtained guarantees from MIGA. an increase in the financial sector. This increase came as a result of a steady flow of business from Austrian banks investing in Eastern Europe and Central Asia Environment and Social Issues region and stagnating global investment flows in infra- structure. However, MIGA grew its exposure substan- MIGA continues to work closely with IFC on envi- tially in the water sub-sector, from 0.7 percent of total ronment and social policy developments and project infrastructure exposure in fiscal 2003 to seven percent reviews, and has contributed to IFC's response to the in fiscal 2004. Exposure in the oil, gas and mining Compliance Advisor Ombudsman's Review of IFC's sector increased, due to MIGA's guarantees to the Safeguard Policies. IFC's updated Safeguard Policies Sasol oil and gas project in Mozambique. will have direct implications for MIGA's subsequent review and update of its own interim Safeguard Investor Country Diversification Policies. In addition, the Agency participated in the The diversification of investor countries remains an extensive research and discussion surrounding the important objective for the Agency as it manages its World Bank Group's Extractive Industry Review. In portfolio and seeks to provide value for all its member fiscal 2004, MIGA also participated in an International countries. Notable changes in the outstanding portfolio Steering Committee on Deep Sea Tailings Placement, a distribution by investor country have occurred since the research effort being carried out and funded by mining last fiscal year, when the greatest amount of MIGA-guar- companies and public sector research groups from anteed investments originated from the United States Australia and Canada. and the Netherlands. While these countries remain 13 among MIGA's largest investors, in fiscal 2004, Austria MIGA participated in discussions on the harmoni- became the largest investor country in the Agency's out- zation of environmental standards with other financial standing portfolio (see Figure 6). As explained above, institutions during the year, sharing its experiences on much of the Austrian activity related to the banking environmental and social reviews and monitoring with sector, with investments in several countries in Eastern Berne Union members and banks that adhere to the Table 5 Ten Largest Outstanding Country Exposures in MIGA Portfolio, as of June 30, 2004 Gross Exposure % of Gross Net Exposure % of Net Host Country $ M Outstanding Portfolio $ M Outstanding Portfolio Brazil 626 12.1 237 7.3 Bulgaria 353 6.8 132 4.0 Romania 331 6.4 179 5.5 Mozambique 311 6.0 168 5.2 Russian Federation 269 5.2 179 5.5 Bosnia and Herzegovina 203 3.9 159 4.9 Serbia and Montenegro 197 3.8 122 3.7 Argentina 193 3.7 91 2.8 Turkey 173 3.3 98 3.0 Ukraine 163 3.1 101 3.1 Total 2,819 54.3 1,466 45.0 Equator Principles5. In doing so, MIGA has been able Bank. The facility is expected to be launched in early to encourage some export credit agencies, investment fiscal 2005. insurers and other financial institutions to consider implementing or upgrading their environmental and social reviews of projects. Reinsurance Reinsurance arrangements with other insurers remain World Bank Group Cooperation an important aspect of MIGA's risk exposure man- agement. MIGA's involvement encourages other MIGA continued to increase its cooperation with insurers to participate in projects and venture into other parts of the World Bank Group in fiscal 2004. frontier markets and permits them to provide longer The Agency concluded its first project involving both tenors. These insurers also benefit from MIGA's the IDA as well as IFC, for the Sasol oil and gas expertise in risk analysis, and claims and recovery pro- project, which develops and exports natural gas from cedures. At the end of fiscal 2004, $1.9 billion of MIGA's OVERVIEW Mozambique to South Africa in an environmentally total gross exposure of $5.2 billion was reinsured. sustainable manner (see Box 3)6. In addition, the MIGA placed a total of $238 million during fiscal 2004 TIONAL joint MIGA and IDA Boards approved a MIGA-IDA through facultative reinsurance (see Figure 5). guarantee facility in support of small and medium OPERA infrastructure projects in the countries of the West Private Partners Africa Economic and Monetary Union. Banque Ouest Through its facultative reinsurance program, MIGA Africaine de Développement (BOAD) acts as an inter- supported seven projects in six countries, comple- mediary for the new facility. The Agence Française de menting its own capacity with that sourced from private 14 Développement is a co-guarantor in the project and insurance partners. MIGA's treaty reinsurance partners, has provided funding for the secondment of a MIGA ACE Bermuda Insurance Co. Ltd. and XL Re (Bermuda) staff member to BOAD to assist the institution with the Ltd., actively continue to provide reinsurance for MIGA- implementation of this program and the development guaranteed projects. Under its quota share treaty rein- of BOAD capacity. In its efforts to enhance its support surance program, MIGA cedes a portion of the con- to conflict-affected countries, MIGA also worked to tingent liability related to each contract it writes to its establish a guarantee facility for Afghanistan, with treaty reinsurers. funding provided by IDA and the Asian Development Table 6 Outstanding Portfolio Distribution by Sector, Gross Exposure, in Percent, as of June 30, 2004 FY99 FY00 FY01 FY02 FY03 FY04 Infrastructure 19 29 29 36 41 38 Financial 42 34 36 35 29 35 Oil, Gas and Mining 16 14 14 12 12 11 Agribusiness and Manufacturing 16 13 13 11 11 9 Tourism and Services 7 10 8 6 7 7 100 100 100 100 100 100 5 The Equator Principles are a voluntary set of guidelines that have been adopted by 25 international banks. These banks have agreed to use clear, responsible and consistent rules for environmental and social risk management in project finance lending. 6 MIGA supported phase one of the investment for the Sasol oil and gas project in fiscal 2003. Public Partners Figure 5 Cumulative Amounts of Facultative In fiscal 2004, MIGA concluded its first facultative rein- Reinsurance and CUP, $ M surance agreements with two partners for the Sasol oil and gas project in Mozambique (see Box 3). In addition, the Ministry of Finance of the Netherlands agreed to a facultative reinsurance facility with MIGA for investment projects involving Dutch investors. The facility became effective in January 2004 and can support up to $150 million in reinsurance each year. MIGA also provided reinsurance to the Slovene Export Corporation for one project in fiscal 2004 and started discussions with its partner in India, the Export Credit Guarantee Corporation of India, Ltd., with a view to providing it with reinsurance for a project in Sri Lanka. Figure 6 Outstanding Portfolio Distribution by Investor Country, Gross Exposure, in Percent, as of June 30, 2004 15 * Australia, Belgium, Costa Rica, Denmark, Greece, Ireland, Israel, Italy, Norway, Panama, Poland, Portugal, Senegal, Slovenia, Sweden, Tunisia and Turkey Box 2 Table 7 MIGA Guarantee Portfolio in IDA-Eligible Countries, as Compliance Advisor/ of June 30, 2004 Ombudsman Gross Exposure % of Net Exposure % of ($ M) Gross ($ M) Net The IFC/MIGA Office of Compliance Advisor/Ombudsman(CAO)wasestab- lished in fiscal 2000. The CAO promotes Mozambique 311.4 6.0 168.3 5.2 better accountability to people affected Bosnia and 203.3 3.9 158.9 4.9 by IFC and MIGA projects. It is an inde- Herzegovina pendent office, reporting directly to the Serbia and 196.9 3.8 121.8 3.7 President of the World Bank Group. The Montenegro CAO has three roles: as ombudsman Vietnam 143.2 2.8 56.6 1.7 to respond to complaints from people Pakistan 138.5 2.7 108.0 3.3 OVERVIEW who are affected by projects and to Nicaragua 114.4 2.2 57.7 1.8 attempt to resolve environmental and Nigeria 112.8 2.2 90.9 2.8 TIONAL social issues; as compliance officer Tanzania 83.5 1.6 19.4 0.6 who audits sensitive projects for com- Moldova 62.0 1.2 31.4 1.0 OPERA pliance with safeguard policies and Indonesia 52.4 1.0 52.0 1.6 guidelines; and as advisor to provide Kenya 49.3 1.0 27.5 0.8 an independent source of advice to the Bangladesh 45.7 0.9 40.2 1.2 President and senior management of Kyrgyz Republic 42.1 0.8 38.0 1.2 16 IFC and MIGA. Mauritania 33.8 0.7 30.4 0.9 Nepal 30.1 0.6 14.1 0.4 During fiscal 2004, the CAO began Mali 25.2 0.5 22.7 0.7 implementing the recommendations Cote d'Ivoire 18.2 0.4 18.2 0.6 of the CAO's External Review, which Guinea 15.7 0.3 15.7 0.5 was completed in 2003. The review Bolivia 14.6 0.3 14.6 0.4 process involved an external team of Albania 8.6 0.2 8.6 0.3 consultants who looked at the CAO's Togo 7.5 0.1 7.5 0.2 work and the manner in which the Zambia 6.3 0.1 5.9 0.2 office has sought to fufill its mandate Honduras 6.0 0.1 6.0 0.2 in the three years since the office was Uganda 5.1 0.1 5.1 0.2 created. Recommendations addressed Benin 4.4 0.1 4.0 0.1 the CAO's operating structure, the Azerbaijan 3.6 0.1 3.5 0.1 nature of the advisory role, and the Senegal 2.8 0.1 2.5 0.1 CAO's communications capability and Armenia 2.7 0.1 2.7 0.1 effectiveness. As a result of the external Georgia 2.1 0.0 2.1 0.1 review's findings, in fiscal 2004 the CAO Sri Lanka 1.7 0.0 1.7 0.1 revised and released new Operational Madagascar 1.0 0.0 .5 0.0 Guidelines. Revisions include how a Angola 1.0 0.0 1.0 0.0 compliance audit may be triggered, and Burundi 0.9 0.0 0.8 0.0 clarification of circumstances in which, Cape Verde 0.5 0.0 0.5 0.0 and in what manner, the CAO will give advice, as well as revisions and updates Total 1,747.2 33.7 1,138.8 34.9 to its website for improved user friendliness. Box 3 Sasol Oil and Gas Project in Mozambique The Sasol oil and gas project is the first cross- border initiative to develop regional gas markets in the sub-Saharan region. The project involves the development of Mozambique's natural gas fields, the construction of an 865 km cross- border gas pipeline from Mozambique to South Africa and the construction of a central processing facility. It will contribute to environ- mental sustainability through the reduction of harmful emissions by replacing coal and heavy oils with clean-burning natural gas. 17 Over the past two fiscal years, MIGA has provided a total of $186 million worth of guarantees for the equity investments and debt financing for the project. MIGA's involvement was needed to unlock the transaction's financing. It is the first project that involves both MIGA guarantees and an IDA partial-risk guarantee. The Agency also collaborated with insurance partners, who provided reinsurance for the project. The Sasol oil and gas project is expected to have a significant impact on regional development. It will enhance regional trade and stability, improve infrastructure such as roads and water supplies, and result in the removal of landmines in the project area. In addition, the project will provide significant revenues to the Mozambican government--estimated to exceed $2 billion over the project's life--and create employment, contracting and training opportunities for local Mozambican and South African residents. PHOTO | Sasol oil and gas project, Mozambique between investors and the host country for a MIGA- Legal and Claims insured project in the Kyrgyz Republic. The project relates to an air cargo complex and catering center at Manas International Airport in Bishkek. MIGA's only previous claim was paid in fiscal 2000 in the context of the economic crisis in Indonesia. The government of Indonesia has subsequently provided full and timely repayment to MIGA. Two claims filed by Disputes and Claims investors in Argentina remain under review. MIGA makes an active effort to resolve disputes that may adversely impact investments guaranteed by the Mediation Services Agency. Both investors and governments generally OVERVIEW welcome claims avoidance activities, since the suc- In certain circumstances, MIGA uses its good offices to cessful resolution of disputes not only allows MIGA- encourage the settlement of disputes between investors TIONAL guaranteed investments to progress as planned, and member countries even when the Agency is not but also helps improve the foreign direct investment involved as a guarantor. MIGA's expertise in resolving OPERA climate in the host country. MIGA relies heavily on conflicts related to a foreign investment can provide the cooperation and willingness of the concerned gov- guidance to parties that seek creative approaches to ernments, shareholders of MIGA, in these efforts. the resolution of their investment disputes. MIGA's objective in these cases is to resolve the disputes before 18 MIGA monitored more than a dozen investment they require formal arbitration and, just as importantly, disputes involving its insured clients during fiscal to improve international perceptions of the foreign 2004. Although the bulk of the disputes arose in Latin investment climate in the countries concerned. America, MIGA was also active in avoiding claims in Eastern Europe, Central Asia and Africa. Six of these MIGA's mediation facilities fill a gap in the international disputes, mostly in the power and telecommuni- law remedies currently available to foreign investors in cations sectors, appear to have been resolved to the their disputes with host countries. Diplomatic solutions satisfaction of the parties concerned. Successful nego- are not practical for some, and formal arbitration may tiations have substantially reduced the number of be too costly for others. Mediation, which is voluntary, problems that MIGA has been monitoring in Argentina informal and inexpensive, is increasingly recognized as since the financial crisis started there two years ago. an attractive alternative for the resolution of investment MIGA has excellent cooperation with the Argentinean disputes. government in these efforts. At any given time, the Agency may be consulting on In Venezuela, MIGA worked closely with the government numerous investment disputes around the world. when it enacted financial regulations that adversely This work advances slowly, often taking two to three impacted a number of foreign investments. As a result, years to find an acceptable solution. Since 1997, MIGA investors guaranteed by MIGA were able to benefit has been working to resolve the considerable number from executive decrees and regulations issued by the of claims brought by foreign investors against the gov- Venezuelan Central Bank, which granted an exemption ernment of Ethiopia as a consequence of actions taken to the restrictions on foreign currency transfers. In by the Mengistu government more than 25 years ago. order to secure the exemption, the projects had to be To date, a number of these claims have been resolved, registered with the Comisión de Administración de some during fiscal 2004. Outstanding claims remain Divisas. MIGA was instrumental in securing such reg- the subject of on-going negotiations. In part as a result istration for its projects. of these mediation efforts, the government of Ethiopia was able to conclude bilateral investment treaties with MIGA paid no claims during the fiscal year. However, France and Germany in fiscal 2004, thereby encouraging MIGA is currently reviewing a minor claim filed in the flow of FDI into Ethiopia. relation to a hydroelectric power plant in Nepal that was the target of an attack by Maoist guerillas in 2002. The claim has been filed under its war and civil dis- turbance coverage. MIGA is also working on a dispute Investment Marketing Services In fiscal 2004, demand for MIGA's technical assistance services continued to increase, as client countries sought to promote themselves to investors amid a difficult international market for FDI. In response, MIGA focused on developing new tools and approaches to serve its diverse group of client countries and investment promotion intermediaries (IPIs). For each of its IPI clients, MIGA develops a cus- Europe. The goal is to increase investor awareness tomized plan based on an initial needs-assessment. of the region's potential, encourage investors to Implementation of the plan can range from strategic undertake site visits to explore investment opportu- advice to hands-on coaching, from distance learning nities and ultimately to support actual investments to online outreach, depending on client capabilities in the region. Through the EIOP, improvements in 19 and the critical needs identified. In fiscal 2004, MIGA national investment climates will be communicated undertook 65 projects in 29 countries, as well as global to investors, who will receive the support they need to and regional initiatives. These initiatives included make and implement investment decisions. the launches of the European Investor Outreach Program (EIOP) and the FDI Promotion Center, as The EIOP is a two-and-a-half year pilot program that well as the implementation of the Investor Information focuses exclusively on the non-tier one accession Development Program (IIDP). During the year, several countries of Albania, Bosnia and Herzegovina, Croatia, new partnerships were also established to enhance FYRMacedoniaandSerbiaandMontenegro.Thefacility, MIGA's online services. based in Vienna, collaborates with leading investment intermediaries in the region, including investment Developing and strengthening partnerships with promotion agencies, chambers of commerce, and the development community and collaborating with business associations, on the design and execution of the World Bank Group were key elements of MIGA's outreach activities. It aims to develop a close network technical assistance strategy in fiscal 2004. These of relevant contacts that can help investors identify and partnerships and collaborations enable MIGA to build realize investment opportunities. The Vienna facility capacity more effectively. During the year, MIGA con- operates under MIGA's supervision, with guidance tinued to work with partners in the public and private from a steering committee comprised of represen- sectors to deliver the investment promotion com- ponents of private sector development programs. The European Investor Outreach Program (EIOP) Despite significant political, legal and macroeconomic reforms over the past decade in the Western Balkans, levels of FDI have remained low, especially relative to Central Europe. Investor perceptions still seem to be adversely affected by past conflicts in the region. To address the issue, MIGA and the government of Austria signed a grant agreement in October 2003 to launch the EIOP, which is designed to strengthen the capacity of Western Balkan countries to attract investment from PHOTO | Training at ProNicaragua, Nicaragua tatives of the participating Western Balkan countries, and disseminate critical investment information as well as donors and European Union-based collabo- about factor costs, project opportunities, and market rators. It is expected that over time, additional donors information to investors. The Development Gateway will join the initiative and that it will expand to cover Foundation, through a grant from the government of more countries. Japan, is funding this client-driven initiative. MIGA has received 26 proposals from organizations in 23 Invest-In-Development Facility In fiscal 2004, MIGA developing countries seeking to participate in the created a trust fund to enhance the role of FDI in IIDP. Organizations from Bosnia and Herzegovina, attaining the Millennium Development Goals. The Guatemala, Kenya, Malta, Mongolia and Turkey have trust fund will be used to enhance the capabilities been selected to participate in the program. The of investment promotion intermediaries to attract, work programs in Guatemala, Kenya and Mongolia service and retain FDI at a time of declining investment started in fiscal 2004, while the programs in Bosnia flows to developing countries. It will provide assistance and Herzegovina, Malta and Turkey are expected to OVERVIEW to investment promotion intermediaries in 30-35 commence in early fiscal 2005. countries and disseminate best practice knowledge through online services. Programs already benefiting FDI Promotion Center MIGA launched the online FDI TIONAL from the trust fund's support include MIGA's global Promotion Center at the annual meeting of the World benchmarking effort, the investment outreach trust AssociationofInvestmentPromotionAgencies(WAIPA) OPERA fund in Southeast Europe and activities in Serbia in Switzerland in fiscal 2004. The FDI Promotion and Montenegro. European donors have expressed Center is an online knowledge-sharing and learning a particular interest in MIGA's outreach activities in portal designed to serve the growing community of Southeast Europe. The fund will be implemented by investment promotion professionals, particularly those 20 MIGA, in close collaboration with FIAS, other World in developing countries. The website provides resources Bank Group units and participating donors. to help practitioners update their knowledge and skills. It builds on the Investment Promotion Toolkit, first released by MIGA in 2001, which provides practical Investor Information Development Program (IIDP) advice on key aspects of investment promotion: under- The IIDP is a pilot program designed to help member standing FDI, developing an investment promotion countries leverage technology to develop, mobilize agency, creating a promotional strategy, building part- MIGA's Online Information Services Delivery Clients Resources Provided IPAnet Online portal Corporate investors, Investment environment www.ipanet.net advisors, researchers and business opportunities in emerging markets FDI Xchange Customized e-mail Investors, advisors, New investment opportunities, www.fdixchange.com financial institutions business environment analysis PrivatizationLink Online portal Investors, advisors, Detailed profiles of state-owned www.privatizationlink.com financial institutions enterprises currently being divested in emerging economies Online Tools for Investment Promotion Practitioners Delivery Clients Resources Provided IPAworks Open source software Investment promotion Website template for investment www.ipaworks.com agencies promotion FDI Promotion Center Online portal Investment promotion Knowledge sharing and www.fdipromotion.com professionals learning portal that builds on the Investment Promotion Toolkit nerships, strengthening the location's image, targeting Table 8 Regional Breakdown of Technical Assistance and generating investment opportunities, providing Activities, as of June 30, 2004 post-investment client service, monitoring and eval- uating activities, and utilizing information technology. Asia and the Pacific 12 Expansion of Online Services MIGA's online investor Afghanistan 1 information services were used extensively during fiscal China 5 2004, with increases registered across all measures, Fiji 3 including number of users, hits and page views. At Mongolia 1 fiscal year end 2004, the number of registered users Philippines 1 worldwide stood at over 20,000, comprised primarily Regional (Pacific Islands) 1 of private firms, financial institutions, investment pro- motion professionals and advisors. Latin America and Europe and Central Asia 11 the Caribbean and Europe and Central Asia are the top Albania 1 regions in terms of number of registrants, followed Armenia 2 by Asia. Developing country clients are active users of Croatia 2 MIGA's online services. FYR Macedonia 1 Serbia and Montenegro 4 MIGA continues to pursue partnerships that increase Tajikistan 1 the information resources carried by its online services. MIGA signed an additional 17 content provider Latin America and the Carribean 11 agreements in fiscal 2004, bringing the total number of Colombia 1 content partners to 88. Through its partnering with the El Salvador 2 21 WorldBank'sEdinvest--aninformationserviceprovider Guatemala 3 focused on promoting global private investment in Honduras 1 education--MIGA aims to increase resources available Nicargua 2 on the education sector in developing countries. Panama 1 Other new content partners include: Eurochambres, a Paraguay 1 European network of 2,000 regional and local Chambers of Commerce; the Corporate Council on Africa; the U.S. Middle East and North Africa 3 Council for International Business; Business Monitor Iraq 1 International and OCO Consulting of the United Morocco 2 Kingdom; and several ministries and investment pro- motion intermediaries from developing countries. Sub-Saharan Africa 28 Ghana 2 Benchmarking Country Competitiveness In fiscal Kenya 3 2004, MIGA published a study that determines and Mali 2 compares operating costs and conditions in six Asian Mozambique 5 countries (China, Indonesia, Malaysia, the Philippines, Senegal 3 Thailand and Vietnam) for two industry sectors (elec- South Africa 6 tronics manufacturing and shared services). This study, Tanzania 5 the pilot for a broader benchmarking program, yielded Uganda 1 findings on a number of critical factors, which helped Zambia 1 the countries involved assess their FDI competitiveness and identified sector-specific issues for government policy action (for further details, see Benchmarking Country Competitiveness, page 6). Operations Evaluation Fiscal 2004 was the second year of operation for MIGA's Operations Evaluation Unit (OEU). The unit is responsible for evaluating MIGA's developmental and operational effectiveness and is independent from MIGA's operational departments and decision-making. The unit reports directly to the Board's Committee on Development Effectiveness through the Director-General, Operations Evaluation for the OVERVIEW World Bank Group. TIONAL OPERA The Operations Evaluation Unit's mandate encom- 22 passes the evaluation of MIGA's activities, as well as the Agency's institutional efficiency, efficacy and strategy. The unit also participates in joint country, sectoral, and thematic evaluations with the Operations Evaluation Department of the World Bank and the Operations Evaluation Group of IFC. Among the unit's objectives: to formulate and share lessons and recom- mendations and to contribute to improved operational performance, accountability and transparency. During fiscal 2004, the OEU evaluated a sample of MIGA-guaranteed projects, extracting lessons and recommendations for prospective new MIGA-insured projects. The unit began the evaluation of MIGA's Investment Marketing Services, focusing on capacity building for investment promotion intermediaries. The OEU also participated in a joint evaluation of World Bank Group activities in investment climate and prepared an annual report focusing on the development effectiveness of MIGA's products and services. REGIONAL ACTIVITIES 23 Asia and the Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa Sub-Saharan Africa Asia and the Pacific Economic growth in Asia, particularly in East Asia, Supporting SMEs remained strong in fiscal 2004. China received a large Darco, a Singapore-based SME, needed political risk portion of the foreign direct investment into the region, insurance in order to obtain funding from commercial although investors also showed renewed interest banks in Singapore for a small water project in Deqing in countries, such as Indonesia, that have recently County, China. MIGA's insurance allowed this SME to ACTIVITIES emerged from the financial crisis of the late 1990s. expand its operations in a growing Asian market. Interest in MIGA's participation in projects in the region increased as investors focused on the political risks associated with new opportunities in these markets. Gross Amount of Guarantees Issued and REGIONAL Gross Exposure, $ M In fiscal 2004, MIGA supported two new projects through its guarantee program and undertook 12 technical assistance activities in the region. At year- 24 end, MIGA's total gross guarantees exposure stood at $672 million, some 13 percent of the Agency's out- standing portfolio. HIGHLIGHTS Innovating MIGA developed a tailor-made solution to cover an interest rate swap for the Phu My III power project in Vietnam. The guarantee issued by MIGA demonstrates how the Agency is able to find creative solutions to meet client needs. Partnering MIGA's approach to providing technical assistance in the region focused on developing partnerships with the Sector Breakdown of Total Guarantees Issued Since World Bank Group and the donor community. Examples Inception, in Percent of such collaborations include MIGA's work with IFC's China Project Development Facility in Sichuan province, with the World Bank Group in Afghanistan, with FIAS in Fiji and with the Canadian International Development Agency in the Philippines. GUARANTEES Country Activities CHINA Compagnie Générale des Eaux Shanghai Pudong­Veolia Water Corporation, Ltd. MIGA issued a guarantee of $70 million to Compagnie Générale des Eaux of France for its $245 million equity investment in Shanghai Pudong­Veolia Water Corporation, Ltd. of China. The guarantee is for a period of 15 years and provides coverage against the risk of expropriation. Compagnie Générale des Eaux, a wholly-owned subsidiary of Veolia Environnement, pur- chased a 50 percent equity interest in Shanghai Municipal Waterworks Pudong Co., Ltd. from the state-owned Shanghai Water Asset Management and Development Co., Ltd., creating the joint-venture Shanghai Pudong-Veolia Water Corporation, Ltd. The joint- venture will be responsible for the treatment, distribution and sale of potable water, and for the maintenance of service facilities. The project currently has distribution rights for a 1,700 km network capable of supplying 1.3 million cubic meters of water daily to more that 1.7 million people living in the Pudong district. The project seeks to improve the supply and quality of drinkable water to the rapidly 25 growing 1.7 million population living in the Pudong district of Shanghai. The investor will bring managerial and technical expertise to the existing operations. Compagnie Générale des Eaux will be updating the information systems, which will allow online management of the whole network, establish a water control quality system, improve water purification techniques, and install instruments to monitor potential leakage and damage. Darco Environmental Pte. Ltd. Deqing Huanzhong Producing Water Co., Ltd. Priority Areas: S-S MIGA issued a guarantee of $7.1 million to Darco Environmental Pte. Ltd. of Singapore for its $7.95 million equity investment in Deqing Huanzhong Producing Water Co., Ltd. of China. The guarantee is for a period of 15 years and provides coverage against the risks of transfer restriction, expropriation, war and civil disturbance. It consists of building a water treatment plant and supplying 60,000 cubic meters per day of potable water to the residents and the manufacturing plants in Deqing County, Zhejiang Province, China. It is a joint venture involving private investors and the Dequing County Water Co., which owns 27 percent of the project and will provide the necessary land, pipeline and water resources. The project will create jobs, contribute to tax revenue and will pay dividends to the Deqing County Water Co. It also supports one of the priorities of the World Bank Group's strategy in China, which is to encourage private sector participation in infrastructure, particularly in water services. Country Activities VIETNAM Crédit Lyonnais, S.A. Phu My 3 BOT Power Company Ltd. MIGA issued a guarantee of $15 million to Crédit Lyonnais, S.A. of France for its swap agreements related to the financing of Phu My 3 BOT Power Company Ltd. (PM3) of Vietnam--a project involved in the construction, operation and maintenance of a 716.8 MW combined cycle, gas-fired electric generating plant. The swap agreements permit the project to pay a fixed rate of interest on loans rather than a floating rate, which presents financial risk. The guarantee covers a period of 15 years against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract. MIGA's coverage of the swap agreements complements its initial support of PM3 in FY03, when it provided $43.2 million in equity coverage and $75 million for a non-shareholder ACTIVITIES loan. A portion of the guarantees issued by MIGA has been reinsured under the Agency's facultative reinsurance program. The project represents one of the largest foreign direct investments ever into Vietnam REGIONAL and is expected to help attract additional private capital investment flows for further infra- structure development in the country. PM3 will also bring many other developmental benefits to the country. Further details about the project--and its development impact-- appear in MIGA's 2003 Annual Report. 26 TECHNICAL ASSISTANCE ACTIVITES MIGA's approach to technical assistance in the region in Berlin, whose organizers and sponsors included in fiscal 2004 focused on developing partnerships with Deutsche Gesellschaft für Technische Zusammenarbeit, the World Bank, IFC, FIAS and the donor community. the Federation of German Industries and the US Agency MIGA collaborated with the World Bank in defining and for International Development (USAID). MIGA pre- implementing a program of support to the government sented its online services and participated in a panel of Afghanistan. At the request of the Afghanistan discussion on development opportunities. Investment Support Agency (AISA) and the Ministry of Commerce, MIGA conducted a needs assessment MIGA's work in China included collaborating with of the AISA as a first step towards identifying and IFC's China Project Development Facility (CPDF) designing key elements of a strategy to attract foreign in a technical assistance effort that includes a com- investment. MIGA also investigated the policy and petitive benchmarking study of Sichuan province, regulatory environment for industrial estate devel- capacity building in investment promotion skills and opment--an important step in attracting much needed support for information dissemination efforts. Working investment in industrial infrastructure and other areas. sessions were held in Sichuan with the Sichuan The development of a customized program of online Provincial Investment Promotion Bureau (SIPB)--the technical assistance through the FDI Promotion Center local partner of the CPDF--to define a multifaceted is also under discussion with the AISA. investment promotion program for the region. One of the elements of the program is capacity building In addition, MIGA collaborated with the World Bank in through increasing investment promotion skills. MIGA promoting an international private sector meeting on held the first in a series of workshops in February 2004. Afghanistan, which informed international investors of Local and provincial government officials with a role in business opportunities in the country. The forum was a investment promotion attended. run-up to the International Conference on Afghanistan Sichuan was chosen for this initiative because investment in China has been concentrated on the coast, and the government and the World Bank Group have agreed that development of the western and north- eastern provinces is a priority. MIGA's efforts in Sichuan have generated considerable interest in the Agency's investment promotion activities at the national level in China. The Chinese national investment promotion agency--CIIPA--has requested MIGA's assistance in establishing its role and that of a newly created entity, the Federation of China Investment Promotion Agencies, in investment promotion. A program of assistance is now being drawn up by MIGA and FIAS with the Chinese Ministry of Commerce aimed at developing the skills of sub-national level investment promotion agencies in the southwest and northeast of the country. A "train-the-trainers" initiative and the development of a Chinese language online investment promotion resource center, drawing on the content, architecture and functions of MIGA's own online undertake further activities in fiscal 2005, and MIGA services, are included in the program. has been asked to provide advice and support to the FTIB as it moves to the implementation phase. MIGA's close relationship with FIAS resulted in a 27 number of joint initiatives in fiscal 2004. In a region- MIGA began work with the Canadian International wide project, the Commonwealth Secretariat, FIAS, Development Agency-funded Pearl 2 project in the the Pacific Island Forum Secretariat and MIGA col- Philippines in designing and implementing a capacity laborated on a joint capacity building initiative in the building effort in support of the investment promotion Pacific Islands to assist regional investment promotion and business support organizations in the country. agencies in developing a professional online presence Pearl 2 clients are both national and sub-national and training staff in content development and web- entities and include the Board of Investment (BOI), based investor outreach techniques. The investment which MIGA assisted under the Miyazawa Initiative. promotion intermediaries are building websites With Pearl 2, the opportunity exists for MIGA to engage using MIGA's IPAworks tool. MIGA held two regional new Philippine clients in its capacity building efforts workshops focusing on the development of investment and to reach out to a broader constituency. Pearl 2 information resources typically required by foreign staff are using MIGA's Investment Promotion Toolkit investors when evaluating investment opportunities as a key element of their project curriculum, and or short-listing potential site locations. The workshops Pearl 2 has signed a content partner agreement for the allowed participants to build their skills while enhancing FDI Xchange. the content resources of their websites and to compare experiences and adapt best practices to their local Mongolia's investment promotion intermediary, the operating environment. The hands-on training has cat- Foreign Investment and Foreign Trade Agency (FIFTA), alyzed interest in investment promotion efforts among is a recipient of a grant under MIGA's IIDP (For the governments across the region, and furthered the details, see page 20). In promoting the most sparsely development of a regional outlook on FDI. populated country in the world, FIFTA is faced with unique challenges in efforts to train staff and to market In Fiji, MIGA is embarking on a phased program of to potential investors the advantages that Mongolia assistance for the Fiji Trade and Investment Bureau presents. Through the IIDP, MIGA has provided basic (FTIB), working with FIAS in its design and implemen- investment promotion skills training. Working through tation. MIGA conducted a needs assessment of the local and regional consultants, the Agency has helped agency in late fiscal 2004, which formed the analytical FIFTA develop its website and begin to realize the basis for a strategy workshop that brought together potential of technology as a tool for market research, agency management, investors and other stakeholders image building and investor outreach. to discuss future directions and business strategy. The MIGA-FIAS effort laid the groundwork for Fiji to Europe and Central Asia Despite robust economic growth in the region, will improve local health, environmental and safety foreign direct investment flows fell by an estimated 20 conditions. percent in 2003 as few major privatizations took place. Offsetting the decline in equity investments was the Collaborating growth in net private debt flows, a trend that has been MIGA initiated the EIOP--co-funded with the gov- ACTIVITIES established for some years. MIGA's exposure to the ernment of Austria--to increase awareness and interest region grew strongly in fiscal 2004, reflecting mainly in FDI opportunities in the Western Balkans. The investments and shareholder loans to banking insti- facility, based in Vienna, will collaborate with leading tutions. These investments form an important contri- investment promotion agencies in the region on the REGIONAL bution to building up the financial infrastructure and design and execution of outreach facilities. providing key financing to SMEs in the region. In fiscal 2004, MIGA supported 25 new projects Gross Amount of Guarantees Issued and 28 through its guarantee program and undertook 11 Gross Exposure, $ M technical assistance activities in the region. At year- end, MIGA's total gross guarantees exposure stood at $1,973 million, or 38 percent of the Agency's out- standing portfolio. HIGHLIGHTS Supporting Post-Conflict Countries MIGA played an important role in providing both risk mitigation and technical assistance in conflict-affected countries in the region. The Agency supported 15 new projects in Azerbaijan, Bosnia and Herzegovina and Serbia and Montenegro amounting to $275 million. Improving Health Care MIGA supported a private-public partnership with the national health care service of Romania, which involves setting up four diagnostic centers to aid in the early detection of diseases. Romania ranks among the Sector Breakdown of Total Guarantees Issued Since lowest health care spenders in the region with signifi- Inception, in Percent cantly lower basic health status indicators than many of its neighbors. Funding from the private sector will be key to improving the health care service in the country. Pioneering MIGA provided coverage for Russia's first privately- owned water treatment plant just outside Moscow, which will increase the potable water supply capacity in the city. Through training local management and employees, the project will transfer operating know- how to employees of the state-owned utility. The plant GUARANTEES Country Activities AZERBAIJAN Fatoglu Gida Sanayi Ve Ticaret A.S. Fatoglu Istehsal Azerbaycan, Ltd. Priority Areas: IDA, S-S, SME MIGA issued a guarantee of $333,000 to Fatoglu Gida Sanayi Ve Ticaret A.S. (Fatoglu Food Industry and Trade Corporation or "Fatoglu") of Turkey for its $370,000 investment of equipment and machinery in Fatoglu Istehsal Azerbaycan, Ltd (Fatoglu Production Azerbaijan Co. Ltd. or "Fatoglu-Azerbaijan") of Azerbaijan. The investment is guaranteed for a period of five years and coverage is provided against the risks of transfer restriction, expropriation, and war and civil disturbance. The machinery and equipment will be used for the expansion of the Fatoglu-Azerbaijan mill which currently produces flour that is distributed and sold in Azerbaijan and Georgia. The expansion will consist of the construction of a warehouse and three steel silos for wheat and flour storage, wheat classifications, and mixing. The investment will improve the enterprise's wheat and flour storage facilities, which will, in turn, contribute to a higher quality and greater variety of flour output. 29 In FY03, MIGA issued Fatoglu a guarantee for $529,920 to cover its $588,800 equity investment in Fatoglu-Azerbaijan, for a period of up to 5 years, against the risks of transfer restriction, expropriation, and war and civil disturbance. This expansion project will contribute to the development of Azerbaijan's emerging agri- cultural sector, which helps diversify the economy, currently concentrated in the oil and gas industry. The project will also employ 150 people during the construction phase of the project. BOSNIA AND Bank Austria Creditanstalt A.G. HERZEGOVINIA HVB Bank Bosnia-Herzegovina d.d. and Central Profit Banca d.d. Priority Areas: IDA MIGA issued two e11.2 million ($13.6 million) guarantees and two e5.6 million ($6.8 million) guarantees to Bank Austria Creditanstalt A.G. (BACA) supporting loans to HVB Bank Bosnia-Herzegovina d.d. (HVB-BiH) and Central Profit Banca d.d. (CPB-BiH). The guarantees for both projects cover a period of seven years and provide coverage against the risks of transfer restriction, expropriation, and war and civil disturbance. The guarantees help BACA expand and strengthen its two subsidiaries in preparation for their merger. The loans will allow BACA to increase its lending in Bosnia and Herzegoninia, there by bolstering the country's financial sector through the provision of medium-term and long-term financing, and more competitive pricing to retail and corporate clients. BACA will continue to play a leading role in providing expertise, technical solutions and new products to the financial sector. HVB-BiH and CPB-BiH expect to provide loans to SMEs in need of financing and thus improve their access to financial services. Country Activities BOSNIA AND Raiffeisen Zentralbank Österreich AG HERZEGOVINIA Raiffeisen Bank d.d. Bosnia I Herzegovina (CONT'D) Priority Areas: IDA During fiscal year 2004, MIGA issued four guarantees totaling e66.55 million ($78.5 million) to Raiffeisen Zentralbank Österreich AG (RZB) for its shareholder loans to Raiffeisen Bank d.d. Bosnia I Herzegovina (RBBH). The guarantees issued were in the amounts of e19 million ($21.8 million), e23.8 million ($29.0 million), e19 million ($22.0 million) and e4.75 million ($5.7 million). The guarantees for the four projects cover periods of nine, three, seven and seven years, respectively, and provide coverage against the risks of transfer restriction and expropriation. ACTIVITIES In fiscal 2003, MIGA provided coverage to RZB for its EUR 10 million shareholder loan to RBBH. The new guarantees cover further expansion of the project enterprise's lending program in fiscal 2004. The additional shareholder loans provided by RZB will help RBBH REGIONAL strengthen its capital base and increase its lending in Bosnia and Herzegovina. RBBH offers a wide range of products and services, including payment services, retail banking and credit facilities, trade finance services, and corporate finance including long- 30 term lending, treasury finances, and investment banking services. Further details about the projects appear in MIGA's 2003 Annual Report. Slovene Export Corporation Poslovni Sistem Mercator d.d. Priority Areas: IDA, S-S MIGA provided an additional e3.5 million ($4.0 million) in reinsurance to the Slovene Export Corporation for the political risk insurance it has provided to Poslovni Sistem Mercator d.d. (Mercator) of Slovenia for its e10 million additional equity investment in Mercator Trzni Centar Sarajevo d.o.o. (Mercator TCS), in Bosnia and Herzegovina. Coverage is being provided for a period of nine and a half years against the risks of transfer restriction, expro- priation, and war and civil disturbance. The project involves operating a shopping mall in the center of Sarajevo. Since 2002, cash flows have been positive, and the new equity investment is aimed at positioning the investor for a possible expansion in the country. The shopping center creates positive externalities for customers and local suppliers. It increases the availability and the quality of goods in Sarajevo. In the first years of operation, Mercator developed partnerships with producers from Bosnia and Herzegovinia, and local goods represent over twenty-five percent of goods sold in the supermarket. In addition, approximately fifty percent of goods sold come from Slovenia. The project hosts a bank, a pharmacy, and other services and fosters private sector growth. It employs over 200 workers who received training from a staff exchange with Mercator shopping centers in Slovenia and Croatia. Country Activities BOSNIA AND International Dialysis Centers B.V. HERZEGOVINIA International Dialysis Center Banja Luka (CONT'D) Priority Areas: IDA, SME MIGA issued a guarantee of e1.26 million ($1.4 million) to the International Dialysis Centers B.V. of the Netherlands for its e2.0 million equity investment in International Dialysis Center Banja Luka of Bosnia and Herzegovina. The guarantee covers a period of seven years and provides coverage against the risk of breach of contract. The project--an expansion of an earlier MIGA-supported health care facility located in Banja Luka--is providing renal dialysis treatment services to the city of Bijeljina in the Republika Srpska region, where kidney disease is endemic. Using state-of-the-art medical equipment, the project is helping to improve life expectancy and the quality of life for dialysis patients. The project supports the World Bank Group's country assistance strategy, which promotes social services, such as high-quality and accessible health care, as a fundamental step in building social sustainability in the medium-term. (For more on this project, see Box 1, page 4). 31 Hypo Alpe-Adria-Bank AG Hypo Alpe-Adria-Bank AD Banja Luka Priority Areas: IDA MIGA provided an additional e4.6 million of coverage to Hypo Alpe-Adria-Bank AG (HAAB) of Austria for its e5.1 million equity investment in Hypo Alpe-Adria-Bank AD Banja Luka (HAAB Banja Luka) in Bosnia and Herzegovina. The investment is guaranteed for a period of 10 years and coverage is provided against the risks of expropriation and war and civil disturbance In FY03, MIGA issued a e13.8 million guarantee to HAAB of Austria for a e15.4 million equity investment in HAAB Banja Luka in Bosnia and Herzegovina. This amount, combined with the new investment brings HAAB's total equity invested in HAAB Banja Luka to e20.5 million; MIGA's coverage of both investments amounts to e18.4 million. The project involves the recapitalization of HAAB Banja Luka and the further expansion of its lending activities. In addition to increasing the capacity of the financial sector, the project is expected to benefit the local economy by on-lending to a variety of businesses. The latest equity investment will support the objectives of last year's expansion efforts, yielding direct and indirect development impacts for Bosnia and Herzegovina. The project will bolster the credit capacity of the local economy while bringing know-how, technical solutions, and new products to the local market. The project will also provide extensive training for bank employees. While the project will not directly contribute to export earnings, the expansion of funds to local businesses is expected to facilitate up to $50 million in exports annually. Country Activities FYR Norway Registers Development AS MACEDONIA Manor Ltd. Priority Areas: SME MIGA issued a e299,160 ($337,467) guarantee to Norway Registers Development AS of Norway covering its shareholder loan of e250,000 to Manor Ltd. in FYR of Macedonia. The guarantee is for a period of five years and provides coverage against the risk of breach of contract. The project addresses the need for a fast, accurate and up-to-date data management system for the registration of annual accounts (financial statements and other relevant ACTIVITIES financial information of private companies and public entities) in FYR of Macedonia. It consists of the development of a comprehensive software solution compatible with the infrastructure already in place in regional offices that will allow the Central Register of FYR of Macedonia to collect, centralize, and distribute annual accounts information. At the end REGIONAL of the five-year license agreement, the sponsor will transfer, at no charge, the ownership of the project to the Central Register. The project is an instrumental part of a comprehensive effort of the Macedonian gov- 32 ernment to develop a regulatory framework and institutions for recording financial trans- actions and annual accounts. The project will make information readily available across all Central Register regional offices with accuracy and consistency, and enhance and upgrade the current registry system. The project will also contribute to the development of the infrastructure supporting business transactions, and improve the investment climate and account transparency in the country. KYRGYZ Italian Technology & Innovations S.r.l. and FINREP HANDELS GmbH REPUBLIC Manas Management Company Priority Areas: IDA, SME MIGA issued $0.443 million in guarantee coverage to Italian Technology & Innovations S.r.l. (ITI) of Italy and $0.443 to FINREP HANDELS GmbH (FHG) of Austria for their respective investments of $500,000 each in Manas Management Company (MMC) of the Kyrgyz Republic. The guarantees cover the respective investments against the risks of transfer restriction, expropriation, and war and civil disturbance. The coverage does not support new financial or capital investments, but rather reflects a partial transfer of equity from ITI to FHG relating to the project, which was originally supported by MIGA in fiscal 1998 and 1999. The project is currently the subject of a dispute between the investors and the host country. Country Activities MOLDOVA Leon Construction International B.V. Leogrant SRL Priority Areas: IDA, S-S, SME MIGA issued a guarantee of $900,000 to Leon Construction International B.V. of the Netherlands for its $1 million equity investment in Leogrant SRL of Moldova. The guarantee is for a period of 15 years and provides coverage against the risks of transfer restriction, expropriation, and war and civil disturbance. The SME project will finance the expansion of an existing hotel located in the center of Chisinau, which caters primarily to a business clientele. Upgraded business facilities and hotel accommodations are needed to attract potential investors. The project will also support the growth of upstream industries and services such as transportation, food pro- cessing, furniture-making and tour operators. The hotel construction will draw primarily on local supplies. The project will generate foreign exchange for the country, tax revenues to the government, and will create jobs. ROMANIA Raiffeisen Zentralbank Österreich AG Raiffeisen Bank S.A. 33 MIGA issued two guarantees of e26.6 million ($30.5 million) and e16.2 million ($20.1 million) to Raiffeisen Zentralbank Österreich AG (RZB) for its e28 million and e17 million shareholder loans to Raiffeisen Bank S.A. (RBRO) of the Republic of Romania. The guar- antees are for a period of seven years and provide coverage against the risks of transfer restriction and expropriation. In fiscal 2003, MIGA issued a $38 million guarantee to Raiffeisen Bank S.A. for a $40 million shareholder loan to the same project enterprise. The project's expansion efforts have broadened the range and quality of commercial banking services in Romania and have helped lower the costs of financing. The new investments in the bank are expected to help support economic development in Romania in a number of ways. First, the shareholder loans will bolster the bank's capital base, allowing RBRO to increase its medium-term lending, which will support investments in new equipment. Second, RBRO expects that much of its lending (more than 50%) will support local SMEs through a special SME-EBRD line of credit, helping improve their access to loans. Third, the project will continue to invest heavily in training and technology development. Finally, RBRO will bring state-of-the-art technical infrastructure to Romania, including a new operations center, and update key IT capabilities. Country Activities ROMANIA Bank Austria Creditanstalt AG (CONT'D) HVB Bank Romania SA MIGA issued a $69.8 million guarantee to Bank Austria Creditanstalt AG for its $70 million shareholder loan to HVB Bank Romania SA (HVB). The coverage protects the investor against the risks of transfer restriction and expropriation for a period of up to ten years. This is the second guarantee issued to HVB; in fiscal 2003, MIGA underwrote a e15 million shareholder loan to HVB to help it expand its in-country operations. It will contribute to the development of the country's banking system and corporate gov- ernance. The new shareholder loan will allow HVB to continue expanding its lending oper- ations in Romania, thereby bolstering the Romanian financial sector through the provision ACTIVITIES of additional medium-term financing. In addition, the project allows HVB to provide term- financing, including to the SME sector. Finally, HVB estimates that the expansion of its activities will indirectly support the generation of an additional $23 million in annual export revenues by financing export-related enterprises. REGIONAL Euromedic Diagnostics BV SC Euromedic Romania s.r.l. 34 Priority Areas: SME MIGA issued four guarantees totaling $11.34 million to Euromedic Diagnostics BV (Euromedic) of the Netherlands for its $12.6 million equity investment in SC Euromedic Romania s.r.l. of Romania. The guarantees are for a period of seven years and provide coverage against the risk of breach of contract. The project involves the establishment and operation of four diagnostic centers by SC Euromedic Romania s.r.l., based on a public-private partnership with the national health care service. The diagnostic centers will provide MRI, computer, tomography, bone densi- tometer, ultrasound, and stress tests diagnostic services. Euromedic's health care services should make a significant contribution to Romania's social services infrastructure by offering diagnostic services to a broad range of patients. In addition, the four clinics will hire about 240 permanent medical employees and managers. The local annual procurement for goods and services for the four clinics is expected to total $2.1 million. Government tax and fee revenue from Euromedic's operations is expected to total around to $1 million annually. Country Activities RUSSIAN Raiffeisenverband Salzburg FEDERATION OOO Raiffeisen Leasing Priority Areas: SME MIGA issued guarantees of $9.5 million and e7.5 million ($8.6 million) to Raiffeisenverband Salzburg (RZBS) of Austria for its $10 million and e7.9 million shareholder loans to OOO Raiffeisen Leasing (RLRU), Moscow, the Russian Federation. The guarantees are for a period of four years and provide coverage against the risks of expropriation and transfer restriction. They complement a $5.7 million guarantee that MIGA issued to RZBS in March 2003 and a further two guarantees that MIGA issued to Raiffeisen Steiermark in fiscal years 2002 and 2003 amounting to $33.25 million. The new shareholder loans guaranteed by MIGA will finance the expansion of Raiffeisen Leasing's operations in the Russian Federation, increasing the availability of medium-term lease financing, particularly for SMEs. The project will also contribute to employment creation through new or expanding companies benefiting from the project's leasing oper- ations. RLRU plans to conduct significant on- and off-site training which will improve the skills base of professionals in the financial sector. 35 Raiffeisenverband Salzburg OOO Raiffeisen Leasing Priority Areas: SME MIGA issued guarantees of $38 million and e14.25 million ($18 million), respectively, to Raiffeisenverband Salzburg (RZBS) of Austria for its $40 million and e15 million share- holder loans to OOO Raiffeisen Leasing (RLRU), Moscow, the Russian Federation. The guarantees are for a period of five years and provide coverage against the risks of currency transfer restriction and expropriation. RLRU is a licensed leasing company with branches in Moscow and in St. Petersburg. RLRU offers a wide range of products for leasing, including railway cars, agricultural equipment, utility vehicles, construction equipment, and packaging and industrial machinery. The guaranteed investments will be used to strengthen RLRU's leasing portfolio and expand its operations in Russia. This will allow RLRU to continue to fill a financing gap in Russia by providing SMEs with medium and long-term credit and access to modern equipment. Since the leasing sector in Russia is still developing, RLRU's market-leading position is also expected to introduce high industry standards in corporate governance, customer services, and product offerings. RBRU's leasing activities are expected to generate about $15 million in exports annually. The company expects to hire about 52 local employees over the next five years and train them on-and off-site. Country Activities RUSSIAN Raiffeisen Zentralbank Österreich AG FEDERATION ZAO Raiffeisenbank Austria (CONT'D) Priority Areas: SME MIGA issued a guarantee of $28.5 million to Raiffeisen Zentralbank Österreich AG of Austria for its $30 million shareholder loan to ZAO Raiffeisenbank Austria (RBRU) of the Russian Federation. The guarantee is for a period of five years and provides coverage against the risks of currency transfer restriction and expropriation. RBRU provides account and payment services for corporate clients, documentary business and guarantees, loans, treasury services, consumer banking and other services. The ACTIVITIES investment will finance the expansion of RBRU's operations in Russia and will strengthen the asset base of RBRU. This investment will have several important developmental impacts for the Russian REGIONAL economy. It will support the development of the Russian financial sector through the pro- vision of short, medium, and long-term lending, and the introduction of new financial products. It will also stimulate export growth and small and medium enterprise devel- opment through the on-lending of funds to local SMEs that are expected to generate 36 export revenues. In addition, local skills will be developed by RBRU as it continues to hire managers locally and train them using RZB's network for on-and off-site staff training. The project is consistent with the World Bank Group Country Assistance Strategy for the Russian Federation, which specifically seeks to promote the diversification of the economy to reduce the reliance on the natural resource sectors. ZAO Raiffeisenbank Austria's portfolio of banking products to SMEs will offer new and improved financial services to start-up, small, and entrepreneurial ventures. WTE Wassertechnik GmbH WTE Süd-West MIGA issued guarantees of e45.1 million ($51.7 million) and e22,500 ($25,000) to WTE Wassertechnik GmbH of Germany (WTE), a member firm of the Austrian EVN Group, for its e47.4 million shareholder loan to, and its e25,000 equity investment in, WTE Süd-West of the Russian Federation (WTESW). Both guarantees cover a period of fifteen years and provide coverage against expropriation and breach of contract. The project addresses the increase in demand for water supply faced by the growing city of Moscow. The project consists of the construction of a green-field water treatment plant that will increase the Moscow's potable water supply capacity by 4 percent. The project enterprise will be responsible for the construction (starting September 2003) of a 250,000 cubic meters per day water treatment plant under a thirteen and a half year build, own, operate and transfer (BOOT) concession scheme. Water will be channeled from the Moskva River to a processing plant where it will be filtrated using state-of-the-art tech- nologies. The purified product will then be distributed through the municipal water system by Mosvodokanal, the city-owned utility. In addition to tax revenues, employment and training local management and employees, the project enterprise expects to transfer operating know-how to Mosvodokanal employees before the transfer of ownership at the end of the concession period. Moreoever, the plant's clean water will improve local health, environmental, and safety conditions, and will help create positive business externalities. Country Activities SERBIA AND Bank Austria Creditanstalt AG MONTENEGRO HVB Banka Jugoslavija a.d. Priority Areas: IDA, SME MIGA issued e7.125 million ($8.47 million) and e0.475 million ($0.56 million) guarantees to Bank Austria Creditanstalt AG for its e7.5 million loan guarantee and e0.5 million share- holder loan made in support of HVB Banka Jugoslavija a.d. (HVB-SAM) in Serbia and Montenegro. The guarantees are for a period of 10 years and provides coverage against the risks of transfer restriction, expropriation, and war and civil disturbance. HVB-SAM was established in December 2001 and offers a wide range of products and services including payment services, deposits and term account maintenance, trade finance services, corporate finance including long-term lending and treasury services, and investment banking services. The project will provide for an expansion of HVB-SAM operations by allowing it to increase its lending portfolio, mainly to small and medium enterprises, including retailers, and general commerce and food related enterprises. HVB-SAM's additional loans will be provided predominantly to SMEs, which will increase both SMEs' access to financing, and support economically sound projects. 37 Hypo Alpe-Adria-Bank A.G. Hypo Alpe-Adria-Bank A.D. Priority Areas: IDA MIGA issued a e22.2 million ($10.6 million) guarantee to Hypo Alpe-Adria-Bank A.G. (HAAB) of Austria for its e24.7 million equity investment in Hypo Alpe-Adria-Bank A.D. (HAAB-SAM) in Serbia and Montenegro. The guarantee is for a period of ten years and provides coverage against the risks of expropriation and war and civil disturbance. This contract represents an additional guarantee of e9 million over the original contract of guarantee which was issued in fiscal year 2003. It covers an increase in the investment of HAAB in HAAB-SAM to finance the expansion of the bank's lending capacity. In fiscal 2003, HAAB estimated that it would create thirty-seven local jobs with salaries and benefits slightly above the sector average. However, local job creation more than doubled compared to initial expectations, and the present project is expected to further support HAAB-SAM's organic growth. MIGA's additional guarantee to HAAB-SAM will increase capacity and service to the financial sector of Serbia and Montenegro and the local economy. HAAB-SAM expects to offer approximately sixty percent of its corporate loans to SMEs, and thirty percent to export-oriented companies. Country Activities SERBIA AND Raiffeisen A.S. and Raiffeisen Zentralbank Österreich AG MONTENEGRO Raiffeisen Leasing Serbia and Montenegro (CONT'D) Priority Areas: SME, IDA MIGA issued two contracts of e38 million ($46.5 million) and e19 million ($23.9 million) to Raiffeisen A.S. of the Czech Republic and one contract of e0.475 million ($0.6 million) to Raiffeisen Zentralbank Österreich AG of Austria for their respective e40 million, e20 million, and e0.5 million loans to Raiffeisen Leasing Serbia and Montenegro (RLSM). The guarantees are for a periods of five, four, and four years and provide coverage against the risks of a currency transfer and expropriation. ACTIVITIES The operations of RLSM will contribute to the development of the private sector in Serbia and Montenegro (SAM) through the establishment of a leasing subsidiary of the Raiffeisen Group. The financing package will be used to fund the project's leasing portfolio, with about 60% of the leases to be provided to small and medium-sized enterprises (SMEs) in REGIONAL order to support their capital investments and to replace outdated equipment. In addition to direct job creation the project is also expected to create jobs indirectly in the companies that will benefit from leases and expand their operations. RLSM employees will 38 benefit from the RZB network for on-and off-site staff training, thus transferring knowledge of advanced leasing structures to SAM's financial market. The project supports the private sector development objectives of the World Bank Group strategy which aims to stimulate near-term growth and create the basis for a sustainable supply responses from the private sector. Raiffeisen Zentralbank Österreich AG and Raiffeisenbank A.S. Raiffeisenbank a.d. Priority Areas: IDA MIGA issued three contracts of $23.3 million, $46.4 million, and $0.583 million to Raiffeisen Zentralbank Österreich AG (RZB) of Austria and Raiffeisenbank A.S. (RBCZ) of the Czech Republic for their respective $24.5 million, $48.8 million, and $0.613 million loans to Raiffeisenbank a.d. (RBSM), based in Serbia and Montenegro. The guarantees are for periods of five, six, and six years respectively and provide coverage against the risk of a currency transfer and expropriation. The project involves the expansion of RBSM's banking services and is expected to con- tribute the development of the private sector in Serbia and Montenegro (SAM). The investment will strengthen and diversify RBSM's lending portfolio. Moreover the financing package will also increase the availability of funds with longer tenors available in the mar- ketplace--generating competitive pricing and terms for loans to Serbian companies. RBSM will create jobs and employees will benefit from the RZB network for on- and off- site staff training (with the training budget amounting to 5% of the gross wages), thus transferring knowledge of modern banking practices and financing structures to the SAM's financial market. Country Activities UKRAINE Raiffeisen Zentralbank Österreich AG JSCB Raiffeisenbank Ukraine MIGA issued a guarantee of $95 million to Raiffeisen Zentralbank Österreich AG (RZB- Austria) of Austria for its $100 million shareholder loan to JSCB Raiffeisenbank Ukraine (Raiffeisenbank Ukraine). The guarantee is for a period of seven years and provides coverage against the risks of transfer restriction and expropriation. MIGA issued a guarantee to the investor covering a $20 million investment in the project enterprise in fiscal 2001. This investment of RZB supports an expansion of Raiffeisenbank Ukraine's capital base and lending operations. This will give access to term financing and contribute to the development of the country's banking system and its corporate gov- ernance. Can-Pack S.A. Can-Pack Ukraine Ltd. Priority Areas: S-S 39 MIGA issued three guarantees totaling $48.8 million to Can-Pack S.A. (Can-Pack) of Poland for its investment in Ukrainian subsidiary, Can-Pack Ukraine Ltd. The guarantees cover the equity investment, a shareholder loan and a management and technical assistance contract. All three guarantees provide coverage against the risks of expropriation, war and civil disturbance and transfer restriction. The guarantees for the equity investment and the management contract cover a period of 15 years, and the guarantee for the shareholder loan covers a period of five years. The project involves the construction and operation of an aluminum beverage can pro- duction plant, the largest private Polish investment in Ukraine to date. It will increase Can- Pack's production capacity in order to meet the growing demand for canned beverages in Ukraine and will allow it to maintain market share in Ukraine, Russia, and other members of the Commonwealth of Independent States. The project will help create approximately 110 local jobs and about 145 additional jobs during the construction phase. Can-Pack will provide ongoing training throughout the duration of the project. The project is also expected to generate significant exports, reduce imports and provide upstream benefits for local suppliers. TECHNICAL ASSISTANCE ACTIVITES In Serbia and Montenegro, MIGA launched a new program in Montenegro, with donor funding from the European Agency for Reconstruction (EAR), aimed at assisting the country in establishing a new investment facilitation and servicing unit. The one-year program ACTIVITIES will support the establishment of the unit, the devel- opment of a start-up strategy and work plan, skills development and training, and information dissemi- nation activities. REGIONAL MIGA also completed a long-term capacity building program for the Serbian Investment and Export 40 Promotion Agency. The hands-on institutional devel- opment program focused on the preparation of an appropriate FDI promotion strategy, skills training and the implementation of a series of pilot investor outreach programs in a number of priority sectors. The The launch of the European Investor Outreach Program program was funded under an IDA grant to Serbia and in fiscal 2004 represents a major initiative to increase benefited from strong cross-links with other economic investor awareness of the Western Balkans. Workshops development programs, such as USAID's competi- held in Albania for the Albanian Investment Promotion tiveness project and EAR's SME program in Serbia. Agency focused on how the country might attract new Based on the initial results of the program, EAR has investors and how it might participate in the EIOP. asked MIGA to help design and manage a follow-on Discussions were also held with Croatian authorities assistance program. on ways the country can be involved. In a joint initiative, MIGA and FIAS explored the pos- During the year, MIGA continued to provide support to sibility of developing a joint technical assistance the Armenian Development Agency (ADA) as part of a program in Tajikistan and assessed the country's needs World Bank program. In addition, work on a national in the areas of investment climate improvement and FDI promotion strategy was concluded and several investment promotion. A project proposal was pre- training and skills development activities were imple- sented in conjunction with the Tajikistan Consultative mented. MIGA also participated in the First Armenia- Group meeting in London in February 2004. MIGA is Diaspora Economic Forum, an investment promotion currently working with the Tajik government to finalize conference co-organized by ADA and held in Yerevan. the project design and prepare the launch of the program, expected in fiscal 2005. MIGA supported the preparation of the investment promotion agency law of FYR Macedonia that was adopted by its parliament in early 2004. Further assistance included advice on preparing the launch of a new agency, as well as a donor coordination effort on behalf of the government and the new agency. MIGA also explored cooperation activities and synergies with the USAID-funded "Macedonia Competitiveness Activity" with a view to leveraging the activities of the new agency. Latin America and The Caribbean The overall investment environment in fiscal 2004 close dialogue with the government in resolving two showed a slight and uneven improvement over the outstanding claims. In Venezuela, MIGA's close work previous two years. Portfolio flows were stronger, with the government resulted in investors benefiting but FDI was characterized by investor caution. While from executive decrees and regulations which granted interest in FDI increased over the year, fewer projects an exemption to restrictions on foreign currency materialized than in previous years. transfers, following registration with the Comisión de Administración de Divisas. In fiscal 2004, MIGA supported three new projects through its guarantee program and undertook 11 technical assistance activities in the region. At year- Gross Amount of Guarantees Issued and end, MIGA's total gross guarantees exposure stood Gross Exposure, $ M at $1,736 million, or 33 percent of the Agency's out- standing portfolio. 41 HIGHLIGHTS Responding to Energy Crisis MIGA provided coverage for a shareholder loan to the TermoCabo power plant in Brazil. The plant will supply peak-time electricity to the people of Pernambuco, one of the poorest states of Brazil. As a result, power rationing, previously common during periods of drought, has substantially decreased. The project is part of the Emergency Energy Program enacted by the Brazilian government to respond to the country's severe energy shortage. Focusing on Central America MIGA has been active in providing technical assistance Sector Breakdown of Total Guarantees Issued Since in Central America and is currently executing programs Inception, in Percent in four countries: El Salvador, Guatemala, Nicaragua and Honduras. The programs are aimed at FDI sector diversification and the attraction of higher value- added investments. A particularly important project in Panama, to convert the former Howard Air Force Base to the Panama Pacific Special Economic Zone, is nearing completion. Mediating Disputes In Argentina, MIGA has successfully resolved a number of pre-claim situations that resulted from the enactment of the Emergency Law imposed by the gov- ernment in 2001. The Agency continues to maintain a GUARANTEES Country Activities BRAZIL Cefla Capital Services S.p.A. Cefla Capital Services do Brasil Ltda. Priority Areas: SME MIGA issued a guarantee of e1.6 million ($2 million) to Cefla Capital Services S.p.A. of Italy for its e1.8 million ($2.2 million) equity investment in Cefla Capital Services do Brasil Ltda. of Brazil. The guarantee is for a period of 15 years and provides coverage against the risks of transfer restriction, expropriation, and war and civil disturbance. ACTIVITIES The project will support the acquisition of additional existing shares in, and the expansion of, two of Cefla Capital Services S.p.A. subsidiaries called IGM Maquinas e Equipamentos Ldta., and Ariam Metalurgica Ltda. These subsidiaries produce fixtures, such as shelves, REGIONAL lighting, and cabinets, for displaying merchandise, as well as machinery and finishing systems for wood-based, plastic, and non-ferrous products. The main objectives of the expansion are to increase Brazil's manufacturing capacity to satisfy growing domestic and South America markets, and to implement marketing and sales strategies in congruence 42 with other international Cefla operations. The expansion of the project is expected to increase the procurement of local goods and services and will also create direct and indirect jobs. ABN Amro Bank N.V. TermoCabo, Ltda. MIGA issued a guarantee of $26.8 million to ABN Amro Bank N.V. of the Netherlands for its $26 million non-shareholder loan to TermoCabo, Ltda. of Brazil. The guarantee is for a period of two years and provides coverage against the risks of transfer restriction, expro- priation, war and civil disturbance. The guarantee covers an increase in the investment of ABN Amro Bank in TermoCabo, for which MIGA had issued guarantees in fiscal 2003. The project consists of the operation and maintenance of a diesel power plant located in the drought-prone state of Pernambuco, in North-East Brazil. With ninety percent of the country's installed generating capacity in the form of hydro-electric power, the sustained lack of rainfall has resulted in power shortages and electricity rationing. The project diversifies the sources of power supply and helps to meet short-term electricity demand in Pernambuco. The project employs forty local staff for ongoing plant operational and equipment maintenance, and employees receive intensive training in all elements of diesel power plant operations and maintenance. The plant has been designed to ensure compliance with both MIGA and Brazilian envi- ronmental requirements. An upcoming air quality check will monitor the noise levels and sulfur dioxide emissions to ensure that with MIGA's environmental policies and guidelines are adhered to. Country Activities BRAZIL Elecnor S.A. (CONT'D) Expansion Transmissão Itumbiara Marimbondo Ltda. MIGA issued a guarantee of $11.0 million to Elecnor S.A. of Spain for its loan guarantee of $11.6 million in support of Expansion Transmissão Itumbiara Marimbondo Ltda. of Brazil. The guarantee is for a period of three years and provides coverage against the risks of breach of contract, and currency transfer restriction and inconvertibility. The project involves the construction of an $80 million power transmission line in the State of Minas Gerais which will increase transmission capacity as well as improve the reli- ability of electricity supply. MIGA's participation in the project is consistent with the World Bank's objectives of supporting Brazil's power sector. The project is considered crucial for the country's economic development because it bolsters transmission capacity which is considered a priority in Brazil's electricity development program for 1999-2008. A total of 1,300 workers will be hired during the construction phase of the project and about 30 people during the operation of the enterprise. The project will also pay taxes amounting to an estimated $62 million during the life of the concession, and in accordance with Brazilian law, roughly $400,000 of the cost of the infrastructure project will be set aside for the establishment or improvement of conservation areas, parks, and protected areas. 43 Elecnor S.A. Cachoeira Paulista Transmissora de Energia Ltda. MIGA issued a guarantee of $17.9 million to Elecnor S.A. of Spain for its loan guarantee of $18.9 million in support of Cachoeira Paulista Transmissora de Energia Ltda. of Brazil. The guarantee is for a period of three years and provides coverage against the risks of breach of contract, and currency transfer restriction and inconvertibility. The project involves the construction of an $80 million power transmission line in the State of São Paulo which will increase transmission capacity as well as improve the reli- ability of electricity supply. MIGA's participation in the project is consistent with the World Bank's objectives of supporting Brazil's power sector. The project is considered crucial for the country's economic development because it bolsters transmission capacity which is considered a priority in Brazil's electricity development program for 1999-2008. A total of 1,200 workers will be hired during the construction phase and about 30 people during the operation of the project enterprise. The project will also pay taxes amounting to an estimated $64 million during the life of the concession, and in accordance with Brazilian law, roughly $400,000 of the cost of the infrastructure project will be set aside for the establishment or improvement of conservation areas, parks, and protected areas. TECHNICAL ASSISTANCE ACTIVITIES MIGA's focus on providing technical assistance in Central America continued in fiscal 2004. In Guatemala, MIGA supported the national investment promotion agency - Invest in Guatemala (IIG) - in its efforts to re-launch the investment promotion component of a loan provided by the IBRD to increase national com- petitiveness. The work includes planning the various elements of the FDI program, generating consensus ACTIVITIES within the new government regarding its goals and discussing the reorganization of the IIG. Guatemala's investment promotion agency is also a recipient of a grant under MIGA's FDI Xchange Investor Information will manage $2.1 million over the next three years to REGIONAL Development Program. support the country's investment promotion agency, FIDE. In fiscal 2004, MIGA helped developed an exe- In El Salvador, MIGA helped PRO.ESA, El Salvador's cution plan for the program. investment promotion agency, begin the transition 44 from reactive to proactive campaign-based investment MIGA continued its work with IFC in Panama on a outreach. This transition was made possible because proposed project to convert the former Howard Air of PRO.ESA's institutional maturity and experience in Force base and surrounding land to a large-scale multi- sector promotion. MIGA has been involved with PRO. use special economic zone. MIGA provided free zone ESA since its inception, from the design of the initial and investment promotion strategic guidance, as well institutional framework to the more sophisticated pro- as legal, marketing and promotional assistance. This motional systems that have generated important FDI was done in close cooperation with FIAS and external flows for El Salvador. Recent investments from leading consulting groups brought together for this task by call center companies and pharmaceutical multina- IFC for the Interoceanic Regional Authority of Panama. tionals as well as one of Europe's largest fisheries Legislation to start the project has passed its final leg- enterprises are a testimony PRO.ESA's capacity islative review. building efforts. Following a request from the government of Paraguay, ProNicaragua, the Nicaraguan investment promotion MIGA conducted a detailed needs assessment of agency established with MIGA's assistance, has suc- ProParaguay, the country's national investment pro- cessfully attracted significant levels of FDI and gen- motion agency, that focused on ProParaguay's role in erated a large pipeline of potential investment projects improving the country's investment environment and after only 14 months of operation. During the year, creating modest promotion programs for the next two MIGA worked closely with the World Bank to evaluate, years. supervise and implement the investment promotion components of the country's Learning and Innovation As part of an ongoing assistance program in Colombia, Loan (LIL) program. ProNicaragua is emerging as MIGA assisted the Invest in Colombia Corporation one of the region's leading investment promotion (COINVERTIR) in the design and development of a agencies due to its strong management, close ties three-year business plan. The plan has been presented to the local private sector, ability to mobilize a high to the government and part of the required funding level government support for individual investment has been committed. In addition, MIGA finalized an projects, and capacity to generate concrete returns on agreement with the Chamber of Commerce of Bogota investment promotion activities. to provide technical assistance over a three-year period, which will assess institutional capacity to promote FDI, MIGA launched an FDI technical assistance program design an appropriate promotional framework, develop in Honduras under an IDA-funded project that aims capacity and assist the Chamber of Commerce in con- to improve the country's investment climate. MIGA ducting FDI promotion in priority sectors. Middle East and North Africa The war in Iraq, the ongoing Israeli-Palestinian conflict such as Algeria, Egypt, Iran, Kuwait, Jordan, Lebanon, and concerns about spillover effects undermined Saudi Arabia and the United Arab Emirates. These investors' confidence and posed obstacles to FDI flows trips have increased MIGA's exposure to investors and to the region. As a result, FDI declined from $3 billion business groups in the region. in 2002 to an estimated $2 billion in 2003. Despite the unfavorable market conditions, MIGA undertook a number of outreach programs in the region aimed at facilitating foreign, particularly inter-regional, Gross Amount of Guarantees Issued and investments. Gross Exposure, $ M In fiscal 2004, MIGA supported one new project through its guarantee program and undertook three technical assistance activities in the region. At year end, MIGA's total gross guarantees exposure stood 45 at $243 million, or 5 percent of the Agency's out- standing portfolio. HIGHLIGHTS Supporting Technology MIGA provided guarantees to Investcom Holding of Lebanon and Teleinvest of Saudi Arabia, which are investing in Spacetel Syria, one of two cellular service providers in Syria using the advanced digital GSM tech- nology. The introduction of reliable mobile telephone services is helping address the country's shortage of telephone lines. Sector Breakdown of Total Guarantees Issued Since Inception, in Percent Partnering MIGA signed cooperation agreements with the Export Guarantee Fund of Iran (EGFI) and the Jordanian Loan Guarantee Corporation. The partnerships aim to support the promotion of FDI in the region. MIGA also held a training program for a number of its partners in the region, including EGFI, the Inter-Arab Investment Guarantee Corporation and the Islamic Corporation for the Insurance of Investments and Export Credit, as well as other insurers and banks. Reaching Out to Investors MIGA redoubled its efforts to promote FDI flows into the region, conducting a number of trips to countries GUARANTEES Country Activities SYRIAN ARAB Investcom Holding S.A. and Teleinvest Ltd. (member of Dallah Al Baraka Holding) REPUBLIC Spacetel Syria S.A. Priority Areas: S-S MIGA issued guarantees of $55.96 million and $19.0 million to Investcom Holding S.A. of Luxembourg and Teleinvest Ltd. of the Cayman Islands for their respective $62.18 million and $21.15 million equity investments in Spacetel Syria S.A. Both guarantees cover a period of ten years and provide coverage against the risks of transfer restrictions, expropriation, ACTIVITIES war and civil disturbance, and breach of contract. The project addresses the increase in demand for telephone lines and the need for improved telecommunication infrastructures in Syria. It consists of the installation and operation by REGIONAL Spacetel of one of two mobile telephone networks based on GSM technology. Spacetel cur- rently serves more then 500,000 subscribers with a network capable of handling more than 1.3 M subscribers and will gradually increase its network capacity to address the demand for 3 million additional telephone lines in the country. At the end of the 15-year build, 46 operate, and transfer (BOT) concession scheme (July 2017), the sponsors will transfer, at no charge, ownership of the project to the Syrian Telecommunication Establishment, which operates the telecommunications sector in Syria. The project is expected to provide substantial revenues to the government of Syria. Spacetel will provide the government with an increasing percentage of the revenues from oper- ations to reach 50 percent in the seventh year. Spacetel expects to increase the number of employees substantially over the next five years. Average workers' wages will be 90 percent higher than the domestic sector standard, and Spacetel will provide its employees with extensive training. Technical staff will be sent to engineering and training institutes abroad. In addition to bringing an efficient and reliable mobile telephone network to the Syrian Arab Republic, the project will rely on domestic companies for advertising, engineering, IT and software companies, cable installation and construction, and will foster local enterprise development. The project addresses two of MIGA's priority areas: supporting basic infrastructure and encouraging cross-border investment among developing countries (Investcom Holding S.A. is incorporated in Luxembourg, but operates out of Lebanon, and Teleinvest is incor- porated in the Cayman Islands, but operates out of Saudi Arabia ). It also represents an inte- grated complement to the World Bank and IFC's efforts to foster foreign direct investment in the country, as well as improving the performance of the telecommunications sector. TECHNICAL ASSISTANCE ACTIVITIES MIGA's extensive outreach to countries conducted in fiscal 2004 resulted in the initiation of a number of new technical assistance activities. In Lebanon, MIGA plans to provide technical assistance to the Industrial Development Agency, Lebanon's investment pro- motion agency. In Jordan, MIGA is reviewing the possibility of training the staff of the Jordan Investment Board (JIB) in client relationship management, market intelligence, capacity development, promotional outreach and utilizing FDI Xchange. Although Iraq is not currently a member of MIGA, the Agency is exploring various avenues to encourage the inflow of FDI into the country as this is an expressed in Rabat, engaged with stakeholders and the local priority of the interim Iraqi administration. MIGA par- business community to develop an investment plan-- 47 ticipated in a World Bank Group Trade and Investment theTangierInvestInitiative--whichaimstopromoteand Conference held in Amman, Jordan in May 2004 and leverage the competitive and comparative advantages met with key Iraqi government and private sector of the region. A comprehensive assessment, including representatives to discuss a strategy for trade and a recommended institutional framework and business investment. In particular, MIGA plans to support Iraq's plan structure for Tangier Invest, was completed and efforts to develop its investment promotion through shared with key stakeholders in Morocco in fiscal 2004. the Agency's online resources, such as the FDI Center. MIGA will provide technical assistance and capacity building to promote investment flows to the country A joint MIGA-IFC project was launched in Morocco and to the Tangiers region specifically. in fiscal 2004 to assess the viability of a program to develop a regional IPA promoting economic devel- opment of the Tangiers region. MIGA and IFC's North Africa Enterprise Development Facility (NAED), based Sub-Saharan Africa Despite a boom in the energy sector in the region, sub- Saharan Africa's overall growth slowed over the course Introducing Technology of the year. Adverse weather conditions reduced agri- MIGA's coverage of a South African Internet service cultural production, while export growth slowed due to provider working in Nigeria met a number of the sluggish economic conditions in Europe. FDI inflows Agency's strategic priorities: the project enables tech- ACTIVITIES increased slightly in 2003, although much of this was nological innovation; it supports a small and medium due to investments in the oil sector. enterprise; and promotes cross-border flows within the region. In fiscal 2004, MIGA supported four new projects REGIONAL through its guarantee program and undertook 28 technical assistance activities in the region. At year- Gross Amount of Guarantees Issued and end, MIGA's total gross guarantees exposure stood at Gross Exposure, $ M $692 million, or 13 percent of the Agency's outstanding 48 portfolio. HIGHLIGHTS Improving the Investment Climate MIGA's mediation services have helped improve the investment climate in Ethiopia, enabling the country to conclude bilateral treaties with France and Germany. MIGA is helping to settle claims outstanding from the expropriation of foreign assets during the Mengistu regime. The resolution of these claims is expected to send a strong signal to the international business com- munity and encourage FDI into the country. Building Capacity MIGA supported and co-funded an investment outreach program under a partnership with the Swiss Sector Breakdown of Total Guarantees Issued Since government, launched in 2001 and aimed at imple- Inception, in Percent menting a targeted investment facilitation initiative in four countries: Ghana, Mozambique, Senegal and Tanzania. In fiscal 2004, the program targeted the apparel, textile, call center and tourism industries. The outreach program has already resulted in concrete investments. GUARANTEES Country Activities KENYA Geosurvey International, LLC East Africa Geosurvey Ltd. Priority Areas: IDA, SSA MIGA issued a guarantee of $1.4 million to Geosurvey International, LLC of the US for its $1.5 million equity investment in East Africa Geosurvey Ltd. of Kenya. The guarantee is for a period of 15 years and provides coverage against the risks of transfer restriction, expro- priation, war and civil disturbance, and breach of contract. The project involves the development of a computerized database system for Kenyan local authority councils, which will link landbase mapping and land parcel data with property ownership and taxation records in a Land Information System. The project aims to strengthen municipal councils' property assessment procedures, as well as taxation and fees collection systems. The project will have several important developmental impacts for the Kenyan economy. Since property taxes in Kenya generally provide 20 percent of the total revenues of local 49 governments and 1 percent of central government revenue, East Africa Geosurvey Limited's operations could potentially bolster state and community coffers. It is estimated that, with the help of the project, local governments will be able to double the collection of property- related taxes and fees within three years in the counties and towns participating in the project. The project will also permanently employ about 500 local workers. In addition, the project's operations will yield many peripheral benefits to local communities, including improving access to accurate property information, updating the local address system, improving consumer access to mortgages, and enabling municipal governments to issue bonds and access capital markets. The project is consistent with the World Bank Group strategy for Kenya, which focuses on supporting government efforts to improve economic governance and achieve fiscal adjustment. East African Geosurvey Limited will create an opportunity for better tax col- lection and possibly better municipal services. Country Activities MOZAMBIQUE Standard Bank of South Africa Limited (formerly known as Standard Corporate and Merchant Bank of South Africa) Republic of Mozambique Pipeline Investment Company (Pty.) Ltd. and Sasol Petroleum Temane Limitada Priority Areas: IDA, SSA, S-S MIGA issued to Standard Bank of South Africa Limited guarantees of $87.8 million and $25.7 million for its respective loans of $92.4 million to the Republic of Mozambique Pipeline Investment Company (Pty.) Ltd. (ROMPCO) of South Africa and $27 million to Sasol Petroleum Temane Limitada (SPT) of Mozambique. Both SPT and ROMPCO are wholly-owned subsidiaries of the Sasol Limited Group. The guarantees are for a period ACTIVITIES of up to 13 years against the risks of transfer restriction, expropriation, war and civil dis- turbance, and breach of contract. MIGA's coverage of the loans replaces two equity guarantees issued in fiscal 2003 to the REGIONAL Sasol Limited Group in support of its initial investments in ROMPCO and SPT. A portion of the guarantees issued by MIGA has been reinsured under the Agency's facultative rein- surance program. 50 MIGA's guarantees support the development of Mozambique's Temane and Pande gas fields and the construction of a 865 km cross-border gas pipeline in Mozambique and South Africa. The project represents the first cross border initiative in sub-Saharan Africa in developing regional natural gas markets and will generate many benefits for the local economy, including government revenues estimated to be in excess of $2 billion over the project's 25-year lifetime. Contracts for local purchases of goods and services on an ongoing basis are estimated to be more than $1 million per year. The project will substantially add to Mozambique's infrastructure through the development of roads, water supplies and the removal of land mines. Environmentally, the project will contribute to the reduction of harmful emissions by replacing heavy oils and sulphur-rich coal with clean burning natural gas. (For more on this project, see Box 3, page 17). Mozambique Rice Growers Pty. Ltd. Auroz Limitada Priority Areas: IDA, SSA, SME MIGA issued a guarantee of $450,000 to Mozambique Rice Growers Pty. Ltd. of Australia for its $500,000 equity investment in Auroz Limitada of Mozambique for a project to develop land for rice production. The guarantee is for a period of ten years and provides coverage against the risks of expropriation, transfer restriction, and war and civil disturbance. Country Activities NIGERIA Accelon (Pty.) Ltd. IP Satellite Services Ltd. Priority Areas: IDA, SSA, S-S, SME MIGA issued $11.4 million in guarantee coverage to Accelon (Pty.) Ltd. of South Africa for its $15.2 million equity investment in IP Satellite Services Ltd. of Nigeria. The guarantee is for a period of three years and provides coverage against the risks of expropriation and war and civil disturbance. The project involves the establishment of an internet service provider facility to be operated via a satellite platform. The project enterprise will offer standardized shared Internet access services. Flexible service packages will be offered based on bandwidth attributes, providing email, web browsing, file downloads, teleconferencing, virtual private networks with com- mitted information rates, broadband services, interactive TV services, and voice services, all from a common platform. IP Satellite Services Ltd. will offer Nigerians the kind of internet services and tools typ- ically available only to large enterprises or corporations. Consequently, high-quality, high- speed Internet services (including cutting-edge communication, business, learning, and entertainment services) will become more accessible and affordable for a broad range of 51 business clients and consumers. Moreover, the project enterprise will further disseminate technological know-how in Nigeria by providing $1 million in technical training to its staff over a five-year period. The project will contribute to the Nigerian economy by creating employment opportunities and generating tax revenues. In addition, peripheral business opportunities will be created for entrepreneurial Nigerians by developing a network of dealers with a broad geographic presence throughout the country. Ewekoro Power Plant Sales Limited Ewekoro Power Limited Priority Areas: IDA, SSA, SME MIGA provided Ewekoro Power Plant Sales Limited (Ewekoro) of the UK an amendment to a $19 million guarantee contract, which was underwritten in fiscal 2003. The amendment provides coverage for a $4.3 million increase in the original shareholder loan to Ewekoro's Nigerian subsidiary, Ewekoro Power Limited (Ewekoro Nigeria), from $13.3 million to $17.6 million. The additional amount guaranteed is $1.9 million. The guarantee is for a period of eight years and provides coverage against the risks of transfer restriction, expropriation, and war and civil disturbance. Ewekoro Nigeria supplies electrical power to a cement plant located outside the city of Lagos owned by West African Portland Cement PLC. The project installation consists of four new gas engines with a total capacity of 12.5 megawatts under a Build-Own-Operate agreement with the customer, helping to meet the construction needs of Nigeria's fast- growing population. MIGA's involvement in the project helps create local jobs and facilitates local economic growth. The project is also expected to have a positive impact on the local environment, as it is replacing old inefficient generating equipment with modern and efficient gas engines. TECHNICAL ASSISTANCE ACTIVITIES Partnerships have been particularly important in developing MIGA's technical assistance program in sub-Saharan Africa. In fiscal 2004, MIGA strengthened its relationship with the Corporate Council for Africa (CCA) to promote capital flows to Africa. MIGA also worked closely with the World Economic Forum's Africa Economic Summit--co-funding the Forum's Box 4 Africa Competitiveness Report, which collates an array MIGA-Swiss Partnership of competitiveness information on African investment in Africa environments and opportunities. Under the MIGA-Swiss Partnership, a major effort In fiscal 2002, the Swiss State Secretariat for is being undertaken to increase FDI into Ghana, Economic Affairs and MIGA developed a part- Mozambique, Senegal and Tanzania. MIGA sup- nership agreement to implement a targeted ported these countries in other ways in fiscal 2004: investment facilitation initiative in sub-Saharan in Mozambique, MIGA supported the institutional 52 Africa. The aim was to work with selected African component of the IDA's Mozambique Enterprise investment promotion agencies to help them Development project; in Senegal, MIGA provided reach out to international investors and attract support to the national IPA, Agence Nationale Chargée the FDI that would allow them to access global de la Promotion de l'Investissement et des Grands and regional markets. This multi-year initiative Travaux, APIX, to develop a business plan that would encourages investors to take advantage of enable the agency to secure substantial World Bank increased African trade access under the United output-based funding; and in Tanzania, MIGA iden- States African Growth and Opportunities Act tified a work plan to encourage investment in the (AGOA) and the European Union's Cotonou tourism industry, in consultation with the Ministry of agreement, which are expected to encourage Natural Resources and Tourism and members of the exports from Africa, particularly in the apparel, tourism industry. textiles and agribusiness sectors. Four countries --Ghana, Mozambique, Senegal and Tanzania-- In Kenya, the Export Processing Zones Authority and were selected to initially participate in the the Kenya Investment Promotion Center are recipients program. of a grant under MIGA's IIDP. Under the program, MIGA is helping these agencies gather, package and Fiscal 2004 saw some tangible results emerging disseminate critical investment information. MIGA has from the program. MIGA organized and led a also worked with the intermediaries to help them define delegation from the four countries to Hong Kong their capacity building needs to interested donors. as part of an apparel industry outreach program. MIGA also co-funded an exhibition and outreach MIGA gave presentations at the West Africa Regional program for the four countries at a major AGOA- Investment Promotion Forum held in Bamako, Mali, an focused event in South Africa. These outreach event which is sponsored by USAID and organized with efforts are starting to yield results: 20 companies investment promotion intermediaries in the region. paid return visits to Ghana to explore investment The forum was attended by representatives from eight prospects; Mozambique held detailed dis- regional countries. cussions with a potential major investor in the aluminum industry; Senegal had several visits At the request of the Eastern Cape Development from Hong Kong apparel investors, and is under- Corporation of South Africa, MIGA carried out an taking a major IT-enabled services outreach institutional strategy and alignment study of the cor- program in Paris in fiscal 2004; and Tanzania has poration and its dependent organizations, the Coega had some limited investor interest in the apparel Industrial Development Zone and the East London industry and substantial investment inflows in Industrial Development Zone. tourism. FINANCIAL OVERVIEW AND STATEMENTS 53 Financial Overview Management's Assertion Regarding COSO COSO Assertion of Independent Accountants Financial Statements Report of Independent Accountants Balance Sheet Statement of Income Statement of Comprehensive Income Statement of Changes in Shareholders' Equity Statement of Cash Flows Statement of Subscriptions to Capital Stock and Voting Power Statement of Guarantees Outstanding Notes to Financial Statements FINANCIAL OVERVIEW Income from Guarantees As of June 30, 2004, total guarantees issued stood at US$1,076 million1. The gross and net exposures amounted to US$5,186 million and US$3,259 million compared to US$5,083 million and US$3,204 million at June 30, 2003. In FY04, income from guarantees, comprised of earned net premium income, fees and commissions, amounted to US$40.9 million, compared with US$39.5 million in FY03. MIGA's annual premium income is largely driven by its average net exposure during that year, which in turn is determined by two offsetting factors: new guarantees and contract cancellations, expiries, reductions and replacements. While the volume of MIGA's FY04 new guarantee business was smaller than that of FY03, a significant decrease in the volume of contract cancellations, expiries, reductions and replacements (net $578.8 million, compared with FY03's $826.6 million) contributed to a slight increase in the net exposure. Premium Income Analysis FY00-FY04 US$ millions FY01 FY02 FY03 FY04 OVERVIEW Total Guarantees issued 2,153 1,357 1,372 1,076 Gross Exposure 5,180 5,257 5,083 5,186 Net Exposure 3,157 3,202 3,204 3,259 Premium income 46.3 57.1 53.9 57.9 FINANCIAL Premium ceded (18.0) (24.4) (21.4) (23.2) Fees and commissions 8.2 7.7 7.0 6.2 Net premium income 36.5 40.4 39.5 40.9 54 Investment Income MIGA's investment income in FY04 amounted to US$14.2 million compared with US$25.3 million in FY03. The investment return decreased from 3.7 percent in FY03 to 1.95 percent in FY04. The total return, including unrealized gains and losses, decreased from 3.5% in FY03 to 1.0% in FY04. The average maturity of the portfolio was 11.7 months at June 30, 2004. Investment Income FY00-FY04 US$ millions FY01 FY02 FY03 FY04 Investment portfolio 552 692 689 739 Total return on investments % 7.5 4.8 3.5 1.0 Investment income 30.4 28.7 25.3 14.2 Reserve for Claims As of June 30, 2004, MIGA's Reserve for Claims was comprised of the Specific Claims Reserve of US$27.7 million (US$39.2 million as of June 30, 2003) and the General Claims Reserves of US$235.5 million (US$285.7 million as of June 30, 2003) . During the year, there was a US$62.4 2 million release of provision for claims. Reserve for Claims FY00-FY04 US$ millions FY01 FY02 FY03 FY04 Systemic Losses 207 224 210 182 Attritional Losses 76 76 83 78 Project/Contract Level Adjustments 26 0 14 4 309 300 307 264 Reinsurer Credit Risk 80 81 69 55 Administrative & Salvage Expense 110 115 128 118 Future Net Premium Income (205) (199) (218) (202) General Claims Reserve 294 297 286 235 Specific Claims Reserve 1 45 39 28 Reserve for Claims 295 342 325 263 1 There were no outstanding commitments as of June 30, 2004 2 General Claims Reserves are intended to cover the present value of the estimated losses, net of related premium income, arising from the existing guarantee portfolio based on current events and developments. Administrative Expenses In FY04, the administrative expenses amounted to $28.0 million compared with an administrative budget of $31.7 million. This represented 88% of the budgeted amount. Net Income In FY04, net income amounted to $88.0 million compared to $58.8 million in FY03. This was primarily due to a significant release of pro- vision for claims which amounted to $62.4 million compared to the release of provision for claims of $20.7 million in FY03, and the provision for claims of $43.9 million in FY02 and $29.7 million in FY01. Income Statement FY01-FY04 US$ millions FY01 FY02 FY03 FY04 Premium income 46.3 57.1 53.9 57.9 Premium ceded (18.0) (24.4) (21.4) (23.2) Fees and commissions 8.2 7.7 7.0 6.2 36.5 40.4 39.5 40.9 Income from investments 30.4 28.7 25.3 14.2 Income from the SRP 3.0 2.2 and other Staff benefits plans 69.9 71.3 64.8 55.1 Administrative expenses (19.8) (21.9) (25.5) (28.0) Other expenses (0.8) (1.0) (1.1) (1.6) Provision for claims (29.7) (43.9) 20.7 62.4 55 Net Income 19.6 4.5 58.8 88.0 Capital Increase On March 29, 1999, MIGA's Council of Governors approved a General Capital Increase (GCI) of US$850 million, to be subscribed over three years. On May 6, 2002, the Council of Governors approved the extension of the subscription period by one year to March 28, 2003. On March 17, 2003, the Council of Governors approved an amendment to the GCI resolution allowing eligible countries to reserve the GCI shares allocated to them by submitting an instrument of contribution before the GCI deadline of March 28, 2003, and requesting such countries to subscribe to their GCI shares as soon as possible. The reserved shares are issued and corresponding voting power accrues when the subscription process reaches completion, i.e., when the required payment has been received. As of June 30, 2004, cumulative subscriptions to the GCI totaled 63,084 shares equivalent to US$682.6 million. This represents 80.3% of the total number of shares authorized under the GCI. General Capital Increase As of June 30, 2004 Category One Category Two All Countries Number US$M Number US$M Number US$M Fully Subscribed 19 284.5 80 237.8 99 522.3 OVERVIEW Partly Subscribed 2 159.2 1 1.1 3 160.3 Total Subscribed 21 443.7 81 238.9 102 682.6 Reserved through Instrument of Contribution 50.1 32 92.5 32 142.6 FINANCIAL Total Subscribed & Reserved 21 493.8 113 331.3 134 825.2 Allocated 21 493.8 140 356.2 161 850.0 Subscribed % 89.9 67.1 80.3 56 Subscribed & Reserved % 100.0 93.0 97.1 Liquidity MIGA measures liquidity by reference to both (i) the resources that are available to pay claims ("Sources of Cash"), and (ii) the capital and reserves that are available to sustain losses and support the on-going business ("Operating Capital"). As of June 30, 2004, Sources of Cash amounted to US$1,007 million, including MIGA's cash and investment portfolio of US$748 million, credit facilities of US$150 million , and promissory notes of US$109 million. Operating Capital of US$811 million comprised a General Claims Reserve of US$235 million, Retained Earnings of US$228 million, and Paid-in Capital of US$348 million. In addition, MIGA was supported by US$1.5 billion of callable capital. Liquidity FY00-FY04 US$ millions FY01 FY02 FY03 FY04 Cash and investments 556 702 700 748 Credit facilities * 110 185 150 150 Promissory notes 101 103 105 109 Sources of Cash 767 990 955 1,007 General claims reserves 294 297 286 235 Retained earnings & other income 68 77 141 228 Paid-in capital 291 328 339 348 Operating Capital 653 702 766 811 Risk Bearing Capacity For the purpose of measuring its risk-bearing capacity, MIGA uses the ratio of operating capital (which includes paid-in-capital, retained 57 earnings and general reserves) over net exposure. This ratio which increased from 23.9 in FY03 to 24.9 in FY04 remains satisfactory. Risk Bearing Capacity FY00-FY04 US$ millions FY01 FY02 FY03 FY04 Net Exposure 3,157 3,202 3,204 3,259 General Claims reserves 294 297 286 235 Retained Earnings & other Income 68 77 141 228 Paid-in-Capital 291 328 339 348 Operating Capital * 653 702 766 811 Operating Capital/Net Exposure (%) 20.7 21.9 23.9 24.9 * Specific claims reserves are not included in operating capital 3 MIGA has credit facilities of US$25 million with UBS, US$50 million with Royal Bank of Canada, and US$75 million with Lloyds TSB. 4 Specific claims reserves are not included in Operating Capital. Management's Assertion Regarding Coso OVERVIEW FINANCIAL 58 Management's Assertion Regarding COSO (cont.) 59 COSO Assertion of Independent Accountants OVERVIEW FINANCIAL 60 FINANCIAL STATEMENTS Report of Independent Accountants 61 Balance Sheet June 30, 2004 and June 30, 2003 Expressed in thousands of US dollars 2004 2003 Assets CASH $9,101 $11,190 INVESTMENTS­Note B Available-for-sale 739,145 688,733 NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS­Note C 108,968 105,509 OTHER ASSETS Estimated reinsurance recoverables 144,700 194,700 Other assets 26,455 70,005 EMENTSTA 171,155 264,705 TOTAL ASSETS $1,028,369 $1,070,137 ST Liabilities and Shareholders' Equity LIABILITIES Accounts payable and accrued expenses $26,719 $50,948 FINANCIAL Unearned premiums and commitments fees 18,122 19,304 Reserve for claims­Note F Reserve for claims net of estimated reinsurance recoverables 235,500 285,700 Specific reserve for claims 27,700 39,200 62 Estimated reinsurance recoverables 144,700 194,700 Reserve for claims­gross 407,900 519,600 Total liabilities 452,741 589,852 SHAREHOLDERS' EQUITY Capital stock­Note C Authorized capital (183,496 shares-June 30, 2004; 181,755 shares-June 30, 2003) Subscribed capital (168,021 shares-June 30, 2004; 163,745 shares - June 30, 2003) 1,817,987 1,771,721 Less uncalled portion of subscriptions 1,470,430 1,432,773 347,557 338,948 Payments on account of pending subscriptions 67 222 347,624 339,170 Retained earnings 226,248 138,244 Accumulated other comprehensive income 1,756 2,871 Total shareholders' equity 575,628 480,285 CONTINGENT LIABILITIES­Notes D and E TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,028,369 $1,070,137 See Notes to Financial Statements Statement of Income For the fiscal years ended June 30, 2004 and June 30, 2003 Expressed in thousands of US dollars 2004 2003 INCOME Income from guarantees Premium income $57,947 $53,878 Premium ceded (23,225) (21,371) Fees and commissions 6,194 6,990 Total 40,916 39,497 Income from investments Available-for-sale 14,241 25,298 Miscellaneous income 4 16 Total income 55,161 64,811 EXPENSES (Release of) provision for claims­Note F (62,440) (20,672) Administrative expenses­Notes G,H and I 27,985 25,523 Other expenses 1,612 1,144 Total expenses (32,843) 5,995 NET INCOME $88,004 $58,816 Statement of Comprehensive Income For the fiscal years ended June 30, 2004 and June 30, 2003 63 Expressed in thousands of US dollars 2004 2003 NET INCOME $88,004 $58,816 OTHER COMPREHENSIVE INCOME Translation adjustment 5,898 7,035 Unrealized loss on available-for-sale investments (7,013) (1,730) Total (1,115) 5,305 TOTAL COMPREHENSIVE INCOME $86,889 $64,121 Statement of Changes in Shareholders' Equity For the fiscal years ended June 30, 2004 and June 30, 2003 Expressed in thousands of US dollars 2004 2003 CAPITAL STOCK Balance at beginning of the fiscal year $339,170 $328,023 New subscriptions 8,609 11,141 Payments on account of pending subscriptions (155) 6 Ending Balance 347,624 339,170 RETAINED EARNINGS Balance at beginning of the fiscal year 138,244 79,428 Net income 88,004 58,816 Ending Balance 226,248 138,244 ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of the fiscal year 2,871 (2,434) Other comprehensive income (1,115) 5,305 Ending Balance 1,756 2,871 TOTAL SHAREHOLDERS' EQUITY $575,628 $480,285 See Notes to Financial Statements Statement of Cash Flows For the fiscal years ended June 30, 2004 and June 30, 2003 Expressed in thousands of US dollars 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net income $88,004 $58,816 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Release of provision for claims (62,440) (20,672) Decrease (increase) in other assets 43,597 (30,316) Decrease in unearned premiums and commitment fees (1,355) (2,606) Decrease in accounts payable (25,112) (24,970) 42,694 (19,748) Claim recovery­net of payments 0 1,568 Net cash (used in) provided by operating activities 42,694 (18,180) EMENTSTA CASH FLOWS FROM INVESTING ACTIVITIES Available-for-sale portfolio: ST Sales and maturities 25,290,792 20,914,333 Purchases (25,343,386) (20,905,665) Net cash (used in) provided by investing activities (52,594) 8,668 FINANCIAL CASH FLOWS FROM FINANCING ACTIVITIES Capital subscription payments 7,287 10,257 64 EFFECT OF EXCHANGE RATE CHANGES ON CASH 524 (72) Net (Decrease) increase in cash (2,089) 673 Cash at beginning of the fiscal year 11,190 10,517 CASH AT END OF THE FISCAL YEAR $9,101 $11,190 See Notes to Financial Statements Statement of Subscriptions to Capital Stock and Voting Power As of June 30, 2004 Expressed in thousands of US dollars Subscriptions (Note C) Voting power Total Amount Amount Number % of Members Sharesa Subscribed Paid-in Subject to Call of Votes Total Afghanistan 118 $ 1,277 $ 255 $ 1,022 295 0.15 Albania 102 1,104 210 894 279 0.14 Algeria 1,144 12,378 2,350 10,028 1,321 0.67 Angola 187 2,023 405 1,618 364 0.18 Argentina 1,254 13,568 2,714 10,854 1,431 0.73 Armenia 80 866 173 693 257 0.13 Australia 3,019 32,666 6,201 26,465 3,196 1.62 Austria 1,366 14,780 2,806 11,974 1,543 0.78 Azerbaijan 115 1,244 249 995 292 0.15 Bahamas, The 176 1,904 362 1,542 353 0.18 Bahrain 136 1,472 279 1,193 313 0.16 Bangladesh 599 6,481 1,230 5,251 776 0.39 Barbados 120 1,298 246 1,052 297 0.15 Belarus 233 2,521 504 2,017 410 0.21 Belgium 3,577 38,703 7,347 31,356 3,754 1.91 Belize 88 952 181 771 265 0.13 Benin 108 1,169 222 947 285 0.14 65 Bolivia 220 2,380 452 1,928 397 0.20 Bosnia and Herzegovina 80 866 173 693 257 0.13 Botswana 88 952 181 771 265 0.13 Brazil 2,606 28,197 5,353 22,844 2,783 1.41 Bulgaria 643 6,957 1,321 5,636 820 0.42 Burkina Faso 61 660 132 528 238 0.12 Burundi 74 801 160 641 251 0.13 Cambodia 164 1,774 337 1,437 341 0.17 Cameroon 107 1,158 232 926 284 0.14 Canada 5,225 56,535 10,732 45,803 5,402 2.74 Cape Verde 50 541 108 433 227 0.12 Central African Republic 60 649 130 519 237 0.12 Chad 60 649 130 519 237 0.12 Chile 485 5,248 1,050 4,198 662 0.34 China 5,530 59,835 11,359 48,476 5,707 2.90 Colombia 770 8,331 1,582 6,749 947 0.48 Congo, Democratic Republic of 596 6,449 1,224 5,225 773 0.39 Congo, Republic of 115 1,244 236 1,008 292 0.15 Costa Rica 206 2,229 423 1,806 383 0.19 Cote d'Ivoire 310 3,354 637 2,717 487 0.25 Croatia 330 3,571 678 2,893 507 0.26 Cyprus 183 1,980 376 1,604 360 0.18 Czech Republic 784 8,483 1,610 6,873 961 0.49 Denmark 1,265 13,687 2,598 11,089 1,442 0.73 Dominica 50 541 108 433 227 0.12 Dominican Republic 147 1,591 318 1,273 324 0.16 Ecuador 321 3,473 659 2,814 498 0.25 Egypt, Arab Republic of 809 8,753 1,662 7,091 986 0.50 El Salvador 122 1,320 264 1,056 299 0.15 Equatorial Guinea 50 541 108 433 227 0.12 Eritrea 50 541 108 433 227 0.12 Estonia 115 1,244 236 1,008 292 0.15 Ethiopia 123 1,331 253 1,078 300 0.15 Fiji 71 768 154 614 248 0.13 Finland 1,057 11,437 2,171 9,266 1,234 0.63 France 8,203 88,756 16,901 71,855 8,380 4.25 See Notes to Financial Statements Statement of Subscriptions to Capital Stock and Voting Power (Cont'd) As of June 30, 2004 Expressed in thousands of US dollar Subscriptions (Note C) Voting power Total Amount Amount Amount Number % of Members Sharesa Subscribed Paid-in Due Subject to Call of Votes Total Gabon 169 1,829 347 1,482 346 0.18 Gambia, The 50 541 108 433 227 0.12 Georgia 111 1,201 240 961 288 0.15 Germany 8,936 96,688 18,355 78,333 9,113 4.62 Ghana 432 4,674 887 3,787 609 0.31 EMENTSTA Greece 493 5,334 1,013 4,321 670 0.34 Grenada 50 541 108 433 227 0.12 ST Guatemala 140 1,515 303 1,212 317 0.16 Guinea 91 985 197 788 268 0.14 Guyana 84 909 182 727 261 0.13 Haití 75 812 162 650 252 0.13 Honduras 178 1,926 366 1,560 355 0.18 FINANCIAL Hungary 994 10,755 2,042 8,713 1,171 0.59 Iceland 90 974 195 779 267 0.14 India 3,048 32,979 6,596 26,383 3,225 1.64 Indonesia 1,849 20,006 3,798 16,208 2,026 1.03 66 Iran, Islamic Republic 1,659 17,950 3,590 14,360 1,836 0.93 Ireland 650 7,033 1,335 5,698 827 0.42 Israel 835 9,035 1,715 7,320 1,012 0.51 Italy 4,970 53,775 10,208 43,567 5,147 2.61 Jamaica 181 1,958 392 1,566 358 0.18 Japan 8,979 97,153 18,443 78,710 9,156 4.65 Jordan 171 1,850 351 1,499 348 0.18 Kazakhstan 368 3,982 756 3,226 545 0.28 Kenya 303 3,278 622 2,656 480 0.24 Korea, Republic of 791 8,559 1,625 6,934 968 0.49 Kuwait 1,639 17,734 3,367 14,367 1,816 0.92 Kyrgyz Republic 77 833 167 666 254 0.13 Lao People's Democratic Republic 60 649 130 519 237 0.12 Latvia 171 1,850 351 1,499 348 0.18 Lebanon 250 2,705 514 2,191 427 0.22 Lesotho 88 952 181 771 265 0.13 Libya 549 5,940 1,188 4,752 726 0.37 Lithuania 187 2,023 384 1,639 364 0.18 Luxembourg 204 2,207 419 1,788 381 0.19 Macedonia, frm Yugoslav Rep. of 88 952 181 771 265 0.13 Madagascar 176 1,904 362 1,542 353 0.18 Malawi 77 833 167 666 254 0.13 Malaysia 1,020 11,036 2,095 8,941 1,197 0.61 Mali 143 1,547 294 1,253 320 0.16 Malta 132 1,428 271 1,157 309 0.16 Mauritania 111 1,201 228 973 288 0.15 Mauritius 153 1,655 314 1,341 330 0.17 Micronesia, Federated States of 50 541 108 433 227 0.12 Moldova 96 1,039 208 831 273 0.14 Mongolia 58 628 126 502 235 0.12 Morocco 613 6,633 1,259 5,374 790 0.40 Mozambique 171 1,850 351 1,499 348 0.18 Namibia 107 1,158 232 926 284 0.14 Nepal 122 1,320 251 1,069 299 0.15 Netherlands 3,822 41,354 7,850 33,504 3,999 2.03 Nicaragua 180 1,948 370 1,578 357 0.18 Nigeria 1,487 16,089 3,054 13,035 1,664 0.84 See Notes to Financial Statements Statement of Subscriptions to Capital Stock and Voting Power (Cont'd) As of June 30, 2004 Expressed in thousands of US dollar Subscriptions (Note C) Voting power Total Amount Amount Amount Number % of Members Shares a Subscribed Paid-in Due Subject to Call of Votes Total Norway 1,232 13,330 2,531 10,799 1,409 0.72 Oman 166 1,796 341 1,455 343 0.17 Pakistan 1,163 12,584 2,389 10,195 1,340 0.68 Palau 50 541 108 433 227 0.12 Panama 231 2,499 474 2,025 408 0.21 Papua New Guinea 96 1,039 208 831 273 0.14 Paraguay 141 1,526 290 1,236 318 0.16 Peru 657 7,109 1,350 5,759 834 0.42 Philippines 484 5,237 1,047 4,190 661 0.34 Poland 764 8,266 1,653 6,613 941 0.48 Portugal 673 7,282 1,382 5,900 850 0.43 Qatar 241 2,608 495 2,113 418 0.21 Romania 978 10,582 2,009 8,573 1,155 0.59 Russian Federation 5,528 59,813 11,355 48,458 5,705 2.90 Rwanda 132 1,428 271 1,157 309 0.16 St. Kitts and Nevis 50 541 108 433 227 0.12 St. Lucia 88 952 181 771 265 0.13 67 St. Vincent and the Grenadines 88 952 181 771 265 0.13 Samoa 50 541 108 433 227 0.12 Saudi Arabia 5,528 59,813 11,355 48,458 5,705 2.90 Senegal 256 2,770 526 2,244 433 0.22 Serbia and Montenegro 407 4,404 836 3,568 584 0.30 Seychelles 50 541 108 433 227 0.12 Sierra Leone 132 1,428 271 1,157 309 0.16 Singapore 272 2,943 559 2,384 449 0.23 Slovak Republic 391 4,231 803 3,428 568 0.29 Slovenia 180 1,948 370 1,578 357 0.18 South Africa 1,662 17,983 3,414 14,569 1,839 0.93 Spain 2,265 24,507 4,652 19,855 2,442 1.24 Sri Lanka 374 4,047 783 3,264 551 0.28 Sudan 206 2,229 446 1,783 383 0.19 Suriname 82 887 177 710 259 0.13 Swaziland 58 628 126 502 235 0.12 Sweden 1,849 20,006 3,798 16,208 2,026 1.03 Switzerland 2,643 28,597 5,429 23,168 2,820 1.43 Syrian Arab Republic 296 3,203 608 2,595 473 0.24 Tajikistan 74 801 160 641 251 0.13 Tanzania 248 2,683 509 2,174 425 0.22 Thailand 742 8,028 1,524 6,504 919 0.47 Timor-Leste 50 541 108 433 227 0.12 Togo 77 833 167 666 254 0.13 Trinidad and Tobago 358 3,874 735 3,139 535 0.27 Tunisia 275 2,976 565 2,411 452 0.23 Turkey 814 8,807 1,672 7,135 991 0.50 Turkmenistan 66 714 143 571 243 0.12 Uganda 233 2,521 479 2,042 410 0.21 Ukraine 764 8,266 1,653 6,613 941 0.48 United Arab Emirates 372 4,025 805 3,220 549 0.28 United Kingdom 8,565 92,673 17,593 75,080 8,742 4.44 United States 31,889 345,039 66,117 278,922 32,066 16.27 Uruguay 202 2,186 437 1,749 379 0.19 Uzbekistan 175 1,894 379 1,515 352 0.18 Vanuatu 50 541 108 433 227 0.12 See Notes to Financial Statements Statement of Subscriptions to Capital Stock and Voting Power (Cont'd) As of June 30, 2004 Expressed in thousands of US dollar Subscriptions (Note C) Voting power Total Amount Amount Amount Number % of Members Shares a Subscribed Paid-in Due Subject to Call of Votes Total Venezuela, Rep. Bolivariana de 1,427 15,440 3,088 12,352 1,604 0.81 Vietnam 388 4,198 797 3,401 565 0.29 Yemen, Republic of 155 1,677 335 1,342 332 0.17 Zambia 318 3,441 688 2,753 495 0.25 Zimbabwe 236 2,554 511 2,043 413 0.21 EMENTSTA ST Total - June 30, 2004 b 168,021 $1,817,987 $347,557 $1,470,430 197,049 100.00 Total - June 30, 2003 163,745 $1,771,721 $338,948 $1,432,773 192,419 FINANCIAL Note: Amounts aggregating the equivalent of $67,000 has been received from Niger who is in the process of completing its membership 68 a Subscribed shares pertaining to the General Capital Increase include only those shares for which the subscription process has been completed, that is, for which required payment has been received. b May differ from the sum of individual figures shown because of rounding. See Notes to Financial Statements Statement of Guarantees Outstanding As of June 30, 2004 Expressed in thousands of US dollars Gross Exposure (Note D) US Japanese Reinsurance Net Host Country Dollars Euro Yen Total (Note D) Exposure Albania 8,585 8,585 8,585 Algeria 50,000 50,000 5,000 45,000 Angola 1,013 1,013 1,013 Argentina 192,916 192,916 101,562 91,354 Armenia 2,700 2,700 2,700 Azerbaijan 3,563 3,563 86 3,477 Bangladesh 45,650 45,650 5,500 40,150 Benin 4,406 4,406 441 3,965 Bolivia 14,594 14,594 14,594 Bosnia and Herzegovina 203,262 203,262 44,374 158,888 Brazil 623,720 1,985 625,705 389,042 236,664 Bulgaria 353,105 353,105 221,522 131,583 Burundi 911 911 91 820 Cape Verde 540 540 540 Chile 22,216 22,216 22,216 China 145,758 2,985 148,743 39,340 109,403 Colombia 62,415 62,415 31,208 31,208 69 Costa Rica 144,117 144,117 22,656 121,461 Cote d'Ivoire 18,161 18,161 18,161 Croatia 61,750 84,381 146,131 17,393 128,739 Czech Republic 5,231 5,231 523 4,708 Dominican Republic 91,257 91,257 27,965 63,292 Ecuador 98,910 98,910 6,645 92,265 Georgia 2,134 2,134 2,134 Guatemala 109,258 109,258 54,075 55,183 Guinea 15,707 15,707 15,707 Honduras 5,975 5,975 5,975 Indonesia 52,400 52,400 360 52,040 Jamaica 117,311 117,311 9,198 108,113 Jordan 24,300 21,130 45,430 13,629 31,801 Kazakhstan 9,036 9,036 720 8,316 Kenya 49,335 49,335 21,855 27,480 Kuwait 50,000 50,000 50,000 Kyrgyz Republic 42,138 42,138 4,125 38,013 Macedonia, FYR 364 364 36 328 Madagascar 1,035 1,035 518 518 Mali 25,224 25,224 2,522 22,701 Mauritania 21,410 12,401 33,811 3,381 30,430 Moldova 61,992 61,992 30,636 31,356 Mozambique 289,135 22,268 311,403 143,114 168,289 Nepal 30,146 30,146 16,025 14,122 Nicaragua 114,357 114,357 56,686 57,671 Nigeria 112,840 112,840 21,930 90,910 Pakistan 124,371 13,756 370 138,497 30,451 108,046 Panama 3,288 3,288 3,288 Peru 148,091 148,091 41,251 106,840 Philippines 112,000 112,000 8,200 103,800 Romania 119,165 211,697 330,862 151,428 179,434 Russian Federation 188,336 80,177 268,513 89,302 179,212 Senegal 2,760 2,760 276 2,484 Serbia and Montenegro 1,800 195,055 196,855 75,013 121,842 South Africa 12,300 12,300 12,300 See Notes to Financial Statements Statement of Guarantees Outstanding As of June 30, 2004 Expressed in thousands of US dollars Gross Exposure (Note D) US Japanese Reinsurance Net Host Country Dollars Euro Yen Total (Note D) Exposure Sri Lanka 1,686 1,686 1,68 Swaziland 32,000 22,268 54,268 27,134 27,134 Syrian Arab Republic 97,800 97,800 9,780 88,020 Tanzania 83,500 83,500 64,147 19,353 Togo 7,510 7,510 7,510 EMENTSTA Turkey 172,848 172,848 75,222 97,626 Turkmenistan 2,826 2,826 2,826 ST Uganda 5,055 5,055 5,055 Ukraine 162,750 162,750 61,400 101,350 Venezuela, R.B. de 22,050 22,050 6,615 15,435 Vietnam 143,200 143,200 86,600 56,600 Zambia 3,600 2,703 6,303 360 5,943 FINANCIAL 4,148,178 1,211,202 47,610 5,406,989 2,019,337 3,387,652 Adjustment for Dual-Country Contracts: 70 Argentina/Chile -22,216 -22,216 -22,216 Brazil/Bolivia -14,594 -14,594 -14,594 Mozambique/Swaziland -32,000 -22,268 -54,268 -27,134 -27,134 -68,809 -22,268 -91,077 -27,134 -63,943 Adjustment for Master Agreement: -129,895 -129,895 -64,948 -64,948 Total - June 30, 2004a 3,949,474 1,211,202 25,341 5,186,017 1,927,255 3,258,762 Total - June 30, 2003 4,263,695 796,029 23,054 5,082,778 1,878,789 3,203,989 a May differ from the sum of individual figures shown because of rounding See Notes to Financial Statements Notes to Financial Statements Purpose The Multilateral Investment Guarantee Agency (MIGA), established on April 12, 1988, is a member of the World Bank Group which also includes the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the International Development Association (IDA). MIGA's activities are closely coordinated with and complement the overall development objectives of the other members of the World Bank Group. MIGA is designed to help developing countries attract productive foreign investment by both private investors and commercially operated public sector companies. Its facilities include guarantees or insurance against noncommercial risks and a program of advisory services and technical assistance to support member countries' efforts to attract and retain foreign direct investment. Note A: Summary of Significant Accounting and Related Policies MIGA's financial statements have been prepared in conformity with International Financial Reporting Standards and with accounting principles generally accepted in the United States of America. The policy adopted is that considered most appropriate to the circum- stances of MIGA having regard to its legal requirements and to the practices of other international insurance entities. On August 3, 2004, MIGA's Board of Directors approved the financial statements for issue. Use of Estimates The preparation of financial statements in conformity with International Financial Reporting Standards and accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. The following summary of policies adopted by MIGA is provided to assist readers in the interpretation of these financial statements. Translation of Currencies MIGA's financial statements are expressed in terms of United States dollars solely for the purpose of sum- marizing MIGA's financial position and the results of its operations for the convenience of its members and other interested parties. MIGA is an international organization that may conduct its operations in the currencies of all its members. MIGA's resources are derived from its capital and retained earnings in its members' currencies. MIGA strives to minimize exchange rate risks in a multi 71 currency environment. As such, MIGA attempts to match its contingent obligations in any one currency with assets in the same currency on a pro-rata basis. MIGA may periodically undertake currency conversions on a pro-rata basis to match the currencies underlying its reserves with those of its contingent obligations. The purpose of these conversions will be to minimize currency exposure that may occur through operations. Otherwise, MIGA will not convert one currency into another except for small amounts required to meet certain operational needs. Assets and liabilities are translated at market exchange rates in effect at the end of the period. Capital subscriptions are stated in accordance with the procedures described below. Income and expenses are translated at either the market exchange rates in effect on the dates on which they are recognized or at an average of the market exchange rates in effect during each month. Translation adjustments are charged or credited to other comprehensive income. Valuation of Capital Stock Under the MIGA Convention, all payments from members subscribing to the capital stock of MIGA shall be settled on the basis of the average value of the Special Drawing Rights (SDR) in terms of United States dollars for the period January 1, 1981 to June 30, 1985, such value being equal to $1.082 for one SDR. Investments As part of its overall portfolio management strategy, to diversify its credit exposure to commercial banks and to obtain higher returns, MIGA invests in government and agency obligations and time deposits according to its credit risk and maturity policies. Government and agency obligations include highly rated fixed rate bonds, notes, bills and other obligations issued or unconditionally guaranteed by governments of countries or other official entities including government agencies or by multilateral organizations. Investments classified as available-for-sale, which are those securities that may be sold prior to maturity as part of asset/liability management or in response to other factors, are carried at fair value with any changes in fair value reported in the Balance Sheet as a component of accumulated other comprehensive income. Revenue Recognition Revenue from premium payments for direct insurance and reinsurance contracts assumed and ceded is rec- ognized on a pro-rata basis over the contract period. Revenue from commitment fees, which are fees paid by investors to reserve for a limited period of time guarantee capacity for future use, is recognized on a pro-rata basis over the commitment period. Reserve for Claims The reserve for claims provides for probable losses, net of future premiums, inherent in guarantee operations based upon an estimation of the net present value of future premium income as compared to the net present value of future losses related to guarantee operations. MIGA has incurred only one loss to date (see Note D). Accordingly, MIGA has computed expected future losses by reference to (i) the loss experiences of other insurers engaged in similar underwriting, (ii) the composition and volume of out- standing guarantee contracts, and (iii) the worldwide economic and political environment. This reserve is available to absorb probable losses inherent in outstanding guarantees and is increased by provisions charged to expense and decreased by claims settlements. The level of provision is based upon management's evaluation of probable losses, net of future premiums, that may result from (i) risks that are inherent, but unidentifiable at the time of reporting, (ii) large concentrations of exposure to individual risks, countries or guarantee contracts, and (iii) an ongoing assessment of MIGA's expected recovery rates. Sufficient claims reserves are established at the end of each year to cover all of the inherent probable losses arising from contracts outstanding at that time on a net present value basis; future provisions are then established to reflect changes in MIGA's outstanding portfolio. In the event of a formal filing of claim by an investor, and upon receipt of full evidence of the occurrence of the covered risk, MIGA normally has between two months and six months to determine its liability under the contract, depending upon the type of coverage and contract terms, and 60 days thereafter to pay the claim. Accounting and Reporting Developments On January 17, 2003, FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ­ an interpretation of ARB No. 51 (FIN 46). During December, 2003, FASB replaced FIN 46 with FASB Interpretation No. 46, Consolidation of Variable Interest Entities ­ an interpretation of ARB No. 51 (FIN 46R). FIN 46 and FIN 46R defines certain "variable interest entities" (VIEs) and require parties to such entities to assess and measure variable interests in the VIEs for the purpose of determining possible consolidation of the VIEs. Enterprises are required to apply the provisions of either FIN 46 or FIN 46R to financial statements issued for periods ending after December 15, 2003. Enterprises are required to apply the full provisions of FIN 46R to financial statements issued for periods ending after March 15, 2004. MIGA analyzed various investments under the provisions of FIN 46R as of June 30, 2004, and as a result, did not identify any material variable interests in VIEs as of that date. At its March 31, 2004 meeting, the FASB ratified the consensuses reached by the Emerging Issues Task Force (EITF) on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." EITF 03-1 provides clarity on the manner in which a company should evaluate and measure other-than temporary impairment on securities including available for sale securities. As noted in Note B, as part of its ongoing investment monitoring process, and based on the quality of MIGA's investment portfolio, MIGA has concluded that, as of June 30, 2004, there was no other than temporary impairments that had not been recognized. MIGA management believes that MIGA's process for assessing other than temporary impairment on its investments is effective and in accordance with EITF 03-1. In December 2003, as part of its improvements to International Accounting Standards (IAS) project, IASB issued fifteen revised International Accounting Standards to eliminate redundancies and conflicts between exiting standards. The revised standards are to EMENTSTA be applied for fiscal year beginning on or after January 1, 2005. MIGA is currently examining what impact these standards may have on MIGA's's financial statements. ST Note B: Investments Available-for-sale portfolio: Investment securities in the available-for-sale portfolio are carried at fair value. A summary of the available- FINANCIAL for-sale portfolio at June 30, 2004 and June 30, 2003 is as follows (in thousands of US dollars): Gross Gross 72 Amortized Unrealized Unrealized Fair Cost Gains Losses Value At June 30, 2004 Government obligations $405,125 $359 $3,509 $401,975 Time deposits 337,170 - - 337,170 Total $742,295 $359 $3,509 $739,145 At June 30, 2003 Government obligations $362,336 $3,497 $263 $365,570 Time deposits 323,163 - 0 323,163 Total $685,499 $3,497 $263 $688,733 The expected maturities of investment securities in the available-for-sale portfolio at June 30, 2004 were as follows (in thousands of US dollars): Amortized Fair Cost Value At June 30, 2004 Due in one year or less $378,186 $377,405 Due after one year through two years 241,187 240,263 Due after two years through three years 122,922 121,477 Total $742,295 $739,145 Investments were denominated primarily in United States dollars with instruments in non-dollar currencies representing 10.8 percent (10.0 percent - June 30, 2003) of the portfolio. The following table shows the gross unrealized losses and fair value of the securities in MIGA's available-for-sale portfolio at a loss position, aggregated by the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2004 and 2003. Government Obligations In thousands June 30, 2004 June 30, 2003 Amortized Fair Unrealized Amortized Fair Unrealized Cost Value Losses Cost Value Losses 73 Less than 12 months $298,269 $295,804 $2,466 $56,855 $56,591 $263 12 months or more 51,803 50,759 1,043 - - - Total $350,072 $346,563 $3,509 $56,855 $56,591 $263 As part of its ongoing investment monitoring process, and based on the quality of MIGA's investment portfolio, MIGA has concluded that, as of June 30, 2004, there was no other than temporary impairments that had not been recognized. MIGA management believes that MIGA's process for assessing other than temporary impairment on its investments is effective and in accordance with EITF 03-1. NOTE C: Capital Stock The MIGA Convention established MIGA's authorized capital stock at 100,000 shares with a provision that the authorized capital stock shall automatically increase on the admission of a new member to the extent that the then authorized shares are insufficient to provide the shares to be subscribed by such member. At June 30, 2004, the initial authorized capital stock increased to 104,937 (103,196 ­ June 30, 2003) shares. The Convention further states that 10 percent of the members' initial subscription be paid in cash, in freely convertible currencies, except that developing member countries may pay up to a quarter of the 10 percent in their own currencies. An additional 10 percent of the initial subscription shall be paid in the form of nonnegotiable, non interest bearing promissory notes. The notes are denominated in freely convertible currencies and are due on demand to meet MIGA's obligations. The remaining 80 percent is subject to call when required by MIGA to meet its obligations. On March 29, 1999, the Council of Governors approved a General Capital Increase (GCI) resolution increasing the authorized capital stock of MIGA by 78,559 shares to be subscribed by members during the subscription period ending March 28, 2002. Of the addi- tional capital, 17.65 percent is to be paid in cash, in freely usable currency. The remaining 82.35 percent is subject to call when required by MIGA to meet its obligations. On May 6, 2002, the Council of Governors adopted a resolution to extend the GCI subscription period to March 28, 2003. On March 17, 2003, the Council of Governors approved an amendment to the GCI resolution allowing eligible countries to subscribe to the GCI shares allocated to them by submitting an Instrument of Contribution before the GCI deadline of March 28, 2003, EMENTSTA and requesting such countries to pay for their GCI shares as soon as possible. The reserved shares will be issued and corresponding voting power will accrue when the subscription process has been received. ST At June 30, 2004, MIGA's authorized capital stock comprised 183,496 shares of which 168,021 (163,745 ­ June 30, 2003) shares had been subscribed. Each share has a par value of SDR10,000, valued at the rate of $1.082 per SDR. Of the subscribed capital, $347,557,000 ($338,948,000 ­ June 30, 2003) has been paid in; and the remaining $1,470,430,000 ($1,432,773,000 ­ June 30, 2003) is subject to call. Of the amounts paid in, at June 30, 2004, $108,968,000 ($105,509,000 ­ June 30, 2003) is in the form of nonnegotiable, noninterest bearing FINANCIAL demand obligations (promissory notes). A summary of MIGA's capital stock at June 30, 2004 and June 30, 2003 is as follows: Initial Capital Capital Increase Total 74 Shares (US$000) Shares (US$000) Shares (US$000) At June 30, 2004 Authorized 104,937 $1,135,418 78,559 $850,008 183,496 $1,985,426 Subscribed 104,937 $1,135,418 63,084 $682,569 168,021 $1,817,987 At June 30, 2003 Authorized 103,196 $1,116,581 78,559 $850,008 181,755 $1,966,589 Subscribed 103,196 $1,116,581 60,549 $655,140 163,745 $1,771,721 NOTE D: Guarantee Program and Contingent Liabilities Guarantee Program MIGA offers guarantees or insurance against loss caused by noncommercial risks (political risk insurance) to eligible investors on qualified investments in developing member countries. MIGA insures investments for up to 20 years against four different categories of risk: currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, and breach of contract. Currency inconvertibility and transfer restriction coverage protects the investor against inconvertibility of local currency into foreign exchange for transfer outside the host country. Currency depreciation is not covered. Expropriation coverage protects the investor against partial or total loss of the insured investment as a result of acts by the host government that may reduce or eliminate ownership of, control over, or rights to the insured investment. War and civil disturbance coverage protects the investor against losses from damage to, or the destruction or disappearance of, tangible coverage assets caused by politically motivated acts of war or civil disturbance in the host country including revolution, insurrection, coups d'etat, sabotage and ter- rorism. Breach of contract coverage protects the investor against the impossibility to obtain or to enforce an arbitral or judicial decision recognizing the breach of an obligation by the host government. Investors may insure projects by purchasing any com- bination of the four coverages. MIGA guarantees cannot be terminated unilaterally by the guarantee holder within the first three years from the date of issuance. Premium rates applicable to issued contracts are fixed for five years. Payments against all claims under a guarantee may not exceed the maximum amount of coverage issued under the guarantee. MIGA also acts as administrator of some investment guarantee trust funds. MIGA, on behalf of the trust funds, issues guar- antees against loss caused by non-commercial risks to eligible investors on qualified investments in the countries specified in the trust fund agreements. Under the guarantee trust fund agreements, MIGA, as administrator of the guarantee trust funds, is not liable on its own account for payment of any claims under contracts of guarantees issued by MIGA, on behalf of such trust funds. As approved by the Board of Directors and the Council of Governors, the maximum aggregate amount of contingent liabilities that may be assumed by MIGA is 350 percent of the sum of MIGA's unimpaired subscribed capital and its reserves plus such portion of the insurance ceded by MIGA through contracts of reinsurance as the Board of Directors may determine. Accordingly, at June 30, 2004, the maximum level of guarantees outstanding may not exceed $9,723,176,000. Contingent Liability The maximum amount of contingent liability of MIGA under guarantees outstanding at June 30, 2004 totaled $5,186,017,000 ($5,082,778,000 - June 30, 2003). The maximum amount of contingent liability is MIGA's maximum exposure to 75 insurance claims, which includes "standby" coverage for which MIGA is committed but not currently at risk. At June 30, 2004, MIGA's estimate of its actual exposure to insurance claims exclusive of standby coverage is $2,393,563,000 ($2,386,500,000 - June 30, 2003). Additional guarantee capacity committed was $nil at June 30, 2004 and 2003. Claim As of June 30, 2004, MIGA had three pending claims for which specific liability has not yet been determined. Two of the pending claims were expropriation claims for losses related to projects in Argentina. On the first claim, received in July 2002, the amount of loss was not specified. However, the maximum aggregate liability under the contract amounts to $5 million. The claim determination period is scheduled to end in July 2004. The second claim, received on January 13, 2004 was for losses amounting to $1.5 million. The waiting period before claim recognition is scheduled to end on December 12, 2004. The third claim, involving two contracts, were for claims under war and civil disturbance coverage resulting from an attack by guerillas on a project in Nepal. The claim, received on April 6, 2004, amounted to US$144,660 of which approximately 60% is reinsured. The claim was recognized as valid, but the amount of compensation is yet to be ascertained in light of further documentation to be provided by the investor. Final claim determination will occur in July 2004. NOTE E: Reinsurance Although MIGA obtains quota-share and facultative reinsurance to augment its underwriting capacity and to protect portions of its insurance portfolio, it remains responsible to the insured client for the entire amount of the insurance contract. Of the $5,186,017,000 outstanding contingent liability (gross exposure) at June 30, 2004 ($5,082,778,000 - June 30, 2003), $1,927,255,000 was ceded through contracts of reinsurance ($1,878,789,000 - June 30, 2003). Net exposure amounted to $3,258,762,000 as at June 30, 2004 ($3,203,989,000 - June 30, 2003). MIGA can also provide both public (official) and private insurers with reinsurance. As of June 30, 2004, total insurance assumed by MIGA, primarily with official investment insurers, amounted to $121,838,000 ($122,238,000 - June 30, 2003). Premiums relating to direct, assumed, and ceded contracts for the fiscal years ended June 30, 2004 and June 30, 2003 were as follows: In thousands 2004 2003 Premiums written Direct $55,564 $50,473 Assumed 854 941 Ceded (22,665) (20,336) Premiums earned Direct 56,724 53,288 Assumed 1,223 590 Ceded (23,225) (21,371) NOTE F: Reserve for Claims MIGA's gross reserve for claims as of June 30, 2004 amounted to $407,900,000 ($519,600,000 ­ June 30, 2003) Changes to the gross reserve for claims for the fiscal years ended June 30, 2004 and June 30, 2003 were as follows: In thousands 2004 2003 Balance, beginning of the fiscal year $519,600 $598,000 Release of provision for claims-net (62,440) (20,672) Estimated reinsurance recoverables (50,000) (61,100) Claims recovered 1,567 Translation adjustment 740 1,805 Balance, end of the fiscal year $407,900 $519,600 EMENTSTA ST At June 30, 2004, the specific reserve amounted to $27,700,000 ($39,200,000 - June 30, 2003). This includes an IBNR reserve which includes contracts where a claimable event has taken place but no claim has been filed and a reserve for notified claims. As of June 30, 2003, the specific claims reserves also included a special reserve which was previously established to reflect MIGA management's assessment of a significant increase in risk in certain countries and for which MIGA management believed that a claim notification may have been imminent. As of June 30, 2004, this special reserve was eliminated. FINANCIAL Reinsurance recoverables have been estimated in proportion to the reserve for claims and on the basis of a review of the selected contracts in force and other available information. 76 NOTE G: Staff Retirement Plan and Other Postretirement Benefits IBRD has a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits plan (PEBP) that cover substantially all of its staff members as well as the staff of IFC and of MIGA. The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides pension benefits administered outside the SRP. All costs associated with these plans are allocated between IBRD, IFC, and MIGA based upon their employees' respective participation in the plans. In addition, IFC and MIGA reimburse IBRD for their share of any contributions made to these plans by IBRD. Net income from the SRP that has been allocated to MIGA for the fiscal year ended June 30, 2004 and June 30, 2003 was $nil. The portion of the cost for RSBP and the PEBP for the fiscal year ended June 30, 2004 was $419,600 ($506,000 ­ June 30, 2003). In addition, at June 30, 2004, MIGA had a receivable from IBRD in the amount of $15,820,776 ($14,966,419 ­ June 30, 2003) representing the accu- mulated excess of its contributions to pension assets over its allocated net periodic pension cost. During the fiscal year ended June 30, 2004, MIGA recorded Staff Retirement expense of $805,284 which has been included in Administrative Expenses on the statement of income. NOTE H: Service and Support Fee MIGA contributes its share of the World Bank Group's corporate costs which include the Council of Governors and the Board of Directors, the President's office, the Corporate Secretariat, the Internal Auditing Department, the Department of Institutional Integrity, and the Conflict Resolution Services. In addition, MIGA obtains certain administrative and support services from IBRD in those areas where services can be most efficiently provided by IBRD. These include human resources, information systems, and administrative services as well as investment management and treasury operations. Payments for these services are made by MIGA to IBRD based on negotiated fees, charge backs and allocated charges where charge back is not feasible. Expenses allocated to MIGA for the fiscal year ended June 30, 2004, were $3,478,296 ($1,725,914 - June 30, 2003). NOTE I: Estimated Fair Values The estimated fair values of MIGA's cash and non-negotiable, non interest-bearing demand obligations approximate their carrying values. The estimated fair value of MIGA's investments shown in Note B is based on market quotations. The estimated fair values are only indicative of individual financial instruments' values and should not be considered an indication of MIGA's fair value. NOTE J: Subsequent Event On July 13, 2004, MIGA received notice from a guarantee holder that a claimable event under expropriation coverage had occurred with respect to a project in the Kyrgyz Republic. The waiting period is scheduled to end on June 28, 2005. The maximum aggregate liability under the guarantee contracts is approximately $11.4 million. Provisions had been established for these contracts under specific reserves at June 30, 2004. APPENDICES 77 Governors and Alternates Directors and Alternates: Voting Power Signatories to MIGA Convention Subscriptions to the General Capital Increase MIGA Member Countries Facultative Reinsurance Partners, Reinsurance Provided to MIGA Facultative Reinsurance Partners, Reinsurance Provided by MIGA Cooperative Underwriting Program Participants Guarantee Clients Contacts Abbreviations Credits Governors and Alternates As of June 30, 2004 Member Governor Alternate Afghanistan Ashraf Ghani (vacant) Albania Shkelqim Cani Fatos Ibrahimi Algeria Abdellatif Benachenhou Abdelhak Bedjaoui Angola Ana Dias Lourenco Job Graca Argentina Roberto Lavagna Alfonso de Prat-Gay Armenia Vahram Nercissiantz Karen Chshmarityan Australia Peter Costello Chris Gallus Austria Karl-Heinz Grasser Thomas Wieser Azerbaijan Elman S. Rustamov Farhad Aliyev Bahamas, The James H. Smith Ruth R. Millar Bahrain Abdulla Hassan Saif Zakaria Ahmed Hejres Bangladesh M. Saifur Rahman Syed Golam Kibria Barbados Owen S. Arthur Grantley W. Smith APPENDICES Belarus Andrei V. Kobyakov Anatoly I. Sverzh Belgium Didier Reynders Gregoire Brouhns Belize Said W. Musa Hugh McSweaney Benin Bruno Amoussou Fatiou Akplogan Bolivia Horst Grebe Lopez Javier Cuevas Argote Bosnia and Herzegovina Adnan Terzic Dragan Doko Botswana Baledzi Gaolathe Wilfred Jiwa Mandlebe 78 Brazil Antonio Palocci Filho Henrique de Campos Meirelles Bulgaria Milen Veltchev Bojidar Lubenov Kabaktchiev Burkina Faso Hamade Ouedraogo Lene Sobgo Burundi Athanase Gahungu Leon Nimbona Cambodia Keat Chhon Aun Porn Moniroth Cameroon Martin Okouda Daniel Njankouo Lamere Canada Ralph Goodale Paul Thibault Cape Verde Joao Pinto Serra Victor A.G. Fidalgo Central African Republic Daniel Nditifei-Boysembe Sonny Mpokomandji Chad Mahamat Ali Hassan Mahamat Bahradine Oumar Chile Nicolas Eyzaguirre Mario Marcel China Jin Renqing Li Yong Colombia Alberto Carrasquilla Santiago Montenegro Trujillo Congo, Democratic Republic of Andre-Philippe Futa Jean-Claude Masangu Mulongo Congo, Republic of Rigobert Roger Andely Pierre Moussa Costa Rica Alberto Dent Zeledon Francisco de Paula Gutierrez Cote d'Ivoire Bohoun Bouabre Boniface Britto Croatia Branko Vukelic Martina Dalic Cyprus Makis Keravnos Christos Patsalides Czech Republic Bohuslav Sobotka Oldrich Dedek Denmark Per Stig Moller Carsten Staur Dominica Swinburne Lestrade Ambrose M.J. Sylvester Dominican Republic Jose Lois Malkun Carlos Despradel Ecuador Mauricio Yepez Najas Ramiro Galarza Egypt, Arab Republic of Medhat Hassanein Fayza Abulnaga El Salvador Eduardo Zablah-Touche Guillermo Lopez-Suarez Equatorial Guinea Antonio Nve Nseng Miguel Edjang Angue Eritrea Berhane Abrehe Martha Woldegiorghis Estonia Taavi Veskimagi Renaldo Mandmets Ethiopia Ahmed Sufian Abi Woldemeskel Fiji Jone Yavala Kubuabola Tevita Banuve Finland Antti Kalliomaki Peter Nyberg France Nicolas Sarkozy Jean-Pierre Jouyet Gabon Casimir Oye-Mba Christian Bongo Gambia, The Mousa G. Bala Gaye Karamo K. Bojang Georgia Zurab Nogaideli Irakli Rekhviashvili Germany Heidemarie Wieczorek-Zeul Caio K. Koch-Weser Ghana Yaw Osafo-Maafo Anthony Akoto Osei Greece George Alogoskoufis Plutarchos Sakellaris Governors and Alternates (cont'd) As of June 30, 2004 Member Governor Alternate Grenada Anthony Boatswain Timothy Antoine Guatemala Marcio Rolando Cuevas Quezada Maria Antonieta de Bonilla Guinea Madikaba Camara Eugene Camara Guyana Bharrat Jagdeo Saisnarine Kowlessar Haiti Henri Bazin Raymond Magloire Honduras Arturo Alvarado Maria Elena Mondragon de Villar Hungary Elemer Tertak Zsuzsanna Varga Iceland Halldor Asgrimsson Geir Hilmar Haarde India P. Chidambaram D. C. Gupta Indonesia Boediono Burhanuddin Abdullah Iran, Islamic Republic of Safdar Hosseini Mohammad Khazaee Torshizi Ireland Charlie McCreevy Tom Considine Israel David Klein Yaron Zelekha Italy Antonio Fazio Lorenzo Bini Smaghi Jamaica Omar Lloyd Davies Wesley George Hughes Japan Sadakazu Tanigaki Ichiro Fujisaki Jordan Bassem I. Awadallah Tayseer Al-Smadi Kazakhstan Grigoriy Aleksandrovich Marchenko Kayrat Nematovich Kelimbetov Kenya David Mwiraria Joseph Mbui Magari Korea, Republic of Hun-Jai Lee Seung Park Kuwait Mahmoud Al-Nouri Bader Mohamed Al-Saad 79 Kyrgyz Republic Bolot E. Abildaev Kubat A. Kanimetov Lao People's Democratic Republic Chansy Phosikham Phouphet Khamphounvong Latvia Oskars Spurdzins Juris Lujans Lebanon Marwan Hemadeh Fuad A.B. Siniora Lesotho M.C. Mphutlane Moliehi Matabane Libya Mohamed Ali Elhuwej Ali Ramadan Shnebsh Lithuania Algirdas Butkevicius Arvydas Kregzde Luxembourg Luc Frieden Jean Guill Macedonia, former Yugoslav Republic of Nikola Popovski Dimko Kokaroski Madagascar Zaza Manitranja Ramandimbiarison Davida Rajaon Malawi Goodall E. Gondwe David Faiti Malaysia Abdullah Ahmad Badawi Samsudin Hitam Mali Abou-Bakar Traore Mahamadou Zibo Maiga Malta Tonio Fenech Paul Zahra Mauritania Bodiel Ould Houmeid Sidi Mohamed Ould Bakha Mauritius Pravind Kumar Jugnauth Krishnanand Guptar Micronesia, Federated States of Nick L. Andon Lorin Robert Moldova Marian Lupu Dumitru Ursu Mongolia Chultem Ulaan Ochirbat Chuluunbat Morocco Fathallah Oualalou Abderazzak El Mossadeq Mozambique Luisa Dias Diogo Adriano Afonso Maleiane Namibia Andrew Ndishishi S.E. Ndjaba Nepal Prakash Chandra Lohani Bhanu Prasad Acharya Netherlands Gerrit Zalm Agnes van Ardenne Nicaragua Luis Eduardo Montiel Mario Alonso Icabalceta Nigeria Ngozi N. Okonjo-Iweala Haruna Usman Sanusi Norway Hilde Frafjord Johnson Olav Kjorven Oman Ahmed Bin Abdulnabi Macki Mohammed bin Nasser Al-Khasibi Pakistan Nawid Ahsan Muhammad Ismail Qureshi Palau Casmir Remengesau Lawrence Alan Goddard Panama Norberto Delgado Duran Domingo Latorraca Papua New Guinea Bart Philemon Koiari Tarata Paraguay Dionisio Borda Jose Ernesto Buttner Limprich Peru Pedro Pablo Kuczynski Javier Silva Ruete Philippines Juanita D. Amatong Manuel A. Roxas II Poland Jacek Tomorowicz Agnieszka B. Rudniak-Jancewicz Portugal Manuela Ferreira Leite Francisco Esteves de Carvalho Qatar Yousef Hussain Kamal Abdullah Bin Khalid Al-Attiyah Governors and Alternates (cont'd) As of June 30, 2004 Member Governor Alternate Romania Mihai Nicolae Tanasescu Emil Iota Ghizari Russian Federation Aleksei Kudrin German O. Gref Rwanda Donald Kaberuka Celestin Kabanda St. Kitts and Nevis Denzil Douglas Wendell E. Lawrence St. Lucia Kenny D. Anthony Trevor Brathwaite St. Vincent and the Grenadines Ralph E. Gonsalves Christian Martin Samoa Misa Telefoni Retzlaff Hinauri Petana Saudi Arabia Ibrahim A. Al-Assaf Hamad Al-Sayari Senegal Abdoulaye Diop Cheikh Hadjibou Soumare Serbia and Montenegro Igor Luksic Mladjan Dinkic Seychelles Jeremie Bonnelame Francis Chang Leng Sierra Leone Joseph Bandabla Dauda Samura Kamara Singapore Lim Hng Kiang Heng Swee Keat APPENDICES Slovak Republic Ivan Miklos Elena Kohutikova Slovenia Dusan Mramor Irena Sodin South Africa Trevor Andrew Manuel Mandisi Bongani Mpahlwa Spain Pedro Solbes Mira David Vegara Figueras Sri Lanka Sarath Leelananda Bandara Amunugama P. B. Jayasundera Sudan El Zubair Ahmed El Hassan Abda Y. El Mahdi Suriname (vacant) (vacant) 80 Swaziland Meshack M.L. Shongwe Ephraim Mandla Hlophe Sweden Gunnar Lund Carin Jamtin Switzerland Oscar Knapp Walter Hofer Syrian Arab Republic Ghassan El-Rifai (vacant) Tajikistan Negmatdzhon K. Buriyev Maruf N. Saifiyev Tanzania Abdallah Omar Kigoda Gray S. Mgonja Thailand Somkid Jatusripitak Somchainuk Engtrakul Timor-Leste Maria Madalena Brites Boavida Aicha Bassarewan Togo M'Ba Legzim Mewunesso Baliki Pini Trinidad and Tobago Conrad Enill Alison Lewis Tunisia Mohamed Nouri Jouini Abdelhamid Triki Turkey Ibrahim H. Canakci Aydin Karaoz Turkmenistan Shekersoltan Muhammedova (vacant) Uganda Gerald M. Ssendaula C. M. Kassami Ukraine Mykola Azarov Mykola Derkatch United Arab Emirates Mohammed Khalfan Bin Khirbash Jamal Nasser Lootah United Kingdom Hilary Benn Gordon Brown United States John W. Snow Alan P. Larson Uruguay Isaac Alfie Ariel Davrieux Uzbekistan Makhmudjon A. Askarov Saidakbar Abdurakhimov Vanuatu Jimmy Nicklam Simeon Athy Venezuela, Republica Bolivariana de Ramon Rosales Jorge Giordani Vietnam Le Duc Thuy Phung Khac Ke Yemen, Republic of Ahmed Mohammed Sofan Mohammed Al-Sabbry Zambia Ng'andu Peter Magande Situmbeko Musokotwane Zimbabwe Christopher T. Kuruneri Nicholas Ncube Directors and Alternates: Voting Power As of June 30, 2004 Total % of Director Alternate Casting votes of Votes Total Elected by the votes of the six largest shareholders Carole Brookins Robert B. Holland, III United States 32,066 16.52 (vacant) a Masakazu Ichikawa Japan 9,156 4.72 Eckhard Deutscher Walter Hermann Germany 9,113 4.70 Tom Scholar (vacant) b United Kingdom 8,742 4.50 Pierre Duquesne Anthony Requin France 8,380 4.32 Zhu Guangyao Wu Jinkang China 5,707 2.94 Elected by the votes of other shareholders Gino Alzetta Kurt Bayer Austria, Belarus, Belgium, Czech Republic, Hungary, 10,681 5.50 (Belgium) (Austria) Kazakhstan, Luxembourg, Slovak Republic, Slovenia, Turkey Ad Melkert Tamara Solyanyk Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, 10,134 5.22 (Netherlands) (Ukraine) Cyprus, Georgia, Israel, Macedonia (former Yugoslav Republic of), Moldova, Netherlands, Romania, Ukraine Louis K. Kasekende J. Mills Jones Angola, Botswana, Burundi, Eritrea, Ethiopia, The Gambia, 9,665 4.98 81 (Uganda) (Liberia) Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Marcel Massé Gobind Ganga The Bahamas, Barbados, Belize, Canada, Dominica, 8,974 4.62 (Canada) (Guyana) Grenada, Guyana, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines Biagio Bossone Nuno Mota Pinto Albania, Greece, Italy, Malta, Portugal, Timor-Leste 7,482 3.86 (Italy) (Portugal) Thorsteinn Ingolfsson Inkeri Hirvensalo Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, 7,382 3.80 (Iceland) (Finland) Norway, Sweden Mahdy Ismail Aljazzaf Mohamed Kamel Amr Bahrain, Egypt (Arab Republic of), Jordan, Kuwait, 6,731 3.47 (Kuwait) (Egypt, Arab Republic of ) Lebanon, Libya, Oman, Qatar, Syrian Arab Republic, United Arab Emirates, Yemen (Republic of) Otaviano Canuto Gil S. Beltran Brazil, Colombia, Dominican Republic, Ecuador, 6,408 3.30 (Brazil) (Philippines) Haiti, Panama, Philippines, Trinidad and Tobago Rapee Asumpinpong Hadiyanto Fiji, Indonesia, Lao People's Democratic Republic, 5,940 3.06 (Thailand) (Indonesia) Malaysia, Nepal, Singapore, Thailand, Vietnam John Austin Terry O'Brien Australia, Cambodia, Korea (Republic of), Micronesia 5,921 3.05 (New Zealand) (Australia) (Federated States of), Mongolia, Palau, Papua New Guinea, Samoa, Vanuatu Paulo F. Gomes Louis Philippe Ong Seng Benin, Burkina Faso, Cameroon, Cape Verde, Central 5,842 3.01 (Guinea-Bissau) (Mauritius) African Republic, Chad, Congo (Democratic Republic of), Congo (Republic of), Cote d'Ivoire, Equatorial Guinea, Guinea, Madagascar, Mali, Mauritania, Mauritius, Rwanda, Senegal, Togo Per Kurowski Maria Jesus Fernandez Costa Rica, El Salvador, Guatemala, Honduras, 5,757 2.97 (Venezuela, R. B. de ) (Spain) Nicaragua, Spain, Venezuela (Republica Bolivariana de) Directors and Alternates: Voting Power (cont'd) As of June 30, 2004 Total % of Director Alternate Casting votes of Votes Total Yahya Abdulla Abdulrahman Saudi Arabia 5,705 2.94 M. Alyahya M. Almofadhi (Saudi Arabia) (Saudi Arabia) Alexey G. Kvasov Eugene Miagkov Russian Federation 5,705 2.94 (Russian Federation) (Russian Federation) Pietro Veglio Jakub Karnowski Azerbaijan, Kyrgyz Republic, Poland, Serbia and 5,486 2.83 (Switzerland) (Poland) Montenegro, Switzerland, Turkmenistan, Uzbekistan Chander Mohan Vasudev Akbar Ali Khan Bangladesh, India, Sri Lanka 4,552 2.35 APPENDICES (India) (Bangladesh) Tanwir Ali Agha Sid Ahmed Dib Algeria, Ghana, Morocco, Pakistan, Tunisia 4,512 2.33 (Pakistan) (Algeria) Alieto Guadagni C. Veronica Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay 4,021 2.07 (Argentina) Querejazu Vidovic 82 (Bolivia) In addition to the directors and alternates shown in the foregoing list, the following also served after June 30, 2003: Director End of period of service Alternate director End of period of service Amaury Bier January 9, 2004 Eckhardt Biskup August 31, 2003 (Brazil) (Germany) Yuzo Harada June 15, 2004 Dong-Soo Chin July 22, 2003 (Japan) (Korea, Republic of) Neil F. Hyden August 14, 2003 Helena Cordeiro September 11, 2003 (Australia) (Portugal) Finn Jonck October 7, 2003 Emmanuel Moulin July 22, 2003 (Denmark) (France) Franco Passacantando September 25, 2003 Alfonso C. Revollo May 14, 2004 (Italy) (Bolivia) Rosemary B. Stevenson (United Kingdom) May 14, 2004 Sharon Weber (Jamaica) November 14, 2003 Note: Afghanistan (295 votes), Gabon (273 votes), Islamic Republic of Iran (1,836 votes), Suriname (259 votes) and Tajikistan (251 votes) became members after the 2002 Regular Election of Directors. a. To be succeeded by Yoshio Okubo (Japan) effective July 6, 2004. b. To be succeeded by Caroline Sergeant (United Kingdom) effective July 29, 2004. Signatories to MIGA Convention As of June 30, 2004 Afghanistan Greece Peru Albania Grenada Philippines Algeria Guatemala Poland Angola Guinea Portugal Antigua and Barbuda* Guinea-Bissau* Qatar Argentina Guyana Romania Armenia Haiti Russian Federation Australia Honduras Rwanda Austria Hungary St. Kitts & Nevis Azerbaijan Iceland St. Lucia Bahamas, The India St. Vincent and the Grenadines Bahrain Indonesia Samoa Bangladesh Iran, Islamic Republic of Saudi Arabia Barbados Ireland Senegal Belarus Israel Serbia and Montenegro Belgium Italy Seychelles Belize Jamaica Sierra Leone Benin Japan Singapore Bolivia Jordan Slovak Republic Bosnia and Herzegovina Kazakhstan Slovenia Botswana Kenya Solomon Islands* Brazil Korea, Republic of South Africa 83 Bulgaria Kuwait Spain Burkina Faso Kyrgyz Republic Sri Lanka Burundi Lao People's Democratic Republic Sudan Cambodia Latvia Suriname Cameroon Lebanon Swaziland Canada Lesotho Sweden Cape Verde Liberia* Switzerland Central African Republic Libya Syrian Arab Republic Chad Lithuania Tajikistan Chile Luxembourg Tanzania China Macedonia, FYR of Thailand Colombia Madagascar Timor-Leste Congo, Democratic Republic of Malawi Togo Congo, Republic of Malaysia Trinidad and Tobago Costa Rica Maldives** Tunisia Côte d'Ivoire Mali Turkey Croatia Malta Turkmenistan Cyprus Mauritania Uganda Czech Republic Mauritius Ukraine Denmark Micronesia, Fed. States of United Arab Emirates Dominica Moldova United Kingdom Dominican Republic Mongolia United States Ecuador Morocco Uruguay Egypt, Arab Republic of Mozambique Uzbekistan El Salvador Namibia Vanuatu Equatorial Guinea Nepal Venezuela, R.B. de Eritrea Netherlands, The Vietnam Estonia Nicaragua Yemen, Republic of Ethiopia Niger* Zambia Fiji Nigeria Zimbabwe Finland Norway France Oman Gabon Pakistan Gambia, The Palau Georgia Panama Germany Papua New Guinea Ghana Paraguay * Non-member country ** Country that has deposited its Instrument of Ratification but not yet completed membership requirements Subscriptions to the General Capital Increase as of June 30, 2004 Category One Category Two Shares Subscribed Amount US$ Shares Subscribed Amount US$ Australia 1,306 14,130,920 Albania 44 476,080 Austria 591 6,394,620 Algeria 495 5,355,900 Belgium 1,547 16,738,540 Bahamas, The 76 822,320 Canada 2,260 24,453,200 Bahrain 59 638,380 Denmark 547 5,918,540 Bangladesh 259 2,802,380 Finland 457 4,944,740 Barbados 52 562,640 France 3,343 36,171,260 Belize 38 411,160 Germany 3,865 41,819,300 Benin 47 508,540 Greece 213 2,304,660 Bolivia 95 1,027,900 Ireland 281 3,040,420 Botswana 38 411,160 Italy 2,150 23,263,000 Brazil 1,127 12,194,140 Japan 3,884 42,024,880 Bulgaria 278 3,007,960 Luxembourg 88 952,160 Cambodia 71 768,220 APPENDICES Netherlands 1,653 17,885,460 China 2,392 25,881,440 Norway 533 5,767,060 Colombia 333 3,603,060 Portugal 291 3,148,620 Congo, Democratic Republic of 258 2,791,560 Spain 980 10,603,600 Congo, Republic of 50 541,000 Sweden 800 8,656,000 Costa Rica 89 962,980 Switzerland 1,143 12,367,260 Cote d'Ivoire 134 1,449,880 United Kingdom 3,705 40,088,100 Croatia 143 1,547,260 United States 11,370 123,023,400 Cyprus 79 854,780 41,007 443,695,740 Czech Republic 339 3,667,980 84 Ecuador 139 1,503,980 Egypt, Arab Republic of 350 3,787,000 Estonia 50 541,000 Ethiopia 53 573,460 Gabon 73 789,860 Ghana 187 2,023,340 Honduras 77 833,140 Hungary 430 4,652,600 Indonesia 800 8,656,000 Israel 361 3,906,020 Jordan 74 800,680 Kazakhstan 159 1,720,380 Kenya 131 1,417,420 Korea, Republic of 342 3,700,440 Kuwait 709 7,671,380 Latvia 74 800,680 Lebanon 108 1,168,560 Lesotho 38 411,160 Lithuania 81 876,420 Macedonia, FYR of 38 411,160 Madagascar 76 822,320 Malaysia 441 4,771,620 Mali 62 670,840 Malta 57 616,740 Mauritania 48 519,360 Mauritius 66 714,120 Morocco 265 2,867,300 Mozambique 74 800,680 Nepal 53 573,460 Nicaragua 78 843,960 Nigeria 643 6,957,260 Oman 72 779,040 Pakistan 503 5,442,460 Panama 100 1,082,000 Paraguay 61 660,020 Peru 284 3,072,880 Qatar 104 1,125,280 Romania 423 4,576,860 Russian Federation 2,391 25,870,620 Rwanda 57 616,740 St. Lucia 38 411,160 St. Vincent and the Grenadines 38 411,160 Saudi Arabia 2,391 25,870,620 Senegal 111 1,201,020 Serbia and Montenegro 176 1,904,320 Sierra Leone 57 616,740 Singapore 118 1,276,760 Slovak Republic 169 1,828,580 Slovenia 78 843,960 Subscriptions to the General Capital Increase (Cont'd) as of June 30, 2004 Category Two (Cont'd) Summary Shares Subscribed Amount US$ Shares Subscribed Amount US$ South Africa 719 7,779,580 % of Total GCI 80.30% Sri Lanka 103 1,114,460 Syrian Arab Republic 128 1,384,960 Tanzania 107 1,157,740 Completed-Part1 26,294 284,501,080 Thailand 321 3,473,220 Completed-Part2 21,974 237,758,680 Trinidad and Tobago 155 1,677,100 Tunisia 119 1,287,580 Completed 48,268 522,259,760 Turkey 352 3,808,640 Uganda 101 1,092,820 Vietnam 168 1,817,760 Partial-Part 1 14,713 159,194,660 22,077 238,873,140 Partial-Part 2 103 1,114,460 TOTAL 63,084 682,568,880 Partial 14,816 160,309,120 Total - Part 1 41,007 443,695,740 Total Part 2 22,077 238,873,140 Total 63,084 682,568,880 85 MIGA Member Countries Industrialized Countries (22) Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States Developing Countries (142) ASIA AND THE PACIFIC Afghanistan, Bangladesh, Cambodia, China, East Timor, Fiji, India, Indonesia, Korea, Lao People's Democratic Rep., Malaysia, Micronesia, Mongolia, Nepal, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Sri Lanka, Thailand, Vanuatu, Vietnam EUROPE AND CENTRAL ASIA APPENDICES Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Bosnia and Herzegovina, Republic of, Croatia, Cyprus, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Macedonia, Malta, Moldova, Poland, Romania, Russian Federation, Slovak Republic, Slovenia, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan, Serbia and Montenegro LATIN AMERICA AND THE CARIBBEAN 86 Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Paraguay, Panama, Peru, St. Kitts & Nevis, St. Lucia, St. Vincent, Suriname, Trinidad & Tobago, Uruguay, Venezuela MIDDLE EAST AND NORTH AFRICA Algeria, Bahrain, Egypt, Iran (Islamic Republic of), Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Quatar, Saudi Arabia, Syrian Arab Republic, Tunisia, United Arab Emirates, Yemen SUB-SAHARAN AFRICA Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Congo (Democratic Republic of), Congo (Republic of), Côte d'Ivoire, Equatorial Guinea, Ethiopia, Eritrea, Gabon, Gambia, Ghana, Guinea, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, Senegal, Sierra Leone, Seychelles, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe Countries in the Process of Fulfilling Membership Requirements (6) ASIA AND THE PACIFIC Maldives, Solomon Islands LATIN AMERICA AND THE CARIBBEAN Antigua and Barbuda SUB-SAHARAN AFRICA Guinea-Bissau, Liberia, Niger Facultative Reinsurance Partners, Reinsurance Provided to MIGA Investment Insurer Country ACE Global Markets, Lloyd's Syndicate 2488 United Kingdom Alleghany Consortium, Lloyd's Syndicate 376 United Kingdom AXIS Specialty Limited Bermuda C.N.R. Atkin Esq., and Others, Lloyd's Syndicate 1183 United Kingdom Compagnie Française d'Assurance pour le Commerce Extérieur (COFACE) France Cox Insurance Holdings PLC., Lloyd's Syndicate 2591 United Kingdom Export Credits Guarantee Department (ECGD) United Kingdom Export Development Corporation (EDC) Canada Export Finance and Insurance Corporation (EFIC)* Australia Finnvera Plc Finland Garanti-Institutte for Eksportkreditt (GIEK) Norway Global Re, BV, captive insurer of Philips Electronics N.V. Netherlands Great Northern Insurance Company (Chubb & Sons) United States Israel Foreign Trade Risks Insurance Corporation (IFTRIC) Israel M.D. Reith and Others, Syndicate 1414 at Lloyd's (Ascot) United Kingdom Münchener Rückversicherungs-Gesellschaft Germany National Union First Insurance Co. of Pittsburgh (AIG) United States Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO) Netherlands Österreichische Kontrollbank A.G. (OeKB) Austria S.J. Catlin, Esq., and Others, Lloyd's Syndicate 2003 United Kingdom Servizi Assicurativi del Commercio Estero (SACE)* Italy Sovereign Risk Insurance Ltd. Bermuda 87 Steadfast Insurance Company (Zurich) United States The Goshawk War and Political Risks Consortium, Lloyd's Syndicate 9132 United Kingdom XL London Market Ltd., Lloyd's Syndicate 1209 United Kingdom * New partners in fiscal 2004 Facultative Reinsurance Partners, Reinsurance Provided by MIGA Investment Insurer Country Compañía Española de Seguros de Crédito a la Exportación (CESCE) Spain Export Development Corporation (EDC) Canada Export Credit Insurance Organization (ECIO) of Greece Greece Nippon Export Investment Insurance (NEXI) Japan Nordia Insurance Company (Pan Financial, Inc.) United States Österreichische Kontrollbank A.G. (OeKB)* Austria Overseas Private Investment Corporation (OPIC) United States Slovene Export Corporation (SEC) Slovenia * MIGA's facultative reinsurance was from the EU trust fund for Bosnia and Herzegovina Cooperative Underwriting Program Participants Investment Insurer Country ACE Global Markets, Lloyd's Syndicate 2488 United Kingdom A.D. Hicks, Esq. And M.H.Wheeler, Esq. And Others, Lloyd's Syndicate 1007 United Kingdom A.F.Beazley, Esq. And Others, Lloyd's Syndicate 623 United Kingdom AXIS Specialty Limited Bermuda Compagnie Tunisienne pour l'Assurance du Commerce Exterieur (Cotunace) Tunisia Cox Insurance Holdings PLC., Lloyd's Syndicate 2591 United Kingdom General Security Insurance Company (Unistrat) United States Great Northern Insurance Company (Chubb & Son) United States Gulf Insurance Company U.K. Limited (Citicorp/Travellers) United Kingdom/United States H.H. Hayward, Esq., and Others, Lloyd's Syndicate 1084 United Kingdom Hiscox Syndicates Limited, Lloyd's Syndicate 33 United Kingdom Kiln 510 Combined, Lloyd's Syndicate 510 United Kingdom Liberty Syndicate Management, Lloyd's Syndicate 282 United Kingdom M.D. Reith and Others, Syndicate 1414 at Lloyd's (Ascot) United Kingdom APPENDICES S.J.Catlin, Esq., and Others, Lloyd's Syndicates 1003 and 2003 United Kingdom Steadfast Insurance Company (Zurich) United States The Goshawk War and Political Risks Consortium, Lloyd's Syndicate 9132 United Kingdom XL London Market Ltd., Lloyds Syndicate 1209 United Kingdom 88 Guarantee Clients ABN AMRO Ewekoro Power Plant Sales Limited Accelon (Pty.) Ltd. Export Credit Insurance Organization (ECIO) ADC Management Ltd. Fatoglu Gida Sanayi Ve Ticaret AS Aecon Group Inc. FINREP HANDELS GmbH Afriproduce Ltd. Fintur Holdings B.V. Agro-Industrial Investment and Development, SA France Cables et Radio Vietnam Pte. Ltd. Alain Tagini Fraport AG Alstom Power Norway AS GE Energy (Norway) AS Banco Santander Central Hispano, SA Ge.Por.Tur. s.a.s. Bank Austria Aktiengesellschaft Geosurvey International, L.L.C. Bank Austria Creditanstalt Leasing GmbH Guinea Investing Company Ltd. (GICL) Bank Boston, N.A. Habib Bank AG Zurich Bank Hapoalim B.M. HAS Development Corporation Bank of Nova Scotia Hydelec Banque Belgolaise, SA Hydra-Co Enterprise, Inc. BCH International Puerto Rico, Inc. Hypo Alpe-Adria-Bank AG Bergenshalvoens Kommunale Kraftselskap AS Hypo-Leasing Karnten GmbH BNP Paribas Italian Technology & Innovations S.r.l. Boeing Capital Corporation Impregilo S.p.A. BWF Unternehmensbeteiligungen GmbH Industrial Development Corporation of South Africa, Ltd. Canada Pampas Ltd. ING Bank, N.V. CAN-PACK S.A. Ingersoll-Rand China Ltd. 89 Capital Indonesia Power I C.V. International Dialysis Centers B.V. Caribe Hospitality International Energy Partners, L.P. Catalina Lighting, Inc. International Water Services (Guayaquil) B.V. CEFLA Capital Services S.p.A. International Wireless Communications, Inc. China Capital Development Corporation Investcom Global Ltd. Chiyoda Corporation Itochu Corporation Citbibank N.A. Joseph Fermom Coastal Aruba Investor N.V. Kemira Danmark A/S Compagnie Générale des Eaux Kenmare Resources PLC Compañía Española de Seguros de Crédito a la Exportacíon, SA Keppel FELS Energy Pte. Ltd. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. Kimberly-Clark Corporation (Rabobank Nederland) Kingdom 5 KR 71 Ltd. Corporación Interfin, SA Kjaer Group A/S Cotecna Inspection SA Koçbank AS Crédit Lyonnais, SA Komatsu Ltd. Darco Environmental Pte.Ltd. Koninklijke Philips Electronics N.V. DB Capital Partners Kreditanstalt für Wiederaufbau Desco AB Leon Construction International B.V. Deutsche Bank AG Lloyds TSB Bank PLC Dole Food Company, Inc. Marriott International, Inc. Dresdner Bank Lateinamerika Aktiengesellschaft Marubeni Corporation DVI, Inc. Mauritius Telecom Ltd. Econet Wireless, Ltd. MCC S.p.A. EDC Mersey Docks and Harbour Company EFES International B.V. Mitsubishi Corporation Elecnor, SA Mitsui & Co., Ltd. Emporia Bank of Greece SA Mizuho Corporate Bank, Ltd. Empresas Comegua, SA Mozambique Rice Growers Pty Ltd. Energy Investors Fund II, L.P. MTU Asia Pte. Ltd. Entergy Power Development Corporation New Arian Resources Corporation ERI Holdings II Nissho Iwai Corporation Ericsson Credit AB Noranda Inc. Eskom Norway Registers Development AS Euromedic Diagnostics BV Office National de Telecommunications Guarantee Clients (cont'd) Orascom Telecom Holding Slovene Export Corporation, Inc. Ormat Holding Corporation Société Générale, SA Österreichische Volksbanken AG Société Marromeu, Ltd. Portus Indico-Sociedade de Servicos Portuarios, SA Sonatel Poslovni Sistem Mercator d.d. Standard Bank London Ltd. Promofin Outremer SA Standard Bank of South Africa, Ltd. Radisson Hotels International, Inc. Statkraft Raiffeisen Zentralbank Österreich AG Société de Promotion Financière & Investissement Rio Algom Ltd. Sungrain SA Rockfort Power Associates, Inc. Sunnen Products Company Rolls-Royce (RR) Power Ventures Teck Corporation Salvintur-Sociedade de Investimentos Turísticos, SA Teleinvest Ltd. Sasol Gas Holdings (Pty) Ltd. The Marvin M. Schwan Charitable Foundation Scotiabank & Trust (Cayman) Ltd. Touton SA APPENDICES Scudder Latin America Power II Tractebel SA Secil - Companhia Geral de Cal e Cimento, SA Union Carbide Corporation SembCorp Utilities Pte Ltd. Unión Fenosa Internacional SA Sena Holdings Ltd. Victory Oil B.V. Sithe International, Inc. Wärtsila Development, Inc. SLAP Cabo, LLC Wesdeutsche Landesbank Girozentrale 90 Contacts Executive Vice President Sectors Yukiko Omura Agribusiness / Manufacturing / Services yomura@worldbank.org Nabil Fawaz nfawaz@worldbank.org Director, Operations Tessie San Martin Financial tsanmartin@worldbank.org Ileana Boza iboza@worldbank.org General Counsel and Vice President, Legal Affairs and Claims Infrastructure Luis Dodero Philippe Valahu ldodero@worldbank.org pvalahu@worldbank.org Chief Financial Officer and Director, Oil and Gas/Mining and Chemicals Finance and Risk Management Nick Halkas Amédée S. Prouvost nhalkas1@worldbank.org aprouvost@worldbank.org Regions Chief Economist and Director, Sub-Saharan Africa Economics and Policy David Bridgman Frank J. Lysy dbridgman@worldbank.org 91 flysy@worldbank.org Asia and the Pacific Chief, External Outreach and Partners Cecilia Sager Moina Varkie csager@worldbank.org mvarkie@worldbank.org Europe and Central Asia Investor Outreach and Trust Funds Beat Heggli John Wille bheggli@worldbank.org jwille@worldbank.org Middle East and North Africa/ Insurance Operations Support/Reinsurance Latin America and the Caribbean Peter M. Jones Rodrigo Ortiz pjones1@worldbank.org rortiz@worldbank.org Marketing Operations Support Cecilia Sager csager@worldbank.org New Initiatives and Products Monique Koning mkoning@worldbank.org Abbreviations AGOA US African Growth and Opportunities Act AISA Afghanistan Investment Support Agency BOAD Banque Ouest-Africaine de Développement CAO Compliance Advisor/Ombudsman CAS Country Assistance Strategy CIIPA China Investment Promotion Forum COSO Committee of Sponsoring Organizations of the Treadway Commission CPDF China Project Development Facility CRM Client Relationship Management CUP Cooperative Underwriting Program EDC Export Development Canada EIOP European Investment Outreach Program EU European Union FIAS Foreign Investment Advisory Service APPENDICES FDI Foreign Direct Investment FDIX FDI Xchange FTIB Fiji Trade and Investment Bureau FIFTA Foreign Investment and Foreign Trade Agency FYR Former Yugoslav Republic GSM Global System for Mobile Communication IBRD International Bank for Reconstruction and Development 92 IDA International Development Association IDC International Dialysis Centers B.V. IFC International Finance Corporation IIDP Investor Information Development Program IPI Investment Promotion Intermediary MIGA Multilateral Investment Guarantee Agency MOU Memorandum of Understanding OEU Operations Evaluation Unit PSD Private Sector Development SIP Small Investment Program SME Small and Medium Enterprise SMI Small and Medium-Sized Investors S-S South-South SSA Sub-Saharan Africa USAID United States Agency for International Development World Bank Art Program The Philippines Pacita Abad Call My Name 1999 Colombia Gonzalo Ariza Caminos de Bojaca 1984 Slovak Republic Vladimir Popovic untitled 2000 93 South Africa Nokutula Biyela Natal Pigeon and Floral Vietnam Tran Luong Flowing 1999 Lebanon Helen Zughaib The Dabke 1997 Ghana Anonymous Kente Cloth APPENDICES 94 Photo Credits p. iv Deborah Campos, World Bank Group p. v Michele Iannaci, World Bank Group p. vi Suzanne Pelland, MIGA p. viii Michele Iannaci, World Bank Group p. ix Keith Martin, MIGA p. 3 Federica Dal Bono, MIGA p. 4 Angela Gentile, MIGA p. 5 Judith Pearce, MIGA p. 17 SASOL oil and gas project, Mozambique p. 19 Suzanne Pelland, MIGA p. 27 William Luttrell, MIGA p. 40 Keith Martin, MIGA p. 44 Suzanne Pelland, MIGA p. 47 Stock photo (upper right) and Rodrigo Ortiz, MIGA (lower left) p. 52 Mary-Jean Lindle, MIGA © 2004 Multilateral Investment Guarantee Agency Manufactured in the United States of America All rights reserved Printed on recycled paper with soy-based ink. 95 96 World Bank Group Multilateral Investment Guarantee Agency 1818 H Street, NW Washington, DC 20433 USA t. 202.458.4798 f. 202.522.0316 www.miga.org ISBN 0-8213-5655-0 SN 16025