Agency Covers First Deal in Afghanistan
MIGA recently provided $1.07 million in investment insurance (guarantees) for a cotton project in northern Afghanistan. The project, the first investment in Afghanistan to be guaranteed by MIGA, will provide technical and financial assistance to cotton growers in northern Afghanistan to increase cotton production and yield, as well as upgrade the region's capacity for ginning cotton and producing cottonseed oil. The guarantees will protect the investment against the non-commercial risks of currency transfer restriction, expropriation, and war and civil disturbance, including terrorism.
The New Afghanistan Project for Cotton and Oil Development (NAPCOD) is a joint venture between DAGRIS, S.A., which is majority-owned by the French government, and the government of Afghanistan. The Agence Française de Développement is also supporting the investment. NAPCOD will produce, collect, and gin cotton, as well as refine the cotton seeds to produce animal feed and high-value oil. In its first season, NAPCOD has already purchased cotton from more than 4,600 farmers and aims to increase that number to 20,000 by 2008. The project is expected to create around 300 permanent jobs, in addition to stimulating local businesses that supply goods to the cotton industry. All of NAPCOD's cotton production is destined for export, which should help improve the country's balance of payments.
MIGA's coverage marks the first use of the Afghanistan Investment Guarantee Trust Fund (AIGF), a special fund designed to encourage foreign investment into the country. The fund, administered by MIGA, is jointly funded by Afghanistan, the World Bank's International Development Association, the United Kingdom, and the Asian Development Bank. Germany is funding administrative costs for the AIGF's field representative.
Afghanistan became a member of MIGA in June 2003, following more than two decades of conflict. The country has begun an enormous political, economic, and social transformation. Progress to date has been encouraging, but tremendous challenges remain. Today, the majority of Afghans still live in dire poverty without access to safe drinking water or electricity—or opportunities to improve their lives. Reconstruction needs are enormous and underscore the need for private sector help in meeting the challenge.
"The development of Afghanistan's private sector, particularly in agriculture, is critical for the country's recovery and for improving rural livelihoods in the formal, legal economy," says Alastair McKechnie, the World Bank's Country Director for Afghanistan. "The NAPCOD project is an excellent first example of how the AIGF can contribute to improving the prospects for foreign investment to modernize this vital sector."
Since its inception, MIGA has provided more than $2 billion for projects in 16 conflict-affected countries, representing 13 percent of all guarantees issued by the agency.
"Perceptions of risk by investors and bankers can be a major obstacle to investment," says MIGA's Executive Vice President, Yukiko Omura. "The end of major conflict has led to an increase in private investment, but this has been limited compared to the country's potential. Our risk mitigation services can help allay investor concerns, which is critical to the reconstruction efforts and sustainable long-term economic growth of Afghanistan."
Bernard Esteulle, CEO of NAPCOD, adds: "We are working in a very challenging environment. But it is important for the people of northern Afghanistan to have the opportunity to rebuild their livelihoods and improve their prospects for the future."
NAPCOD was underwritten through MIGA's new Small Investment Program (SIP), which makes it quicker and easier for smaller firms to apply for a standardized package of risk coverages. This is the fourth investment covered under the program. Click here for more on the SIP.
Click here for more on the Afghanistan Investment Guarantee Facility.