MIGA in the MENA Region: Promoting Diverse, Private Sector-driven Growth

February 13, 2007—Talk about the Middle East and North Africa (MENA) region and the picture that immediately comes to mind is that of a group of oil-rich countries with a common cultural and architectural heritage. The fact of the matter is the region is made up of economically diverse countries with strong individual characteristics at different levels of development. At one end of the spectrum are oil-rich Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates with a projected gross domestic product of close to $725 billion in 2007 (according to the Institute of International Finance), and at the other, Yemen, one of the least developed countries in the world.

Improving the Quality of Life by Harnessing the Private Sector

According to the World Bank, the most important development challenge in the MENA region is to generate employment opportunities for rapidly growing workforces—close to 100 million new jobs will be needed over the next 20 years to keep pace with new labor force entrants in the region. One way of sustaining growth and employment opportunities is to use the private sector as a catalyst in terms of foreign direct investment—both inward and outward. These, in turn, will help the region realize its development potential fully—reducing poverty and improving the lives of people.

Assuaging Investor Concerns in MENA

One of the key pillars of the World Bank’s strategy in the region is to help governments build a business climate conducive to investment, jobs and sustainable growth. As the private sector insurance arm of the World Bank, MIGA offers investors and lenders the protection needed to overcome constraints—sub-investment grade sovereign ratings, perceptions of potential political instability and conflict, and concerns about legal enforceability of contracts—that hinder investment into and out of the region. The agency’s political risk insurance helps to assuage investor concerns about the safety of investments and encourages them to open businesses in countries where they would otherwise not venture on their own.

“MIGA-supported projects are helping to deliver significant development benefits in the MENA region,” says Alwaleed Alatabani, Senior Risk Management Officer at MIGA. Committed to promoting socially, economically, and environmentally sustainable projects, the agency has issued over 30 guarantees, supporting over $1 billion of investments, for companies and banks based in the region. “We at MIGA cater to the different risk mitigation needs of large, complex transactions, as well as small investments,” added Alatabani.

MIGA also facilitates FDI through its suite of online investment services, including www.fdi.net and www.pri-center. FDI.net is a web portal that offers on-demand country analysis and information on foreign direct investment in 175 countries. The site is currently featuring investment opportunities in the MENA region, ranging from privatization to public-private partnerships, as well as pertinent information on country business environments and regulatory frameworks. Investors can also receive periodic customized email alerts on MENA opportunities, as well as a monthly e-newsletter, by registering on the site. The PRI-Center, which is geared to the political risk insurance industry, as well as investors, is currently showcasing a MENA feature story that examines the Islamic attributes of investment coverage. The site also provides political risk environment profiles for individual MENA countries, news, as well as a database of information resources of interest to all investors.

MIGA’s ability to provide innovative solutions that serve clients’ individual needs has allowed many difficult deal structures to go through, benefiting both investors and countries in the region. In fiscal year 2006, MIGA supported Jordan ’s first build-operate-transfer (BOT) project by issuing guarantees to Infilco Degrémont Inc. and Suez Environnement S.A. covering their investment in Jordan’s As-Samra Wastewater Treatment Plant Company Limited. The project—As-Samra Wastewater Treatment Plant Company Ltd.—consists of the design, construction, operation, maintenance, and financing of a new wastewater treatment plant in As-Samra, under a 25-year BOT agreement. It is the first public-private partnership in financing and management of a public infrastructure project in the country. The project supports a critical need in one of the 10 most water-deprived countries in the world by treating wastewater from the Ammanand Zarqa areas (with a combined population of approximately 2.3 million people).

MIGA is also helping countries over-reliant on the sale of oil and gas to develop other sectors of their economy for future growth.Shirkete Goni Bafi ve Beste Bendiye Cesur is producing and exporting large polypropylene containers in Iran, using state-of-the-art manufacturing techniques that can be replicated in other industrial facilities. But the project may not have gone through without the $5 million guarantee provided by MIGA to the Turkish company (Cesur Packaging Corporation) that invested in the project.

Facilitating Cross-Border Investments

MIGA’s participation in projects provides a very important signal to the markets that private investments in even high-risk and low-income countries are viable and profitable. So the agency not only promotes foreign direct investment into the MENA region, it also encourages enterprising companies from the region to seize available opportunities to venture into other developing countries. In fact, facilitating cross-border investments among developing countries is a priority for MIGA. “We are always looking for ways to support foreign companies that wish to make a positive contribution to the development of countries. A good example is the Egyptian company Orascom Telecom Holding,” says Alatabani.

Last year MIGA helped Orascom Telecom Holding of Egypt address the acute shortage of reliable telephone services in Bangladeshby issuing a $78.3 million guarantee covering its equity investment in Banglalink/Sheba Telecom Ltd. The country’s rapidly growing telecoms market offers tremendous potential to foreign investors with a strong technology roadmap and global experience. This fact was not lost to Orascom. Bangladeshhas an extremely low teledensity rate. The average wait for a landline connection ranges from 10-13 months. Thanks to MIGA, the Orascom-Banglalink project is already helping to improve the lives of millions of people in Bangladesh. According to Reuters, Banglalink saw its client base grow by 2.61 million to 3.64 million customers last year.

Earlier in 2002, MIGA supported Orascom’s equity investment in Pakistan Mobile Communications Limited with a guarantee of $79 million. By supporting these projects, the agency has not only helped a Middle Eastern entrepreneur protect its investments against noncommercial risk, but also helped build much-needed telecommunications infrastructures in two developing countries.

To date, MIGA has issued over $610 million in guarantees, supporting over 20 investments by companies and banks based in the MENA region. Apart from Egypt, investors from Lebanon, Saudi Arabia, Tunisia, and Turkey have used MIGA for their investments in the region, and in Central Asia, the Caucasus, South Asia, and Africa (see graph).

Fostering Partnerships for Development

MIGA is eager to further increase its support for the MENA region’s economic development and protect its investments in other regions. With that goal in mind, MIGA, along with the Islamic Development Bank and the Islamic Corporation for Insurance of Investment and Export Credit, is sponsoring the Broader MENA Investment Summit in Dubai, under the patronage of the government of the United Arab Emirates. The summit, scheduled to take place on February 20-21, 2007, will bring together leading corporations and banks from the Middle East, North Africa, Pakistan, Sudan and Turkey to discuss key topics in foreign investment within and from the region, including specific investment opportunities.

“MIGA is eager to seize suitable opportunities like the Broader MIGA Investment Summit to foster long-term partnerships for development,” says Yukiko Omura, MIGA’s Executive Vice President. “We hope that the summit will promote diverse, private sector-driven growth that will lead to improvements in the quality of life of people in the region.”