81792 v2 ANNUAL REPORT 2013 Insuring investments r Ensuring opportunities MIGA’s Mission To promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. B | MIGA ANNUAL REPORT 2013 contents 2 MIGA Fiscal Year 2013 Highlights 4 World Bank Group Fiscal Year 2013 Highlights 5 Message from World Bank Group President 7 MIGA Board 8 Message from MIGA Executive Vice President 11 MIGA Management Team 12 MIGA Development Impact 20 MIGA Business Operational Overview Research and Knowledge Regional Activities Technical Assistance Independent Evaluation Group Compliance Advisor/Ombudsman 58 Management’s Discussion and Analysis and Financial Statements 108 Appendices 122 MIGA Contact Information acronyms CAO Compliance Advisor/Ombudsman CUP Cooperative Underwriting Program DEIS Development Effectiveness Indicator System DIFC Dubai International Financial Centre FDI Foreign Direct Investment FIAS Facility for Investment Climate Advisory Services IBRD International Bank for Reconstruction and Development ICSID International Centre for Settlement of Investment Disputes IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation MD&A Management’s Discussion and Analysis MENA Middle East and North Africa OPIC Overseas Private Investment Corporation PRI Political Risk Insurance SIP Small Investment Program SSA Sub-Saharan Africa SOE State-Owned Enterprise MIGA ANNUAL REPORT 2013 | 1 Highlights fiscal year 2013 In fiscal year 2013, we issued a total of $2.8 billion in guarantees for projects in MIGA’s developing member countries. An additional $3.5 million was issued under MIGA-administered trust funds. This year marked the third consecutive year of record issuance by MIGA, with 82 percent of this new issuance falling into at least one of MIGA’s strategic priority areas. At the end of the year, MIGA’s gross exposure was $10.8 billion, continuing a six-year trend of growth. Of particular note, this year MIGA-supported investments received an unprecedented number of industry awards for highly innovative and important transactions. The Agency also received approval from our Board of Directors to extend our non-honoring of financial obligations coverage to include state-owned enterprises. MIGA paid no claims this fiscal year. Guarantees Issued 2009 2010 2011 2012 2013 FY90-13 Number of projects supported 26 19 38 50 301 727 New projects2 20 16 35 38 26 - Projects previously supported3 6 3 3 12 4 - Number of guarantee contracts issued 30 28 50 66 47 1143 Amount of new issuance, total ($B)4 1.4 1.5 2.1 2.7 2.8 30.0 Gross exposure ($B) 4 7.3 7.7 9.1 10.3 10.8 - Net exposure (less reinsurance) ($B)5 4.0 4.3 5.2 6.3 6.4 - 1. Two additional projects were supported under the MIGA-administered West Bank and Gaza Investment Guarantee Trust Fund 2. Projects receiving MIGA support for the first time in FY13 (including expansions) 3. Projects supported by MIGA in FY13 as well as in previous years 4. Includes amounts leveraged through the Cooperative Underwriting Program (CUP) 5. Gross exposure is the maximum aggregate liability. Net exposure is the gross exposure less reinsurance 2 | MIGA ANNUAL REPORT 2013 Operational Highlights MIGA provided coverage for projects in the following areas in fiscal year 2013: Number Share of Amount of Share of of projects projects guarantees projects supported supported (%) issued ($M) $ volume (%) Priority area1 AR chapter box colors IDA-eligible countries2 21 70 2047.3 74 “South-South” investments3,4 7 23 357.0 12 Figurecountries Conflict-affected 7 7 23 1150.3 41 Figure 1 Complex projects5 Austria 23.9 11 37 1924.4 69 United Kingdom 12.5 France 10.0 Region United States 9.2 12 Germany 7.3 gross exposure Asia and the South Pacific Africa 5.3 4 13 492.3 net exposure 18 Luxembourg 4.1 10 Europe and Central Finland Asia 2.8 6 20 537.1 19 Latin America Switzerland and the 2.6Caribbean 3 10 67.1 3 8 Greece 2.3 Middle East and North Singapore 2.3Africa 6 3 10 172.9 6 United Arab Emirates 2.1 6 Sub-Saharan Africa 1.6 14 47 1,511.6 54 Canada Mauritius 1.5 4 Sector Korea, Republic of 1.4 Spain 1.3 Cayman Islands 1.1 2 Agribusiness, manufacturing, Slovenia 1.0 and services6 14 47 385.0 14 Financial Bermuda 0.9 5 17 471.6 17 0 Senegal 0.7 03 04 05 06 07 08 09 10 11 12 13 0 40 Infrastructure Egypt, Arab Republic of 0.7 9 30 1,272.3 46 Cyprus 0.7 Oil, gas, and mining 2 6 652.1 23 Netherlands 0.7 Sweden 0.7 Total Japan 0.7 30 2,780.7 Others 2.7 46% Infrastructure 1. Some projects address more than one priority area 2. The world’s poorest countries 23% Oil, gas, and mining Others: Nigeria, Poland, China, Thailand, Norway, Ecuador, Tanzania, Turkey, Fig 2 3. Investments Romania, made from Kenya, Ireland, MIGA oneMali, Belgium, developing India, Lebanon, Tunisia, (category member two) Italy, St. Kitts country to another and Fig 5 4. These Nevis, figures Denmark, represent Panama, projects Virgin involving (British),one Islands or more South-based investor Colombia 17% Financial 5. Complex projects including in infrastructure, extractive industries, and financial structure 14% Agribusiness, * Numbers may not add to 100 percent due to guarantee holders domiciled in two 6. countriestotalling $3.5 million were also supported under the MIGA-administered West Bank and Gaza Investment Guarantee Two projects different Trust Fund manufacturing, and services This year, MIGA’s operating income was $19.1 million, compared with $17.8 million in fiscal year 2012 (see 54% MD&AAfrica Sub-Saharan for details). 19% Europe and Central Asia 18% Asia and the Pacific Fig 1 fin Fig 3 Earned Premium, Fees, and Investment Income* ($M) 6% Middle East and Eearned premium North Africa* 3% Latin America and 2013 66.3 33.6 the Caribbean 2012 61.7 36.9 0 2011 50.8 13.9 47% Sub-Saharan Africa 2010 46.0 24.1 20% Europe and Central Asia 2009 43.6 36.9 13% Asia and the Pacific Fig 4 10% Middle East and Premium and fee income North Africa* Investment income 10% Latin America and the Caribbean MIGA ANNUAL REPORT 2013 | 3 41% Europe and Central Asia world bank group fiscal year 2013 highlights A T I O N L BA N VELOPME DE A L I N ION AL CE E R N NA K N I V E AT TR ER F T N N A N E R L T T O S O TE TE IN RNA IONA L FO R T P O R AT I T I • IN AS M R • WORLD BANK IC R E N T M U L S O C I AT N AT I O SI SETTL UTES T D REC EN T • • SP OR EM G TE ON PM Y DI IO A U N EN L N C ST T O R N T C R A FINANCE UC EN E I L N V A E OF TIO E N T G INV ESTM N AND D E E A The World Bank Group is a major source of financial and technical assistance to developing countries around the world. Its member institutions work together and complement each other’s activities to achieve their shared goals of ending extreme poverty and promoting shared prosperity. The Bank Group shares knowledge and supports projects in agriculture, trade, finance, health, poverty reduction, education, infrastructure, governance, climate change, and in other areas to benefit people in developing countries. The World Bank Group committed $52.6 billion in fiscal The World Bank Group comprises five year 2013. closely associated institutions: The World Bank, comprising IDA and IBRD, committed $31.5 billion in loans and grants to its member countries. International Bank for Reconstruction and Development Of this, IDA commitments to the world’s poorest (IBRD), which lends to governments of middle-income countries were $16.3 billion. and creditworthy low-income countries IFC committed $18.3 billion and mobilized an additional International Development Association (IDA), which $6.5 billion for private sector development in developing provides interest-free loans, or credits, and grants to countries. Nearly half of the total went to IDA countries. governments of the poorest countries MIGA issued $2.8 billion in guarantees in support of International Finance Corporation (IFC), which provides investments in developing countries. Nearly three- loans, equity, and advisory services to stimulate private quarters of the guarantees went to IDA countries. The sector investment in developing countries Agency welcomed two new members, São Tomé and Principe and Comoros, during the fiscal year. Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance or guarantees against losses caused by non-commercial risks to facilitate foreign World Bank Group Cooperation direct investment (FDI) in developing countries Joint projects and programs of the Bank Group’s insti- International Centre for Settlement of Investment tutions focus on promoting sustainable development Disputes (ICSID), which provides international facilities for by expanding financial markets, issuing guarantees conciliation and arbitration of investment disputes. to investors and commercial lenders, and providing advisory services to create better investment conditions in developing countries. Working together, the World Bank, IFC, and MIGA catalyze projects that make resources available to clients through greater innovation and respon- siveness. A number of these are highlighted in this report. 4 | MIGA ANNUAL REPORT 2013 Leadership Perspectives Message from Dr. Jim Yong Kim, World Bank Group President We are at an auspicious moment in history. Thanks to the successes of the past few decades and a favorable economic outlook, developing countries now have an unprece- dented opportunity: the chance to end extreme poverty within a generation. This opportunity must not be squandered. Earlier this year, we in the World Bank Group set two with unpredictable costs in terms of lives and financial specific and measurable goals for ourselves and our resources. partners in the development community: effectively ending extreme poverty by shrinking the share of people living on Yet, I remain optimistic that achieving the goals is within less than $1.25 a day to 3 percent by 2030, and promoting our reach. Doing so will require systemic and relentless shared prosperity by raising the incomes of the poorest 40 collaboration from the World Bank Group, our 188 percent of the population in every developing country. member countries, and other partners. These are ambitious goals, and success is far from We have noted that, especially in the current environment, inevitable. Nearly five years after the global financial governments cannot depend only on development crisis began, in 2008, the world’s economic recovery assistance to achieve their commitments to citizens. The remains fragile. Developed countries struggle with high private sector has an enormous role to play, whether on unemployment and weak economic growth. Developing its own or in tandem with governments through public- countries are growing more slowly than before the private partnerships. Here, MIGA plays a significant role, crisis. Moreover, the fight against poverty will become by catalyzing foreign direct investment that supports increasingly difficult as we push toward our target, since economic growth, reduces poverty, and improves people’s those who remain poor will be the hardest to reach. lives in places where it’s needed most. Other challenges could pose new threats to poverty This year, MIGA issued a record $2.8 billion in political risk reduction. Conflict and political instability present major guarantees, underpinning investments across diversified risks, because they increase poverty and create long-term sectors and regions. Seventy-four percent went to the obstacles to development. Moreover, a warming planet poorest countries served by the International Development could increase the prevalence and size of drought-affected Association. Fifty-four percent supported private sector areas, and make extreme weather events more frequent, development in sub-Saharan Africa and 41 percent MIGA ANNUAL REPORT 2013 | 5 supported transformational projects in fragile or conflict- tenure at the helm of MIGA recently came to an end. affected countries. This Annual Report demonstrates the Her innovative and tireless leadership, coupled with the considerable development impact of MIGA’s support, and professionalism and commitment of MIGA’s management its ability to build effective partnerships, both externally and staff, allowed the Agency to achieve extraordinary and across the World Bank Group. results. I look forward to working with Keiko Honda, Izumi’s successor, to continue MIGA’s strong momentum Several MIGA projects over the past year underscore in the years to come. the World Bank Group’s strengthened collaboration to achieve our objectives. The outcomes of this collaboration demonstrate how, together, we can use our considerable expertise and resources to help countries and other partners find creative and integrated solutions to development challenges. MIGA’s support of transformational projects in Côte Jim Yong Kim d’Ivoire is particularly noteworthy. This year, the Agency, World Bank Group President along with IFC and IDA, supported the Azito thermal June 30, 2013 power plant that brings energy capacity to the country. Along with IDA, MIGA also supported the construction and operation of an offshore oil and gas facility that will reduce the country’s energy costs and limit the use of foreign reserves for energy imports. These transformational projects complemented the Henri Konan Bedié toll bridge in Abidjan—the first public-private partnership since the end of the civil conflict in 2011— that MIGA supported last year. MIGA’s support for these investments alone has catalyzed over $2 billion in foreign direct investment, a significant amount for this conflict- affected country. MIGA’s performance this year has made a strong contribution to helping us reach our goals of ending extreme poverty by 2030 and promoting shared prosperity. I particularly want to thank Izumi Kobayashi, whose 6 | MIGA ANNUAL REPORT 2013 miga board A Council of Governors and a Board of Directors, representing 179 member countries, guide the programs and activities of MIGA. Each country appoints one governor and one alternate. MIGA’s corporate powers are vested in the Council of Governors, which delegates most of its powers to a Board of 25 directors. Voting power is weighted according to the share of capital rr Audit Committee each director represents. The directors meet regularly at the rr Budget Committee World Bank Group headquarters in Washington, DC, where rr Committee on Development Effectiveness they review and decide on investment projects and oversee rr Committee on Governance and Administrative Matters general management policies. rr Human Resources Committee Directors also serve on one or more of several standing These committees help the Board discharge its oversight committees: responsibilities through in-depth examinations of policies and procedures. MIGA’s Board of Executive Directors, as of June 30, 2013 9 9 18 18 6 76 7 12 1214 14 5 5 8 8 15 15 19 19 22 22 23 23 1: Merza Hasan; 2: Agapito Mendes Dias; 3: Satu Santala; 4: Roberto B. Tan; 4 4 10 10 13 13 20 20 16 16 24 24 2 2 11 11 3 3 1 1 17 17 21 21 5: John Whitehead; 6: Marie-Lucie Morin; 7: Shaolin Yang; 8: Gwen Hines; 9: 25 25 Vadim Grishin; 10: Mukesh N. Prasad; 11: Mansur Muhtar; 12: Piero Cipollone; 13: Omar Bougara; 14: Ibrahim M. Alturki (alternate); 15: Gino Alzetta; 16: Hideaki Suzuki; 17: Ingrid-Gabriela Hoven; 18: Denny H. Kalyalya; 19: César Guido Forcieri; 20: Juan José Bravo; 21: Sara Aviel (alternate); 22: Hervé de Villeroché; 23: Frank Heemskerk; 24: Jörg Frieden; 25: Sundaran Annamalai MIGA ANNUAL REPORT 2013 | 7 Message from Izumi Kobayashi, MIGA Executive Vice President, 2008-2013 There are signs the global economy is at a turning point—the real risks we saw in recent years have receded and the situation is less volatile. While high-income countries still face modest economic growth of about 1.2 percent in 2013, developing countries are pro- jected to grow 5.1 percent. This relative growth in developing countries continues to I note our continued efforts to ramp up business make them increasingly attractive to foreign investors. This development, including strengthened outreach to sub- is one of the reasons why we have seen growing demand Saharan Africa and the Middle East and North Africa, for our risk-mitigation products, as investors seek returns as countries seek more ways to attract private financing in more challenging environments. Against this backdrop, and investment. Our expanded operations in Asia and MIGA celebrated its 25th anniversary this year with another our presence in Europe helped contribute to another excellent performance, issuing $2.8 billion in new guar- year of positive business results. We remained focused antees. on our strategic priority areas: support for investment in the world’s poorest countries served by the World Bank’s MIGA’s mandate to catalyze foreign direct investment into International Development Association (IDA), in fragile developing countries has increased in relevance as part of and conflict-affected environments, in complex projects, the World Bank Group’s overall mission to end extreme and South-South investments. Over three-quarters of poverty and promote shared prosperity. We recognize the the projects MIGA backed address at least one strategic private sector has an important role to play in assisting priority area, accounting for 82 percent of new business development. Our challenge is to ensure we facilitate the volume. right investments that create value for the private sector, and are sustainable in order to yield lasting development Our business diversification remained strong this past benefits for host countries. This report highlights our year. Regionally, MIGA’s projects in sub-Saharan Africa positive results this year—both in new business and in accounted for the largest portion of new business volume development impact from existing projects that have at 54 percent, over twice last year’s level of 24 percent, improved people’s lives across the globe. and over four times the fiscal year 2011 level of 12 percent. 8 | MIGA ANNUAL REPORT 2013 The Agency’s sector diversification shows strong gains needs and streamlining processes to enable more flex- with complex projects in infrastructure and extractive ibility and responsiveness to our clients. We continued to industries rising to 69 percent of new volume compared place an emphasis on building a diverse and talented staff to 60 percent in fiscal year 2012. Underlying these strong of professionals. This past year we welcomed four new business results is the transformational nature of many of staff members under our successful MIGA Professionals these projects, which help bring power, transportation, and Program. more efficient technologies into our developing member countries, and are particularly important for fragile and I have come to the end of my tenure at MIGA. I want conflict-affected economies that have the greatest need for to thank the Board of Directors and other partners, as investment. well as our clients, for their guidance and support in advancing the work of this important institution. As I leave, The impact of the projects we support again demonstrates I feel confident that MIGA is well-positioned to fulfill our the powerful role the private sector can play in alleviating mandate of facilitating investment that furthers growth poverty by mobilizing private capital into sectors with and improves people’s lives. I want to thank President Jim broad developmental impact, such as infrastructure, Yong Kim for his leadership. Most of all, I want to express agribusiness, and manufacturing. With the private sector my sincere gratitude to MIGA’s management and staff for stepping in to provide these much-needed investments, their professionalism and commitment throughout my host-government efforts are complemented in building term to deliver MIGA’s mission in the countries we serve. the foundation for more productive economic activity that It has been my privilege to work with you. creates jobs and growth. Additionally, these investments are playing an important role in contributing to economic and social sustainability in surrounding communities. We also reached out to existing and new external partners to share knowledge on industry practices and devel- opment solutions. This outreach included activities such as conferences on managing global political risk, senior Izumi Kobayashi executive outreach, and visits to projects that we have sup- June 30, 2013 ported—including a trip I made to Iraq and the Palestinian Territories, both areas hit by conflict and fragility. We also participated in the World Bank Group’s groundbreaking mission to Myanmar and together we hope to help reduce poverty and boost growth through energy infrastructure development and other reforms. This past fiscal year we further strengthened our part- nerships across the World Bank Group, working on ways to enhance collaboration in our strategic priority areas. In par- ticular, the IFC/MIGA Business Development Partnership has matured into a strong business model that has helped stimulate joint business development and knowledge- sharing while providing optimal solutions to our clients. Internally, we remained focused on strengthening our information technology systems to serve anticipated MIGA ANNUAL REPORT 2013 | 9 Message from Keiko Honda, MIGA Executive Vice President I am pleased to transmit MIGA’s 2013 Annual Report, which highlights the Agency’s strong performance over the past year. This is a very exciting time to be joining the World Bank Group and sharing in the noble purpose of ending extreme poverty and promoting shared prosperity. We are committed to working with our clients and devel- opment partners to deliver the solutions that will help us achieve these goals. MIGA’s risk-mitigation instruments can play an essential role in mobilizing the financing nec- essary to deliver transformational infrastructure projects, build job-generating enterprises, and provide access to finance. I look forward to working with our Board, our partners, and staff to meet these goals. I am honored to contribute to this important work. Keiko Honda July 15, 2013 10 | MIGA ANNUAL REPORT 2013 miga management team Izumi Kobayashi Michel Wormser Ana-Mita Betancourt Kevin W. Lu Executive Vice President Vice President and Director and General Regional Director, Chief Operating Officer Counsel, Legal Affairs and Asia Pacific Claims Edith P. Quintrell Lakshmi Shyam-Sunder Ravi Vish Marcus S. D. Williams Director, Operations Director and Chief Economist and Chief, Strategy, Chief Financial Officer, Director, Economics and Communications and Finance and Risk Sustainability Partnerships Management MIGA ANNUAL REPORT 2013 | 11