Investment Opportunities Abound in Afghanistan
Political risk mitigation key to investor confidence
DUBAI, December 21, 2005—Business opportunities continue to grow for investors with the ongoing reconstruction of Afghanistan, where political risk mitigation can play an important role when it comes to getting investment in the door. This was the key finding of a conference held today in Dubai. The event, a working lunch for the Board of Directors of the Afghan Business Council Dubai, was hosted by the Multilateral Investment Guarantee Agency (MIGA), an agency of the World Bank Group.
The Afghan Diaspora, many of whom are based in the UAE, has played a crucial role in the reconstruction of Afghanistanto date. “As the reconstruction of Afghanistan gathers pace, there will be larger opportunities in a number of sectors,” said Ibrahim Mohib, Chairman of the Afghan Business Council in Dubai, “including building materials, cement, agro-processing, and services.” Mohib added: “Afghanistan’s potential can be better tapped if the problems related to security are solved and both physical and institutional infrastructure is improved.”
While Afghanistanis increasingly stable, the perception of political risk has been an investment deterrent. “Foreign direct investment is critical to the development of Afghanistan, and the Afghan Diaspora is a key constituency, but many private investors lack the confidence to go ahead because of the perceived risks,” said Orjan Helland, an Investment Officer at MIGA.
In 2004, MIGA set up a new facility—the Afghanistan Investment Guarantee Facility (AIGF)—to protect investments against the noncommercial risk associated with foreign direct investment. “The facility is designed to encourage foreign direct investment into Afghanistan, particularly smaller projects that right now are critical to the country’s economic development,” said Helland, a featured speaker at the event. “MIGA’s guarantee program helps reduce the noncommercial risks to an investment, providing investors with the confidence they need to open shop in a developing country.” The facility provides coverage for new cross-border investments, as well as expansions and privatizations of existing projects.
The Dubai-based representative of the International Finance Corporation (IFC), Mouayed Makhlouf, a featured speaker at the conference, added: “The role of the IFC Dubai office is to facilitate the movement of capital and to partner with investors from the Gulf Coordination Council (GCC) states who have outgrown their local markets and wish to expand into less developed markets within or outside the region. Afghanistanis one such market where some of the GCC investors are expanding."
MIGA is one of the few providers of political risk insurance operating in Afghanistan, and is the only global multilateral organization insuring investors against political risks. These risks include currency transfer restriction and inconvertibility, expropriation, breach of contract, and war and civil disturbance. Afghanistanbecame a member of MIGA in July 2003.
Sponsors of the AIGF include the government of Afghanistan, through a credit from the International Development Association and a concessional loan from the Asian Development Bank (ADB), each for $5 million. The UK is also a sponsor, through a £1 million grant from the Department for International Development. MIGA and the ADB are both providing $10 million in coinsurance. Total guarantee capacity is expected to reach $60 million.
For more information on the guarantee facility, click here. To find out more about MIGA’s work in Afghanistan, visit www.ipanet.net/investmenthorizons_ afghanistan/, or contact Orjan Helland, Investment Officer, World Bank Resident Mission, Kabul, Afghanistan, tel. 93 212 615, ohelland [at] worldbank.org (ohelland[at]worldbank[dot]org).