Conflict Affected and Fragile States Facility (CAF)

1. Two new Facilities: • Conflict Affected and Fragile States Facility (CAF) • Environmental and Social Challenges Trust Fund WBG Donor Forum – Paris – May 19, 2010

2. MIGA – Two Examples of New Ways to Expand our Core Business • Creation of a new Facility to encourage investment in post-conflict and fragile states: Offer a wider set of instruments and services • Expansion of an existing pilot Facility: provide technical assistance to existing or potential MIGA clients to help them achieve compliance with MIGA’s environmental and social standards.

3. Private investment helps reduce the return to conflict • Economic growth reduces the risk of reverting to conflict • Main driver: job creation • Long-term structural employment requires private sector development • Growth rate of private sector is reduced by risk and lack of investment

4. But – Private investment tends to come in several years after aid peaks

5. High Demand, Low Capacity for Insuring Projects in Conflict Affected States • Investors, lenders and exporters express interest in conflict affected states, but risk is often too high and • risk mitigation options are limited: • Private insurance market: case by case basis only, short tenors, high premiums. • Public market: many Export Credit Agencies are either off-cover or offer limited cover (e.g. case by case basis, short term only) for export credit insurance. Limited amounts of investment insurance coverage are available.

6. Private PRI in Conflict-affected and Fragile States - Market Failure Maximumfeasibleprice

7. MIGA - Proposed Conflict-affected and Fragile States Facility (CAF)Allow MIGA to start addressing gaps in the supply of insurance for projects in target countries Context • Promoting sustainable development in post conflict and fragile states. Influence investment and trade decisions by means of insurance • Facility will be fully donor funded, providing for the insurance products that clients need to invest in and trade with target countries • Facility would harness private sector insurance market to create a public-private partnership (PPP) solution

8. Facility is set up as a Public-Private Partnership Private Sector (PRI Market) Conflict Affected and Fragile States Investors, exporters and lenders Excess of Loss Layer ($400 million) Insurance cover Investment and trade Facility First Loss Layer ($100 million) premium Donor Donor Facility Donor Donors

9. Main principles of the Facility • Facilitate projects with positive developmental impact in conflict affected and fragile states • Offer insurance products such as investment insurance, export credit insurance, coverage for local currency financing • All projects insured under the Facility will comply with WBG safeguard policies and fit in the Debt Sustainability Framework • Facility complements WBG and other Development Partners’ activities

10. Proposed risk mitigation instruments • Investment insurance for equity or debt: both cross border and local, new and existing • War and Civil disturbance, including business interruption • Expropriation • Currency conversion and transfer • Breach of contract • Non-honoring of a sovereign financial guarantee • Structured trade credit insurance (pre-export finance) • Export credit insurance • All instruments to be used both for inward or domestic flows and for outward trade and investment

11. The World Bank Group’s Role in the CAF Facility • Fiduciary responsibility for management of the fund • Clients value multilateral participation • Attracting Beneficial Investment - screen investors • Ensuring respect of debt sustainability ceilings • Facility would complement existing programs (Peace and State-building Fund, governance, investment climate)

12. MIGA - Environmental and Social Challenges Trust Fund • Purpose: Provide technical assistance to help MIGA clients achieve compliance with MIGA’s environmental and social performance standards. • Important resource which has received positive feedback from the clients.

13. Examples of Technical Assistance Provided through the Trust Fund between 2007 and 2009: • Resettlement in Nigeria • Human Rights in DRC • Communities and Workers’ health and safety in Mozambique • Development of environmental management systems in Rwanda and Uganda • Artisanal miners in Burkina Faso.