The Multilateral Investment Guarantee Agency (Miga), a member of the World Bank Group, is supporting a new investment that will provide state-of-the-art telecommunications services in Afghanistan. The guarantee, totalling US$76.5mn in coverage, will protect the investment against the non-commercial risks of transfer restriction, and expropriation.

The Miga-backed project, totalling US$85mn, represents a third of total flows of foreign direct investment (FDI) into the country from March 2006-07 (the Afghan calendar year), according to IMF estimates. This is the fourth investment guaranteed by Miga in Afghanistan.

After more than two decades of conflict, Afghanistan began an enormous political, economic, and social transformation in 2002. Despite some early gains, tremendous challenges remain. Capacity remains uneven and weak overall, systems and procedures are rudimentary, though improving, and many areas of the country are seriously affected by conflict. Reconstruction needs are enormous and underscore the need for private sector help in meeting the challenge.

But perceptions of risk by foreign investors and bankers have been a major obstacle to investment. The World Bank Group is an important player in conflict-affected countries, and Miga’s non-commercial risk guarantees are designed to encourage FDI to promote economic development in countries like Afghanistan.

“Foreign direct investment can have a strong, positive impact on rebuilding conflict-affected countries, bringing much-needed private capital and jobs, developing local skills, and stimulating spin-off industries,” says Miga’s executive vice-president, Yukiko Omura. “Since Afghanistan became a member of Miga in 2003, Miga’s risk mitigation tools have been playing an important role in securing investments that have a positive development impact in the country. The investments we support also send a signal to others that it is safe to do business with the appropriate mitigation of risks.”

The latest project supported by Miga in Afghanistan will give clients throughout the country access to a range of affordable telecommunications services, including wireless cell phone, Internet and satellite services, as well as public pay phones. The investor, the MTN Group of South Africa, will install, operate, and maintain a 100% digital GSM technology network via its Afghan subsidiary, Areeba Afghanistan.

There are two mobile operators in Afghanistan. The entry of a third player – Areeba – into the Afghan market will help to establish the conditions necessary for increased competition in the sector, which is expected to result in lower tariffs, higher coverage, and better quality of service.

Areeba expects to achieve a solid market position, attracting more than 1.7mn subscribers in the country by 2020, starting with the six major cities: Herat, Jalalabad, Kabul, Kandahar, Kunduz, and Mazar El Sharif.

The Afghanistan Investment Guarantee Facility (AIGF), administered by Miga, is guaranteeing a portion of the investment. The facility is sponsored by Miga, DFID, and the Islamic Republic of Afghanistan, through a credit from the International Development Association (IDA) and a concessional loan from the Asian Development Bank.

“Afghanistan is a challenging environment, and we are pleased to have supported four investments in the country thiga support will help boost investor confidence and catalyse further investment and development in the country.”

Other projects being supported by Miga in Afghanistan include a cotton project, a pharmaceutical plant, and the Brac Afghanistan Bank.