1. Session 2: FIAS in Fragile and Conflict Situations (FCS) Pierre Guislain FIAS Consultative Committee of Donors Meeting November 14-15, 2012

2. Fragile and Conflict Situations (FCS) – A development priority for the WBG 2 Context  Lack of economic opportunities and high unemployment are key sources of fragility (World Development Report 2011 on Conflict, Security and Development )  Decline in overt armed conflict in several countries but political and economic fragility persists  Poverty rates are 20 percentage points higher in FCS Operationalizing the WDR  WB: Creation of WB FCS Hub in Nairobi  MIGA: pursuing Conflict-Affected and Fragile Economies Facility (CAFEF) to provide political risk insurance in FCS  IFC: FCS Coordination Team appointed, co-led by Pierre Guislain and Georgina Baker (Directors)  Goals: 1) better align IS and AS to foster private investment to FCS 2) increase collaboration with WB Hub in Nairobi, MIGA, and donors  Close coordination with Conflict Affected States in Africa (CASA) program  Supporting the g7+ group of fragile countries in development of their PSD agenda  WBG: Adjusting internal procedures (e.g. HR) to meet the needs of FCS * Horizons 2025: Creative destruction in the aid industry. Kharas, Homi, and Andrew Rogerson. ODI and Brookings. 2012 By 2025, over 80% of poor will be living in FCS, mostly in Africa*

3. FIAS in FCS Some Basics: IC uniquely positioned as a ‘first responder” in FCS market opener function Typically a combination of economy-wide IC and industry-specific reforms opening up investment opportunities in key sectors Some FCS can achieve significant reforms early after emerging from conflict CIC/FIAS Focus: Historically played a key role in developing and testing IC approach in FCS, with large operations in countries such as Liberia, Sierra Leone, Yemen, Haiti, etc. Strong engagement in KM (e.g.; 2 out of 5 PSD papers on FCS), and lead role in engaging with global (donor) partners Serves as a connector between Bank, IFC and MIGA, and between WBG and partners Working closely with regional IFC and Bank teams >> in many cases followed by successful hand-over to regional units after initial start-up phase (e.g., Haiti) FIAS offers a flexible funding platform for initial quick response interventions; examples currently in pipeline: Cote d’Ivoire, Guinea, Kosovo Often a first-stop contact for donors: e.g.: Myanmar (Norway), Libya (USAID) 3

4. Doing Business (DB) as a tool to shape reform agenda In FY12, FIAS-supported 10 DB reforms in 5 FCS Burundi (3) – top 10 DB reformer for the second year Congo Rep. (2) Kosovo (2) Sierra Leone (2) Togo (1) FIAS-supported countries - who has improved business regulation the most since 2005? Doing Business Helps identify reform opportunities Points to reforms which often can be implemented quickly Helps monitor progress – and serves as a positive feedback loop for reform action Shows the world that a country is re-opening for business Political leaders like it and commit to improvements CountryRank (most improved=1) Georgia1 Tajikistan9 Sierra Leone11 Burundi16 Guinea-Bissau18 Timor-Leste35 Cote d’Ivoire36 Togo37 Solomon Islands43 Sao Tome & Principe47 Bosnia and Herzegovina49

5. Client-facing FCS projects supported by FIAS in FY12 StatusTypeCountry/regionProjectRegion FIAS FundsFCS % FCS Value Active Country-specific BurundiBurundi Investment Climate Reform ProgramSSA 753,990100% 753,990 Bosnia and HerzegovinaBosnia Sub-national CompetitivenessECA 144,783100% 144,783 Bosnia and Herzegovina Investment Climate ProjectECA 49,870100% 49,870 GeorgiaGeorgia Tax Simplification ProjectECA 77,713100% 77,713 South SudanSouthern Sudan Investment Climate Reform ProgramSSA 2,046100% 2,046 Timor-Leste Timor-Leste Business Registration and Licensing Reform ProjectEAP 1,402100% 1,402 Regional OHADA OHADA: Building the Capacity to Improve the Quality of the LegislationSSA 1,800,16950% 900,084 Sub-Saharan AfricaDB Reform Sub-Saharan AfricaSSA 574,36933% 189,542 Sub-Saharan AfricaEast African Community Investment ClimateSSA 875,23520% 175,047 Latin AmericaDB Reform Latin America and the CaribbeanLAC 523,4698% 41,878 Europe and Central AsiaDB Reform East Europe and Central AsiaECA 72,0776% 4,325 Pre- implementation Guinea Investment Climate Reform Program in Guinea ConakrySSA 406,579100% 406,579 KosovoKosovo Investment ClimateECA 34,873100% 34,873 TOTAL 5,316,5752,782,132 US$ 2.8 mn spent (20% of total) on 11 active projects involving 17 countries 5

6. Scaling up FCS work in FY13 to reach 25-30% target range ♦ FCS spend in FY12 below target range, due to  Transfer of follow-on projects in South Sudan, Liberia and Sierra Leone to regional IFC/Bank units  Suspension of all programs in Yemen ♦ How will we scale up in FY13? Key projects currently in the pipeline or under exploration: –Guinea –ECOWAS regional IC (under discussion with EC) –OHADA Phase 2 (funding confirmed from France) –Adding new elements (in particular industry-specific work) to ongoing or new IC programs in Africa (funded primarily through IFC or WB) – including to current programs in Burundi, CAR, Comoros, Cote d’Ivoire, S Sudan, Liberia, S Leone, Togo, Somalia. 6

7. Haiti Investment Generation project response Outcomes and relevance for Haiti Impacts Supported 6 investor outreach missions to Korea, Taiwan, Brazil and Dominican Rep. 8 foreign investors announced commitment to invest USD 80M and create 7,900 jobs 1,644 jobs created $49 million in FDI facilitated Recommended technically how to expand the Parc Industriel Metropolitain (PIM) 4 new buildings (11,400 m2) at PIM to host new investors Supported investor aftercare and promotion to U.S. garment buyers. 30 companies returned to operations soon after the earthquake Assessed building damage at PIM after earthquake 12 damaged buildings repaired Drafted Implementing Regulations for the Free Zone (FZ) law Expected to increase investors confidence and compliance, while reducing transactions costs Provided technical assistance to the Center for Investment Facilitation (CFI) to improve visibility vis-à-vis investors New "Invest in Haiti" website launched Examples of FCS work: Haiti: Post-earthquake emergency response Project set the stage for World Bank Job Creation and Growth project, which will provide sustainable funding for institutional development for investment generation (USD 5M). 7

8. Liberia Investment Climate Reform Program FY12 Outcomes and relevance for Liberia Impacts Upgrade governmental and institutional investment policy and legislation Revised investment code adopted and capacity of government institutions strengthened to attract quality investment in Liberia $4.7 million cost savings for the private sector $13 million in new investments Estimated 20,000 new jobs Improve public-private dialogue Facilitated successful transition of PPD mechanism - Liberia Better Business Forum - to locally managed entity, demonstrating sustainable localized ownership of reform agenda Improve the regulatory and institutional framework, adopting best practices, including in the SEZ law SEZ law drafted; extensive review of potential market and demand for a national SEZ regime undertaken Improve the business environment for tax administration Review of the current tax incentive regulation and appeals mechanism with a view to reform and streamline the country’s tax regime Reduced trade barriers and increased capacity of customs officials Helped introduce preliminary risk-based import inspections regime; reduce pre-shipment inspection (PSI) fees from 1.5 to 1.1% of FOB value; establish a centralized facility to provide a single location for the clearance of cargo Examples of FCS work: Liberia: Enabling reconstruction through the private sector 8

9. Examples of FCS work: South Sudan: Removing barriers to investment 9 Supporting business entry reform, public private policy dialogue, and foreign and domestic investment policy; DB assessment of Juba city Close collaboration with the World Bank and others: designed as part of a major WBG PSD Program Most funding of new follow-on program via IFC Africa AS Region (CAF), but strong design and implementation support via FIAS-funded global teams Innovative design and implementation provide valuable lessons for early engagement in fragile environments Milestones in FY12: Enactment of six laws facilitating investments and improving standards for consumer products Business Registry was strengthened and business registration resumed following suspension in 2005; Over 2000 businesses were registered between January and June 2012, a 44 percent increase over the same period last year Investment Promotion Act was implemented by establishing an investment promotion agency (SSIA) International investor conference in Washington DC took place in December 2011, resulting in several investment enquiries, including in agribusiness, power, manufacturing and oil production sectors; supporting an active follow on program - currently three strong investment leads are being followed-up.

10. Examples of FCS work: Sierra Leone: Cape Sierra Hotel - from run-down to up and running 10  FIAS-funded team worked with the government to scope and assess tourism assets  First candidate identified: 100 room derelict government-owned hotel  As a result of joint work between FIAS-funded IC team and IFC’s Public-Private Partnership (PPP) team, concession awarded Sept 2010  Financing from Afreximbank secured in April 2011  PPP model for tourism asset development Expected impacts: US$ 40M new private investment 400 direct jobs would be first hotel in SL up to international standards: >> signal effect Radisson Blu expected to follow with another investment in Freetown 10

11. Investment Services IFC then invested nearly US$2M with EIB and AfDB to create Access Bank, the first microfinance bank in Liberia, serving micro and small entrepreneurs. Investment Climate reduced barriers to formalization; Doing Business reforms; investment promotion; support for private- public dialogue; assistance in creation of special economic zones Access to Finance supported the Central Bank of Liberia in developing microfinance regulation; supported Access Bank staff in capacity building, which reduced costs of market entry Examples of FCS work: Liberia: From IC reforms to Access Bank, a microfinance leader  Collaboration between AS & IS has yielded a market leader with 5 branches, 235 employees and a portfolio of US$6.1 million in loans to 7,200 borrowers and US$8.4 million in deposits.  IFC provided critical access to capital for SMEs, affirmed its confidence in Liberia’s recovery from conflict and delivered the requisite capacity for sustainable operation. 11

12. Going forward: top obstacles to business operations in FCS: similar to those in IDA countries, but some are more acute 12

13. 13 Country classification Microstates Overt conflict/ dangerous conditions Lacking political will to implement reforms COUNTRIES OF FOCUS Weak investment climate (but political will) Increasing investment potential IFC Approach Overseen by Pacific regional facility Engagement as conditions permit Encourage reform on a limited /opportunistic basis INCREASED AS-LED ENGAGEMENT INCREASED AS-IS ENGAGEMENT Countries on FY13 list  Kiribati  Marshall Is.  Micronesia  Tuvalu-new  Afghanistan  Iraq  Libya-new  Sudan  Syria-new  Yemen  Angola  C.A.R.  Chad  DRC  Eritrea  Guinea-Bissau  Somalia  Zimbabwe  Comoros  Congo, Rep.  Solomon Islands  South Sudan-new  Timor-Leste  Bosnia & Herzegovina  Burundi  Côte d’Ivoire  Guinea  Haiti  Kosovo  Liberia  Myanmar  Nepal  Togo  Sierra Leone  West Bank & Gaza Other similar countries  Mali  Western Sahara  Djibouti  Equatorial Guinea  Papua New Guinea  Sao Tome & Princ.  Tajikistan  Georgia  Lebanon  Sri Lanka Going forward: Operational typology – FCS on harmonized list in FY13 (35 total) + other similar countries

14. Going forward – an example: Opportunities created by an investment in an iron ore mining in Guinea Rio Tinto/IFC investment in iron ore mine New FIAS-funded Guinea project will work on: Removing regulatory barriers, such as performance requirements, non-tariff barriers and excessive licensing requirements preventing linkages and spillovers of the mining sector with other sectors of the economy, in particular in ancillary services Extending the tax and incentives that are available to the mining companies also to their suppliers Strengthening investor protections Facilitating access in non-extractive industries to counter/reduce “Dutch disease”. Other WBG teams currently supporting Guinea: IFC: Local Supplier Development Program Access to finance (leasing laws) Financial Markets (trade finance) WB FPD department scoping the development of a major Growth Corridor project. Establishing linkages with the local economy TRANSFORMATIONAL OPPORTUNITY 14

15. What should FIAS’ focus be in FCS? Some areas we think are important; what do donors advise us to focus on? Enhancing the use of mobile technologies in banking, agriculture, health Revenue management for extractive industries Facility to support negotiating deals (weak government capacity vs large FDI) Industry-wide interventions (e.g. in cocoa sector in Cote d’Ivoire) Strengthen the value chain linkages programs to help define sectoral interventions and identify investment projects (e.g. the Simandou investment resulting in supply chain financing through risk sharing facility) Assistance in profiling investment opportunities in leading industries made possible after the resumption of peace Access to markets – additional focus on working with SMEs to gain access to domestic or cross-border markets Additional services for development of concession deals for power, ports, roads, etc. Capacity building and training services for aftercare of established reforms & institutions Projects/programs targeted to provide job creation and/or know-how opportunities for women and youth Assistance to companies affected by war/crisis that may have stopped operating (lost assets, workers, markets) 15

16. Annex Slides 16

17. 17 Investment climate reforms setting stage in FCS FIAS funding; plus design and implementation support to regional IFC and Bank projects FIAS-funded projects often start IFC’s interventions in FCS, and set the stage for others 17

18. A “One WBG” approach to PSD in FCS Coordinated efforts – working jointly from analysis to implementation WB’s Hub: analytical support regarding risks of conflict, social cohesion Joint WB-IFC analytical work on private sector development (5 papers) Select WB HR policies for FCS to be explored with IFC and MIGA Joint effort to develop comprehensive approach to risk mitigation Group-wide efforts to address key constraints to job creation, e.g. access to power (IFC PPP, WB PPIAF and MIGA) and support for SMEs Instruments from each organization WB’s State- and Peace- building Fund and Global Facility on Jobs in FCS IFC targeted facilities: SME Facility; Global Agricultural and Food Security Program; Concessional Finance funds MIGA guarantees for political risk mitigation; proposed Conflict-Affected and Fragile Economies Facility (CAFEF), w/possible IDA contribution Piloting a joint approach Developing WBG-wide “business plans” for 3 pilot countries: Cote d’Ivoire Burundi Myanmar 18

19. Preliminary findings of a paper on “Investment Climate Reform in FCS” developed by CIC staff FCS countries typically fall into two (extreme) categories: Either very difficult, fragile situation difficult to achieve any reforms; or Self-awareness that the current system is broken enables aggressive reform program/opportunity Developing a “Road Map” at the outset of a program to establish where IC Team/WBG and donors can make biggest impact. “Quick wins” (1-2 years) to show early results should be combined with sequential multi-phased medium- to long-term programs. Having the “right boots on the ground” is necessary to build relationships with the client, identifying problems in program implementation, and for results monitoring. Focus on regulatory reforms should be supplemented by “Doing Deals” with IFC, MIGA, and other investors, in particular for critical infrastructure and basic services. Programming flexibility of technical assistance interventions is the key to success given the instability of post-conflict environment. Strategies need to be flexible in design, funding, staffing, systems, time and client engagement modalities. FIAS-supported projects in FCS: lessons learned 19

20. Support SME growth Removing barriers to formalization (business entry, licensing and tax reforms) Improving insolvency regimes to encourage debt restructuring/reorganization to reduce failure rates among SMEs Removing constraints to competition in strategic sectors Expanding access to finance (Re)establishing efficient business registration systems and support for the establishment of financial registries Encouraging IFC and others to make investments in financial institutions capable of lending to SMEs Create linkages between large companies and local economies Promoting policies to help local economies be better positioned to maximize the benefits from FDI related to supply-chain linkages as well as technology and knowledge transfers Supporting agriculture and food security Improving competitiveness of agribusiness sector Facilitating access to finance, trade logistics and improving tax and incentive administration to support agribusiness. 20 Most of the IC tools we use in IDA countries are also applicable to FCS

21. Conduct country-level conflict analysis, including: Identifying sources of conflict and most vulnerable regions/populations Assessing the role of the private sector in the conflict (e.g. extractive industries, agriculture forestry, financial services) Evaluating all proposed interventions against the “do no harm principle” Address the damage done to private sector, incl. key companies (destroyed facilities and infrastructure, lost workers, broken value chains, lost markets) Focus on sectors that can create employment opportunities to vulnerable populations Reduce access-to-finance constraints (property and collateral registries) Promote public-private dialogue as a tool to increase collaboration between businesses from different segments of society and the government 21 Addressing conflict-specific challenges