Hong Kong, May 10, 2006
—The International Finance Corporation, the private sector arm of the World Bank Group, has marked its 50th Anniversary year in Hong Kong with a program looking ahead to the challenges and opportunities in coming years as emerging markets moved toward the center of the world economy and more Asian companies become global business leaders.
The event, entitled “The Future of Asia’s Emerging Markets”, was attended by some 200 IFC clients, guests and senior staff from the East Asia and the Pacific region. Speakers included Joseph Yam, chief executive of the Hong Kong Monetary Authority, Ronnie Chan, chairman of Hang Lung Group, Mark Mobius, managing director of Templeton Asset Management Ltd, Daniel Carroll, managing partner of Newbridge Capital, and Mark Clifford, editor-in-chief of the South China Morning Post.
IFC Executive Vice President Lars Thunell said IFC is well positioned to contribute to the needs of Asian business to help ensure that the private sector continues to play a leading role in regional development.
“We hope our commitment to achieving strong financial returns while promoting high standards in corporate governance, environmental and social practices can serve as a catalyst for private investors to channel more resources toward companies that can operate successfully in the neediest parts of the world,” he said.
IFC’s 50th Anniversary is being marked in the context of a banner year of emerging market performance. Developing country economies in East Asia and the Pacific are expected to grow an average of 8.0 percent in 2005 and 2006, boosted by strong growth in China, Vietnam and Indonesia. Growth in China continues at high rates while inflation remains under control. China is receiving nearly $50 billion in foreign direct investment annually, and Asia-Pacific as a whole is enjoying flows of well over $100 billion.
Emerging market companies are climbing the Fortune Global 500 list. “South-to-south” foreign direct investment from one developing country into another is growing five times faster than investment from rich nations into poor nations.
Mr. Thunell noted however that many parts of Asia and the Pacific were not sharing in the prosperity and there remained a huge unfinished agenda.
“For all the progress of the emerging markets, we still see extreme poverty. Some 700 million people in East Asia and the Pacific still live on less than $2 per day, of which more than 500 million are in China,” he said.
IFC aims to assist Asia in developing better and more diverse financial institutions to support private companies and their efficient contribution to development, said Mr. Thunell.
“Our work has ranged from pioneering the Panda bond market in China, to investments and loans to Chinese and Indonesian banks, to support for microfinance in Cambodia, Mongolia and the Philippines. But our work is far from done. We will continue to focus on supporting financial institutions as well as providing direct financing because companies need better access to finance across this region. This remains a significant challenge across the developing world,” he said.
Mr. Thunell also reserved special praise for Hong Kong.
“A half century ago Hong Kong was a poor colonial port nearly overwhelmed by refugees. Today it is one of the most vibrant and prosperous big cities on earth. Few places like Hong Kong have so effectively demonstrated the power of private enterprise in changing people’s lives for the better.”
Thunell leaves Hong Kong tonight for a trip to China taking in Hangzhou, Chengdu, Xi-an, Beijing and Shanghai.
Over the past 50 years IFC’s role in the emerging markets has evolved from pioneering foreign direct investment to creating the first equity funds for developing countries and introducing more advanced products and initiatives, such as local currency bond issues, securitizations, and carbon emissions credits.
Today IFC is the largest multilateral provider of financing – loans, equity, risk management, and structured finance products – in the developing world. In addition, the Corporation serves as a catalyst and laboratory for innovative, market-based solutions for reducing poverty and addressing environmental and social challenges. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
Fact Sheet: IFC and Emerging Markets Today
Trends in 2006
IFC, which was founded to promote private sector growth in the developing countries and coined the term “emerging markets” in the early 1980s, has cited the convergence of a number of trends during this milestone year:
· Macroeconomic growth rates for developing nations continue to be roughly double those of developed nations.
· Cross-border capital flows into the emerging markets – foreign direct investment, equity flows, and commercial bank lending – are approaching the record levels last witnessed a decade ago.
· Emerging market equity funds have been reporting record inflows, and the growing interest of institutional investors is likely to lift the capitalization of emerging stock markets above $5 trillion for the first time in history.
· The scale of emerging market mutual funds, whether measured by assets or as a percentage of emerging markets GDP, is now more than double the levels seen in 1997.
Broadening Economic Participation
Encouraging growth figures for East Asia and the Pacific mask significant untapped potential. Across the developing world, the amount of economic activity in the “informal” economy – unreported, unregulated, untaxed – ranges from 40 to 80 percent.
Ongoing research sponsored by IFC and the World Bank, the Doing Business report, shows that red tape and processing delays are a major drag on job creation and economic growth in the formal economy of many countries in the region. It takes on average more than a month and 40 percent of GDP to start a single business in this region. In Indonesia, simply registering with the government to open a business can take more than 150 days – more than 10 times longer than it takes in advanced economies.
Such barriers disproportionately affect women. IFC is supporting investment climate reform initiatives based on the Doing Business research in more than 20 developing countries. (Additional information can be found at:
www.doingbusiness.org
.)
Capital Markets, the Financial Sector, and Corporate Governance
To encourage growth and foster greater stability in the emerging markets, IFC has taken a leadership role in deepening and diversifying capital markets in developing nations by introducing local currency bonds, securitizations, and the provision of derivatives such as
partial credit guarantees. Long-term local currency financing allows companies in the emerging markets to finance their growth without incurring the currency risk associated with dollar-denominated financing.
Last year, for example, IFC was the first multilateral to issue a so-called “panda” bond in China, a 1.13 billion renminbi-denominated bond ($140 million) issue in the Chinese non-government domestic market. The issuance marked the first opening of the Chinese renminbi bond market to international financial institutions
.
More than a third of IFC’s investment portfolio is devoted to strengthening and diversifying the financial sector – banks, leasing companies, mortgage companies – in developing companies. In China, IFC has made direct investments in six banks. In Indonesia, IFC is increasingly working with banks to expand their lending to new segments of the economy, especially smaller business.
To improve corporate governance, IFC works directly with client companies from more than 80 developing countries on their board practices, shareholder rights, internal control environment, and transparency and disclosure. Such reforms increase shareholder value, reduce the cost of capital, and improve long-term performance.
IFC has invested equity directly in about 670 companies in emerging markets, and has helped many successful companies grow to become strong regional or global players today. As a minority shareholder IFC also emphasizes corporate governance and has been active in nominating directors to corporate boards to improve governance standards.
Addressing Environmental and Social Issues through Policies and Project Investments
IFC’s environmental and social standards for project finance lending have been adopted as the global benchmark by leading commercial banks around the world through a process known as the Equator Principles. A new, stronger set of environmental and social performance standards was approved earlier this year and took effect on April 30.
IFC, with its sister institution the World Bank, has pledged to increase its renewable energy and energy efficiency investment portfolio in the developing countries by an average of 20 percent per year from 2005 to 2010. IFC is providing a $21 million loan to Yunnan Zhongda Yanjin Power Generation Company to support the construction and operation of three run-of-the-river power stations along the White Water River in Yunnan Province. IFC’s investment in the project, its first in Yunnan, supports the government’s policies to develop hydropower resources as a substitute for coal fired generation and will result in an estimated reduction of 8 million tons of greenhouse gas emissions over the 30 years of operations.
Similarly, IFC’s board recently approved the China Utility-Based Energy Efficiency Finance Program (CHUEE), which will help establish a market promoting energy efficient equipment, and has met with enthusiasm among utility companies and banks.
In addition, IFC has sponsored innovative public-private partnerships to preserve biodiversity and transactions that allow emerging market companies to tap into the carbon emission reduction credits market.
Since the first representative office of IFC was established in East Asia in 1977, IFC has expanded its activities in the region considerably. Today, IFC’s East Asia and the Pacific investment portfolio totals nearly $4 billion in more than 180 companies. A network of Private Enterprise Partnership programs and facilities is dedicated to helping the private sector acquire the capacity to support sustainable development. Hong Kong has been IFC’s regional hub in East Asia and the Pacific region since 2000 and currently employs 40 staff, with a further 15 slated to join by the end of this year.
About IFC
IFC promotes sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. Its 178 member countries provide its share capital and collectively determine its policies. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
