WASHINGTON, D.C., September 24, 2000
—The International Finance Corporation increased investments by 10 percent in the 1999-2000 fiscal year and shifted more financing to the world's most challenging markets, such as Sub-Saharan Africa where investments tripled in the past year, according to the IFC annual report released today.
IFC, the private sector investment arm of the World Bank Group, focuses increasingly on investments that create a foundation for successful private enterprises. Recognizing the key importance of the financial sector and infrastructure to local entrepreneurs in developing countries, IFC placed almost 70 percent of its new investments in those two areas.
"These are the sectors where we can do most to build up business in the developing world. Our investments, as well as the signals that we send to the markets and other investors, can have a major impact," said IFC Executive Vice President Peter Woicke.
IFC has a real ability to make an impact in the financial sector—banks, stock and bond markets, leasing and insurance companies, and microfinance institutions. Generally, some 80 percent of the financing needs of entrepreneurs in the developing world are met through local sources. But firms in most of IFC's client countries, particularly the smaller businesses, have extremely limited investment-financing options. IFC's investments stimulate direct and indirect expansion of financial choices, especially for small and medium enterprises.
In infrastructure development—water supply, electricity, transportation, power, and communication technologies—private enterprise is assuming a preeminent role. "These services, provided reliably and at a reasonable price, are critical both to the quality of life and to the survival and growth of local businesses," Mr. Woicke said. "This is a sector that we must, and do, support with our investments."
The IFC annual report for the fiscal year ending June 30, shows 259 new projects in 81 countries. Some 70 percent of those projects are in the poorest or highest-risk frontier countries.
Gross investments rose from $5.2 billion last year to $5.8 billion, a 10 percent increase, in FY 2000. Total project costs supported by IFC amounted to over $21 billion. Forty-six percent of the total dollar volume of approved projects was in the financial sector and another 23 percent in infrastructure. Eighty projects were located in Africa, more than in any other region. Net income, at US$380 million, was the second highest ever.
Alongside its own loan and equity investments, IFC increased its syndicated loan approvals to $2.3 billion in 45 projects, up almost 30 percent from last fiscal year. Signings of newly syndicated loans with commercial banks and other financial institutions reached an additional $1.5 billion, nearly twice the level registered the previous year. The resurgence indicates renewed interest by banks in lending to developing countries in an environment where access to long-term finance remains highly constrained. On the one hand, the results are evidence of a greater appetite for developing-country exposure. On the other, participant banks remain clearly more comfortable lending in the company of IFC or other multilateral institutions.
Mr. Woicke opens the report by citing the achievements of fiscal year 2000 but also providing a frank assessment of IFC's continuing challenges in meeting the vast needs of the developing world and the "push of reformers and critics."
"Clearly, globalization has not brought benefits—yet—to millions of poor people. Clearly, serious environmental problems are not being adequately resolved. And it is fully appropriate that we be held accountable for producing real results on the ground," he writes.
He predicts that the Corporation will increase its development impact as it becomes even more selective in choosing the projects that it finances in middle-income countries, through a strong emphasis on strengthening and expanding the financial sector and building a solid entrepreneurial base in the poorest regions within those countries.
The book reports organizational changes undertaken this year designed to make the World Bank Group's support for private sector development more effective. Most important was the consolidation under joint Bank-IFC management of work in mining, oil and gas, private sector advisory services, information and communication technologies, and small and medium enterprises. Under the new structure, the benefits of IFC's transactional experience are combined structurally with the World Bank's expertise in providing policy advice to governments.
IFC exerts leadership in promoting environmental and social best practice. IFC attaches rigorous standards of environmental and social responsibility to all its investments, and the next step, writes Mr. Woicke, "is to move beyond compliance—or do no harm—to use our experience in a way that influences the private sector beyond the immediate range of our own transactions."
Among the landmark deals that IFC signed last year was the Corporation's first foray into financing information technology. IFC and Softbank Corp., a Japan-based global Internet company, founded Softbank Emerging Markets to incubate and invest in Internet-related businesses in developing countries. That initiative will be followed by more investments in the
information communications technology sector in the coming year as part of IFC's priority on investments aimed at bridging the digital divide. IFC agreed to finance $100 million, and syndicate another $300 million, for an oil pipeline in Chad and Cameroon in a World Bank Group project designed to support economic and social development in one of the poorest regions in the world, building in safeguards to protect the environment and local cultures, as well as a first of its kind revenue management plan. A different kind of infrastructure deal was brokered in a matter of days, when IFC provided an emergency loan of $30 million to Electricidad de Caracas to restore power to the poorest neighborhoods hit last December by torrential rains and mudslides in Venezuela.
Support for financial markets included a $50 million equity investment in Banco Hipotecario in a $1.5 billion project to establish a secondary mortgage market in Argentina. In addition to its investment, IFC will play a major role in mobilizing funds from the loan and capital markets in support of this initiative. And IFC made numerous investments in banks that are geared to lending to small businesses, such as Acleda Bank in Cambodia or Finodev Microfinance in Benin.
Overall, IFC invested most in terms of dollar volume in Latin America, with approvals valued at $2.7 billion, and most in terms of number of projects in Africa. IFC invested for the first time last year in Armenia, Chad, Saudi Arabia, and Turkmenistan. IFC made its first investment in Syria, with an investment in Adritec, a company that makes water-efficient irrigation systems.
IFC took the unprecedented step last year of selling its database that tracked stock markets in emerging economies. The Emerging Markets Data Base was sold to Standard & Poor's, a move prompted by clients' increasing demand for global benchmarks beyond what IFC could supply.
The mission of IFC is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.
