WASHINGTON, D.C., September 13, 1999 -
In a year when investment in emerging markets fell out of favor, the International Finance Corporation, part of the World Bank Group, committed US$3.6 billion to, for example, help Asian firms battle back from financial crisis, find innovative financing for a power plant in Africa, fund clean-environment companies in the Middle East, start up private hospitals in Latin America, and turn a non-profit foundation into a microenterprise bank in eastern Europe. Through 255 new projects, IFC pursued its mission to reduce poverty by promoting private sector investment in developing countries, and proved that such investments remain profitable by earning $249 million in net income for fiscal year 1999, a slight increase over the FY 1998 result of $246 million.
The
annual report
for the 1999 fiscal year ending on June 30 reports that IFC increased commitment of its own resources to $2.8 billion and mobilized another $800 million in syndicated loans to projects in 79 developing countries. In FY 1998, IFC had committed less for its own account –$2.7 billion – but syndicated loans had been much higher a year ago, at $2.4 billion. The year-over-year decline in syndicated loans reflects the difficult world financial environment which led many commercial banks to cut back their exposure to developing countries. Loans mobilized by IFC from commercial banks were, in fact, one of the few sources of long-term lending for developing countries in the past year. New project approvals increased to $3.5 billion for IFC's own account, up from $3.4 billion in 1998. The total committed portfolio for IFC's own account grew from $11.4 billion last year to $12.9 billion in 1999.
The report showcases examples of IFC's work in responding to the financial crises as well as documenting ongoing work to spur development in the many countries where foreign investment flows are small and the private sector remains in its infancy.
The report was the first submitted by Peter Woicke, who became executive vice president of IFC, as well as being named a managing director of the World Bank, in January. IFC plays a key countercyclical role in times of uncertainty, Mr. Woicke says in his introduction. This means that "many of these investments that look good now were very risky at the time". IFC is evolving by introducing new financing mechanisms, he says, and by putting ever greater emphasis on investments in financial enterprises – from banks to leasing companies and stock markets – as a way of reaching farther down the economy to small businesses and microenterprises. "Availability of credit to small borrowers is a prerequisite to generating broad-based economic opportunity in the poorest countries".
"While our mandate remains straightforward – to promote private sector development – our approach to fulfilling this mandate today is far more diverse than even a few years ago," Mr. Woicke writes.
In Asia, for example, IFC pooled its resources with funding from private banks to create the Asia Opportunity Fund of at least $750 million, to help companies to restructure their balance sheets as well as their corporate practices. New approaches were taken to adapt to the needs of Korean firms, resulting in 17 projects worth $2.5 billion in a country where IFC had done no business in a decade. In Asia, as in other regions, IFC focused heavily on helping existing partners to cope with the adversity they confronted in the aftermath of the crisis. Beyond the countries that were most directly affected by financial instability, IFC investments in Asia ranged from a diskette factory and an environmentally and socially sensitive coalmine in India, to setting up a network of community phones in villages across Bangladesh.
A model for financing much-needed modern infrastructure in Africa was the Azito power plant in Côte d'Ivoire. Azito was the first independent power project in Africa to obtain non-recourse commercial financing, through $60 million in long-term loans from seven international banks that were, in part, attracted by a World Bank partial risk guarantee as well as IFC's A (own account) and B (syndicated) loans. A total of 46 new projects were targeted for sub-Saharan Africa, including IFC guarantees that enable local banks to finance investments in private schools, a $500 million Africa Infrastructure Fund – the largest equity fund ever assembled for Africa – that should, in turn, support $2.5 billion in new infrastructure across the continent, and an investment to convert the Kenya Stock Exchange from paper to electronic transactions.
IFC agreed to invest $5 million in a $50 million equity fund, as well as making further direct investments in companies, to stimulate growth of a fledgling environmental industry that provides pollution prevention and energy saving equipment and services in the Middle East and North Africa – an investment projected to be profitable as well as preserving cultural heritage and natural resources. Tourism was a priority in the Middle East, with, for example, funding for the first hotel of international standard – and the biggest construction project to date in the West Bank and Gaza – in Bethlehem. But more than half the projects approved for the region were in the financial sector, to build up insurance companies, housing finance companies and banks.
In all regions of the developing world, IFC has increased its investments in the financial sector, with almost 40 percent of new business approvals going to financial services last year, up from less than one-third of approvals the year before. The continuing upward trend in IFC support for the financial sector reflects the fundamental role of sound domestic institutions from stock markets to leasing companies to banks in providing the capital for local companies to start up and grow. Some 14 percent of approved investments were for infrastructure projects – from telecommunications to modernizing ports – and 9 percent of new approvals went to oil, gas or mining projects. IFC invested between 4 and 7 percent of total approvals in: chemicals/petrochemicals, cement and construction materials, food and agribusiness, and manufacturing.
The greatest amount of committed funding, $1.1billion, went to Latin America and the Caribbean region, from $6.25 million for a holding company that will invest in start-up private healthcare companies in Brazil, to refurbishing a shrimp farm in Honduras that was damaged by Hurricane Mitch. And IFC approved a $159 million investment package for Argentina's Correo Argentino, the world's first fully deregulated and privatized postal service. IFC nurtured other privatizations, including the whole power sector in Panama. IFC invested in agricultural diversification in Peru, and undertook its first transaction in St. Kitts and Nevis by investing in a retail store. The opening of new offices in Latin America helped push IFC's representation in the field to one-third of its total staff of more than 1800 people.
Economic difficulties and war in the Balkans sharpened the need and made Europe the region with the most IFC projects, 56 in 1999. IFC opted for flexibility to help Bosnia and Herzegovina reconstruct after its war, working with some investment partners that had not yet fully made the transition to becoming private entities as the usual IFC rules dictate. IFC invested for the first time in Albania, and made a $1 million equity investment in the FEFAD bank, once a non-profit foundation that IFC's investment helped to make a full-fledged financial institution that provides financing to the microenterprises that will help underpin future economic development in Albania. Advice on privatizing the Bucharest water system in Romania, help with revamping corporate governance in Ukraine, privatization of a major Czech Bank, and continuing support in Russia through energy, retailing and alternative financing such as leasing, were among IFC's European projects this year.
In presenting the report, Mr. Woicke said that "the momentum of economic globalization makes it vital that international financial institutions and governments protect the public interest while better reflecting the needs of the private sector." Thriving private sectors need a stable economy based on economic reform. "Unfortunately, completing half the reforms does not yield half the results." And he stressed that national and international institutions must take a comprehensive approach to development, reinforcing the interdependence of social, structural, human, governance, economic and financial elements. That includes environmentally and socially responsible private sector development "not just because it is the right thing to do, but also because, as increasing numbers of our investee companies are finding, these high standards are good for business," Mr. Woicke writes.
IFC's lending activities are funded by the Corporation's borrowings in international capital markets. In FY 1999, these totaled $4.3 billion, slightly more than the $4.1 billion equivalent borrowed in FY 1998. Securities were issued in 10 currencies, including IFC's inaugural transaction in Singapore dollars, the first by any nonresident borrower. All borrowings were swapped into floating-rate U.S. dollars.
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.
Journalists may obtain a copy of the Annual Report by contacting Vincent Yemoh at (202) 473-3397 or via e-mail at
vyemoh@ifc.org
