Washington, D.C., August 14, 2001
—The International Finance Corporation announces new investments in software, the financial sector, support for small and medium enterprises (SMEs), mining, and agribusiness in Africa, Asia, eastern Europe, Latin America and the Caribbean—to support sustainable private sector enterprises in the developing world. In its efforts to be more responsive to client needs, IFC established a swaps facility in India which enables it to provide local currency finance products to Indian borrowers without foreign currency risk. IFC also advised the government of Cameroon on the institutional reform of the electricity sector and the privatization of the electricity utility, SONEL; held its annual Participants Meeting in Washington, D.C., a gathering of banks and other financial institutions that participate in IFC's B-loan program or lend in parallel with IFC; and released a new discussion paper which concludes that SMEs are key to achieving economic and social progress.
The mission of IFC, part of the World Bank Group, is to promote sustainable private sector investment in developing countries as a way to 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.
CAMEROON—REFORM OF THE ELECTRICITY SECTOR AND PRIVATIZATION OF THE ELECTRICITY UTILITY
In July 2001, IFC successfully concluded an advisory mandate with the government of Cameroon on the institutional reform of the electricity sector and the privatization of the electricity utility, SONEL. The winning bidder, the U.S.-based company; AES Corporation paid $72 million to acquire 56 percent of SONEL through a combination of capital increase and secondary share purchase, valuing the company at $213 million after capital increase.
As part of its mandate, IFC advised the government of Cameroon on creating a new legal and regulatory framework, establishing a regulatory agency and rural electrification agency, defining a privatization strategy, marketing the transaction to investors, drafting concession agreements that set out investors’ obligations for the next 20 years, assisting the government in negotiations with investors, organizing the bidding process, and closing the transaction. The mandate was completed in just under three years.
SONEL’s privatization concludes a wide-ranging reform program established by the government in 1998 to promote private sector investment; improve the quality of service; increase electrification in urban and rural areas; boost efficiency in production, transmission, and distribution; and provide electricity at competitive prices. As part of its contractual obligations in taking over SONEL's new concessions, AES has committed to a four-fold increase in the number of electric connections over the next two decades and to substantially enhancing the quality of service.
SOUTH AFRICA—SOFTWARE COMPANY DEVELOPS SYSTEMS
FOR FINANCIAL INSTITUTIONS
IFC has invested $5 million in Rubico Holding SA (Pty) Ltd., a leading South African software company that develops and implements software systems for financial institutions. Rubico, which launched operations in 1997, develops flexible software components that are assembled into applications. These components, built around business processes, allow implementation speeds that are about ten times faster than traditional programming languages and guarantee full integration with existing corporate systems.
IFC’s partners in the project are International Development Corporation and Brait Capital Partners, both of South Africa; and Copia Capital of the United Kingdom. Altogether they have raised a total of $9.75 million, including IFC’s financing. The project demonstrates that South Africa can develop world-class technologies that are competitive in the software market of the developed world. Financial institutions are among the largest consumers of IT products and will continue this trend in the foreseeable future.
The World Bank Group recently established a Global Information and Communication Technologies Department (www.ifc.org/ict) to promote the transfer of information technologies to the developing world. The department focuses on communications networks and Internet infrastructure projects that are expected to have a multiplier effect in expanding the use of the Internet in developing countries.
INDIA—SWAPS FACILITY WILL EXTEND LOCAL CURRENCY FINANCING
IFC has established a swaps facility with the State Bank of India to enter into currency swaps enabling IFC to be more responsive to the needs of its clients and strengthen its ability to extend credit in rupees. The facility, IFC’s first in India, will enable the Corporation to provide local currency finance products to Indian borrowers without foreign currency risk.
With annual business volume of about $400 million, India has emerged as the largest recipient of IFC financing in financial year 2001. IFC’s initiative in local currency financing, which this facility will support, is expected to sustain further growth in the size and diversity of its business in India.
The facility is expected to be particularly useful in IFC’s efforts to extend local currency financing for the infrastructure sector as well as for the general manufacturing sector. This offering will complement IFC’s other rupee financing products, which include partial guarantees and structured finance products.
INDONESIA—MINING SERVICES PROJECT WILL ENCOURAGE
GROWTH IN MINING SECTOR
IFC will invest $5 million in Dianlia, a medium-sized locally owned mining services company in Jakarta, Indonesia. IFC’s investment will help the company’s expansion program, which aims to double existing capacity. Dianlia’s growth will provide employment to more than 250 Indonesian workers and will benefit the local economy.
With current uncertainties in Indonesia, many mining companies are looking to outsource to local contractors as a risk-sharing mechanism. In addition, long-term financing is generally not available for local SMEs. IFC’s investment will not only encourage growth in the mining sector—a critically important sector in the country—but also provide a platform to catalyze environmental and social best practices in SMEs.
The sponsor is PT Pandu Alam Persada, a local private holding company based in Jakarta. The company is headed by Mr. Benny Subianto, a well-respected Indonesian businessman.
BULGARIA—MODERNIZATION OF COPPER PROCESSING FACILITY
IFC will invest $11.5 million to refurbish and modernize Bulgaria’s Sofia Med copper processing facility and establish a modern, cost-efficient plant producing a wide variety of high- quality copper and copper alloy products. The project will create significant new employment during a high unemployment period in Bulgaria.
The copper plant, which was earlier owned by Bulgarian company KOCM (Non-Ferrous Metal Works), had been idle for about a year before it was acquired by Sofia Med in December 1999. The project sponsor, Halcor, Greece, will inject the necessary capital to restart and modernize production, improve production methods, and meet the stringent environmental and social standards of the World Bank Group. Halcor is a major Greek manufacturer of copper and brass drawn and rolled products. It is part of the Viohalco Group of Companies, the leading metal producer in Greece. The National Bank of Greece is investing alongside Halcor and IFC.
By creating strategic alliances with first-class industry sponsors, promoting best practices in corporate governance, and applying modern management methods, the project will serve as a model for further private sector development in Bulgaria. To date, IFC has approved $173 million in investments in 15 projects in Bulgaria costing over $900 million.
RUSSIA—INVESTMENT WILL FACILITATE TECHNOLOGY TRANSFER AND PROMOTE SME DEVELOPMENT
IFC will lend $27 million for the $50 million expansion of brewing company, Bravo International, in St. Petersburg, Russia which will help the local economy by creating new jobs, promoting the development of small enterprises, and increasing tax revenues. In addition to IFC’s loans, Russian and European banks will also provide financing. The project will facilitate the transfer of efficient technologies and business management techniques relating to marketing and quality control, research and development, and transport and distribution systems. Expansion of distribution systems will involve increased participation of small private entrepreneurs. The company will develop a training program for its employees on environmental, health, and safety matters.
The project will also support a responsible social drinking policy to help educate consumers and facilitate the government’s efforts to reduce alcohol abuse. According to recent estimates, the Russian beer market continues to grow as consumers switch from both hard liquor and lower-end beer to premium Russian beer.
MEXICO—TOMATO GREENHOUSE WILL HAVE SIGNIFICANT DEVELOPMENT IMPACT IN POOR RURAL REGION
IFC will lend up to $7 million to Greenmanor S.A. de C.V., a small Mexican agribusiness company, to set up a high-tech, state-of-the-art, 20-hectare hydroponic tomato greenhouse on a new site at San Luis de la Paz in Guanajuato State, Mexico.
By creating direct employment for 240 local people, including about eight technical and managerial positions, the project will have a significant impact on the living standards of the local community. It will also promote efficient tomato production and establish a socially responsible agro-industrial enterprise supporting sustainable development in a poor rural area of Mexico.
The project sponsors are Nicolaas Poot, a Dutch entrepreneur with substantial experience in greenhouse tomato cultivation in Holland, and the United States, and Pablo Ramosquirarte, a Mexican businessman experienced in vegetable trade with the United States.
IFC SUPPORTS PROJECT FINANCE IN THE CARIBBEAN
IFC will support project finance in the Caribbean region with a $20 million credit line recently signed with Royal Merchant Bank and Finance Company Limited (RMB), a major subsidiary of the RBTT Financial Group, headquartered in Trinidad and Tobago.
RBTT is the region’s leading banking and financial services group. RBTT’s network of subsidiaries and affiliates across the Caribbean will enable IFC to provide long-term funding to support projects in countries that have small markets and limited access to international finance. The project will also facilitate the expansion and transfer of international best practice in risk management, including environmental management, to businesses in the region. Through its relationship with a strong local partner like RMB, IFC can be more active in supporting growth and development in the Caribbean, particularly in non-traditional sectors such as education and health care.
IFC’s—ANNUAL PARTICIPANTS MEETING, WASHINGTON, D.C.;
—A LEADING FORUM FOR PROJECT FINANCIERS
IFC recently organized its ninth Annual Participants Meeting in Washington, D.C. The meeting was a gathering of banks and other financial institutions that participate in IFC’s B-loan program or lend in parallel with IFC. About 250 international bankers and financiers from commercial banks, institutional investors, and development agencies attended—demonstrating the continued keen interest in IFC’s B-loan program. This event has become one of the leading annual forums for banks involved in emerging markets project finance. European institutions as well as U.S. and Asian banks—which comprise the bulk of participants—met at a time when the lending environment in markets such as Turkey and Argentina pose many challenges to project financiers.
Some of the leading speakers at this year’s meeting were Tom Friedman, foreign affairs columnist of the
New York Times
and author of
The Lexus and the Olive Tree
; Miguel Kaguel, president, Banco Hipotecario and former minister of finance, Argentina; and Horst Köhler, managing director, International Monetary Fund. Panel discussions included the new Basle Accord; the Argentine crisis; IFC’s multifaceted role in restructurings; issues such as sustainability and corporate governance; investing in power, telecommunications, environmental projects, and education; and a showcase of upcoming syndications.
IFC’s syndicated loan (or B-loan) program is a significant source of funding and is IFC’s principal direct means of mobilizing third-party funds. Through this program, IFC has secured financing for many borrowers who would not otherwise have had access to long-term project funds on reasonable terms from the international financial markets.
IFC DISCUSSION PAPER NOTES THAT SMALL ENTERPRISES ARE KEY TO ECONOMIC AND SOCIAL PROGRESS
IFC has released a new discussion paper titled
Firm Size and the Business Environment: Worldwide Survey Results
(No. 43), which concludes that the creation and development of small enterprises is key to achieving economic and social progress. The paper is written by Beatrice Weder and Mirjam Schiffer, consultants in IFC’s Economics Department.
The vast majority of firms start from very small beginnings. Drawing on a World Bank survey of 10,000 firms in 80 countries, the Discussion Paper reflects entrepreneurs’ views of business environments. The study analyzes the quality of interactions between firms of various sizes and governments on a world-wide scale. It focuses particularly on SMEs and on the institutional obstacles they face. The authors find that smaller firms are facing steeper obstacles than are larger ones. In particular, small firms suffer more than do large ones from taxes and tax regulations, difficulties in obtaining financing, and from inflation. For the first time, information has been published about specific obstacles faced by small firms in each of 80 advanced industrial, developing, and transition countries. Governments and aid agencies can use these data in order to help small firms and thus level the playing field.
Reporters who would like to receive a hard copy of the paper should contact Sujani Eli at telephone (202) 458-0933 or e-mail seli@ifc.org.
