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Money for Africa

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  • Money for Africa

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    IFC's Commitment to Sub-Saharan Africa

    IFC's activities in Sub-Saharan Africa have never been stronger, both in terms of investments and advisory services, helping bring tangible benefits to millions of people across the region.

    In FY06, the Corporation committed $700 million from its own account to projects in the region, a jump of almost 60 percent from a year earlier. Today, IFC's total committed portfolio in the region is over $2 billion.

    Investments are only part of the story. IFC has also expanded its reach to new markets and to other areas of private sector development through the IFC Private Enterprise Partnership for Africa and other advisory services. Founded in 2005, IFC PEP Africa has expanded rapidly to 31 programs in 17 countries across the region, providing services across five main business lines.

    IFC's commitment is reflected in an official visit this week by Executive Vice President Lars Thunell, his third to the region since he joined the Corporation in 2006. Mr. Thunell's trip to Ghana, Liberia, and Nigeria highlights IFC's dedication to private sector development, poverty reduction, and employment creation throughout the region.

    "It is important that we understand our reach in Africa and how we can expand it," said Mr. Thunell. "We are now serving 144,000 small and medium businesses or microenterprises in Sub-Saharan Africa through the financial sector. Our clients are bringing power to millions of people. This is the reach and impact we need to factor into our decisions as we set out to grow our business in Africa."

    IFC's involvement in Sub-Saharan Africa is expected to grow in the coming years. Our strategy calls for an increase in our portfolio to up to $900 million by FY09, fueled primarily by investments in three key sectors: financial markets, infrastructure, and the extractive industries, such as mining. IFC PEP Africa, meanwhile, expects to expand its offerings to 50 programs in 29 countries by June 2007. Most of our regional staff is now also based in the region, helping to cultivate closer ties with their local communities.

    IFC aims to help accelerate reforms and private sector growth as well as trigger strong development impact in parts of Sub-Saharan Africa. In several countries, our work has been made easier by a rise in commodity prices, better macroeconomic management, improvements in policies and at institutions, and more political stability. Many countries in Africa, notably Ghana and Tanzania, have also implemented substantial reforms to make it easier for businesses to operate. These developments have helped the region achieve six consecutive years of GDP growth.

    But in many parts of Africa, policies are still not especially favorable for businesses. Despite significant reforms, many countries still rank near the bottom in the World Bank and IFC's Doing Business report, which rates economies on the ease of doing business. In these countries, IFC will strive to speed reforms and create further opportunities for business activity.

    <TABLE cellSpacing=0 cellPadding=0 border=0><TBODY><TR vAlign=top><TD width=1184 bgColor=#400080>Tracking Development Impact

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    While quantifying the impact of development is difficult and time-consuming, early indications are that IFC's investments in Africa have had a strong positive impact. According to our development outcomes tracking system, in 2005 our portfolio companies in the financial, oil and gas, mining, and chemical sectors contributed over $1.6 billion to government coffers. IFC's clients in the extractive industries employed over 12,000 people, and spent over $18 million on community development. About 80 percent of these clients maintained significant SME linkages programs, which helped boost local economies substantially.

    IFC's investments in telecommunications in the last decade have also helped 18 million people gain access to phone services, often in very difficult environments. With recent investments in the power sector, IFC expects significant improvements in access to a reliable supply of power, benefiting millions of people in Sub-Saharan Africa.

    IFC's Regional Strategy

    IFC puts clients' needs first in striving for strong growth and development impact, and we work closely with the World Bank and other development partners to achieve our goals. Our strategy in Sub-Saharan Africa aims to:
    • Improve the business environment
    • Increase support to small and medium enterprises
    • Proactively develop additional projects to support investments
    IFC also plans to become more active in the region's post-conflict countries. In June 2006, IFC's Board approved an initiative to enhance our presence in the Democratic Republic of the Congo, Liberia, and Sierra Leone.

    Advisory services also form a large part of our work in Africa. IFC PEP Africa is collaborating with regional governments to streamline business start-up procedures and tax systems, as well as improve private sector property rights and women's access to finance.

    Improving the Climate for Private Investment

    Improving the investment climate by building transparent, robust institutions and an efficient and clear business regulatory environment forms a key part of IFC's strategy in Africa. To help achieve this goal, in 2006, IFC and partners, including the United Kingdom's Department for Foreign Investment, approved a $30 million grant to establish the Investment Climate Facility, an initiative to support reforms in Africa.

    IFC PEP Africa and the World Bank Group's Foreign Investment Advisory Service have developed a joint program that offers practical advice to governments on how to improve their business and investment climates. The collaboration is already paying off, as reflected in key indicators. The 2006 Doing Business report, Sub-Saharan Africa was the third best-performing region in terms of new reforms—a dramatic turnaround from a repeated low ranking in the past.

    Supporting Small and Medium Enterprises

    About 80 percent of private companies in Sub-Saharan Africa are small and medium businesses or microenterprises, and their well-being is crucial to the region's development. IFC's strategy in this sector is to enhance the ability of financial institutions to lend profitably to small businesses, as well as to use linkages programs to improve the access that SMEs have to markets.

    The Africa MSME program, which offers loans and advisory services to banks across the region to support their lending to smaller businesses, is an initiative that aims to boost access to funding for these businesses. Launched in 2006, the program is already looking at 25 banks in 17 countries across the region. It is complemented by initiatives that aim to create about 15 new commercially viable microfinance institutions in Sub-Saharan Africa over the next three to four years.

    The growth of smaller businesses in Africa, particularly in rural areas, is often constrained by the purchasing power of local consumers. To expand the markets for such SMEs, IFC has often coupled its large investments with linkages programs that help support local businesses. One example is the Ahafo mine in Ghana, where IFC is helping the local mining company implement use local businesses for many of the supplies and services it needs. The program is transforming the two towns closest to the mine into more viable commercial centers.

    Proactive Project Development

    Many IFC-supported projects have been first of their kind, sometimes requiring new regulatory and institutional frameworks. Hence IFC's strategy for sustainable private investment in Africa emphasizes intensive engagement with the private sector, sovereign institutions, and other parts of the World Bank Group at an early stage to help identify potential projects and investments.

    IFC also helps address and remove obstacles that prevent private sector engagement, in order to attract qualified sponsors and, ultimately, project financing. IFC also identifies existing good projects funded by other private sector sponsors and complements them with our own financial products and advisory services. This approach particularly helps in the agribusiness, extractive industries, financial markets, and infrastructure sectors. For example, IFC secured financing mandates for the Kenya-Uganda railways and the port of Toamasina in Madagascar after providing advisory services on privatization to the respective governments.