IFC, the private sector arm of the World Bank, which provides funding for private companies in emerging markets, besides offering advice to governments regarding issues of private sector development.
In Ethiopia, IFC has advisory portfolio that exceeds over 42 million USD. Critics argue IFC investment rarely touches the poor. However, Sergio Pimenta, Vice President of the Middle East and Africa argues that although IFC is financial institution, they are also a development institution focused on the poor.
Capital met Pimenta, in the IFC office in Addis to talk how IFC supports Ethiopia. Excerpts;
Capital: How does IFC support the private sector?
Sergio Pimenta: IFC supports the parts of the economy that contribute positively to the development of the countries that we operate in, we look at the needs of development so, Africa and particularly in Ethiopia we focus a lot on particular sectors that create jobs opportunities that can change the lives of the people.
In Ethiopia we are active in sectors like manufacturing; Agri businesses which create a lot of job opportunities and added value in the country. IFC is also active in the infrastructure sector power, water, transport, and telecom as well. The private sector plays a bigger role in Ethiopia. The third large part of intervention is supporting local financial institutions such as Banks and Insurance companies, leasing companies by providing funding, resources for the development of the economy so IFC plays a key role particularly for the development of small and medium enterprises and a large number of programs that we can implement for this sector.
In Ethiopia for instance we are active in leasing in the private sector.
Capital: Does IFC have priority areas where they support the private sector in Ethiopia?
Sergio Pimenta: Our priorities in Ethiopia are much aliened with the development plan of the government as you know, now the government is focused on home grown economic reform programs, so we have aligned our interventions with the key findings with those programs, so here we are going to focus on primarily with in business and agriculture sector where the sector that occupies a very large parts of the population in Ethiopia. So if we can improve the life of farmers or people who live in the agricultural sector we will have a great impact and our approach is look at value chains, different products, we look at both the bottle necks for the sectors to develop but also what are the opportunities to create more values in Countries, for instance instead of exporting raw materials focusing on some level of transformation that create more value, that is why the Agri -business can create more values for the higher value in Ethiopia.
Tourism is another area we are very active in, Ethiopia is a beautiful country with a huge potential in tourism with benefits that have very good connections, Ethiopia Airlines where a lot of visitors come through Addis Ababa, so we want to help the country attract more tourists to stay here and spend money and contribute to the economy and create jobs. a Tourism is the sector the tends to create more jobs ,so the impact of investing one dollar in the sector is very high. So we are doing the deep dive, looking carefully, see the constraints and opportunities to develop the economy, these are the two areas that IFC is working in.
We also working with the government in public private partnerships (PPP) which are solutions for private partners to help government activities where expertise, innovation, capital, sources of private sector, so IFC is advising the government in the Solar, Telecom sector, we can help in broader infrastructure this is the sector where we ramp up our activity. These are some the key sectors but we do have other areas.
Capital: Are there areas where IFC can support the private sector without a guarantee from the government?
Sergio Pimenta: IFC neither requires nor accepts government guarantees to finance private sector projects. IFC’s financing is based on the feasibility of the project and the developmental impact that it would bring to the economy.
Capital: IFC takes its money in hard currency is there any way that could change so that you accept local currency?
Sergio Pimenta: In compliance with the National Bank of Ethiopia’s (NBE) regulation, IFC’s financing in Ethiopia is in hard currency, up until now; hence the repayment is also in hard currency. However, IFC has recently signed a framework agreement with the NBE on local currency financing and is working towards materializing the financing in local currency to priority sectors as per the NBE’s guidance.
Capital: Tell us about Lighting Africa?
Sergio Pimenta: Lighting Africa is a broader project that was developed across the continent where IFC try to help structures that allow to give energy in the areas that are not connected in many countries in Africa. Africa is a huge continent it is very difficult and expensive to cover the entire continent. So IFC is looking for alternative solutions, people call it mini grids, off grids connection as local solution for population that are scattered around.
Capital: Did IFC stop funding companies participating in a recent solar project tender?
Sergio Pimenta: We have been advising the government in Solar projects because we believe that the potential of solar in this country and we have this program to help the government attract cool investors to come and invest in the country in solar projects.
Capital: Do you still finance companies who are interested in the bidding process?
Sergio Pimenta: there are two parts the IFC support solar projects in Ethiopia. Advice and financing, we are engage in advising the government in the bidding process that part will continues. But Financing depends on the companies who win the bid and want or don’t wont financing., what we do in this program is that we tell the bidders that we can put financing on the table based on certain terms of conditions so we will consider if financing on the bidders choices. Financing is there but at the end if the bidders are interested or not, so our advisory continues.
As you know, the process of the bidding is led by the government which is the proceeding which I don’t want to go deep on that, But the government prepared the bid, and go through all the necessary procedures and IFC comes at the end to provide the finance based on certain criteria.
Capital: Are you doing any work with the Central Bank to assist with the foreign currency shortage?
Sergio Pimenta: IFC is trying to help the government attract foreign investment so that there will be an inflow of foreign currency in the country. There are several things that can be done; some of them are advisory in the business climate in the country. For instance, if you have simplified procedures for investors, then you will have more investors coming in. IFC supports private sectors in general, there is a misconception that IFC supports only foreign private investors, but that is not true. We do a lot of work with domestic companies. So we do support both local and foreign companies. By helping the government to improve the investment climate.
Capital: Does IFC have a plan to broaden its support to other sectors?
Sergio Pimenta: We are looking at these kinds of approaches. Our financing goes with specific companies, we would like to put this in a broader context. So we look at the sector and we do a sort of diagnostic part analysis and constraints in the sector and then we engage with different partners some of are done together with World Bank and engagement with the government, it is also within the private sector to simplify some procedures.