IFC: Trends and Opportunities in Emerging Markets

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1 IFC: Trends and Opportunities in Emerging Markets Karin Finkelston IFC Vice President, Asia Pacific Dublin, Ireland, June 19,

developing countries We help generate productive jobs and deliver essential services to the underserved Catalyze and mobilize finance

2 IFC: Who We Are, What We Do IFC is the largest global development institution focused exclusively on the private sector the global leader in private sector development finance We promote private sector development We promote open and competitive markets in developing countries We help generate productive jobs and deliver essential services to the underserved Catalyze and mobilize finance for private sector development We create opportunity for people to escape poverty and improve their lives We make a unique contribution to development 2

Three Complementary Business Lines Investment Services o Equity/ Quasi Equity o Loans o Trade Finance o Risk Management o Mobilizations o Treasury Operations Advisory Services o Investment Climate o

3 Three Complementary Business Lines Investment Services o Equity/ Quasi Equity o Loans o Trade Finance o Risk Management o Mobilizations o Treasury Operations Advisory Services o Investment Climate o Access to Finance o Sustainable Business Advisory o Public-Private Partnerships Transactions Advisory Asset Management o IFC Capitalization Fund o Africa/ Latin America and Caribbean Fund o Others to come... *IFC Provides Corporate and Project Finance 3

4 IFC s Global Reach 3,400 staff in over 100 offices worldwide Decentralized organization with 56 percent of staff in the field Moscow Almaty Mexico City Washington Santo Domingo Dakar Cairo Istanbul New Dehli Hong Kong Bogota Nairobi São Paulo Johannesburg Buenos Aires IFC HQ/Regional Hub IFC Hub Offices IFC Regional Operations Center IFC Country Offices 4

5 Global Business Context The global recovery is at a difficult juncture with significant downside risks. Lower global growth, together with increasing financial instability in some parts of the world (particularly Europe) is a reality. In the US, insufficient job creation, stagnant earnings and alarming longterm unemployment underscore persistent unemployment crisis. The numbers also speak to a synchronized slowdown that is now taking hold of the global economy. China s economic slowdown now appears to be more pronounced than anticipated. China rebalancing its economy by relying less on exports and raising domestic consumption (WB forecast: 8.2% GDP growth in 2012, 8.6% in 2013; after 10.4% in 2010, 9.2% in 2011) Developing countries activity will be vulnerable to varying degrees to: A further decline in international capital flows; Reduced exports; falling commodity prices or remittance levels; and A reduction in international aid 5

6 A deterioration in conditions could have serious consequences for developing countries GDP growth, 2012 various scenarios Notes: Baseline assumes muddling through; scenario 1 assumes an additional freezing out from capital markets of two small Euro Area economies equal to around 3-4 percent of Euro Area GDP; Scenario 2 assumes crisis spreads to 1-2 larger European countries whose total weight equals around 30 percent of Euro Area GDP. Source: World Bank, Global Economic Prospects, 2012A. 6

7 Emerging Markets expected to lead longer term growth Source: IMF, October

8 Emerging Markets Higher Risk, Higher Return Risk Return Plot 20% (last 5 Years) Colombia Peru Emerging World 10% South Africa Turkey Brazil China India Annualised Returns 0% 10% 20% Developed World US Portugal UK France Spain Germany Mexico Egypt Italy Russia 30% Ireland 40% Greece 50% σ Annualised Std Dev. Euro Peripheral World 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Source: IFC analysis based on MSCI information, October

9 Global Companies are increasingly based in the Developing World South-South investment flows have become more important (34% of all FDI in 2010, up from 25% in 2007) (US$ million) Outward FDI Flows by Top Countries (1990 vs 2010) United States 328,905 Japan 50,775 Germany 104,857 France 36,233 France 84,112 US 30,982 China, Hong Kong 76,077 Germany 24,235 China 68,000 UK 17,948 Switzerland 58,253 Sweden 14,746 Japan 56,263 Netherlands 13,660 Russian Federation 51,697 Italy 7,614 Canada 38,585 Switzerland 7,176 Belgium 37,735 Luxembourg 6,314 Netherlands 31,904 Canada 5,237 Sweden 30,399 Spain 3,349 Australia 26,431 Finland 2,708 9

10 New Normal Future Demand in Emerging Markets Trends Multi-polar Growth Private Sector a Priority Opportunities Rising middle-classes and the Base of Pyramid (BOP) Consumers SMEs, Microfinance, PPPs, South- South investments Financial Sector Constraints Local Financial Market Development Demographic Changes Urbanization Demand for Food and Commodities Health and Education Infrastructure, including Water, Sewage, Energy, and Housing Logistics, infrastructure, irrigation Climate Change a cross-cutting trend Clean-tech, energy efficiency, renewable energy 10

New Trends in Development Finance Role of Private Sector Clearly Recognized Wide

reduction Need for mobilization, PPPs and leveraging private sector resources using

g. MENA, Africa, fragile states, agribusiness, infrastructure, climate change,

11 New Trends in Development Finance Role of Private Sector Clearly Recognized Wide recognition that private sector is key for successful development and poverty reduction Need for mobilization, PPPs and leveraging private sector resources using public funds, including concessional financing Focus on regional/ strategic themes e.g. MENA, Africa, fragile states, agribusiness, infrastructure, climate change, gender, etc. Increased focus on results, monitoring and efficiency of aid Partnerships amongst DFIs 11

12 Busan: The Private Sector is On the Aid Agenda Fourth High-Level Forum on Aid Effectiveness (HLF-4) in Busan, Korea (Nov-Dec 2011) marked a turning point: Private sector at the table for the first time, recognized as an equal and complementary partner in development. 41 partners (incl. governments, private sector, IFC/IFIs endorsed the Joint Statement on Expanding and Enhancing Public and Private Cooperation for Broad-based, Inclusive and Sustainable Growth. A Building Block on Public Private Cooperation has been created to guide further work in this area. 12

13 IFC Continued to Grow Through Global Crises New commitments $ Billions Advisory Program $ Millions $20 $18 $16 +19% p.a $250 $ % p.a. 207 US$ billions $14 $12 $10 $8 5.6 US$ millions $150 $ $6 $4 $50 $2 $0 $0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 IFC's own account Mobilization* Loan Participations FY07 FY08 FY09 FY10 FY11 * Mobilization for 2006 and 2007 includes structured finance, loan participations, and parallel loans. 13

14 Long Term Strategic Focus Areas Our strategy is guided by our Vision: people should have the opportunity to escape poverty and improve their lives Where: Our geographic focus is Frontier Markets: IDA (poorest countries) Fragile Situations Frontier regions in non-ida countries Wherever we can support the poor wherever they are located (e.g. even in middle income countries) What: Our priority sectors are: Infrastructure, including water; health; education; and the food supply chain Local financial market development, with an emphasis on MSMEs Climate change and environmental and social sustainability 14

15 IFC Strategic Priority: Africa FY11 Investment Volume $3.0 billion in 95 new projects in 31 countries Hub offices in Dakar, Johannesburg, and Nairobi, plus 18 local offices 15

over 20% of IFC investments will be in climate-friendly projects, up from 14% last year IFC launched the EUR150

16 IFC Strategic Priority: Fighting Climate Change IFC invested $1.7 billion in energy efficiency, renewable energy, clean tech and other climate-friendly projects in FY11 By FY13, over 20% of IFC investments will be in climate-friendly projects, up from 14% last year IFC launched the EUR150 million Post 2012 Carbon Facility in Feb 2011 Along with investments, IFC also adds value to clients through: Advisory services Links to concessional donor funds 16

17 IFC & Ireland: Investing in Emerging Markets We Can Do More Together Irish companies current commitments to projects is $235 million. Global Trade Finance Program Bank of Ireland Ireland s significant annual support for IFC s advisory services at $1.5 m in FY12 ($21.5 million in the last 9 years). Working together, IFC and Irish companies can encourage economic growth in emerging markets and generate private sector profits. Ireland 17

Inclusive & Profitable Business Solutions: IFC Client Digicel Global Partnership: IFC helped Digicel offer affordable mobile phone service in countries considered too risky by big operators.

1 bln profit March 2010 and revolutionized commerce: Mobile phones connect people with markets across multiple islands and 1000s of miles; Farmers check crop prices on cell phones; villagers safely

18 Inclusive & Profitable Business Solutions: IFC Client Digicel Global Partnership: IFC helped Digicel offer affordable mobile phone service in countries considered too risky by big operators. Going into remote markets paid off: Digicel $1.1 bln profit March 2010 and revolutionized commerce: Mobile phones connect people with markets across multiple islands and 1000s of miles; Farmers check crop prices on cell phones; villagers safely transfer money via phones. IFC s Business Edge product will help our retailers better manage and grow their businesses. This is a win-win proposition for our clients as it will improve customer service and increase access to telecommunications products and services. John Mangos, CEO Digicel Papua New Guinea PNG: telecoms competition adds 0.7 % GDP growth in Samoa: Digicel's introduction lets prices drop 60%. Nauru: coverage jumps from 0 to 90% 18

Low-cost, solar cell-operated mobile carriers make systems profitable in ultra-rural areas.

19 Inclusive & Profitable Business Solutions IFC Client Altobridge in Sulawesi, Indonesia Mobile phones have revolutionized commerce in developing countries. But in remote areas, installing equipment is uneconomical or is it? Low-cost, solar cell-operated mobile carriers make systems profitable in ultra-rural areas. Remote communities are not lost causes There is now substantial evidence throughout Africa, Asia, and the Middle East dispelling the myth that remote communities cannot deliver highly attractive ROI. Mike Fitzgerald Altobridge CEO 19

Improving Competitiveness and Sustainability in the Apparel Sector BetterWork Mekong Program Building cooperation between governments, employers and workers organizations, and international brands to

20 Improving Competitiveness and Sustainability in the Apparel Sector BetterWork Mekong Program Building cooperation between governments, employers and workers organizations, and international brands to improve compliance with labor standards and competitiveness in global supply chains Highlights: $1.8 million aggregated private sector savings through reduction of duplicative compliance audits 12 regional Buyers Forum meetings bringing together 30+ international companies to discuss common approaches Supervisory skills training improve productivity by up to 10% in some participating factories 470,000 workers benefiting from improved labor practices, 85% of them women Working with Irish Aid to scale up experience from the Mekong to achieve global reach and expand to other sectors: Better Work programs now operational in seven countries Better Work looking to expand its reach to the footwear sector and to assess feasibility of addressing environmental compliance issues in apparel supply chains 20

21 Thank you Questions welcome 21

International Finance Corporation Olaf Schmidt Global Head - Tourism, Retail & Property Manufacturing, Agribusiness & Services Department

International Finance Corporation Olaf Schmidt Global Head - Tourism, Retail & Property Manufacturing, Agribusiness & Services Department Structured Finance Conference November 15, 2012 IFC is a Member