Executive Summary of Evaluation Name of Evaluation EcoGreen Evaluation Date of Final Report of Evaluation September 9, 2012 Author of Final Report of Evaluation Gayatri Datar; Alexis Diamond, IFC-CDI, ADiamond@ifc.org Date of this Executive Summary August 7, 2014 Alexis Diamond, IFC-CDI, Adiamond@ifc.org; Maureen Brophy, Author of this Executive Summary IFC-CDI, MBrophy@ifc.org Number of pages of this Executive Summary 2 Modifications from original Executive Summary Without Modification/ With Modification (Refer to Cover Letter) Executive Summary Approved for public disclosure Name, Organization, email, Day, month, year by (name) on (date) Background Ecogreen is an oleochemicals manufacturing company that processes palm kernel oil and coconut oil to produce fatty acids, fatty alcohols, and glycerine. These products are used in detergents, soaps, and other personal care products. The company was established in 1988 with a plant in Medan, and has since expanded to also have a manufacturing facility in Batam. Ecogreen has export markets across Asia Pacific, the US, Latin America, and Europe. Ecogreen’s workforce is made up of unskilled, semi-skilled, and mostly skilled labor. Given that chemicals manufacturing requires a base level of technical skill, most of their employees have Bachelor’s degrees in Chemistry or other natural sciences and are recruited from universities across Indonesia. In addition, they hire unskilled and semi- skilled labor as contractors for upkeep of their facilities. In 2005, the IFC made an investment in Ecogreen for a large expansion of its manufacturing facility in Batam. This $84 million USD project nearly doubled Ecogreen’s capacity. The number of employees grew from 293 employees directly before the investment, to 470 employees after the investment. It is also worth noting that Ecogreen was unable to find financing to meet their growth plans in the local market, and IFC was able to fill this gap. Objectives The vision of the International Finance Corporation is “that people should have the opportunity to escape poverty and improve their lives”1. A major way the institution seeks to do this by promoting private sector development that will create jobs and thus enhance livelihood opportunities. IFC currently utilizes a system to measure the development impact of its investments called the Development Outcomes Tracking System (DOTS). However, DOTS captures only one layer of the impact made through private investment – the direct jobs created or supported. Investments also create and impact indirect jobs, for example, along the supply chain. Furthermore, the local economy of an investment could be benefitted through additional demand for goods and services by the influx of workers. We call this positive spillover “induced impact”. In order to better understand not only direct impact of IFC investments, but both indirect and induced impact, the Manufacturing, Agribusiness and Services (MAS) Department of IFC is undertaking two linked studies. The first study 1 International Finance Corporation website, accessed May 15, 2012. Page 1 of 2 examines the effect of three IFC investments on indirect jobs. This paper constitutes the second study, which seeks to assess induced impact of one of these investments, in Ecogreen Oleochemicals. Analysis This impact evaluation uses econometric techniques to assess the social and economic impact of an IFC investment in Ecogreen Oleochemicals in Indonesia. This investment doubled the capacity of an Ecogreen plant in the Kabil district on the island of Batam. We use the synthetic control methodology and household level survey data from 1994-2009 to assess whether measureable impacts are observed after the investment. We find that monthly expenditures per capita in the Kabil district grew by 165,000 more rupiah (~$210 per year) than in the control district, representing a 22% increase over the 2009 level of expenditures of 785,000 rupiah ($1,000 per year) in the control district. When this $210 is extrapolated to the 19,000 people that live in the treated district, the total annual impact in 2009 is ~$4 million. Aggregating each year since 2005, the impact over 4 years was $6.8 million. However, there has been no significant increase in Kabil in employment, and in fact a decrease in formality. Based on qualitative interviews in Batam, this expected. The investment resulted in the employment of many high- paid workers, as Ecogreen hired mostly skilled labor with college degrees in the natural sciences. These workers generally migrated from outside of Batam to join Ecogreen, thus boosting the local economy through additional demand for products and services from local enterprises. As expenditures per capita is a measure of the welfare of the local economy, this increase is expected. However, employment did not increase faster than the control group, possibly demonstrating that existing local businesses grew, and this growth was not spread to additional businesses and additional employment. Additionally, employment rates in Batam have historically been high (90-95%) given that it is a Special Economic Zone, so increases are not likely to be large and therefore difficult to observe in the data. Finally, formality actually decreased, likely because much of the job growth in the local economy was in the informal sector. Conclusions and Recommendations This evaluation demonstrates that investments in skilled labor can have positive spillover effects to the local economy. It also represents the first time the IFC has used econometric methods and survey data to understand induced impact. This evaluation therefore also provides a methodological example for how the IFC can evaluate its impact in the future. Copyright and Legal Disclaimer The material in this publication is copyrighted. IFC encourages the dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to IFC and that content is not used for commercial purposes The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the World Bank or the governments they represent. The views expressed in this publication are those of its authors and do not necessarily reflect the views of the wider institution. Some of the information used in this document may come from publicly available sources such as company websites and publications. The Lessons of Experience series does not represent a commitment by IFC to require projects it finances to take certain or all of the actions specified in this publication. Instead, any issues arising in an IFC-financed project will be evaluated and addressed in the context of the particular circumstances of the project. Page 2 of 2