39522 2001-2002 R E P O R T THE PRIVATE ENTERPRISE PARTNERSHIP B U I L D I N G PA R T N E R S H I P S F O R S U S TA I N A B L E E C O N O M I C G R O W T H IFC's mission is to promote sustainable private sector investment in emerging economies to help reduce poverty and improve people's lives. Table of Contents Linking Technical Assistance and Investment for Sustainable Private Sector Growth ........2 Message from Peter Woicke, IFC Executive Vice President The Partnership Approach ......................................................................................3 Message from Edward Nassim, Director of IFC's Central and Eastern Europe Department Who We Are ........................................................................................................5 The Private Enterprise Partnership ­ IFC's Response to New Challenges ......................7 Our Philosophy ..................................................................................................11 Program Areas Overview Building Financial Markets ..............................................................................17 Building Supply and Distribution Chains ..........................................................23 Improving Corporate Governance ..................................................................27 Improving Support Services and Business Environment for SMEs ........................33 Building Partnerships with Donors for Sustainable Private Sector Growth: Overview of Donor Contributions ..........................................................................37 Appendices: Current, Planned, and Completed Projects ........................................................42 Acronyms ....................................................................................................49 Currency is given in U.S. dollars throughout unless otherwise specified. Linking Technical Assistance and Investment for Sustainable Private Sector Growth For more than 40 years, IFC has built a strong reputation as an investment institution. While investing is certainly central to what we do, our work in providing technical assistance for sustainable private sector development is just as important to achieving IFC's mission in the countries where we work. IFC has witnessed first-hand that integrating investments with advisory work not only ensures that our projects are financially viable, but also that local communities derive much greater benefit from these projects. Since I arrived at IFC, one of my primary objectives has been to raise the profile of technical assistance within the Corporation and to integrate it more fully with our investment work. Over the last three years, IFC has contributed an increasing amount of its resources to its technical assistance work around the globe. The allocation of a three-year budget of $12.6 million to establish the Private Enterprise Partnership in the former Soviet Union is a testimony to IFC's commitment to technical assistance in this important part of the world. With these resources, IFC's Partnership is positioned to significantly increase its programming and respond effectively to the emerging needs of our partners ­ local companies and governments, investors, and our donors. In my recent trips to the former Soviet Union, I gained a deeper appreciation for the Partnership's work. I am confident that, as you read this report, you too will recognize the critical role the Partnership plays in improving people's lives in the region. Finally, I would like to take this opportunity to express our gratitude to the donor governments who have supported IFC's technical assistance. Thanks to your support, we have added a meaningful and effective dimension to our development efforts in the former Soviet Union. We look forward to continuing our technical assistance work on your behalf in the future. Peter Woicke, IFC Executive Vice President (left) and Edward Nassim, Director of IFC's Central and Eastern Europe Department. Peter Woicke IFC Executive Vice President 2 The Partnership Approach Ten years ago, when IFC first began its work in the former Soviet Union, a private sector did not exist in which IFC could invest. As a result, IFC started with a technical assistance program, advising governments on privatizing small and medium-sized businesses. Today our programs continue to lay the foundation for increased investment, build financial markets, link companies to investors, and promote sound corporate governance practices. To maximize its development impact, IFC has recognized the need for better coordination of efforts with our partners. In May 2000, IFC's Board of Directors approved the creation of the Private Enterprise Partnership to expand IFC's technical assistance work in the former Soviet Union and to integrate it with IFC's investment programs in the region. I believe "Partnership" captures what we do quite well. Ours is a collaborative effort, working in partnership with donors, private sector investors, local companies, and governments to promote private sector growth in the post-Soviet economies. IFC's three-year contribution of $12.6 million covers the Partnership's management costs, new project development, transfer of know-how, and impact assessment of our programs. The Partnership has set up a strong field-based organization. Ninety percent of our 200 program staff, located throughout the region, are local professionals. This structure provides us with in-depth understanding of the countries where we work and allows us to operate in a cost-effective way. The Partnership's unified organization has enabled us to streamline our administrative expenses. We have also established a first-rate financial controls system to manage donor funds most efficiently. Finally, IFC's contribution to the Partnership allows the vast majority of donor funding to go directly to programs. This demonstrates how much we appreciate our donor contributions and our commitment to maximizing their value. The Partnership is currently managing 24 programs in six countries with an additional $34 million in funding from our donor partners. Our programs range from advising Russia's large corporations on corporate governance to establishing a small cotton company owned by Tajik farmers. Despite our many accomplishments, some of which are featured in this report, much work remains. In the next few years, the Partnership will increasingly focus on the frontier countries of Central Asia and the Caucasus, as well as the underserved provincial areas of Russia and Ukraine. For example, this year we launched a business development program in Magadan in Russia's Far East and opened regional offices in Russia's Northwest, in the Urals, and in the Volga region. We look forward to greater cooperation with donors in continuing these projects in the future and working together to make a difference in people's lives in the former Soviet Union. Edward Nassim Director of IFC's Central and Eastern Europe Department 3 Who than $31 billion of its own funds and has arranged $20 billion in syndications for nearly 3,000 companies in 140 developing countries. IFC invests in projects that We Are generate social and economic benefits for people in developing nations, as well as profits for project sponsors. IFC does not invest where there is a better suited private sector financier. The International Finance Corporation IFC's Private Enterprise Partnership The International Finance Corporation (IFC) is a IFC's Private Enterprise Partnership is the technical member of the World Bank Group. IFC shares the assistance arm of IFC in the former Soviet Union. The mission of the World Bank Group as a whole ­ to reduce Partnership is funded jointly by donor governments and poverty and improve people's lives. At IFC, we believe IFC. Together with our donor partners, we help private that sound economic growth, grounded in the companies and governments: development of entrepreneurship and successful private investment, is key to reducing poverty. To fulfill its · Attract private direct investment mission, IFC provides capital and global advisory · Stimulate the growth of small and medium-sized expertise to businesses in high-risk, developing countries enterprises (SMEs) to improve the long-term economic viability of these · Improve the business-enabling environment nations. To achieve these objectives, the Partnership implements programs in four distinct, complementary areas: "Sound economic growth, · Developing financial markets grounded in the development · Building supply and distribution chains to link of entrepreneurship and companies to major investors · Improving corporate governance practices and successful private investment, regulations · Building business support services and improving is key to reducing poverty." the regulatory environment for SMEs We currently work in Armenia, Azerbaijan, Belarus, IFC is the world's largest multilateral investor in Georgia, Kyrgyz Republic, Russia, Tajikistan, emerging markets. Since 1956, IFC has committed more Turkmenistan, Ukraine, and Uzbekistan. Canada Finland Japan Netherlands Norway Sweden Switzerland United Kingdom United States We thank our donor partners for making these programs possible. 5 The Private Enterprise Partnership ­ IFC's Response to New Challenges IFC has been working in the former Soviet Union since 1992. With $87 million in donor funding through 2000, IFC undertook extensive technical assistance work in the region. Our work included the privatization of over 200,000 retail and trucking companies, collective farms, unfinished construction sites, and medium-sized industrial enterprises. However, simply transferring ownership was not enough. The new companies lacked basic business skills, access to partners and capital, business support services, and functioning financial markets. Drawing on its expertise from around the world, IFC trained new managers in modern business practices and market-based principles, created and mentored consulting companies, and introduced new financial markets. These new challenges require a new development services. approach. "The creation of the In May 2000, IFC created the Private Enterprise Partnership, with three-year funding of $12.6 million. Partnership has made IFC an The Partnership has consolidated IFC's technical assistance programs across the former Soviet Union even stronger partner in under one structure, expanded these activities, and technical assistance for private integrated them with IFC's investment work. Designed as a partnership among donors, private sector investors, sector development." local companies and governments, and IFC, the Partnership creates greater synergy in development efforts and enables us to react quickly to emerging Despite the progress made, many challenges remain. To challenges. promote sustainable economic growth, the former Soviet countries need to attract capital and generate new business opportunities. To do that, these economies have to transform their corporate governance practices, improve the business enabling environment, create favorable conditions for SME growth, and develop financial 7 The Strengths of the Partnership The Partnership has also introduced impact assessment as a management tool to provide a clear and consistent The creation of the Partnership has made IFC an even approach to the planning, monitoring, and evaluation of stronger partner in technical assistance for private sector all of our projects. We conduct baseline studies at the development. beginning of each project and periodically measure the results of our activities, allowing us to refine our ongoing initiatives and design new programs that draw on lessons "The Partnership's technical learned. assistance programs pave the Global Expertise and Local Know-how way for increased investment in The Partnership draws on the World Bank Group's locally owned enterprises." global development expertise and IFC's private sector knowledge and combines it with local know-how to bring best practices to the region. Ninety percent of our 200 Technical Assistance and IFC Investment staff working on the programs are well-trained local professionals. Employing local specialists provides us IFC's ability to mobilize private investment creates with in-depth knowledge of the countries where we work incentives for local companies to implement change. and is cost-effective, allowing us to maximize donor Technical assistance programs that result in investment funding spent directly on programming activities. have a greater demonstration effect ­ other companies begin to see the value of change, while investors grow more confident working in the region. "Ninety percent of our 200 At the same time, the Partnership's technical assistance staff working on the programs remove many of the obstacles to growth faced by local companies, and this paves the way for increased programs are well-trained investment in locally owned enterprises. local professionals." Focus on Comprehensive Programs The Partnership's stable and unified management allows us to apply a comprehensive approach to the entire Extended Reach region, while customizing our programs to the needs of each country. The Partnership facilitates cross- The Partnership runs its programs out of eight capital- fertilization of skills and experiences among its initiatives city and 15 regional offices across the former Soviet to transfer the best practices across borders. This Union. The Partnership's management team is located in approach magnifies the development impact of each Russia and Ukraine. A four-person team within IFC's donor-funded program, reduces the cost of initiating headquarters in Washington, DC, ensures closer similar programs, and enables us to launch new programs coordination between the Partnership and the World more quickly. Bank Group. 8 Our Philosophy Comprehensive and Innovative Approaches Working on the frontiers of economic development requires flexibility and innovative thinking. In developing our programs, we look to learn from past experiences and to offer new ideas and new approaches. We draw on IFC's global expertise in building private sectors in challenging environments. We learn from the experiences of our partners ­ donors, local companies, private · Business - Enabling Environment. We investors, and local governments. We integrate the partner with national governments and lawmakers Partnership's knowledge across projects and countries to to change policies and legislation to sustain strengthen our future programs. And we work together business development and investment over the with our partners to devise innovative approaches for long term. sustainable economic growth. · Individual Enterprises. We bring knowledge and expertise to local companies to help them "We look to learn from past become dynamic, competitive, and reliable experiences and to offer new business partners. We develop financial markets to increase local enterprises' access to financing so ideas and new approaches." that they continue to grow. · Local Capacity. We transfer our expertise to Focus on Sustainability local citizens and organizations, building their skills to sustain reform and private sector growth While IFC and the Partnership have accomplished a long after we complete our work. great deal in the former Soviet Union over the past decade, real reform takes time. To ensure that our programs have a lasting impact, we design all of them "To ensure that our programs with a focus on sustainability. have a lasting impact, we design Whether we are helping amend Russia's Tax Code, training all of them with a focus on a Tajik farmer on modern irrigation practices, or building advocacy skills of Belarusian business associations, we take a sustainability." comprehensive approach to development: 11 Bringing Innovative Approaches to Central Asia IFC Pioneers New Approaches to Alleviate Poverty of Tajik Cotton Farmers New to IFC, new to the Partnership, and new to Tajikistan, the Farmer Ownership Model is a groundbreaking project that empowers Tajik farmers to take control of their commercial activities. To establish the new company, Sugd Agro Serv (SAS), 365 With an annual per capita GDP of $175, Tajikistan is farmer-shareholders contributed $2,000 in equity in among the world's poorest countries. Historically, addition to funding and loans from the State Secretariat for Tajikistan's economy and general welfare have been Economic Affairs of Switzerland (seco) (a $2,000 equity overwhelmingly dependent on the cotton industry. grant and $248,000 in capital reserves) and IFC (a Following the collapse of the Soviet Union and the $250,000 ten-year loan). This investment provided the country's subsequent civil war, most of Tajikistan's working capital to supply the farmer-owners with crop agricultural infrastructure deteriorated, leading to a sharp inputs at wholesale prices and with the farm equipment decline in cotton production. With the disintegration of the needed to improve cotton yields. SAS will arrange for centralized Soviet economy, Tajik farmers no longer had processing the farmers' crops and provide marketing access to cheap inputs, and the state no longer guaranteed services to sell the cotton directly on the market. The profit the purchase of their cotton. Farmers became dependent on earned by the company will be paid to each shareholder in ginneries and other middlemen for financing and often sold proportion to the amount of cotton produced. their crops at large discounts, which resulted in heavy debts and hindered farms' profitable operations. The Partnership provides technical assistance to SAS to establish and run its service operations. The Partnership's With initial funding from Sweden (Sida) and after two project manager provides on-the-job training and years of intensive, on-the-ground research and meetings supervision to a Tajik General Director of the company, with farm associations and government authorities, IFC who is paid by SAS, to ensure the company's sustainable developed a private sector approach to help farmers reduce growth. their debts. Working with IFC's Southern Europe and Central Asia Department and with support from The Partnership's broader technical assistance to farmers Switzerland (seco), the Partnership launched the Farmer includes setting up demonstration fields to provide hands- Ownership Model ­ an innovative project to reduce the on training in modern and environmentally safe cotton acute poverty of cotton farmers in Tajikistan and empower production technologies, proper irrigation, fertilization, and them to take control of their commercial activities and the agronomic methods needed to diversify production and reduce reliance on middlemen. To achieve this goal, the introduce new crops. This component of the program Partnership has established a first-of-its-kind private draws on the demonstration field training model developed company completely owned by farmers. The Partnership is by the Partnership's Ukraine Agribusiness Development also providing technical assistance to farmers to help them Program, funded by Canada (CIDA) and Sweden (Sida). improve the yields and quality of cotton and to diversify In addition to agricultural training, the Partnership will their crop base. Based on the results, the farmer ownership train Tajik farmers in financial and business management to model might be transferred to other regions of Tajikistan help them develop commercially viable and sustainable 12 and to other Central Asian countries. businesses. Improving the Business - Enabling Environment Opening the Way for the Growth of Leasing in Russia IFC played a key role in improving legislation on leasing. These legislative changes have accelerated the growth of the leasing market, which is expected to expand by 70 percent this year, providing Russian enterprises with new access to financing. In 2001, Russian leasing companies identified inadequate and contradictory laws as a major barrier to growth. The confusing legislation often left the leasing companies powerless when they tried to recover their property. Consider this example. A Siberian leasing company failed to repossess its equipment after a client defaulted on the lease payments, despite the fact that the leasing company's ownership rights were guaranteed by the Civil IFC's Partnership is working to improve leasing legislation Code. The lessee applied contradictory provisions of the in Russia, the Caucasus (left), Central Asia, and Ukraine to 1997 Law on Leasing to use the leased equipment as stimulate the sector's growth and to increase small businesses' collateral to obtain a bank loan. When the company access to financing. defaulted on the bank loan as well as the lease contract, the bank arrived first to claim the equipment. "For the first time, these new laws established a level playing field for all leasing companies, set clear terms for To eliminate problems stemming from inconsistent taxation of leasing deals, and removed contradictions leasing laws, the Partnership's Leasing Development between various laws and regulations," said Vladimir Group, established with funding from the United Tachkin, Chairman of Budget Committee of the Leasing Kingdom (BKHF) and currently funded by Canada Alliance of Perm (the Russian Urals region). "Now (CIDA), played a major role in developing and leasing companies can attract capital more easily, grow advocating legislative changes in Russia. The Partnership more quickly, and serve more clients." focused public attention on the laws' failure and, acting as an "honest broker," brought together lawmakers, As a result of these legislative improvements, large government officials, investors, small businesses, and foreign banks, such as Raiffeisen, MMB, ING, leasing companies to draft amendments to the Tax Code Rabobank, and ABN-Amro, have started leasing through and the Law on Leasing. their own subsidiaries in Russia. IFC estimates that the size of the leasing market in Russia will increase by 70 The amendments to the Tax Code's provisions on leasing percent within the next year, approaching $2.4 billion by were passed into law in August 2001 and the the end of 2002. amendments to the Law on Leasing in January 2002. 13 Building Sustainable Enterprises tomato producers in southern Ukraine's Kherson region. The farm supplies its tomatoes to a leading ketchup The Partnership Helps Ukrainian Farmers producer, Chumak ­ a Ukrainian food processor with Diversify Production and Obtain Financing Swedish investment and management. To keep up with expanding production, Babyan now employs 150 seasonal IFC's Partnership works to ensure the sustainable growth of workers, as opposed to 20 when the farm was producing Ukrainian farms by training them in agronomic, financial, only grain. and business management practices and advising them on accessing financing. We also work with local banks to help them establish rural credit programs. A Ukrainian farm, Agri-business2 Ltd., once produced grain at a minimal profit. In 2001, the owner of the farm, Semyon Babyan, participated in IFC's hands-on training sessions on vegetable cultivation and decided to diversify his farm's production to include tomatoes. The The virtual absence of financing for primary agricultural Partnership's Ukraine Agribusiness Development production is a major constraint to the sustainable growth Program, funded by Canada (CIDA) and Sweden (Sida), of Ukrainian farms. Local banks consider the agricultural further advised Babyan on introducing modern agronomic sector too risky, while farms lack the business planning and and irrigation technologies to start tomato production on a financial management skills to work with banks effectively. 60-hectare plot. One thing was missing, however, for To improve farmers' understanding of the requirements of Babyan to put his plan into action ­ capital. IFC's program local financial institutions, the Partnership organizes helped the farmer develop a business plan and organize his roundtables and conferences with local banks. To give the financial records in the proper format to obtain credit from farmers the skills they need to develop business plans and a local bank. Thanks to this assistance, Babyan received a investment proposals, the Partnership trains and advises $30,000 loan. them in financial and business management and modern agricultural production. The Partnership also works with "Three years ago, virtually no local banks to improve their understanding of agribusiness practices and to establish effective risk-management financial institution loaned to strategies for lending to the agricultural sector. farmers in the region. Today, The result has been a significant increase in the number some of the leading banks are and size of agricultural loans in the Kherson region where we are working. Thanks to the Partnership's Ukraine building and expanding their Agribusiness Development Program, Semyon Babyan is rural credit programs." one of 78 Kherson farmers who obtained loans of $4,000 to $30,000 from local banks. Three years ago, virtually no financial institution loaned to farmers in the region. Today, In the first year of growing tomatoes, Agri-business2 Ltd. some of the leading Ukrainian banks with which we increased its profits five-fold. Babyan reinvested the profits worked are building and expanding their rural credit in the company to expand tomato production to 85 programs. For example, Ukratsots Bank has an hectares, making Agri-business2 Ltd. one of the largest agribusiness lending portfolio of $8.5 million. 14 Building Sustainable Local Capacity Belarus Business Association Helps a Businesswoman Create Jobs, Pay Higher Wages IFC's Partnership promotes small business growth in Belarus by building support services of local business associations. A year ago, Lyudmila Kulich of Ivanovo, a town of 20,000 in the Brest region of Belarus, was unemployed and searching for ways to support her family. Today, she runs a successful sewing business that produces 300 to 500 pieces of clothing each month, generating about $1,000 in revenues. Having started alone, Kulich now employs 10 women and pays them double the town's average salary. Kulich attributes her success to the advice and support she received from the Brest Region Union of Entrepreneurs. Kulich participated in the Union's training for beginning Lilia Kovalchuk (right) is one of the 10 women employed by entrepreneurs in the fall of 2001. As Kulich learned more Lyudmila Kulich (left). For Kovalchuk, disabled from about the complexities of being an individual entrepreneur childhood, this is a first job. in Belarus, she joined the Union to rely on its business support services. "At the Union I received the legal advice seminars throughout Belarus, training more than 3,200 and assistance I needed to start my business and find entrepreneurs. business partners," recalled Kulich. "I also found the support of other members of the Union ­ people starting In addition, IFC's Partnership works with Belarus out just like me." business associations to help them become effective advocates for SMEs ­ an especially challenging task in a The Brest Region Union of Entrepreneurs is one of 18 country with an unfriendly business environment. We business associations we work with across Belarus to build counsel the associations in organizing advocacy and media their capacity to provide quality information and campaigns and build their legal expertise. consulting services to SMEs. The Partnership's SME Development project in Belarus, funded by the United States (USAID), has trained and advised the business associations on a range of modern business support A Broader View services, from developing business plans to using public Since IFC began working with Belarusian business relations techniques in product marketing. We have associations, their membership base has increased by 60 guided the associations in the introduction of their percent (from 10,600 to 17,100 members) and their client business support services on a sustainable, fee-for-service base has doubled (from 6,950 to 14,000 clients). Increasing membership and service fees ensure the basis. Since the inception of the project in June 2000, IFC associations' sustainable growth. and its partner associations have conducted more than 110 15 Building Financial Markets Leasing Becomes a Real Financing Alternative for Start-ups and Small Companies In 2001, Medialt, a Ekaterinburg-based (Russian Urals) internet provider, saw a dramatic increase in the demand for internet services. This rising demand gave the company an opportunity to grow. To do that Medialt needed $10,000 in new equipment, an amount too small The development of the leasing sector enabled small for local banks to consider. Searching for alternatives, businesses like Medialt to expand and create jobs. Medialt turned to the Partnership's Urals Leasing Development Project for help. the SME sector, a growing number of leasing companies now serve SMEs. According to IFC's annual surveys of the Russian leasing market, the average size of a leasing "The development of financial deal in 2000 ­ 2001 was between $50,000 and $130,000, leasing has spurred the suggesting that SMEs make up a major portion of leasing companies' client base. growth of SMEs." While functioning financial markets are crucial to business development, the financial sector in the former Soviet Union is still largely underdeveloped, with a weak IFC's project, funded by the United Kingdom (DFID), banking system and a lack of alternative financing put Medialt in contact with a local leasing company, mechanisms. Limited access to financing remains a major which financed the purchase of the new equipment. With constraint to the growth of local companies. The new servers and routers, Medialt increased the number of Partnership helps to build healthy financial markets and Internet channels from 15 to 22, which allowed the increases financing options available to local businesses, company to serve 120 new clients and introduce new particularly start-ups and SMEs, by developing services, like web hosting and worldwide direct access to alternative financial services, such as leasing, and Medialt servers. As a result of this expansion, Medialt strengthening the banking sector. increased its staff by 25 percent. This is one of many examples of how the development of financial leasing has spurred the growth of SMEs across Russia. While banks remain cautious about working with 17 Action and Results · Monitor the development of the leasing sector through annual market surveys. Building Infrastructure for the Leasing Sector through Technical Assistance Benefiting Local Economies To build competitive leasing industries across the In 1997, when we began the Leasing Development former Soviet Union, we: Program in Russia, very few people knew what leasing was. Today, the size of the Russian leasing market is · Analyze the existing legal base for leasing and approaching $2.4 billion, six times its size at the time of develop recommendations to amend national the 1998 financial crisis. In partnership with Canada policies and legislation in order to create a (CIDA) and the United Kingdom (BKHF), we have favorable environment for the sector's growth. played a major role in the leasing sector's growth in Russia. Key contributions include drafting and · Advocate for legislative changes by facilitating a advocating passage of the amendments to the Tax dialogue among the private sector, governments, Code's provisions on leasing (passed in August 2001) lawmakers, and mass media. and to the Law on Leasing (passed in January 2002). These amendments bring stability to the leasing legal · Develop local technical expertise on leasing by base by eliminating contradictions and ambiguities in training and advising leasing companies and current leasing regulations (also see p. 13). banks on structuring leasing transactions; the legal, taxation, and accounting aspects of leasing To further the development of the leasing sector in deals; and assessing and managing the risks of Russia, IFC has complemented the Partnership's leasing operations. technical assistance work with investment. IFC has invested $15 million of its own resources and mobilized · Expand leasing companies' client base by training $45 million from Western co-investors in three Russian SMEs on evaluating different financing options, leasing companies. working with leasing companies, writing business plans and investment proposals, and managing "In 1997, very few people their finances under lease agreements. knew what leasing was. · Conduct broad public education campaigns for Today, the size of the private enterprises, financial institutions, and government agencies about leasing and its Russian leasing market is advantages using the national and local mass media and our own specialized publications. approaching $2.4 billion." · Identify potential investment opportunities for the private sector and IFC and consult interested To intensify its work in the Russian regions, the investors on the legal and accounting aspects of Partnership recently launched leasing projects in the leasing transactions. Urals region, funded by the United Kingdom (DFID), and in Northwest Russia, funded by Finland. 18 Building Investor Confidence in the Banking Sector The banking sector in Russia remains weak, stifled by a lack of capital and much needed reform, and IFC is combining investment with customized technical assistance to strengthen the sector. The Partnership works with medium-sized banks to help them reorganize and restructure their operations, improve their procedures and policies, enhance their information management systems, and expand lending to SMEs. Specifically, we: To reach the wider business community, government officials, · Assign an experienced Western banker as a and mass media, shadow CEO to work closely with the banks' IFC's Russia Leasing Development Group management to develop and implement created the industry's reorganization and expansion strategies. leading periodical, Leasing-Courier, and · Review the banks' corporate organization and a web site ­ both unique sources of ensure that it is consistent with the banks' current practical and analytical information on leasing. Leasing- business requirements and is sufficiently flexible to Courier, a bi-monthly journal, reaches subscribers in 79 of the meet new challenges. 89 regions of Russia, and the leasing web site (www.ifc.org/russianleasing) attracts about 10,000 visits each month. · Review the banks' management and internal control processes and ensure that they are The expertise gained by the Russia Leasing commensurate with commercial risk and Development Program gave a quick start to the regulatory requirements. Partnership's Central Asia Leasing Development Project. Launched in October 2001 with funding from · Train the banks' staff and management on credit Switzerland (seco), the project has already submitted evaluations and risk assessment and management legislative amendments for consideration by the to build the banks' ability to implement their governments and lawmakers in the Kyrgyz Republic, growth strategy and enhance lending practices. Tajikistan, and Uzbekistan. The Russia Leasing Development Program also supported IFC's offices in Benefiting Local Economies Armenia and Georgia in developing leasing legislation. In Georgia, the new leasing legislation passed in May IFC's technical assistance program in the banking sector 2002, and in Armenia the legislative amendments are began in September 2000, with a re-engineering currently in the parliament. program for the Moscow-based Probusinessbank. This effort, funded by the United Kingdom (DFID), complements IFC's $5 million subordinated loan to Probusinessbank (approved in October 2001) ­ IFC's first loan to a Russian bank after the 1998 financial 19 crisis. The program is already yielding results. In 2001, with the increase in lending to the SME sector ­ a central component of the bank's growth strategy ­ Probusinessbank's assets grew by 27 percent. The bank's improved performance and increased transparency has boosted investor confidence. In addition to IFC's loan, Probusinessbank received up to $15 million in financing from the World Bank through its enterprise development programs and $3.5 million from the Black Sea Trade and Development Bank. "IFC is combining investment with customized technical assistance to strengthen the Launching the first production line from a rented old Soviet building, the 10-member staff of Master, then a Moscow- banking sector." based beverage retailer, has built the company into one of Russia's leading soft-drink producers. Today, the company employs hundreds, managing offices in eight of Russia's regions, and producing a wide range of soft drinks and juices. IFC has been a part of Master's growth. Master is one of eight In spring 2002, with funding from Norway, the companies that received loans from Moscow-based Probusinessbank using IFC's $5 million subordinated loan. Partnership launched two more bank re-engineering The Partnership works with the bank to enhance its SME programs with Russian NBD Bank in Nizhny lending practices. Novgorod and Center Invest in Rostov-on-Don alongside IFC's $2.5 million and $2 million loans respectively. 20 IFC's Partnership Helps Build the Leasing Market in Southern Russia to Finance Business Growth The Partnership stimulates leasing growth across Russia by transferring leasing know-how and training local SMEs on using this financial instrument. The result is -- more enterprises have access to financing for new equipment to grow and create jobs. In 1998, Anton Vylomov, a young banker in Krasnodar, a city in southern Russia, developed an interest in leasing. Vylomov eventually learned of IFC Leasing Development Group's web site, providing comprehensive information on leasing. Drawing on IFC's materials, Vylomov began Astarta and Co., a furniture producer in Krasnodar, is one of promoting the concept of leasing to his banking the companies that was able to lease modern equipment from colleagues, local government authorities, and potential MIC after attending IFC's leasing seminar for SMEs. Thanks to the new edge-polishing machine, Astarta and Co. clients in Krasnodar. As a result of Vylomov's efforts, in improved the quality and quantity of its furniture and 1999, local government authorities decided to stimulate diversified its production, increasing turnover by 40 percent the development of leasing in the Krasnodar region and and creating 17 new jobs. invited IFC to organize a series of training programs. important is the improvement in the quality of Since then, IFC's Leasing Development Group, founded applications. Potential lessees are now more prepared, they with support from the United Kingdom (BKHF) and ask fewer questions, and when they do have questions, they currently funded by Canada (CIDA), has been working in are about specifics, not the basics," Gaibadulin said. Krasnodar training local leasing companies to improve their lending practices and assess and manage risks. With The increase in the quantity and quality of applications the additional knowledge gained at IFC's seminars, resulted in 28 new leasing deals, worth about $400,000, Vylomov and his colleagues established three leasing that the Krasnodar leasing companies closed with companies - Municipal Investment Company (MIC), participants in IFC's trainings. Since 2000, when the Kubaninvest, and Inko-AMD. Krasnodar leasing companies started working closely with the Partnership's Leasing Development Group, To expand and strengthen the client base of the Krasnodar their joint leasing portfolio has grown more than ten- leasing companies, IFC's Partnership has also been fold. working with local SMEs, training them on the basics of leasing, how to apply for a lease, and how to manage A Broader View finances under lease agreements. The Partnership held its The Partnership's Russia Leasing Development Group has first seminar for potential lessees in May 2001, and by trained leasing professionals, potential lessees, and September 2001 this training was yielding results. "The government officials across 35 of the 89 regions of Russia. The team provided additional consultations to over 1,400 number of applications increased 30 percent compared to companies on legal, taxation, and accounting aspects of the same period the previous year," explained Andrei leasing operations in Russia. Gaibadulin, General Director of the MIC. "But more 21 Building Supply As this example demonstrates, direct investment can have a powerful impact on post-Soviet economies. It is an important source of capital and it brings with it new and Distribution technologies, new management techniques, and greater access to markets. While the former Soviet Union is an Chains attractive market for investors, the lack of reliable local partners poses a major obstacle to investment. And while local companies need investment, they lack modern management and production know-how and access to With IFC's Help, Russian Dairy modern technologies to partner with outside investors. Farmers Find Investors and New Partners Action and Results In 1997, when Dutch dairy company Campina Melkunie Forging Business Ties Through Technical B.V. considered expanding production to Russia, it faced Assistance a major obstacle ­ the lack of a reliable supply of good quality milk. Resolving this issue was essential to To promote increased investment in post-Soviet markets Campina's commitment to invest in a new dairy and bring the benefits of direct investment to local processing plant near Moscow. communities, IFC's Private Enterprise Partnership builds local companies into competitive and responsible Campina's plans presented the struggling Russian dairy business partners and links them into the supply and farms near Moscow with a great opportunity, but only if distribution chains of major investors. Specifically, we: they could overcome old style production methods. To help Russian farms capitalize on this opportunity, IFC · Identify existing or potential large investors and worked with 18 of them to introduce modern technical examine their needs. and management know-how to boost the quality and quantity of their milk. This technical assistance program · Survey local companies to identify those best was funded by the Dutch Government and Campina itself. positioned to become reliable business partners to outside investors. Today, Campina is operating two production lines at full capacity at a newly constructed $50 million dairy plant, · Conduct thorough reviews of the business and which IFC helped finance with a EUR 9.4 million loan. management practices of selected local companies This new factory created dozens of new jobs. Russian to diagnose their weaknesses and the principal farmers received long-term supply contracts with constraints to their growth. Campina and other dairy processors. Thanks to these contracts, the farms became credit-worthy and were able · Introduce modern technologies and management to attract $2.1 million of investment in modern milking know-how to boost quality and increase and refrigeration equipment, doubling their production, production to meet investors' needs. boosting the quality of milk they produced, and increasing revenue by 60 percent. The competition · Broker long-term contracts between investors and among foreign and domestic dairy processors for the local suppliers. supply of high quality milk resulted in higher milk prices, doubling the farmers' earnings. 23 · Train local companies in financial management, southern Ukraine. To help Ukrainian farmers access business planning, and investment proposal financing, we advise them on developing business plans writing to help them access financing and link and organizing their financial records to meet local banks' them to financial institutions. requirements (also see p. 14). · Develop financing mechanisms and establish In 2002, IFC's Partnership started three new projects in financial intermediaries to fund new production Russia to expand the benefits of IFC's investments. In technologies and working capital for local Magadan (Russian Far East), we are working with SMEs suppliers and distributors. to help them become suppliers to the mining industry, starting with Julietta Mine in Magadan ­ a joint $45 · Work with local government authorities to remove million investment by Canadian Bema Gold constraints to business development and Corporation, IFC, and Standard Bank London & investment. Bayerische Hypo-Und Vereinsbank. The project is funded by Canada (CIDA) and Bema Gold. Benefiting Local Economies Eight time zones west of Magadan, IFC approved a $100 Currently, IFC's Partnership is working with suppliers in million loan to support the development of Ford's the agribusiness, mining, forestry, furniture assembly plant outside of St. Petersburg. The Partnership manufacturing, and automotive sectors in Russia, is working with Russian makers of auto components to Ukraine, and Central Asia. build them into competitive and reliable suppliers to Ford's assembly plant and to other automakers. This In the forestry sector, we are working with nine wood program is funded by the United States Trade and harvesting companies in Northwest Russia to introduce Development Agency. sustainable and environmentally sound production practices, help them develop business plans and With support from Norway, the Partnership is working investment proposals, and match them with European with Russian furniture manufacturers, suppliers to IKEA, investors. As a result of this work, funded by the Finnish to introduce the modern technologies needed to meet government and investors, two of the participating IKEA's strict environmental standards of production to companies have signed investment agreements with large ensure that these companies remain within IKEA's global investors, and others have established direct partnerships supplier network. We also work with IKEA's suppliers to with the leading forest industry companies in Finland help them develop new products using waste wood, to and Sweden. Currently, the Partnership works with diversify their revenue and find new partners. several foreign investors to establish wood processing facilities in Northwest Russia. In Tajikistan, with support from Switzerland (seco), we are pioneering innovative approaches to improve cotton Still in its first year, the Partnership's Ukraine production and empower poverty-stricken cotton farmers Agribusiness Development Program, funded by Canada to take control of their commercial activity and diversify (CIDA) and Sweden (Sida), has set up demonstration production (also see p. 12). fields and provided hands-on training to 800 family farms in growing new crops and employing modern agricultural production technologies. The program links these farms to the supply chains of food processors in 24 Sergievskoe Dairy Farm: From a farmers on better production and sanitary practices. IFC's Struggling Kolhoz to a Competitive Partnership then worked with Sergievskoe managers to Partner to Campina develop an investment program so that they could replace the farm's outdated equipment. The Partnership helps Russian farms meet international standards and partner with foreign and domestic processors to Faced with virtually no agricultural finance in Russia and secure future growth and increase access to financing. the farm's lack of its own capital, IFC, together with Campina, developed an innovative financing model. Created in the days of Soviet agricultural collectivization, Campina purchased the new equipment from Swedish, Sergievskoe farm, 100 km southeast of Moscow, is now a Dutch, and Italian manufacturers and rented it to successful market-oriented enterprise. The farm is an Sergievskoe. The price of the equipment and rent exclusive supplier to Campina, a Dutch dairy processor, payments were calculated in milk so that the farm could delivering milk daily to Campina's yogurt plant outside of pay Campina back with its product. In total, Campina Moscow, and is one of the strongest agricultural enterprises directly invested about $300,000 in Sergievskoe. in Russia. The results were impressive. In just two years, the average Thanks in part to IFC's technical assistance program, milk yield per cow increased by 38 percent. Today, funded by the Dutch Government, Sergievskoe has been Sergievskoe is producing more and better milk and earning supplying Campina with milk since 1998. But because of higher prices for its product, boosting its revenues by 64 outdated technology and production practices, Sergievskoe percent. could not consistently produce milk at the quality levels acceptable to European processors. Thus, the farm could With these positive changes, Sergievskoe has grown from neither get an adequate price nor count on steady demand a struggling business to a credit-worthy enterprise. In for its product. The farm's management realized that it had 2000, the Dutch Agribusiness Company, Cebeco, leased a to improve the quality of the produced milk in order to German-made forage harvester worth $240,000 to become competitive. Sergievskoe, using the same payment model developed by IFC. And just recently, two Russian banks ­ IFC's analysis revealed problems on two levels, poor Rosselkhozbank and Sberbank ­ have agreed to finance production practices and inefficient equipment. IFC, with the farm to help it implement its five-year growth the assistance of Dutch agricultural specialists, trained the strategy, developed with the Partnership's help. A Broader View In addition to Sergievskoe, IFC's Partnership is working with other dairy farms, suppliers to Campina, to help them gain access to financing. Over the last two years, IFC structured $2.1 million worth of capital investment projects in these farms ($1.4 million from Campina and $700,000 from equipment suppliers). These investments have laid the foundation for the creation of the Agro-industrial Finance Company (AFC) ­ a financial intermediary that will Sergievskoe's business growth allowed it to improve work finance Russian suppliers to major agro-processors. The conditions for its farmers and double their salaries. company is expected to be established and initially financed Sergievskoe's salaries are 20 percent higher than the average by IFC, Rabobank, and the Netherlands Development for the agricultural sector in the Moscow region and three Finance Company. times higher than the national average for the sector. 25 Improving helps enterprises strengthen their operations and reduce tensions between workers and management. As the post- Corporate Soviet companies and economies seek broad public support for further market reforms, strive to revitalize production, Governance and work to build investor confidence, the institutionalization and enforcement of sound corporate governance is an essential part of these efforts. Transparent Practices Revive a "Good corporate governance Business on the Brink of Bankruptcy helps enterprises strengthen their Trucking enterprise #2005, based in Kharkiv in Eastern operations and reduce tensions Ukraine, was privatized in 1997. The manager of the company ignored basic corporate governance requirements. between workers and Not a single shareholders' meeting was held in the first two years. The enterprise's management was under investigation management. " for stealing from the enterprise. By 1999, employees had not been paid for months, and the enterprise was on the verge of bankruptcy. Action and Results It was at this point that Alexander Khruchyov, the Building Transparent and Well-Managed enterprise's chief engineer, came to IFC's Corporate Businesses, Building Investor Confidence Governance Project in Ukraine (funded by Canada, Japan, the Netherlands, and the United Kingdom). He needed To improve the overall investment climate in post-Soviet help organizing a first shareholders' meeting and drafting economies, the Partnership works to strengthen the company's corporate documents. At the meeting, corporate governance at both the company and national despite fierce opposition from the management, Khruchyov levels. presented his program for revitalizing the enterprise, and nominated himself to the company's board. The At the company level, we work directly with managers, shareholders elected Khruchyov by an overwhelming directors, and shareholders to introduce internationally majority and adopted the new charter and by-laws. accepted corporate governance practices and to ensure compliance with local legislation. Specifically, we: In early 2000, Khruchyov began to turn things around. In consultation with IFC, Khruchyov set up new management · Train and advise companies on a range of boards, introduced new services, and restructured the corporate governance issues, such as defining company, selling idle assets and setting up a subsidiary corporate structure, issuing shares, and holding enterprise. As a result, in 2001 the enterprise resumed shareholders' meetings. paying salaries, almost completely eliminated its wage arrears, and grew its business. · Consult with businesses on company-specific corporate governance concerns. This example underscores the practical value of exercising good corporate governance. Good corporate governance 27 · Select companies that are most committed to adopting sound corporate governance as pilot "The Partnership works to enterprises and work with them side-by-side to revise their corporate documents, restructure their strengthen corporate governance corporate organization, organize shareholders' at both the company and meetings, and hold orientation sessions for the board of directors. national levels. " · Develop model charters and by-laws for adoption by local companies seeking to improve the quality At the national level, we: of their corporate documents. · Conduct thorough legal analyses of existing · Work with the World Bank and private sector corporate governance regulations. partners to develop corporate governance manuals ­ how-to guides to practicing sound · Cooperate with the World Bank and OECD in corporate governance ­ and distribute them to developing specific policy recommendations (e.g. , corporations and government agencies. Corporate Governance White Paper) and advise national governments on improving corporate · Facilitate links with potential investors. governance regulations. · Facilitate an open, continuous discussion among policy makers, local companies, and investors on corporate governance reforms through a series of roundtables and other events sponsored by the Private Sector Advisory Group of the OECD/World Bank Global Corporate Governance Forum. · Develop and introduce corporate governance courses to universities and train professors to ensure that future managers and lawyers understand the importance of good corporate governance and have the skills to practice it. · Conduct public education campaigns on the importance of good corporate governance and protection of shareholders' rights through our own specialized publications and through the national Natalia Kosheleva, deputy project manager of the and regional mass media. Partnership's Russia Corporate Governance Program, discusses issues relating to the role of corporate secretaries at a conference in Moscow. 28 started their work by training about 200 local companies. The Partnership's Russia Corporate Governance Program will open two additional regional offices in the next year. To improve corporate governance regulations, we worked with the Armenian government and lawmakers to draft and pass the Law on Joint Stock Companies and the Law on Limited Liability Companies. We advised Russia's Federal Commission on the Securities Market on developing the code of corporate conduct, released in April 2002. In Ukraine, the Partnership has contributed to six pieces of legislation regulating a number of corporate matters from issuing securities to holding general shareholders' meetings. In Ukraine, the Partnership trained more than 300 professors and introduced corporate governance topics into the curriculums of 23 universities across the country, "Krasny Oktyabr" (Red October), Russia's most famous schools that now teach 3,500 students a year about chocolate factory, is one of the companies working with IFC's Partnership to improve its corporate governance in order to corporate governance. We also designed and introduced build investor confidence and gain access to capital. corporate governance courses at the Law School of Yerevan State University in Armenia. Benefiting Local Economies Currently, the Partnership is implementing Corporate Governance Programs in Russia (funded by the Netherlands and Switzerland) and a Corporate Development Program in Ukraine (funded by Canada and Switzerland). In the Fall of 2001, the Partnership completed the Corporate Governance Project in Armenia, funded by the Netherlands, and the Corporate Governance Project in Ukraine, funded by Canada, Japan, the Netherlands, and the United Kingdom. In Armenia, the Partnership trained over 80 percent of the country's active joint stock companies and provided individual consultations to over 50 companies. Some of these companies were selected to participate in the IFC- U.S. Trade and Development Agency-sponsored Armenia The Partnership's bi-monthly newsletters on corporate Investment Conference, which took place last year in New governance issues have reached thousands of business York City. managers, lawmakers, academics, and media outlets across Armenia and Ukraine. We also train national and regional journalists on the concepts of corporate governance, generating In early 2002, the Partnership opened two new offices in wide coverage and educating the public about their rights as the Russian cities of Samara and St. Petersburg. They shareholders and the work of modern corporations. 29 From Military to Civil Production to company's operations have become more transparent and Building Partnerships with Western efficient. Investors "The positive effect of the changes was felt almost The Partnership works with companies in Ukraine to develop immediately," said Serhij Druzhuk, General Director of and enact sound corporate governance policies. In turn, the Avtomatyka. "It became much easier to make and carry credibility and transparency these companies demonstrate help out important decisions dealing with the company's to attract foreign investment. future development. At the same time these changes helped us build investor confidence in our company and Avtomatyka, located in Ivano-Frankivsk in Western attract over $2 million of foreign direct investment." Ukraine, was founded in 1977 to produce military equipment. After the company was privatized in 1997, it began looking for a new niche in the market economy. Today, the company produces prefabricated wooden cottages, polyurethane foam, and metal machinery parts, selling its products both domestically and in Western Europe. In 2000, Avtomatyka ranked among the top three enterprises in the Ivano-Frankivsk region, paying its 154 employees some of the highest salaries in the region ­ almost twice the average. Recently, the company received A Broader View over $2 million from French, Swiss, and Polish investors for new equipment to set up two joint ventures. Avtomatyka is one of the 67 pilot enterprises IFC's Ukraine Corporate Governance Project consulted. Most of these enterprises reported significant benefits following The company attributes its success to working with IFC's improvements in their corporate governance. Almost 50 Corporate Governance Project, funded by Canada percent of the pilot enterprises found greater success in initiating negotiations with investors, attracting (CIDA), Japan, the Netherlands, and the United investment, finding partners, and obtaining financing. Kingdom. In 1999 the company asked IFC for help in setting up a well functioning and transparent management In addition to customized company-level consultations, the structure. Over the next 18 months, the project worked project has trained about 13 percent of Ukraine's active corporations and provided over 5,000 consultations to with Avtomatyka to develop and implement a set of companies and government officials. Over 90 percent of recommendations on introducing sound corporate companies in the regions where we worked now have governance practices and to revise its charter and by-laws. provisions in their corporate documents that regulate basic corporate governance issues, and over 70 percent have specific provisions protecting minority shareholder rights. To streamline the decision-making process, the company adopted a more effective governance model ­ a three- The Partnership continues its Ukraine Corporate member supervisory board and a CEO instead of a Governance Program with a new Corporate Development Project, which started in the spring 2002. The project, management board. To resolve the tension between funded by Canada (CIDA) and Switzerland (seco), minority shareholders-employees and majority addresses a broader set of issues that hinder Ukrainian shareholders, a minority shareholder representative was companies seeking outside investment. In addition to corporate governance advice, the project trains and consults elected to the supervisory board. The new charter and by- select enterprises on financial and asset management and laws clarified the roles and responsibilities of the various investor strategies to help them become viable businesses governing bodies of the enterprise. As a result, the capable of attracting outside investment. 30 Improving Support Action and Results Services and Business To build an environment that is conducive to the growth of SMEs, the Partnership develops local business support Environment for SMEs services and works directly with national governments to improve policies and legislation affecting the SME sector. IFC-Backed Consulting Company Building SME Business Support Services Helps a Ukrainian Entrepreneur Start a Business and Create Jobs The Partnership works with and, when needed, establishes consulting companies and business associations to With the collapse of the Soviet economy, factories, shops, introduce the best business practices and develop local and restaurants closed across Ukraine, and so, finally, did business skills currently lacking in the region. We build movie theaters. Alexander Panasyuk, a local entrepreneur them into commercially viable professional consultants and with a passion for film, wanted to bring movies back to his business associations. Specifically, we: native Chernigiv, a town of 300,000 located 140 km northwest of Kyiv. Few investors shared his enthusiasm, for · Train and advise them on providing modern in a town where average monthly salaries were 350 grivnyas information and business support services to ($70), most doubted that people would pay $2 to $3 to see SMEs, including business planning, management a Hollywood blockbuster at a Western-style cinema. practices, market research and marketing, partner search, and the use of new information The Chernigiv Consulting Center (also see p. 48), technologies. established and mentored by IFC with funding from the United States (USAID), helped Panasyuk turn his idea into · Advise them on managing the consulting services a successful enterprise. The consulting center conducted a on a sustainable commercial basis and developing market survey to measure whether Chernigiv residents strategies to attract new clients and members. would go to movies, how often they would go, what kinds of movies they would want to see, and how much they would · Build them into strong advocates for SMEs by be willing to pay. The results of the survey encouraged developing their legal expertise and training them Panasyuk and provided solid evidence of the project's on advocacy techniques to organize public affairs financial viability. With the survey, Panasyuk was able to campaigns to reform the regulatory environment receive a $300,000 loan. He opened his modern movie for SMEs. theater in May 2001, premiering with a major American feature. The movie theater improved the social life of the Benefiting Local Economies town and created 18 new jobs for Chernigiv residents. To help improve SMEs' access to professional business SMEs in the countries of the former Soviet Union have support services in Uzbekistan, the Partnership organized emerged as the fastest growing segment of the economy a pilot training program for Uzbek consultants, funded by and one of the largest sources of employment. Yet the Switzerland (seco). In September 2001, a group of seven number of SMEs in the region remains low compared to Uzbek consultants participated in a three week in-class and other countries. The potential growth of the sector has hands-on internship within the Ukraine Consulting been constrained by a lack of financing, management skills, Network, established by IFC (also see p. 48). The and business and commercial information, as well as by consultants improved their technical skills in market excessive government regulation and interference. 33 research and marketing, financial analysis, and modern campaigns and by facilitating a dialogue among business plan writing. Uzbek consultants also learned from small businesses, government officials, lawmakers, their Ukrainian colleagues how to manage a consulting and mass media. business more effectively, build and maintain client relationships, create more effective client proposals and · Work with the World Bank to develop business contracts, and promote their services through public policy recommendations the governments need to relations campaigns. A second group of Uzbek consultants resolve as a precondition to receiving loans. will participate in a similar program in mid 2002. Based on the results of these study tours, the program may be Benefiting Local Economies replicated in other Central Asian countries. IFC's annual surveys of SMEs in Ukraine, funded by To improve SMEs' access to financing and business Norway, have proven to be a successful tool in influencing support services in Ukraine, the Partnership, with SME policies. The Ukrainian government has adopted support from Norway and in cooperation with the World IFC-recommended amendments to 26 pieces of legislation Bank Group's SME Department, began developing a affecting local business, particularly in the areas of pilot Internet portal. The portal will link SMEs to banks, registration and licensing procedures and state inspections leasing companies, and investment firms and offer on- of private business. The number of government inspections line applications for credit. To help SMEs improve the of SMEs has decreased from an average of 76 per year to quality of their applications, the portal will offer 14, and the number of business activities requiring interactive learning tools for enterprises to conduct basic licensing has been reduced from more than 100 to 64. financial self-assessments and online resources to Drawing on its experience in Ukraine, in March 2002, the strengthen their management and financial skills. Partnership launched an SME survey in Uzbekistan, Additionally, the portal will link SMEs to local business funded by Switzerland (seco). service providers, such as consulting firms and management training companies. Improving the Regulatory Environment for SMEs To improve the business-enabling environment for SMEs, we: · Survey the SME sector to identify the main trends in its development and to identify the main administrative and regulatory obstacles to SME growth. · Draw on the findings of the surveys and our To draw attention to the administrative barriers to SME company-level work to develop recommendations development in Ukraine, the Partnership's Business to amend national business policies and legislation. Development Project held annual caricature contests with support from the country's leading business publications. In addition to the wide publicity of the issue in the national media, · Advocate policy and legislative reform by the winning caricatures were published as a twelve-month conducting public education and advocacy calendar and sent to the Ukrainian government officials. 34 Belarusian Advocates Ensure Local Businesses Have a Voice Belarus has one of the most challenging business development climates in Central and Eastern Europe. IFC's Partnership works with local business associations to help them become effective advocates for SMEs in this difficult setting. In the town of Gomel in southeastern Belarus, local government bodies established a sales tax of 100 euros per month for individual entrepreneurs selling fur hats. This sum amounted to about 78 percent of the average monthly income of these entrepreneurs. For most of the fur hat traders in Gomel, this tax threatened their businesses. The Council of Market Entrepreneurs is one of the 18 business associations IFC works with across Belarus to With IFC's advice and legal expertise, the Council of create strong advocates for SMEs. In addition to Market Entrepreneurs began a campaign to reduce this providing advice on organizing advocacy campaigns, the tax, sending letters to officials at all levels of Partnership's Business Development project, funded by government ­ from the city and regional the United States (USAID), works with these administrations all the way to the Belarusian Ministry associations to build their legal expertise and credibility of Trade. To gain extensive coverage of this issue in in the business community. IFC's project helped its regional and national media outlets, the Council also business association partners establish a hotline to organized a vigorous media campaign, with IFC's provide on-the-spot legal advice to entrepreneurs. In its support. first year of operation, more than 8,000 entrepreneurs called the hot line for legal consultations. "The Council of Market In all six regions of Belarus, the project worked with the Entrepreneurs is one of the 18 business associations and local media organizations to set up press clubs where representatives of the business associations IFC works government, the private sector, and the media meet with across Belarus to create regularly to discuss business development issues. Each month, these press club meetings and other project strong advocates for SMEs." activities generate about 60 articles, 20 radio and 14 television broadcasts drawing public attention to existing constraints to business development (also see p. 15). As a result, the Ministry of Trade lowered the tax on hats to 35 euros per month or about 27 percent of the average monthly income of a hat trader. And this victory helped the Council of Market Entrepreneurs to attract 200 new members. 35 The World Bank Group President James Wolfensohn (left) and the Finnish Prime Minister Paavo Lipponen signed documents in Helsinki in March 2001, officially launching Finland's funding for the Private Enterprise Partnership's programs. Building Partnerships structured according to regional or country focus and programming activities. with Donors for Sustainable Private To date, a number of such long-term agreements have been signed: Sector Growth · A 5-year general agreement for technical assistance in Eurasia with the Canadian The Partnership is currently implementing 24 projects in International Development Agency (CIDA), six countries. These programs are funded by donor covering Russia over 5 years and Ukraine over 3 contributions totaling $34 million. The following years, with total funding of CAD 8.8 million. graphics provide detailed information about the level of donor funding by donor country, by recipient country, · A 3-year agreement for projects in Russia, and by program area. The Partnership receives the vast Ukraine, and Central Asia with the State majority of its donor funding directly from bilateral Secretariat for Economic Affairs of Switzerland donor agencies. We receive about 11 percent of our (seco) totaling $7.1 million. funding through our partner structure -- IFC's Technical Assistance Trust Funds Department. In addition, the · An open-ended agreement with the Government Partnership receives cash and in-kind contributions from of the Netherlands for Russia and Ukraine with an other government institutions and private sector initial contribution of NLG 5 million through companies. Senter and a subsequent contribution of EUR 5.3 million through the Ministry of Economic Affairs. Donor and IFC Funding · A 3-year agreement for Ukraine with the Swedish IFC has contributed $12.6 million from July 1, 2000 International Development Cooperation Agency through the end of June 2003. In mid-2002 the (Sida) totaling $1.6 million. Partnership will seek additional IFC funding for future operations. IFC's contribution covers the overall · A 3-year agreement with the Ministry of Foreign management of the Partnership, permitting us to spend Affairs of Finland for Russia totaling $980,000. the vast majority of our donor funding (95 percent) directly on the technical assistance initiatives. In addition Multi-year framework agreements have a number of to funding, IFC contributes the time and expertise of advantages for donors and the Partnership: IFC investment, technical, and other staff. Cost effectiveness Long-Term Donor Agreements · Extended funding cycles facilitate better program Prior to the creation of the Partnership, IFC received planning and budgeting, and allow the Partnership donor funding for discrete, free-standing technical to retain qualified staff longer to capitalize on assistance initiatives. With the establishment of the accumulated experience and on-the-job training. Partnership, donors have been able to enter into multi- year funding framework agreements. Multi-year · Funding similar initiatives across several countries agreements between the donors and the Partnership are reduces the costs associated with developing and launching these initiatives. 37 Continuity and Flexibility in Programming Reporting to Donors · The Partnership's experience demonstrates that The Partnership is flexible in accepting the requirements long-term engagement in technical assistance is of each donor in terms of programming oversight and essential for achieving results and long lasting reporting on finances and project impact. The changes. Multi-year funding agreements provide Partnership has established a first-rate financial controls the framework to develop a set of initiatives that system to manage IFC's and donor funding in the most complement and build on each other's successes. cost-effective and transparent way. On the programming This approach allows donors to build continuity of side, the Partnership's contribution includes significant their programs to maximize the long-term returns work on impact evaluation of technical assistance. This on the resources donated. At the same time, multi- work streamlines data collection and allows the year agreements allow donors the flexibility to Partnership to improve its reporting to donors and their adjust the programs based on evolving needs of the communities on the progress made, the extent of the recipient countries and based on interim development impact of donor contributions, and private assessment of the programs' results. sector opportunities arising from the reforms in the former Soviet countries. Donor Contributions to the Partnership July 1, 2000 -- May 31, 2002 By Donor FY01 FY02 (YTD) Total: Canada (CIDA) $3,192,938 $5,799,908 $8,992,846 Netherlands (Senter and MEA) 2,955,672 4,850,030 7,805,702 Switzerland (seco) 7,100,000 7,100,000 USA (USAID and USTDA) 2,423,348 934,000 3,357,348 Sweden (Sida) 1,634,284 232,550 1,866,834 UK (BKHF and DFID) 1,072,175 1,072,175 Finland 800,000 800,000 Japan 102,175 102,175 Norway 20,000 484,600 504,600 Other 172,300 172,300 TOTAL: $12,200,592 $19,573,388 $31,773,980 Total Donor Contributions by Channel Through IFC's Technical Assistance Trust Funds 11.4% ($3,624,722) Direct Funding 88.6% ($28,149,258) 38 By Recipient Country FY01 FY02 (YTD) Total: Russia $5,173,500 $8,071,118 $13,244,618 Ukraine 5,825,060 6,637,270 12,462,330 Uzbekistan 2,276,000 2,276,000 Belarus 856,504 300,000 1,156,504 Tajikistan 1,100,000 1,100,000 Armenia 345,528 125,000 470,528 Kyrgyzstan 400,000 400,000 Azerbaijan 200,000 200,000 Other 464,000 464,000 TOTAL: $12,200,592 $19,573,388 $31,773,980 Total Donor Contributions by Recipient Country Tajikistan 3.5% Ukraine 39.2% Armenia 1.5% Uzbekistan 7.2% Belarus 3.6% Kyrgyzstan 1.3% Azerbaijan 0.6% Other 1.5% Russia 41.7% Fiscal year ends June 30. 39 By Program Area FY01 FY02 (YTD) Total: Supply and Distribution Chains $4,759,089 $5,529,427 $10,288,516 Corporate Governance 2,468,854 7,112,757 9,581,611 Pro-SME Business Environment 2,443,348 5,079,203 7,522,551 Financial Markets 2,529,300 1,524,000 4,053,300 Other 328,000 328,000 TOTAL: $12,200,592 $19,573,388 $31,773,980 Total Donor Contributions by Program Area Other 1.0% Supply and Distribution Financial Markets 12.8% Chains 32.3% Pro-SME Business Environment 23.7% Corporate Governance 30.2% Other Contributions In addition to contributions from bilateral donor agencies, the Partnership has received over $2 million in cash and in- kind contributions from other government institutions and private sector companies. The participation of private companies strengthens our programs through the technical expertise they provide and demonstrates their long-term commitment to working in the region, creating incentives for local enterprises to implement change. We thank our donor partners for their contributions. 40 Value of Contribution Donor (by country of origin) Project ( July 1, 2000 ­ May 31, 2002) Canada Provincial Government of Alberta, Canada Ukraine Agribusiness Program $303,200 Bema Gold Corporation (mining company) Business Development in Russia's Far East $120,000 DokaGene (Canadian-Russian agricultural joint venture) Russia Dairy-Potato Project $35,000 Canadian Bureau for International Education Ukraine Agribusiness Program $24,000 Canadian Executive Services Overseas Ukraine Agribusiness Program $14,000 Saskatchewan Volunteers Ukraine Agribusiness Program $10,500 Ministry of Agriculture of Canada Ukraine Agribusiness Program $8,400 Alberta Treasury Branch (bank) Ukraine Agribusiness Program $5,600 Finland Thomesto Oy (part of Mets.liitto Group) NW Russia Forest Investment (timber trading company) Project $500,000 Finpro (Finnish Foreign Trade Association) NW Russia Leasing Development Project $180,000 Ministry of Agriculture and Forestry of NW Russia Forest Investment Finland Project $100,000 The Netherlands Campina (dairy processor) Russia Agribusiness Program $75,000 Russia 11 Dairy Farms, recipients of technical assistance Russia Agribusiness Program $1,500 Sweden Seed Company (agribusiness firm) Ukraine Agribusiness Program $16,800 Foreningssprabanken (bank) Ukraine Agribusiness Program $5,600 Lansforsakrangar (insurance company) Ukraine Agribusiness Program $5,600 Other $742,000 TOTAL: $2,147,200 41 Appendices Uzbekistan SME Survey Funded by the State Secretariat for Economic Affairs of Current Projects Switzerland (seco) To identify key impediments to business development at (as of May 31, 2002) both the company and country level, the Partnership is conducting a comprehensive national study of the SME Belarus sector in Uzbekistan. The Partnership will draw on the results of the survey to work with the government to improve regulatory, administrative, and economic policies Belarus SME Development Project affecting the SME sector. This survey is based on the Funded by the United States Agency for International methodology developed in Ukraine, where the annual Development (USAID) SME survey has proven to be an effective instrument in To improve the business environment for SMEs in improving the regulatory and administrative environment Belarus, the project works with 18 local business for SMEs. associations to build their information and consulting services for SMEs and their advocacy skills to promote an SME Consultants' Training enabling business environment. Funded by the State Secretariat for Economic Affairs of Switzerland (seco) Central Asia To improve SMEs' access to professional business support services in Uzbekistan, the Partnership organizes Central Asia Leasing Development Project training programs for Uzbek consultants to improve their Funded by the State Secretariat for Economic Affairs of consulting skills and expand their range of services on a Switzerland (seco) sustainable commercial basis. These training programs The Partnership draws on its leasing development include hands-on internships within the Ukraine program in Russia to build competitive leasing industries Consulting Network ­ 11 sustainable companies in the Kyrgyz Republic, Tajikistan, and Uzbekistan in established and mentored by IFC throughout Ukraine. order to increase financing options available to local businesses. The project trains leasing companies, banks, Russia and potential leasing clients on the fundamentals of leasing operations and on conducting financial and risk Agribusiness Development Program analysis when making investment decisions. In addition, Funded by the Agency of the Dutch Ministry of Economic the project works with national governments to improve Affairs (Senter) the legal framework for leasing operations. To lay the groundwork for foreign direct investment in Russia's agribusiness sector, the Partnership builds Tajikistan Russian agribusinesses and matches them with outside investors. For the last three years, this project has been Farmer Ownership Model providing technical assistance to local dairy farms to Funded by the State Secretariat for Economic Affairs of improve the quality and reliability of their milk supply to Switzerland (seco) food processors investing locally. These improvements The goal of the project is to reduce poverty among cotton made possible a $50 million IFC/Campina (Dutch dairy farmers in Tajikistan by improving their production and processor) investment in a new yogurt factory south of strengthening their direct links to the market. To achieve Moscow. The Partnership, in cooperation with other this goal the Partnership -- in cooperation with IFC's food processors, is expanding this type of technical Southern Europe and Central Asia Department and with assistance to other Russian farms. financing from IFC, seco, and the farmers -- has established a private company completely owned by Tajik Dmitrov Potato and Dairy Production Project cotton farmers. The company will supply its member Funded by the Canadian International Development Agency farmers with crop inputs and provide marketing services. (CIDA) through IFC's Technical Assistance Trust Funds The Partnership is providing technical assistance to the Program company on its daily operations and training farmers on The project works with Russian farms to increase the modern production practices to improve yields and production and quality levels of their milk and potatoes quality of cotton and to diversify their crop base. through modern technologies and proper crop rotation 42 methods. The project is implemented in partnership with Urals Leasing Development Project a Canadian-Russian joint venture that produces and will Funded by the United Kingdom Department for Foreign supply the farms with high-grade virus-free seed International Development (DFID) through IFC's potatoes. This partnership with the joint venture will Technical Assistance Trust Funds Program enable Russian farms to improve production and become The Partnership opened a regional office in suppliers to major food processors. Ekaterinburg to intensify its leasing development work in the industrial and financial centers of the Corporate Governance Program Urals region ­ Ekaterinburg and the Sverdlovsk Funded by the Agency of the Dutch Ministry of Economic Oblast, Chelyabinsk, and Perm. Affairs (Senter) and the State Secretariat for Economic Affairs of Switzerland (seco) Northwest Russia Leasing Project To improve the investment climate in Russia, the Funded by the Government of Finland Partnership trains and advises companies in four Russian The Partnership opened a regional office in St. regions, starting in St. Petersburg and Samara, on Petersburg to intensify its leasing development work introducing sound corporate governance practices to in the Northwest Russia. The project will also build improve their corporate structure and increase their links between Russian leasing companies and investment potential. On a national level, the Partnership Finnish exporters. advises Russian lawmakers and the Federal Securities Commission on strengthening and enforcing corporate Medium-sized Bank Reengineering Program laws and regulations. The Partnership also introduces To strengthen the banking sector in Russia, IFC corporate governance courses into the curriculum of combines investment with customized technical Russian universities to build future managers' skills to assistance programs. The Partnership works with practice good corporate governance. This project draws medium-sized banks to help them restructure their on the experience and expertise of IFC's corporate organization and operations, improve their procedures governance work in Armenia and Ukraine. and policies, enhance their information management systems, and expand lending to SMEs. Currently, the Leasing Development Program Partnership is implementing the following projects in the The goal of the program is to stimulate the growth of the banking sector: leasing sector in Russia in order to increase financing options available to small and medium enterprises. The Probusinessbank Re-engineering Program Partnership works with national and regional Funded by the United Kingdom Department for Foreign government officials to improve leasing legislation. The International Development (DFID) through IFC's Partnership helps to stimulate the growth of the local Technical Assistance Trust Funds Program market for leasing by providing training, consultation, This program complements IFC's $5 million and specialized information on leasing to local leasing subordinated loan to Moscow-based companies and commercial banks. To help SMEs make Probusinessbank and aims to strengthen the bank's informed investment decisions, the program also provides management and operations, improve its SME training on how to evaluate financing options, work with lending practices, and build its capacity to carry out leasing companies, write business plans, and manage the bank's growth strategy. leasing finance. The Partnership also identifies investment opportunities in leasing companies for the NBD Bank Re-engineering Program private sector and IFC. Funded by the Government of Norway through IFC's Technical Assistance Trust Funds Program Russia Leasing Development Group This program complements IFC's $2.5 million loan Funded by the Canadian International Development to NBD, a Nizhni Novgorod-based bank, and aims Agency (CIDA) to improve the bank's internal audit function and the The Leasing Development Group is the use of management information systems. Partnership's central team, which works to improve the national legislation on leasing, conducts training Center-Invest Re-engineering Program programs across Russia, and provides guidance and Funded by the Government of Norway through IFC's expertise to the Partnership's other leasing projects in Technical Assistance Trust Funds Program Russia and other countries in the region. This program complements IFC's $2 million loan to Center-Invest, a bank in Rostov-on-Don, and aims 43 to strengthen the bank's management and Development of Automotive Component Suppliers operations, particularly in such areas as corporate Project organization, internal audit, and asset liability Funded by the United States Trade and Development Agency management practices. through IFC's Technical Assistance Trust Funds Program The Partnership is working with selected Russian Northwest Russia Forest Investment Project manufacturers of automotive components to improve Funded by the Government of Finland their manufacturing processes, product quality, and To lay the groundwork for investment in the forestry management practices to help these companies become sector in Russia, the Partnership works with selected suppliers to foreign auto producers. The project is also Finnish and Russian companies to develop and assisting foreign component producers to establish implement investment projects in logging and wood production in Russia. The initial phase of this project processing operations. The project strengthens Russian complements an approved IFC $100 million loan to a companies by introducing sustainable forest management Ford Motor Company's assembly plant outside of St. practices and improving their operations. To inform Petersburg. potential investors about emerging opportunities, the project monitors the development of the forestry sector Business Development in Russia's Far East and private companies. This project works in close Funded by the Canadian International Development Agency cooperation with the World Bank's forest sector (CIDA) programs. To promote business development in Russia's Far East, the Partnership is working with SMEs to help them Project for Sustainable Wood Harvesting in the become suppliers to the mining industry, starting with Leningrad Oblast the Bema Gold/IFC investment in Julietta mine in Funded by the Swedish International Development Magadan. The program also works with the private Cooperation Agency (Sida) through IFC's Technical sector and government officials to improve the business- Assistance Trust Funds Program enabling environment in the Magadan region. To promote sustainable and environmentally sound wood harvesting in Northwest Russia and to lay the Private Sector Higher Education Investment groundwork for increased investment in the forestry Opportunities Study sector, this project works with selected logging companies Funded by the Swedish International Development in the Leningrad oblast to help them improve their Cooperation Agency (Sida) through IFC's Technical business practices and adopt sustainable forestry Assistance Trust Funds Program methods. By upgrading their operations, increasing their To promote increased investment in the private education production capacity, and attaining high standards of sector, the Partnership is conducting a survey to profile quality, the companies will become more viable suppliers educational institutions for potential IFC and private to wood-processing firms in the region. investment. The survey will also identify specific areas in which technical assistance can significantly contribute to Project for Development of the Furniture Manufacturing the development of the sector. Sector Funded by the Government of Norway and by IFC through IFC's Technical Assistance Trust Funds Program Ukraine To introduce environmentally efficient production technologies into Russia's furniture manufacturing sector Corporate Development Project and to lay the groundwork for increased investment in Funded by the Canadian International Development Agency the sector, IFC is partnering with IKEA, a Swedish (CIDA) and the State Secretariat for Economic Affairs of home furnishings retailer, to upgrade the management Switzerland (seco) practices and production technologies of Russian Building on its Corporate Governance Project in furniture makers. In the project's pilot phase, the Ukraine, the Partnership expands its advice to local Partnership is working with selected Russian IKEA companies to address a broader set of issues that hinder suppliers to demonstrate the profitability of investing in Ukrainian companies seeking outside investment. In energy-efficient technologies and to help them develop addition to corporate governance, the Partnership advises and market new products manufactured from waste- companies on financial management, asset management, wood. Together with IKEA, the Partnership is and investor strategies to help them become viable developing a financing mechanism to fund IKEA's businesses able to attract outside investment. This project suppliers and other furniture makers. 44 continues to work with government officials on legislative Planned Projects reform and with educational institutions to improve post- secondary programs on corporate governance. (as of May 31, 2002) Agribusiness Development Program Belarus Funded by the Canadian International Development Agency (CIDA) and the Swedish International Development Business Association Development Project Cooperation Agency (Sida) This project will further strengthen the capacity of local To support the viability and growth of local farms and business associations to provide advice and consultation mobilize investment in Ukraine's agricultural sector, the to their member businesses and improve their advocacy Partnership works with local farms to improve the quality skills to promote reform of national policies and and reliability of the local supply of agricultural produce legislation affecting SME development. The project will and links them to domestic and foreign food processors. link the associations with similar organizations operating To increase farms' access to financing, the Partnership in countries with more liberalized economies. works with local financial institutions to help them develop rural credit and insurance programs. The Farmers' Business Association Capacity Building Project program also works with the national government to This project will build the capacity of Belarusian farmers' improve legislation affecting the agricultural sector. business associations to provide farmers and other rural SMEs with business support services and to improve the SME-Finance ToolKit business-enabling environment. Funded by the Government of Norway and by IFC through IFC's Technical Assistance Trust Funds Program Belarus Rural Enterprise and Agribusiness Development In cooperation with the World Bank Group's SME (BREAD) Project Department, the Partnership is developing a pilot This project aims to create business opportunities for the Internet portal that will provide new resources to help rural population affected by the disintegration of the state Ukrainian SMEs become creditworthy businesses and and collective farm system in Belarus by fostering the gain access to financing. The portal will offer online growth of small private businesses in rural areas. The interactive learning tools for enterprises to improve their project will train and advise the rural population on management and finance skills and will link SMEs to business skills and help them access financing. local business service providers, such as consulting firms and management training companies, and to financial Caucasus service providers, such as banks, leasing companies, and investment firms. Armenia SME Survey and Sectoral Analysis Funded by the Government of Norway through IFC's Armenia Technical Assistance Facility (ATAF) Technical Assistance Trust Funds Program To complement IFC investments in the Armenian To monitor the progress and gauge trends in the SME financial sector, the ATAF will assist local SMEs to sector's development and identify the main obstacles, overcome obstacles to their business development and to IFC has conducted annual surveys of the state of SMEs become creditworthy clients of the Armenian SME in Ukraine since 1996. The Partnership draws on the Capital Risk Fund or other investors. The ATAF will also results of the surveys to work with the national continue IFC's work to strengthen the leasing sector. The government to help remove legal and administrative facility will work with the World Bank and the Armenian constraints to SME development. The Partnership is government to improve the regulatory, administrative, extending the methodology of the SME survey to and economic policies affecting the SME sector. analyze other sectors that have high growth potential. The survey of other sectors includes both an overview of Azerbaijan the regulatory environment and a complete value chain analysis. Supply Chain Development Project This project will assist local companies to strengthen their management and operations to enable them to become suppliers of goods and services to the oil and gas industry in Azerbaijan. 45 Leasing Development Program Central Asia The Partnership will draw on its leasing development program in other countries to build favorable conditions Improving Microfinance Legislation for the growth of the leasing industry in Azerbaijan. The The project will build on IFC's previous work to develop project will begin by working with policymakers to draft legislation on Microfinance organizations in the improve the legal framework for leasing and Kyrgyz Republic. The project will work with local strengthening the operations of the only leasing company stakeholders and policymakers to advocate passage of the in the country. The project will stimulate the growth of new law and develop similar legislation for Tajikistan and new leasing companies by training local banks on Uzbekistan. The project will also build the capacity of the conducting leasing operations. The project will also central banks in each of the three countries to monitor educate potential leasing clients on leasing, its Microfinance organizations in accordance with the new advantages, and its application. legislation. Corporate Governance Project Kazakhstan The Partnership will build on its corporate governance experience in the region by offering training and Leasing Development Project information to Azerbaijani companies on sound This project will be an extension of the Partnership's corporate governance practices and compliance with local current Central Asia Leasing Development Project to legislation. To improve the country's overall investment include Kazakhstan. climate and the business-enabling environment, the program will work with policymakers to improve Corporate Governance Development implementation of corporate governance regulation. The Partnership will build on its corporate governance experience in the region to provide training and Georgia information to Kazakh companies on sound corporate governance practices and compliance with local Leasing Development Program legislation. To improve the country's overall investment The Partnership will draw on its leasing development climate and the business-enabling environment, the program in other countries to build favorable conditions program will work with policymakers to improve for the growth of the leasing industry in Georgia. The implementation of corporate governance regulation. project will train leasing companies, banks, and potential leasing clients. The Partnership will build on its Tajikistan cooperation with the policymakers, established during the work on the recently adopted leasing legislation, to Extension of the Farmer Ownership Model continue to improve the sector's legal base. This project will extend the Partnership's current Farmer Ownership Model Project to include other regions of Corporate Governance Program Tajikistan and other segments of the agricultural sector. The Partnership will build on its corporate governance experience in the region and offer training and Uzbekistan information to Georgian companies on sound corporate governance practices and compliance with local Dairy Sector Supply Chain Development legislation. The project will also work with universities to This project will build Uzbek dairy farmers into reliable introduce relevant curriculum to law and business suppliers to dairy processors in Uzbekistan. The project programs. will assist the farms to increase the quality and volume of produced milk through modern technologies in feed SME Survey production, land and water use, herd management, and To identify key impediments to business development at will help them access financing. both the company and country level, the Partnership will conduct a comprehensive national study of the SME Moldova sector in Georgia. The Partnership will draw on the results of the survey to work with local businesses and policymakers to reduce impediments to the sector's Corporate Governance Development growth. This survey will be based on the methodology Building on the Partnership's corporate governance developed in Ukraine, where the annual SME survey has experience in other countries, this project will train and proven to be an effective instrument in improving the advise companies on sound corporate governance regulatory and administrative environment for SMEs. practices, advise policymakers on improving corporate 46 regulations, and introduce corporate governance Development of Russian Furniture Suppliers ­ TREE curriculum to local universities. Facility This project will facilitate the establishment of a financial Mongolia intermediary ­ the Technology, Resource and Energy Efficiency Facility (TREE Facility) ­ to finance Leasing Development Project investments to upgrade Russian furniture manufacturers' The Partnership will draw on its leasing development production technologies. The project will work with the expertise in other countries and build favorable clients of the TREE Facility to help them introduce new conditions for the growth of the leasing industry in production technologies, improve energy efficiency, and Mongolia in order to increase financing options available develop and market new products. to local businesses. The project will work with policymakers to develop the legal framework for financial Developing Private Energy Efficiency Investments leasing in the country. The project will also train leasing To promote private investment in energy efficiency companies, banks, and potential leasing clients on leasing projects, the Partnership will assist potential investors to operations. identify and structure energy efficient projects and will create a financial intermediary to finance the purchase of Corporate Governance Program energy efficient technologies. The Partnership will build on its corporate governance work in other countries and train and advise Mogolian Leasing Development ­ Regional Extension companies on sound corporate governance practices and To stimulate the development of SMEs across Russia, compliance with local legislation. To improve the this project will expand the Partnership's leasing country's overall investment climate and the business- development program to regions where SMEs' access to enabling environment, the program will work with the financing remains limited. national government to improve and strengthen enforcement of corporate regulation. Support to Women Entrepreneurs in Northwest Russia This project will assist an existing self-sustaining Russia Business Incubator to expand its operations across the Northwest region of Russia. The project will also strengthen the leasing operations and financial Agro-industrial Finance Company management systems of a local microleasing company, This project will support the creation of a financial affiliated with the Business Incubator. Both the incubator intermediary ­ the Agro-industrial Finance Company and microleasing company serve primarily woman- (AFC) ­ that will finance suppliers to major food and owned and managed businesses. agribusiness companies in Russia. AFC is expected to be financed jointly by IFC, Rabobank, and the Netherlands Information and Communications Technologies (ICT) Development Finance Company. The project will include Development in Russia technical assistance to the new Company as well as to its This project will assist Russian ICT companies to clients. improve their competitiveness in global markets and will promote investment in the sector. The project will Extension of Automotive Component Suppliers Project provide business support services for participating The Partnership will extend its Automotive Component companies and will match Russian companies with Suppliers Project to include additional Russian auto foreign partners. The project may also evaluate the component suppliers. The project will work with Russian effectiveness of establishing business incubators in the suppliers to improve their management and the quality of technology sector. production Corporate Governance Development ­ Regional Ukraine Extension This project is an extension of the current Corporate Leasing Development Project Governance Program in Russia. With additional donor This project will continue to advocate for the passage of funding the project will extend its work to other regions the Law on Leasing, drafted with significant IFC's of Russia, such as Nizhny Novgorod. participation and currently in the Ukrainian parliament. The project will train, consult, and provide specialized information on leasing know-how to local leasing companies and their clients, commercial banks, and government officials. 47 Completed Projects Business Development Project (1994 ­ 2001) Funded by the British Know-How Fund (BKHF) and United States Agency for International Development (USAID) Armenia The Ukraine Business Development Project created 11 Corporate Governance Project (1999 ­ 2001) self-sustaining consulting centers throughout Ukraine. Funded by the Agency of the Dutch Ministry of Economic These centers, united into the Ukraine Consulting Affairs (Senter) through IFC's Technical Assistance Trust Funds Network (UCN), advise local SMEs on the full spectrum of Program modern business consulting services, including business planning, management practices, marketing, partner search, To improve the corporate governance practices of and the use of new information technologies. Under IFC's Armenian companies, the project trained and advised over guidance these centers served over 15,500 companies on a 80 percent of the country's active joint stock companies and fee-for-service basis and helped their clients mobilize $16 individually consulted over 50 enterprises on internationally million in financing for equipment, working capital, or to accepted corporate governance practices and compliance fund construction projects. After the Partnership with local legislation. To improve the country's overall completed the project in May 2001, ten of these business investment climate, the project worked with the national centers continue to operate on a sustainable basis consulting government to draft and pass amendments to the Law on and training about 3,000 companies each year. Joint Stock Companies and the Law on Limited Liability Companies. The project also developed a corporate UCN, with IFC's support and in coordination with the governance course for the School of Law at Yerevan State World Bank and the IMF, has helped to introduce 26 University. To educate the public about their rights as pieces of legislation that have lowered the number of shareholders and the work of modern corporations, the government inspections of SMEs from an average of 76 to project trained journalists across the country on the 14 per year, reduced the number of business activities concepts of corporate governance and organized public requiring licensing from more than 100 to 64, and education campaigns through its own specialized drastically simplified business registration procedures. The publications. project also analyzed Ukraine's legal base for leasing and took the lead in drafting a new Law on Leasing, which Ukraine recently passed in a second reading (out of three) in the Parliament. Corporate Governance Project (1997 ­ 2002) Funded by the Canadian International Development Agency Unfinished Construction Site Divestiture Project (1999 ­ (CIDA) and, through IFC's Technical Assistance Trust Funds 2001) Program, by the British Know-How Fund (BKHF), the Funded by the United States Agency for International Agency of the Dutch Ministry of Economic Affairs (Senter), and Development (USAID) the Government of Japan Drawing on the experience of the USAID-IFC Small Scale To improve the investment climate in Ukraine, the project Privatization Project in Ukraine (1993-1999), IFC worked directly with newly-privatized medium and large extended its auction-based model to privatizing unfinished enterprises training about 13 percent of Ukraine's active construction sites and turning them into new businesses. corporations, providing over 5,000 consultations, and Today, more than 12,000 unfinished construction sites have advising 67 pilot enterprises on sound corporate governance been privatized across Ukraine. These newly created practices. businesses, mostly SMEs, employ 62,600 people, including 21,312 women; pay a total of about $33 million in wages To improve corporate governance regulations, the project annually; and contributed about $25 million to local contributed to six pieces of legislation regulating a number budgets in 2000. of corporate matters from issuing securities to holding a general shareholders' meeting. To solidify the legal framework and institutionalize the process of privatizing unfinished construction sites, the To ensure that future managers in Ukraine are aware of the project advocated for the Law on Specific Features of importance of good governance and have the skills to Unfinished Construction Site Privatization passed in practice it, the project trained more than 300 professors and September 2000. IFC completed the project in May 2001 introduced corporate governance topics into curricular of after it transferred the privatization know-how to local state 23 universities, which now teach 3,500 students a year property funds. about corporate governance. IFC transferred the know-how of privatizing unfinished construction sites to Armenia, Belarus, Georgia, Vietnam, 48 and the Kyrgyz Republic. Acronyms BKHF ­ British Know-How Fund CIDA ­ Canadian International Development Agency DFID ­ Department for Foreign International Development, the United Kingdom IFC ­ International Finance Corporation IMF ­ International Monetary Fund MEA ­ Ministry of Economic Affairs (The Netherlands) seco ­ State Secretariat for Economic Affairs of Switzerland Senter ­ Agency of the Dutch Ministry of Economic Affairs Sida ­ Swedish International Development Cooperation Agency SME ­ small and medium-sized enterprise TATF ­ IFC's Technical Assistance Trust Funds Program USAID ­ United States Agency for International Development USTDA ­ United States Trade and Development Agency WBG ­ World Bank Group Photo credits Michele Iannacci, Mark Fallander, Andrei Mareev, Andrei Zubets, Lehtikuva Oy, IFC staff IFC'S PRIV ATE ENTERPRISE PAR TNERSHIP 2001 -2002 REPOR 7/5 Bolshaya Dmitrovka Street, Building 2 2121 Pennsylvania Avenue, NW Moscow, 103009, Russia Washington, DC 20433 Tel.: + 7 095.755.8818 Tel.: + 1 202.458.0917 T Fax: + 7 095.755.8299 Fax: + 1 202.974.4312 www.ifc.org/pep E-mail: ifcpep@ifc.org