Number 10 53951 IEG FINDINGS 2008 IFC in Ukraine An Independent Country Impact Review T he Country Impact Review evaluates the results and analyzes the performance About IEG-IFC drivers of IFC's investment and advisory operations in Ukraine since it became a Independent Evaluation Group IFC's Independent Evaluation member of IFC in fiscal year (FY) 1993 through FY 2006. In doing so, it seeks Group (IEG-IFC) independently evaluates IFC's investment and to inform IFC's Ukraine strategy in the World Bank Group's Country Assistance Strategy advisory services operations and (CAS) paper and make recommendations aimed at improving the results of IFC's opera- reports its findings to IFC's man- tions going forward. The review was completed in conjunction with IEG-World Bank's agement and Board of Directors. Country Assistance Evaluation covering World Bank operations in Ukraine undertaken IEG-IFC is a resource for helping from FY 1999 to FY 2006. staff understand what IFC has learned and how IFC can do bet- The main findings of the review are: ter business in the future. · IFC's advisory services-centric strategy was appropriate given country conditions, but the expected increase in IFC's investment operations to follow advisory services efforts About Findings did not materialize until recently; IEG-IFC Findings help inform · IFC's advisory services operations in Ukraine outperformed evaluated IFC advisory ser- IFC and Bank Group managers vices operations in other countries in the Europe and Central Asia (ECA) region in terms and staff about new evaluation of aggregate ratings for overall development effectiveness and IFC work quality, largely findings and recommendations. The views expressed here are those due to the strong performance of larger programmatic assignments; of IEG-IFC and should not be · IFC investment operations in Ukraine performed better than other evaluated investment attributed to IFC or its affili- operations in the rest of the ECA region and the average for IFC, although the relatively ated organizations. The findings small number of investment projects did not allow for a more detailed analysis; here do not support any general International Finance Corporation · The outcomes of IFC's operations going forward can be further improved by expanding inferences beyond the scope of the IFC's strategic horizon to respond to changing country conditions, by increasing coor- evaluation, including any infer- dination between IFC and IBRD (the World Bank) to address remaining privatization ences about IFC's past, current or prospective overall performance. challenges, and by replicating the design of successful advisory services operations. IFC's Ukraine strategy was largely business climate improvements call for a more Online access shaped and constrained by the country's proactive and targeted IFC investment strategy. http://www.ifc.org/IEG challenging business climate. Given the Most of IFC's initial efforts centered on pro- seriousness of Ukraine's recession in the 1990s grammatic privatization advisory services proj- and the tenuous political commitment to reform, ects, which aimed at creating a critical mass of Ukraine remained relatively unattractive to private small and medium enterprises (SMEs) that could investors for much of the period under review. To serve as an engine for private sector growth and support improvements in Ukraine's business en- become attractive investment targets for private vironment, IFC engaged in an extensive program sponsors. Later, the focus of IFC Advisory Ser- of advisory operations as the first component vices operations shifted from privatization to busi- and continuing mainstay of its work in Ukraine. ness enabling environment activities (Figure 1) The approach was appropriate, however, recen IFC IN UKRAINE: 1993-2006. AN INDEpENDENt COUNtRy ImpACt REvIEw Figure 1: IFC Advisory Services distribution in Ukraine (FY93-06) visory services projects utilizing the comprehensive framework eventually adopted by the Private Enterprise Partnership (PEP) Investment Project- facility. At the same time, smaller assignments were only viable PEP-Other related and individual (dispute resolution) 0% privatization 6% inasmuch as they addressed a specific need and/or client request. PEP-Financial Markets 3% Evaluated investment project ratings were slightly PEP-BEE 4% better than those for the rest of the ECA region and PEP-Agribusiness/ PEP-Format Framework the rest of IFC, although the small number of investment Linkages 13% Privatization 44% operations preclude statistically significant findings. An analysis of the risk profiles at approval of recent commitments shows low risk intensity, which indicates potentially better than average fu- PEP-Corporate ture performance. Governance 19% Going forward, given the improved business cli- PEP-SME Development 11% mate, IFC should develop and follow a more sys- tematic medium-term approach to identify investment *PEP - Private Enterprise Partnership ** BEE - Business Enabling Environment opportunities in areas of high impact country competitive advan- Meanwhile, the expected increase in IFC's invest- tage and unmet demand. ment activities did not materialize until FY 2004- IFC and IBRD should improve coordination to ad- 2005, when country conditions had sufficiently improved dress remaining privatization priorities, especially for (Figure 2). While the scale of IFC's investment and advisory ser- large enterprises and for infrastructure projects, with IBRD pol- vices operations was significant in relation to IFC's activity in the icy work and IFC post-privatization funding. They should also region, it was relatively small compared to the activities of the use existing joint mechanisms such as the World Bank Group's IBRD and other donors in Ukraine. Sub-National Finance Department to promote public-private Figure 2: Trends in IFC Advisory and investment commitments (US$ millions), partnerships and provide funding to municipal utilities projects. and Ukraine IICCR Ratings IFC should focus on the strategic relevance of its advisory services operations and replicate the de- 250 IICCR=44 60 mand-driven, multi-generational, and multi-di- 55 50 mensional design of its successful larger operations, using 200 45 the latter to refine benchmarks for measuring performance of 40 ongoing projects. 150 IICCR=30 35 30 Furthermore, IFC should proactively develop and 100 25 maintain regular contact with donors in its areas of en- IICCR=15 20 gagement to help establish information exchange mechanisms, 15 50 align priorities, improve distribution of labor, and avoid incon- 10 sistencies, as well as to initiate tactical interaction at the outset 5 0 0 of its multi-donor operations to minimize discrepancies in ap- 1993 1995 1997 1999 2001 2003 2005 proach and maximize cohesion and alignment of tactics between Advisory Services Funding (right axis) IFC commitments (left axis) donors. IICCR Finally, IFC should expand the proven model of Note: IICCR refers to the Institutional Investor Country Credit Risk Rating. A coun- creating partnerships among linkages projects seeking to try is considered high-risk if it's IICCR score is below 30. develop agricultural suppliers and agribusiness investments, as IFC was able to achieve satisfactory or better re- well as aim to undertake financial markets projects that provide sults in 68 percent of the advisory services projects local currency financing (through guarantees and other methods) implemented. This is especially true for larger and longer ad- to achieve greater synergies between investment and program- Resources matic advisory operations. Task Manager: Director, IEG-IFC: Head of Knowledge, IEG-IFC Help Desk: Anna Zabelina Dr. Marvin Taylor-Dormond Dissemination, and Quality, (202) 458-2299 mtaylordormond@ifc.org IEG-IFC: AskIEG@ifc.org Sid Edelmann sedelmann@ifc.org