46277 V1 C R E AT I N G O P P O R T U N I T Y I F C A N N UA L R E P O R T 2 0 0 8 2 0 0 8 A N N UA L R E P O R T 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Telephone 202-473-3800 www.ifc.org Printed on recycled paper with soy-based inks. ISBN 978-0-8213-7773-4 D O I N G O U R PA R T F O R A N I N C L U S I V E A N D S U S TA I N A B L E W O R L D ABOUT THIS REPORT The IFC Annual Report continues an approach we pioneered last year, combining information on our investments and advisory services, sustainability, development effectiveness, and donor partnerships. The report covers fiscal 2008 (July 1, 2007, through June 30, 2008) and discusses the year's new business as well as the performance and development results of our portfolio. Our goal is to provide a full picture of what IFC does and how we are performing. We seek to enhance our accountability and to articulate our vision, core corporate values, purpose, and the way we work for a wide range of stakeholders: client companies, governments, partners, local communities affected by our activities, advocacy organiza- tions, investors, and our staff. The report's Web site, www.ifc.org/annualreport, provides several components of our reporting: the fiscal 2008 Financial Statements and Management's Discussion and Analysis; listings of FY08 investments and advisory projects; IFC's active investment portfolio as of June 30, 2008; an index of IFC information related to Global Reporting Initia- tive indicators; and further information on our development results, environmental footprint, and performance standards. It supplements the Board of Directors information that ap- pears on p. 112 with full listings of our Board of Governors and our Board of Directors and their voting power. The site also provides downloadable PDFs of all materials in this vol- ume and translations as they become available. LETTER TO THE BOARD OF GOVERNORS The Board of Directors of IFC has had this annual report pre- pared in accordance with the Corporation's by-laws. Robert B. Zoellick, President of IFC and Chairman of the Board of Directors, has submitted this report with the audited finan- cial statements to the Board of Governors. The Directors are pleased to report that for the fiscal year ended June 30, 2008, IFC expanded its sustainable develop- ment impact through private sector investments and advisory services. CREATING OPPORTUNITY 20 0 8 A N N UA L R E P O R T TABLE OF CONTENTS Leadership Perspectives ...................................................................................... 11 CHAPTER 1: Creating Opportunity ................................................................... 16 CHAPTER 2: What We Do: IFC's Operations and Results .................................. 30 CHAPTER 3: Regional Operations and Results ................................................. 48 CHAPTER 4: Industry Operations and Results .................................................. 64 CHAPTER 5: Advisory Services Operations and Results .................................... 90 CHAPTER 6: Working with Partners ................................................................ 100 CHAPTER 7: How We Work............................................................................. 108 Nonfinancial Assurance Statement ................................................................... 129 VISION PURPOSE IFC'S VISION is that people should have the opportunity to escape poverty and improve their lives IFC'S PURPOSE is to: Promote open and competitive markets in developing countries Support companies and other private sector partners Generate productive jobs and deliver basic services Create opportunity for people to escape poverty and improve their lives DEVELOPMENT DOING OUR PART... IFC makes a unique contribution to development in emerging markets Global experience and local knowledge of the private sector · The support of 179 member countries · A coordinated approach across the World Bank Group · A long-term commitment to the clients and markets we serve · An unparalleled network of partners in development ...FOR AN INCLUSIVE AND SUSTAINABLE WORLD IFC invests, mobilizes capital, and advises to help the private sector make a difference Reaching people in the poorest countries · Extending the benefits of growth to less developed regions and industries · Finding solutions that serve more people and safeguard the environment · Helping companies raise standards and benefit local communities SOLUTIONS PEOPLE CREATING OPPORTUNITY FOR PEOPLE IFC works with clients and partners to improve the lives of people in poorer countries Creating jobs · Delivering basic services such as clean water and electricity · Improving the availability of high-quality health care · Expanding access to basic education D O I N G O U R PA R T F O R A N I N C L U S I V E A N D S U S TA I N A B L E W O R L D LEADERSHIP PERSPECTIVES MESSAGE FROM THE PRESIDENT 2008 has been an important year for the World Bank Group ­ a year of challenges and oppor- tunities. IFC has played a critical role in addressing both. I am pleased to introduce a report that captures IFC's achievements and outlines the work ahead. This year, the Bank Group has developed six strategic priorities to focus our attention, emphasizing the poorest countries, particularly those in Africa; fragile and post-conflict states; middle-income countries; global and regional public goods; expanding opportunity for the Arab world; and knowledge and learning. IFC is carrying out these initiatives with energy, commitment, and creativity. To catalyze investment in Africa and other frontier markets, IFC is working to make it easier for sovereign wealth funds to invest equity in these markets. To ease the food crisis, IFC has invested in agri- business companies, helping them expand production and mitigate risks. To help firms move to cleaner and more efficient technologies, IFC has developed an innovative carbon delivery guarantee that helps companies in developing countries sell carbon credits to buyers in the de- veloped world. To address the growing needs for infrastructure in developing countries, IFC is scaling up investments in transportation, power, and utility projects, and applying best-practice approaches to environmental and social issues. I have seen first-hand how the Bank Group can tackle pressing development challenges in the poorest countries by bringing to bear its multiple areas of expertise, products, and services. During a trip to Mozambique this year, I visited the Southern Africa Regional Gas project, which is financed by IBRD, IFC, and MIGA. The project is enabling the country to monetize its natural gas resources by linking up with the South African export market. IFC and IDA, moreover, have cooperated on a groundbreaking risk-sharing initiative in Madagascar that is increasing the availability of loans for small and medium enterprises. Increasing this kind of cooperation will allow us to reach further with a blend of services. IFC's investments and advice are an essential part of the Bank Group's help to middle-income countries. Despite overall progress, these countries are still the home to many poor people, and their companies and markets still face capital constraints. Governments also need help to bring in more investment and share the benefits of growth with more people and places. IFC gets involved where it can make a difference, not only bringing in private capital but also helping private enterprises meet global corporate governance standards, safeguard the environment, and integrate local communities into their supply chains through linkages programs with large companies. In addition, IFC clients are promoting development across national boundaries, in the form of South-South investments. The contribution to private sector development is far-reaching. In Liberia and other post-conflict countries, IFC is working on facilitating business-climate reforms and strengthening the financial sector. In Africa, IFC is working with its partners to mobilize up to $1 billion to support the development of a socially responsible private health sector. In the Middle East, IFC is helping local banks make student loans more widely available. IFC's global trade finance initiative has been lending critical support to trade flows with the emerg- ing markets and has served as a stabilizing presence in times of credit or liquidity constraints. IFC also has recognized the enormous economic and social potential represented by women entrepreneurs in developing countries, and its gender program has introduced successful initiatives to promote women-owned businesses. IFC is well suited to the tasks ahead. It has the right mix of capital and expertise. There is strong demand for its services throughout the developing world: private initiative is increasingly recognized as an effective and innovative engine of economic growth. When sup- ported by sound public policies, it has unparalleled power to boost local economies, create jobs, and unearth opportunities that create pathways to inclusive and sustainable development. IFC, with its unique private sector experience and know-how, has the innovative spirit and results-oriented culture that are needed to make a difference. I want to thank the dedicated and highly accomplished staff at IFC for their commitment to transforming us into a more dynam- ic, flexible, and innovative institution. Whenever I attend a briefing at IFC, I leave with optimism about the ingenuity and drive of the IFC staff to empower the private sector in developing countries to improve lives and livelihoods. The accomplishments and spirit of IFC are also a testament to the strong and effective leadership of Lars Thunell, who guides an excellent team with judgment, experi- ence, and a drive for results. I also thank our Board of Directors, the Governors, and our many contributors and partners, without whom we could not be successful. Robert B. Zoellick ert President, World Bank Group IFC A N N U A L REPORT 2008 11 MESSAGE FROM THE CEO Helping Clients Succeed in a Changing World The world around us is changing, and so is IFC. set of comparative advantages our "additionality." It is the main In a time of uncertainty in world markets, we have stepped up reason our clients choose to work with us. investments and advisory services in the least developed econo- Our success, reflected in strong development outcomes and mies and sectors, and we continue to strengthen the foundation financial performance of our portfolio, is allowing us to do more for sustainable private sector development across the globe. Our to create opportunity where it is most urgently needed. The Inde- effort to respond swiftly to clients' needs, bringing unparalleled pendent Evaluation Group, an independent unit within the Bank expertise to foster private entrepreneurship, is making a difference: Group, has found that IFC's profitability goes hand-in-hand with we are creating new opportunities for people to break free from healthy development outcomes. IFC net income in the 2008 fiscal poverty and improve their lives. year was a robust $1.5 billion. This financial strength allows us to Recent events in global markets underscore the importance increase our activities in fragile economies and conflict-affected of the work we do. Consider the effects of food and oil prices countries, and to extend our reach to smaller businesses as well. on the billion people who still live in extreme poverty. For the first IFC's activities this year demonstrate our growing role. Our time in more than three decades, prices for both oil and food new investments totaled $16.2 billion, a 34 percent increase over have reached record levels--and this is reversing years of progress the previous year. This includes $11.4 billion in new commitments against poverty and hunger. The cost of food may push more for our own account and $4.8 billion in funding that we mobilized than 100 million people, nearly a third of them in Africa, back into for clients. In Sub-Saharan Africa, we significantly expanded the poverty. The rise is exacerbating children's malnutrition even in the number of countries where we do business, from 17 to 25. We faster-growing emerging economies. The global credit crunch, have pledged $1.75 billion to the three-year funding cycle of the meanwhile, poses a challenge for private enterprises in most International Development Association--the Bank Group's lead emerging markets. Yet much can be done. As these and other agency for assisting the poorest countries. In middle-income economic challenges have emerged, so have new opportunities countries, where more than half the world's poor people live, we for IFC to do our part for an inclusive and sustainable world. have sharpened our focus to ensure that our activities address IFC is uniquely positioned to make a difference for the many global challenges such as climate change while at the same time people at the base of the global economic pyramid. We are the helping areas and groups that are most in need. largest multilateral financial institution investing in private enter- We are achieving results. In calendar year 2007, IFC's clients prises in emerging markets, with activities in 130 countries. We generated power for nearly 147 million customers in developing combine financing that helps local businesses grow quickly and countries and distributed water to 18 million. Clients carried more sustainably with advice that helps them innovate, raise standards, than 153 million railway passengers and established some 50 mil- mitigate risk, and share knowledge across industries and regions. lion new phone connections. Our investments provided more than Our affiliation with the World Bank Group gives us additional 700,000 jobs in manufacturing and service sectors, and they helped leverage in terms of skills and experience. We call this unparalleled spur more than $47 billion in local purchases of goods and services. 12 I F C A NNUAL R E P ORT 2 0 0 8 LEADERSHIP PERSPECTIVES We have strengthened the managerial capabilities of small and and emerging countries make equity investments in Sub-Saharan midsize firms in a number of countries, training more than 20,000 Africa and other frontier markets. We are helping raise standards entrepreneurs--many of them women--through the IFC Business and reform regulations to ensure that development is both envi- Edge program. We helped increase the availability of credit, as- ronmentally and socially sustainable. sisting in providing nearly 7 million microfinance loans and more IFC's adaptability reflects a determination to measure our per- than 500,000 housing finance loans. Through our clients we reach formance, learning what works and where we need to improve. more micro-entrepreneurs than any other development finance Our Development Outcome Tracking System allows us to make institution. Our work in oil, gas, mining, and chemicals helped changes during the life of an investment or advisory project. Our generate more than $9 billion in revenues for governments-- overall strategy has taken on many recommendations from IFC's funds that can be used to help reduce poverty. Independent Evaluation Group, which called on us to adopt tai- These results reflect our ability to adapt to changes in clients' lored country-specific strategies and collaborate more intensively needs and in global economic conditions. Over the last few years, across the World Bank Group. The expertise and versatility of our we have decentralized more of our operations, moving more staff also play an indispensable role in our ability to meet clients' key staff to the field, so that they are closer to clients. To provide rapidly changing needs. Our employees' dedication to sustain- the integrated solutions that clients need, we have significantly able development is the cornerstone of our success--in 2008 and stepped up our advisory services business. To ensure the greatest always. I am proud to be part of such a diverse and talented team, overall impact, we have increased cooperation with colleagues and I thank our staff for achieving another year of strong results. across the World Bank Group and with many other partners who Strong and sustainable economic growth depends, ultimately, share our commitment to the development of emerging markets. on the ability of governments and private enterprises to harness We are helping clients turn longer-term challenges into op- productive capacities throughout a society. It involves creating jobs portunities for growth that improves lives. Emerging economies and entrepreneurship opportunities for women, for people in rural have an opportunity, for example, to balance the need for jobs areas, and for groups on the economic and social margins. This and basic services with a sound approach to climate change. IFC's means reaching communities--even in countries that are making financing and technical expertise are helping clients find the right rapid economic progress--that prosperity has bypassed. And it mix of energy sources and make the best use of new technolo- means giving the billion people who still live in severe poverty a gies. We are designing innovative business models and financial chance at a better life. instruments that can deliver cleaner energy and help protect the Creating opportunity for people is at the core of our business. environment. To help developing countries produce more food, At IFC we will continue to do our part--and seek ways to expand we are also working on several fronts, investing to expand the our contribution--for an inclusive and sustainable world. supply of high-quality water, helping remove local constraints on Much more remains to be done. agricultural lending and land use, building farmers' capacity, and finding new ways to insure crops. IFC has a central role in implementing the World Bank Group's strategy. In conflict-affected countries, we have helped create jobs by steering foreign investment to small local firms. We are Lars H. Thunell developing ways to help sovereign wealth funds from developed IFC Executive Vice President and CEO IFC A N N U A L REPORT 2008 13 OUR MANAGEMENT GROUP IFC's strategy and policies are shaped by a team of executives who bring a rich diversity Dorothy Berry VICE PRESIDENT, HUMAN RESOURCES, of knowledge, skills, experience, and cultural COMMUNICATIONS, AND ADMINISTRATION perspectives to our work. The Management Group--consisting of our chief executive and vice presidents--leads the way in managing IFC's growth and ensuring that we maximize our development impact while responding swiftly to clients' needs. It is working to expand our capacity to serve the poorest countries and regions by decentralizing operations, empowering IFC staff, and making our business processes more efficient. This year, a member of the group became Farida Khambata the first vice president to be based outside VICE PRESIDENT, ASIA, LATIN AMERICA, AND GLOBAL MANUFACTURING our Washington, D.C., headquarters. Our top executives are also helping foster a corporate culture that will reinforce IFC's ability to serve clients, adapt to their changing needs, and increase our contribution to the sustainable development of emerging markets. Michel Maila VICE PRESIDENT, RISK MANAGEMENT 14 I F C A NNUAL R E P ORT 2 0 0 8 LEADERSHIP PERSPECTIVES Declan Duff Krystallina Georgieva Rashad Kaldany VICE PRESIDENT, REAL SECTORS AND VICE PRESIDENT AND CORPORATE VICE PRESIDENT, MIDDLE EAST, NORTH AFRICA, EUROPE AND CENTRAL ASIA SECRETARY AND GLOBAL INFRASTRUCTURE Michael Klein Rachel Kyte Jyrki Koskelo VICE PRESIDENT, FINANCIAL AND VICE PRESIDENT, BUSINESS VICE PRESIDENT, EUROPE, CENTRAL ASIA, PRIVATE SECTOR DEVELOPMENT, ADVISORY SERVICES AND GLOBAL FINANCIAL MARKETS AND IFC CHIEF ECONOMIST Jennifer Sullivan Nina Shapiro Thierry Tanoh GENERAL COUNSEL VICE PRESIDENT, FINANCE VICE PRESIDENT, SUB-SAHARAN AFRICA AND TREASURER AND WESTERN EUROPE IFC A N N U A L REPORT 2008 15 CREATING OPPORTUNITY In developing and transition countries around the world, as many as 2.6 billion people live on less than $2 a day. Economic growth at the national level, often strong in recent years, has barely altered the circumstances they face. Most of these people have no bank accounts, and many lack telephones. Access to clean water, electricity, and basic health care remains unattainable for many. Their plight illustrates the uneven progress of the global drive to reduce poverty. Regional disparities abound: the number of impoverished people has dropped sharply in East Asia but climbed in Sub-Saharan Africa. Even in the more prosperous middle-income countries, more than a billion people still live on the economic fringes, struggling for basic necessities. IFC aims to help people at the bottom of the economic pyramid. We recognize that they constitute an important, often untapped market and that a strong, sustainable private sector can play a critical role in improving their lives. Our investments and advice also help tackle the social and environmental problems that impose a particularly high burden on the poor. IFC's activities are guided by five strategic principles... 16 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY IFC A N N U A L REPORT 2008 17 1 STRATEGIC PILLARS Strengthening the Focus on Frontier Markets IFC goes where we are needed most, reaching the underserved wherever they are--in the poorest countries, in the poorer regions of middle-income countries, and in industry sectors that have the broadest potential to spur development and improve lives. Our priorities in these areas--the frontier markets--include strengthening small and medium enterprises; intensifying our effort to promote agribusiness; devising innovative solutions to revive the private sector in conflict-affected countries; and stepping up our collaboration with other World Bank Group entities to serve the poorest countries. 18 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY 2 STRATEGIC PILLARS Building Enduring Partnerships with Emerging Market Players IFC's experience has shown that we achieve better development outcomes when we form long-term relationships with our clients. These partnerships allow us to guide our clients' development and extend the benefits of economic growth by helping IFC CLIENT LEADERSHIP AWARD Each year IFC presents an award to recognize a highly successful them invest in other developing countries. They also corporate client that, in line with our vision and purpose, has allow us to help raise standards and strengthen the made a significant contribution to sustainable development. This year's recipient, CPFL Energia, is Brazil's largest private electricity overall business climate. Our priorities in this arena company. Since it became an IFC client in 2003, CPFL has include financing South-South investment, which brought electricity to a million new customers and created more than 7,000 jobs, while making exemplary efforts to reduce energy increases the flow of capital, skills, and technology losses and mitigate climate change. In 2007, it spent $36 million across the developing world; helping our clients in on reforestation and other environmental programs. The energy efficiency of its small hydroelectric plants is allowing it to sell a integrating smaller local businesses into supply chains; growing number of carbon credits. CPFL's corporate governance and improving corporate governance and tackling practices are among the best in Latin America. Its achievements have been accompanied by consistent financial success, with HIV/AIDS and other challenges to development. earnings rising more than 20 percent a year. IFC's financing helped CPFL restructure and prepare for an initial public offering in 2004. Its success has helped attract investment to the power sector in Brazil, a country that as recently as 2001 had needed to ration electricity. IFC A N N U A L REPORT 2008 19 IFC'S CLIMATE CHANGE STRATEGY Tackling climate change is a priority for IFC; our efforts complement and support the World Bank Group's overall strategy. We are helping direct private investment to opportunities in emerging markets and are developing sound business models for clients. We also are working with donors to provide seed funding for innovations in clean energy. In FY08, we significantly expanded this focus, supporting 44 investments that involve energy efficiency and renewable energy. Together these mobilized an overall investment above $10 billion. IFC directly provided $1.4 billion, 60 percent of it for hydroelectric projects. In keeping with the Bank Group's pledge to increase funding for clean energy by 20 percent annually, IFC's investments in this area grew by 64 percent in FY08. We launched the carbon delivery guarantee, a new product that allows companies producing and selling carbon credits to access more buyers by 3 STRATEGIC PILLARS mitigating risk (see p. 37). With resources provided by the Global Environment Facility and other Addressing Climate Change donors, we oversee a diverse portfolio of more than $200 million that is helping make climate-friendly and Ensuring Environmental innovations commercially viable by reducing costs and removing barriers to market development. and Social Sustainability IFC requires clients to inform us when their carbon emissions exceed 100,000 tons a year, and this leads to productive discussions on how they The least developed countries face long-term obstacles to can improve energy efficiency and adopt cleaner sustained prosperity. Climate change poses a particularly high risk technologies. We are also helping identify sector- based opportunities for climate-friendly investment, for their people, many of whom depend on agriculture, forestry, beginning with a study in China. and fisheries for their livelihoods and have a limited or unreliable water supply. Social inequities also limit many people's economic potential. IFC priorities for addressing these challenges include developing new business models and financing instruments for clean energy; setting and improving environmental and social standards for the private sector; and promoting economic inclusion by increasing opportunities for women entrepreneurs, people in rural areas, and disadvantaged groups. 20 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY 4 STRATEGIC PILLARS Promoting Private Sector Growth in Infrastructure, Health, and Education Economic growth is easier to achieve when people's basic needs--energy, transportation, housing, access to clean water--are met. It occurs faster when people have good access to education and health care. But governments in many developing countries invest far less than they need to in infrastructure, education, and health care, while private investors could do more to help fill the gap. IFC helps increase access to basic services by financing landmark infrastructure projects; expanding investment and advisory services in the health and education sectors; and collaborating across the World Bank Group to maximize our development impact. IFC A N N U A L REPORT 2008 21 5 STRATEGIC PILLARS Developing Local Financial Markets A shortage of sophisticated financial services presents a key obstacle to people and private enterprises in many developing countries. Businesses, both large and small, are often denied loans because they are considered a poor credit risk. IFC has made it a priority to broaden access to finance and deepen capital markets by expanding the availability of microfinance and credit for small and medium enterprises; introducing new products that help lower financial risks, especially through local currency financing; and mobilizing finance from international banks and other investors. 22 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY DOING OUR PART: IFC'S CONTRIBUTION TO THE WORLD BANK GROUP'S PRIORITIES The vision of the World Bank Group is to contribute to an inclusive and sustainable globalization--to over- come poverty, enhance growth while caring for the environment, and create individual opportunity. At IFC we are doing our part on all six of these themes, each of which has an important private sector component. The Poorest Countries Middle-Income Countries The Arab World Helping overcome poverty and spur Building a competitive menu of Supporting those who are advancing sustainable growth in the poorest development solutions for middle- development and opportunity in the countries, especially in Africa. IFC in- income countries, involving customized Arab world. IFC's investments in the vestments and advisory work in countries services as well as finance. IFC's advice is Middle East and North Africa have more served by IDA now account for 40 per- strengthening the business climate in many than doubled over the last two years, cent of our projects. We aim to increase middle-income countries, and we have ini- and we are helping to modernize infra- the proportion to 50 percent over the tiated innovative projects involving housing structure and expand affordable housing next three years. finance and public-private partnerships. across the region. Fragility and Conflict Global Public Goods Knowledge and Learning Addressing the special challenges of Playing a more active role with Fostering a knowledge and learning countries that are emerging from regional and global public goods agenda across the World Bank Group conflict or seeking to avoid the on issues crossing national borders, to support its role as a brain trust breakdown of the state. IFC has 250 including climate change, HIV/AIDS, of applied development experience. ongoing investment and advisory projects malaria, and aid for trade. IFC is IFC's system for monitoring and evalua- in 36 conflict-affected countries, including defining standards in the world financial tion is helping set best practice standards Afghanistan, Liberia, and Sierra Leone. We community as banks continue to adopt for assessing the results of private sector have nearly 200 staff based in 21 of these and apply the Equator Principles, a set of engagement in emerging markets. countries. guidelines promoting social and environ- mental sustainability in project finance. IFC A N N U A L REPORT 2008 23 WHERE WE WORK IFC helps the private sector do its part to create opportunity and improve lives in emerging markets around the world. k In the poorest countries, we work with a wide array of partners to provide the advisory services and financing that allow private enterprises to develop and grow. k In middle-income countries, where the majority of the world's poor people live, we help the private sector extend its reach to people and regions that have not yet shared in the benefits of economic growth. k In all developing markets we help companies and financial institutions raise operating standards, improve their sustain- ability, and become more globally competitive. DEEPENING IFC'S PARTNERSHIP WITH IDA IFC has stepped up cooperation with the International Devel- opment Association, the World Bank Group's lead agency for assisting the world's poorest countries, which together with the International Bank for Reconstruction and Development forms the World Bank. During FY08 we began a net transfer of $1.75 billion to IDA's current three-year funding cycle; IFC's funding matches IBRD's contribution for the first time. Our greater stake in IDA reflects growing awareness of the role the private sector plays in helping the poorest countries reduce poverty and improve people's lives--and recognition that IFC is uniquely positioned to galvanize private investors in these markets. While IDA will continue to focus primarily on public sector projects, a new IDA/IFC Secretariat has been created to pursue opportunities for increasing joint Bank Group efforts that support private sector development in the countries IDA serves. Joint projects typically involve an IDA credit or guarantee, CONNECTING MORE PEOPLE TO alongside an investment or advisory services from IFC, in the A GROWING ECONOMY Brazil's economy is thriving, but the benefits have yet to reach many context of a shared strategy. So far, 10 projects have been parts of the country. In the northeastern state of Ceara, one of Brazil's identified for focused support from a pipeline of potential poorest, fewer than seven in 100 people had fixed-line telephones collaboration. These include the financial sector throughout until recently in the small towns of Aracati, Quixada, Quixeramobim, Africa; rural electrification in India; access to energy in Liberia, and Russas. Service was simply too expensive. IFC is helping change Rwanda, Senegal, and Zambia; hydropower in the Lao PDR; that. In 2008, we financed the expansion of Ruralfone Inc., which and infrastructure in the Pacific islands. IFC has already col- focuses on markets that others have considered unprofitable: towns and villages of fewer than 30,000 people. Using wireless technology, laborated with IDA in a number of ways, notably to support Ruralfone provides fixed-line service at one of the world's lowest micro, small, and medium enterprises in Sub-Saharan Africa. rates--as little as $2 a month. In the four towns it serves so far, this For more about IDA, visit www.worldbank.org/ida. has sharply increased the percentage of people with fixed lines. IFC's investment of up to $6 million is expected to help Ruralfone expand service to 10 more towns in Ceara over the next year. 24 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY IFC AT A GLANCE This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of This map was produced by the The World Bank Group, any judgement Map Design Unit of The World Bank. on the legal status of any territory, or The boundaries, colors, denominations any endorsement or acceptance of and any other information shown on this such boundaries. map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IDA Middle-income countries with frontier regions Other client countries IFC fosters sustainable private sector growth in developing countries. STRONG SHAREHOLDER SUPPORT LARGEST COUNTRY EXPOSURES (JUNE 30, 2008) United States 24% Global Rank Country Portfolio ($ millions) Percent Japan 6% 1 India 2,876 9 France 5% 2 Russian Federation 2,718 8 Germany 5% 3 Brazil 2,487 8 United Kingdom 5% 4 China 2,150 7 Canada 3% 5 Turkey 1,806 6 India 3% 6 Mexico 1,000 3 Italy 3% 7 Argentina 998 3 Russia 3% 8 Philippines 898 3 170 other countries 43% 9 Colombia 877 3 10 Indonesia 830 3 IFC A N N U A L REPORT 2008 25 IFC AT A GLANCE DEVELOPMENT RESULTS BY REGION DEVELOPMENT RESULTS BY INDUSTRY 439 ($9,848) 71% IFC 439 ($9,848) 71% IFC 23 ($533) 52% Agribusiness 65 ($677) 62% Sub-Saharan Africa 123 ($1,829) 59% Global Manufacturing and Services Regional Department Industry Department 33 ($411) 64% Middle East and North Africa 14 ($84) 71% Health and Education 66 ($1,353) 65% East Asia and the Pacific 45 ($1,048) 73% Infrastructure 110 ($3.095) 67% Latin America and the Caribbean 23 ($317) Global Information and 74% Communication Technologies 41 ($785) 76% South Asia 21 ($680) 76% Oil, Gas, Mining, and Chemicals 116 ($3,286) 84% Europe and Central Asia 40 ($500) 78% Private Equity and Investment Funds ($240) 88% World (multiregion) 149 ($4,855) 81% Global Financial Markets 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 % Rated High d h % Rated High DOTS data as of June 30, 2008, for projects approved in calendar 1999-2004. DOTS data as of June 30, 2008, for projects approved in calendar 1999-2004. Bars at top include the number of projects rated and total IFC investment in them (in $ millions). Bars at top include the number of projects rated and total IFC investment in them (in $ millions). FINANCIAL PERFORMANCE AND DEVELOPMENT OUTCOME 126 98% Excellent Performance Rating 126 98% Excellent DOTS Financial Performance Rating 153 97% Satisfactory DOTS Financial 153 97% Satisfactory Partly 56 46% Unsatisfactory Partly 56 46% 100 0% Unsatisfactory Unsatisfactory FY08 Investments in 100 0% Unsatisfactory 0 10 20 30 40 50 60 70 80 90 100 Energy Efficiency and Development 60 70 80 0 10 20 30 40 50 Outcome 90 100 Development High % Rated Outcome % Rated High Renewable Energy: DOTS data as of June 30, 2008, for projects approved in calendar 1999-2004. Bars include the number of projects with this financial performance rating. $1.4 billion FY08 COMMITMENTS BY Visit www.ifc.org/annualreport ENVIRONMENTAL AND SOCIAL CATEGORY Category* Commitments for more information on ($ millions) A B $814 $4,904 sustainability, including C FI $1,841 $3,642 a Global Reporting N** $197 Initiative index. *See category descriptions on p. 38. **N refers to increased commitments on existing projects or swaps and rights issues 26 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY For IFC's own account as of June 30, 2008: $32.4 billion COMMITTED PORTFOLIO BY REGION COMMITTED PORTFOLIO BY INDUSTRY Europe and Central Asia 28% Global Financial Markets 38% Latin America and the Caribbean 25% Global Manufacturing and Services 18% East Asia and the Pacific 14% Infrastructure 16% Middle East and North Africa 11% South Asia 11% Oil, Gas, Mining, and Chemicals 11% Sub-Saharan Africa 10% Agribusiness 7% Global 1% Global Information and Communications Technology 4% Technologies 4% Private Equity and Investment Funds 4% Health and Education 2% Subnational Finance 1% For IFC's own account as of June 30, 2008: $11.4 billion INVESTMENTS BY REGION INVESTMENTS BY INDUSTRY 123 ($1,829) 59% Global Manufacturing and Services Latin America and the Caribbean 26% Global Financial Markets 40% Europe and Central Asia 24% 14 ($84) 71% Health and Education Infrastructure 21% East Asia and the Pacific 14% 45 ($1,048) 73% Global Manufacturing Infrastructure and Services 12% Middle East and North Africa 13% Global Information and 23 ($317) 74% Oil, Gas, Mining, and Chemicals 10% Communication Technologies Sub-Saharan Africa 12% 21 ($680) 76% Agribusiness 7% and Chemicals Oil, Gas, Mining, South Asia 11% Private Equity and Global 0.4% 40 ($500) 78% Private Equity and Investment Funds Investment Funds 3% 149 ($4,855) 81% Information and Global Financial Markets Communication Technologies 3% 10 20 30 40 50 60 70 80 90 100 Health and Education 3% Some amounts include regional shares of investments that are officially classified as global projects. % Rated High See regional sections for details. Subnational Finance 0.4% DOTS data as of June 30, 2008, for projects approved in calendar 1999-2004. Bars at top include the number of projects rated and total IFC investment in them (in $ millions). INVESTMENTS BY PRODUCT IFC also mobilized $4.8 billion Loans* 50% in FY08 through syndications, Loan syndications 22% Equity** 15% structured and securitized Guarantees 12% Risk management products 1% products, sales of IFC loans, and parallel loans. * Includes loan-type, quasi-equity products ** Includes equity-type, quasi-equity products IFC A N N U A L REPORT 2008 27 IFC AT A GLANCE $ millions FY04 FY05 FY06 FY07 FY08 Investment commitments Number of projects 217 236 284 299 372 Number of countries 64 67 66 69 85 Total commitments signed 5,632 6,449 8,275 9,995 14,649 For IFC's own account 4,753 5,373 6,703 8,220 11,399 Syndication mobilization 879 1,076 1,572 1,775 3,250 Structured finance mobilization* 480 1,049 1,245 2,083 1,403 Investment disbursements Total financing disbursed 4,115 4,011 5,739 7,456 9,921 For IFC's own account 3,152 3,456 4,428 5,841 7,539 Syndication mobilization 964 555 1,311 1,615 2,382 Committed portfolio** Number of firms 1,333 1,313 1,368 1,410 1,490 Total committed portfolio 23,460 24,536 26,706 30,954 39,923 For IFC's own account 17,913 19,253 21,627 25,411 32,366 Syndication mobilization 5,546 5,283 5,079 5,543 7,525 Includes first commitment to projects in the fiscal year. Projects involving financing to more than one company are counted as one commitment. Includes syndicated loans and guarantees. For FY08 only, commitments and portfolio include participation sales for IFC's own account. *This financing is not included on IFC's balance sheet. **Total committed portfolio and syndication mobilization include securitized loans. IFC's FY08 Financial Statements and Management's Discussion and Analysis are published online at www.ifc.org/annualreport. U.S. dollar 31% Australian dollar 31% New Zealand dollar 10% Canadian dollar 9% South African rand 9% Japanese yen 5% Brazil real 3% Turkish lira 2% Euro 0.1% 28 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 1: CREATING OPPORTUNITY EXPENDITURES BY REGION EXPENDITURES BY BUSINESS LINE Sub-Saharan Africa 28% Corporate Advice 27% Europe and Central Asia 20% Access to Finance 25% Global 17% Business Enabling Environment 23% East Asia and the Pacific 13% Infrastructure 13% Latin America and the Caribbean 8% Environmental and Social Sustainability 12% Middle East and North Africa 7% South Asia 7% 100 80 Project Count 60 40 20 0 0.26 to 3 10.1 to 20 50.1 to 80 120 or greater IFC and Resource Mobilization Amount ($millions) IFC and Resource Mobilization Amount ($ millions) FOR IFC AND OTHER MULTILATERALS 50 40 Total IFC* US$ Billions $ Billions 30 20 10 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 *IFC's data is by fiscal year; other institutions' data is by calendar year. For example, IFC's FY08 financing is compared to others' for calendar year 2007. IFC A N N U A L REPORT 2008 29 WHAT WE DO: IFC'S OPERATIONS AND RESULTS IFC provides a unique combination of investment and advisory services to promote the sustainable growth of private enterprises in emerging markets. In developing countries, the essential ingredients for private entrepreneurship are often missing. Commercial banks are unable to provide long-term financing to local businesses. Financing dries up entirely in times of national crisis. Businesses lack crucial technical know-how. IFC delivers what cannot be obtained elsewhere. We offer clients a unique package of products and services aimed at helping local businesses grow quickly and sustainably. We call that special edge our "additionality." It is both the foundation of our decision-making and a key reason that clients choose to work with us. We provide local currency loans at maturities that otherwise would be unavailable. We provide long-term financing, including equity, even in crisis situations. We make additional funds available by arranging loan syndications and structured finance transactions. We transfer global expertise to our clients, providing advice that makes them more competitive and steadily improves their business practices. We help create a friendly climate for entrepreneurship by working with the World Bank to advise governments on regulatory reforms. Our distinguishing trait, ultimately, is the way we measure our own performance--by the tangible ways we improve the lives of people in our client countries. 30 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS 2 IFC A N N U A L REPORT 2008 31 32 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS Silvia Baños is a woman of modest means. When she MAKING A DIFFERENCE looks at her teenage son, she sees the future. "The only inheritance I can leave him is his career," she says. "That's why I do all I can for him to finish his profession- al studies." In Mexico, people with university degrees usually earn at least twice as much as those without. But few can afford higher education. Only 2 percent of potential univer- sity students in Mexico have access to student loans. IFC is helping change that. Today Baños' son, Guillermo, is studying communi- cations at one of the country's top private universities, Univer- sidad Tecnológica de México. He attends classes on loans he received from IMPROVING FINEM, a privately owned student loan institution that LIVES obtained its early financing from IFC. Our loan is helping finance the education of more than 1,400 students. IFC stimulates economic PHOTO: Guillermo Baños applies for a loan that allows him to study at a top growth where it is most private university. urgently needed. In places where the poor might otherwise be left behind, we play a catalytic role. We spur entrepreneurship. We help our clients create jobs. We help ensure that development is not accompanied by high environmental and social costs. IFC A N N U A L REPORT 2008 33 FINANCIAL RESULTS IFC's liquid asset portfolios, net of derivatives and securities lending activities, increased by $1.3 billion in FY08 to $14.6 IFC is the largest provider of multilateral financing for the billion. Income from liquid assets, net of allocated funding private sector in the developing world. Our financial perfor- costs, amounted to $222 million, including $2 million of mance for FY08 continued its recent strong trend despite spread income from market-funded liquid assets, as compared the downturn in global markets. Operating income was $1.4 to $320 million and $14 million, respectively, in FY07. billion in FY08, a decline of $1.2 billion when compared with Administrative expenses on the financial statements rose $2.6 billion in FY07 (as restated). Operating income comprises 14 percent to $549 million in FY08, compared to an increase net income before net unrealized gains and losses on other of 11 percent to $482 million in FY07. nontrading financial instruments accounted for at fair value. The equity investment portfolio continued to contribute In FY08, we committed $11.4 billion for our own account most to IFC's profitability. IFC's move to measure more of and mobilized an additional $4.8 billion. The total project cost its balance sheet at fair value beginning in FY08 has made for these investments was $43 billion. Altogether, we support- our earnings more volatile, particularly in the current market ed 372 investments in 85 countries. We also approved 299 environment. new advisory projects in 75 countries. Total expenditures for IFC'S FINANCIAL PERFORMANCE HIGHLIGHTS advisory services were $269 million ($123 million from IFC and ($ MILLIONS) $146 million from donors), a 37 percent increase from FY07. 2007 2008 IDA projects account for 45 percent of FY08 investments and CLIENT SERVICES--OPERATING INCOME 2,269 1,216 more than 55 percent of new advisory projects. Loans and guarantees 235 163 There was strong growth across all our product lines. On Equity investments 2,200 1,532 the balance sheet, the disbursed loan portfolio increased 21 Debt securities 6 129 percent to our largest-ever volume of $15.3 billion. The eq- Expenditures for advisory services (96) (123) uity portfolio grew by $1.3 billion to $11.0 billion (measured at fair value), and the fair value of IFC's holdings of debt Expenditures for performance-based grants - (27) securities amounted to $1.6 billion at June 30, 2008 (up from Grants to IDA (150) (500) $0.7 billion at the end of FY07). Guarantees signed at June Corporate charges and other 74 43 30, 2008, totaled $1.9 billion (compared to $1.4 billion at the IFC TREASURY SERVICES--OPERATING INCOME 320 222 end of FY07). IFC OPERATING INCOME 2,589 1,438 IFC's net worth consists of retained earnings, accumulated other comprehensive income, and paid-in capital. Our paid-in Further details on IFC's financial results can capital remains $2.4 billion, while net income of $1.5 billion be found in IFC's FY08 Financial Statements this year increased retained earnings to $13.2 billion, of which and Management's Discussion and $0.8 billion has been designated for specific Board-approved Analysis, which are published online; purposes. Accumulated other comprehensive income was $2.7 visit www.ifc.org/annualreport. billion at June 30, 2008. IFC's net worth at the end of FY08 was $18.3 billion. Overall, our operating return on average net worth was 9.7 percent in FY08, compared to 21.0 percent in FY07. Net income for FY08, including gains and losses on nontrading financial instruments, was $1.5 billion, compared with $2.5 billion for FY07 (as restated). The main factors in the lower net volume were lower realized capital gains on equity sales, lower income for liquid asset trading activities, and a higher grant to IDA. 34 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS INVESTMENT COMMITMENTS INVESTMENT PORTFOLIO New investment commitments for IFC's own account amounted IFC's committed portfolio, including off-balance sheet guaran- to $11.4 billion. This represents an increase of 39 percent com- tees and risk management products, increased by 28 percent pared to $8.2 billion in FY07. IFC also mobilized $4.8 billion. to $32.4 billion on June 30, 2008, from $25.4 billion at the The largest share of commitments for IFC's own account went end of FY07. In addition, we managed $7.5 billion in syndica- to Latin America and the Caribbean (26 percent) and Europe and tions. At the end of FY08, the committed portfolio included Central Asia (24 percent). The business sectors with the highest investments in 1,490 companies in 122 countries. volume of new commitments were global financial markets with The net increase in the committed portfolio was $6.8 billion 40 percent, followed by infrastructure with 21 percent. after taking into account new commitments, repayments, sales, Disbursements for IFC's own account in FY08 were $7.7 cancellations, prepayments, write-offs, and translation adjust- billion, up from $5.8 billion in FY07. Loan disbursements were ments. Loan principal repayments and prepayments totaled $5.1 billion, and equity disbursements were $1.6 billion. IFC also nearly $2.7 billion, and $463 million in equity investments and invested $1.0 billion in debt securities of our client companies. debt securities were sold or redeemed. The total disbursed investment portfolio stood at $21.1 billion at the end of FY08, compared with $16.2 billion at the end of FY07. The disbursed loan portfolio grew by 21 percent, LOCAL CURRENCY FINANCING IFC uses local currency financing to help clients mitigate foreign while the disbursed equity portfolio grew by 46 percent. exchange risk and to develop local capital markets. Including equity, IFC provided about a third of our financing and investment in local currency during FY08. Using market-based instruments, IFC provides local currency debt financing in several forms: loans, risk management swaps that allow clients to hedge foreign currency liabilities back into local currency, and credit enhancement structures that enable clients to borrow in local currency from other sources. IFC has committed more than $5 billion equivalent in local cur- rency using derivatives, for 170 investments in 23 currencies. This form of financing uses long-term derivatives markets, and IFC works closely with market counterparts and government regulators to extend the availability and liquidity of these markets. In FY08, IFC committed its first local currency loans in Argentina, Costa Rica, Ghana, Guatemala, Kenya, and Zambia, and we were particularly active in providing financing in Brazilian reais, Russian rubles, and South African rand. IFC is at the forefront of domestic capital market development. Through participation in the structuring and credit enhancement of transactions, IFC has helped introduce new asset classes. Transactions have not only enabled IFC's clients to secure attractive long-term local currency financing, but have also been catalysts in expanding numer- ous domestic markets. Since 2001, IFC has completed 79 domestic market structured transactions in 25 currencies for an exposure of $1.04 billion equivalent; we have assisted in mobilizing more than $4.5 billion equivalent. IFC A N N U A L REPORT 2008 35 PRODUCT LINES SYNDICATIONS IFC's syndicated loan program, the oldest among multilateral LOANS development banks, helps increase the flow of private capital IFC finances projects and companies through loans for our to borrowers in emerging markets and creates valuable bank- own account, generally for seven to 12 years, though some ing relationships for our clients. Borrowers benefit from longer loans have been extended for tenors as long as 20 years. We maturities and from IFC's preferred credit status with regulators, also make loans to intermediary banks, leasing companies, and rating agencies, and Basel II. The program grew significantly other financial institutions for on-lending, particularly to smaller in FY08, achieving its highest volume ever, with $3.3 billion in businesses. new loans signed (compared with $1.8 billion in FY07), com- In FY08, we made commitments for $7.37 billion in new prising 29 syndicated loans, one parallel loan, and participa- loans. Income from loans and guarantees amounted to $1.1 tion sales of four loans for IFC's own account--a total of 34 billion in FY08, virtually unchanged from FY07. Total reserves transactions with 47 financial institutions. against losses on loans decreased to $848 million at the end of Amid global financial instability sparked by the U.S. sub- FY08, representing 5.5 percent of the disbursed loan portfolio, prime crisis, syndicated loans are important in helping IFC fulfill down from 6.5 percent at the end of FY07. its countercyclical role. During FY08, IFC syndicated more than $1.03 billion in credit facilities for bank borrowers in EQUITY INVESTMENTS Latin America and Russia, helping maintain their liquidity and Equity investments provide the long-term developmental enabling continued growth. To compensate for lower appetite support that entrepreneurs and private enterprises most need, among traditional European and North American participants, with deliberate assumption of risk as well as participation in we have expanded our base to include leading banks from gains. These investments also provide opportunities to support emerging economies. In FY08, 34 percent of participants in IFC reforms, particularly in corporate governance. syndications were from emerging markets. IFC also adapted IFC risks its own capital by buying shares in companies, the syndications program to enable the sale of existing loan other project entities, financial institutions, and portfolio or exposure for our own account. private equity funds. This is a strategic and expanding part of our portfolio. The equity portfolio grew by $1.3 billion in FY08 STRUCTURED AND SECURITIZED PRODUCTS (measured at fair value). Equity investments also contribute a IFC uses structured and securitized products to provide clients significant share of IFC's net income. with cost-effective forms of financing that would not otherwise We generally subscribe to between five and 20 percent of be readily accessible. Products include partial credit guarantees, a company's equity. We are long-term investors and usually structured liquidity facilities, portfolio risk transfer, securitiza- exit by selling shares in a trade sale or, if liquidity permits, in tions, and Islamic finance. We use our expertise in structuring a capital market following a public offering. We also invest in and our international triple-A credit rating to help clients diver- quasi-equity instruments, which may have loan, debt, or equity sify funding, extend maturities, and obtain financing in their investment characteristics. Our equity and quasi-equity invest- currency of choice. Through such transactions we mobilized a ments are funded from IFC's retained earnings. total of $1.9 billion for clients in FY08, including $459 million Income from our equity investment portfolio declined to from our own account. Half of transactions were for clients in $1.7 billion in FY08, from $2.3 billion in FY07. As of June 30, Africa and the Middle East, with 70 percent of the total in local 2008, the estimated fair value of the equity portfolio was $11.0 currency. billion, compared to IFC's original cost less impairment of $4.3 billion. Capital gains realized on equity sales were $1.4 billion in FY08, down from $1.9 billion in FY07. 36 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS We worked in new markets, including Bangladesh, Leba- non, Rwanda, Tunisia, the United Arab Emirates, and the West Bank and Gaza, as well as with repeat and new clients in established markets. IFC has evolved as a leading innovator, meeting client needs and promoting development of domestic credit markets. Through these products, IFC provides financing in underserved markets and priority sectors and mobilizes long- term local currency financing. This year in the Middle East, for example, we created a novel risk-sharing facility that expanded SMEs' access to finance and supported the sector's recovery from the conflict in Lebanon, helped students access loans through an innovative risk-sharing facility in the West Bank and Gaza, and merged Islamic and modern finance to achieve the first Sharia-compliant securitization of mortgages in the Persian Gulf region. TRADE FINANCE The IFC Global Trade Finance Program extends and comple- ments banks' capacity to deliver trade financing by providing risk mitigation in challenging markets. During FY08, IFC issued over $1.4 billion in guarantees to support more than 2,000 individual trade transactions. We have issued $2.5 billion worth of guarantees for more than 3,000 individual transactions since the program began in 2005. We now provide risk coverage for 122 banks across 61 countries and territories, including Burundi, Gambia, Nepal, Nicaragua, Tajikistan, and the West Bank and Gaza. IDA countries--most of them in Africa--accounted IFC'S CARBON DELIVERY GUARANTEE: A NEW for 51 percent of the total volume of guarantees issued in PRODUCT FOR CLIMATE-FRIENDLY INVESTMENT FY08. Trade involving small businesses represented 70 percent. IFC helps companies maximize their potential for clean energy, includ- IFC also offers support to client banks through training and ing by generating and selling carbon credits. The Clean Development Mechanism of the Kyoto Protocol allows companies to sell these advisory services. In FY08, over 500 bankers from 148 banks credits, known as certified emission reductions, in global commodity attended training, and seven banks received specialized advi- markets when they reduce their output of environmentally harmful sory services. The agriculture sector is a focus going forward, substances. One of IFC's innovative products is the carbon delivery through products such as commodities pre-export finance and guarantee, which helps sellers access a wide range of potential buyers import finance for agricultural products. In FY08, 28 percent of by mitigating country and project risk. Through this new financial prod- the guarantees issued supported this critical sector. uct, IFC acts as an intermediary by facilitating delivery of carbon credits from companies in developing countries to buyers in the developed world. For sellers, IFC attempts to achieve an attractive and transparent price; for buyers, we eliminate the risk of not receiving the promised carbon credits. During FY08, IFC signed innovative carbon delivery guarantee agreements with two chemicals companies: Rain CII Carbon in India, the largest producer of calcined coke in the world, and South Africa's Omnia, one of the country's leading fertilizer producers. The invest- ments underlying these transactions will reduce greenhouse emissions equivalent to 12.5 million tonnes of carbon dioxide over the estimated life of the assets. IFC A N N U A L REPORT 2008 37 ADVISORY SERVICES OPERATIONS IFC provides advice to governments, private companies, and in- dustry sectors on how to grow businesses sustainably as well as IFC PERFORMANCE STANDARDS to create a positive investment climate. Advisory work comple- Our performance standards have rapidly become a globally ments IFC's investment operations and plays a key role in mar- recognized best practice for environmental and social risk kets with nascent investment opportunities. This work, funded management. (See p. 107 for details of their adoption by in partnership with governments and other donors and through financial institutions.) Applying the standards since April 2006 client contributions, is the lead instrument for IFC operations in has not significantly increased IFC's cost of doing business or many countries, especially those that are emerging from conflict. the time we need to process investments. Clients indicate that IFC provides advisory and investment services sequentially or in the strong environmental and social risk framework provides combination, depending on the needs of a country or client. a reason to engage with IFC, and in certain markets it gives We have organized our advisory work in five business IFC a clear competitive advantage. In a survey we conducted lines that correspond with our operational strategy: business 18 months after the standards were implemented, 72 percent enabling environment, access to finance, corporate advice, of clients that IFC had asked to meet requirements of the environmental and social sustainability, and infrastructure (see standards indicated that the cost in meeting them would not p. 90 for more information on the business lines). impact their decision to return to IFC for financing. IFC's experience has shown that combining advisory work During FY08, 282 investments approved by IFC's Board with investments enhances both profitability and development applied the performance standards as an initial screen. Of impact. Hence we increasingly provide integrated solutions for these, 143 in the real sector were deemed to involve potential clients; about 27 percent of advisory services were aligned with significant adverse impacts, or limited impacts, resulting in IFC investments. the in-depth application of some or all of the performance In FY08, our project implementation expenditures for standards. An additional 29 investments were considered to advisory services were $152 million in 97 countries. The larg- involve minimal or no impacts. Our 110 investments with fi- est shares of advisory activity went to Sub-Saharan Africa (28 nancial intermediaries were processed under a new procedure percent) and Europe and Central Asia (20 percent). The most designed to enable IFC to determine the appropriate standard, active business lines were corporate advice (27 percent) and local law, or exclusion requirements in an institution's opera- access to finance (25 percent). tions, depending on the riskiness of its portfolio. See also Donor governments provide the largest share of contribu- "Engaging with Stakeholders" (p. 116). tions, but IFC's contribution has increased, using part of our retained earnings, as has fee income from clients. We have es- IFC INVESTMENT PROJECT CATEGORIES tablished pricing guidelines for our advisory work based on two guiding principles. First, where possible, all clients should make Expected to have significant adverse social or environmental A impacts that are diverse, irreversible, or unprecedented some contribution, to demonstrate commitment. Second, cost- sharing is determined according to the nature of the product or service--the extent to which a public good, with benefits Expected to have limited adverse social or environmental impacts B that can be readily addressed through mitigation measures beyond the individual client, is being created. FUNDING FOR ADVISORY SERVICES Expected to have minimal or no adverse impacts; includes certain ($ MILLIONS) C financial intermediary investments Source FY07 % FY08 % IFC 95.6 50% 123.1 46% Investments in financial intermediaries that have no adverse social FI or environmental impacts but that may finance subprojects with Donor and other* 94.9 50% 145.6 54% potential impacts Total 190.5 100% 268.7 100% * Other includes client fees and investment income 38 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS PORTFOLIO MANAGEMENT IFC PERFORMANCE STANDARDS IFC monitors compliance with investment agreements, visits 1. Social and Environmental Assessment and Management sites to check on project status, and helps find solutions where System Underscores the importance of conducting integrated as- concerns arise. To strengthen supervision, we have portfolio sessment and effective community engagement, and of managing social and environmental performance throughout the life of an management units in all investment departments. This helps investment. identify concerns and address them early on. An investment credit risk-rating system also supports this process. We ensure 2. Labor and Working Conditions Ensures that the pursuit of economic growth through job creation and income generation is that banks participating in IFC loans are kept informed of balanced with protection of workers' basic rights. project developments, consulting them or seeking their consent 3. Pollution Prevention and Abatement Mitigates the higher when needed. levels of air, water, and land pollution that increased industrial We continuously track our portfolio's development results, activity and urbanization often generate. including financial, economic, and environmental and social 4. Community Health, Safety, and Security Minimizes risks and performance. impacts on the health, safety, and security of local communities as IFC has been calculating an environmental and social risk a result of project activities. rating (ESRR) for applicable investments since 2000. The rating 5. Land Acquisition and Involuntary Resettlement Protects and is given and updated, typically once a year, by our environmen- improves the livelihoods of displaced persons when resettlement is tal and social specialists and is based on reports provided by unavoidable. Covers consequences from loss of shelter, income, or clients and on-site visits. The frequency of visits depends on an livelihoods due to project-related land acquisition. investment's risk rating and how it performs. 6. Biodiversity Conservation and Sustainable Natural With the launch of new performance standards in 2006, Resource Management Protects biodiversity and promotes IFC introduced a methodology that allows us to disaggregate sustainable management and use of natural resources. data on performance and risk components for all investments 7. Indigenous Peoples Ensures that the development process following the standards. We give an ESRR to investments that fosters full respect for indigenous peoples. have some degree of risk (as reflected by their categorization 8. Cultural Heritage Protects cultural heritage from adverse impacts as A, B, or FI) and that have passed their first reporting period. of project activities and supports its preservation. IFC has environmental and social risk knowledge on 82 percent For more information, see http://www.ifc.org/ifcext/ of the portfolio, including investments with no expected risk sustainability.nsf/Content/PerformanceStandards (category C) and investments that have not passed their first reporting milestone (normally after 14 months). We do not up- date ESRRs on investments that have no remaining IFC funding. Research at IFC since 2003 finds that there is a positive and significant correlation between environment and social risk and credit risk in IFC's investments. Our most recent research, in 2006, indicated that around 85 percent of loan investments with an ESRR of 4 (high risk) also carry a high credit risk rating. In the case of equity investments, research has shown that IFC investments that are assessed to have less environmental and social risk also yield significantly higher rates of return on investment. IFC A N N U A L REPORT 2008 39 TREASURY SERVICES TAKING RISKS--AND MANAGING THEM IFC funds its lending by issuing bonds in international capital As part of our strategy to increase IFC's impact on development, markets and has been the first multilateral institution to issue we are looking more closely and comprehensively than ever at bonds in the local currencies of many emerging markets. the risks we can afford to take in support of the private sector Most of IFC's lending is denominated in U.S. dollars, but we in our client countries. This holistic approach should allow us borrow in a variety of currencies to diversify access to fund- to do more when markets are favorable, as they have generally ing, reduce borrowing costs, and develop local capital markets. been in the last several years, and as we continue implement- Because most loans IFC makes are denominated in U.S. dollars ing our plans to grow and decentralize, with more of our on a floating-rate basis, most borrowings were swapped into operations close to clients. Risk management also allows us to floating-rate U.S. dollars. IFC's borrowings continued to keep guard against downturns, so that we can continue our work pace with our lending. New borrowings in the international and provide financing in markets that are experiencing crises. markets totaled $5.99 billion equivalent in FY08. IFC is managing risks to protect our capacity to lend and invest, both to IDA country borrowers and those in middle-income Liquidity Management countries who are returning to IFC as private lenders pull Liquid assets on the balance sheet totaled $14.6 billion on back from riskier markets. Details of our risk management are June 30, 2008, compared with $13.3 billion a year earlier. Most discussed in the Management's Discussion and Analysis, online liquid assets are held in U.S. dollars, with small euro and Japa- at www.ifc.org/annualreport. nese yen balances. The level of these assets is determined with a view to ensuring sufficient resources to meet commitments ASSESSING THE RISKS OF CLIMATE CHANGE even during times of market stress. Climate change presents challenges to IFC, both to understand the vulnerability of our own investment portfolio and to help companies CAPITAL ADEQUACY AND in developing countries adapt. Investments potentially at risk include FINANCIAL CAPACITY hydropower stations and companies that rely on agricultural and timber supplies, making them particularly exposed to rising tempera- All of IFC's operations require that we maintain our capital tures, changes in the timing and amount of rainfall, and the impact of adequacy and financial capacity. severe storms. Our capital adequacy ratio at the end of FY08, which To enhance our understanding and contribute to broader knowl- includes paid-in capital, retained earnings (adjusted for some edge in the development community, IFC is working with selected accounting items that do not count as available capital), and clients in Asia and Sub-Saharan Africa to examine in depth the possible general reserves compared with risk-weighted assets, both on- impact of climate change on their operations and explore strategies to adapt. We will look at risks to IFC during the expected time an and off-balance sheet, stood at 48 percent. This is well above investment is on our books, as well as risks to the client over the life the policy minimum of 30 percent, defined under the capital of a project. adequacy framework adopted by the Board of Directors in May We will assess the availability of data for climate modeling, 1994. IFC's leverage ratio--outstanding borrowings and guar- the applicability of climate models for a particular location, and the antees measured in relation to the sum of subscribed capital relevance of specific climate variables. We aim to assess the potential and retained earnings--was 1.4 to 1, well within the limit of 4 impact of climate change on financial returns and to identify options for adaptation, such as new insurance products, that could help to 1 prescribed by our financial policies. reduce the most significant risks. IFC's paid-in capital, retained earnings, and general loan loss reserves constitute our financial capacity. This financial capital serves to support the existing business, accommodate medium-term growth opportunities and strategic plans, and provide a buffer to withstand shocks or crises in some client countries or more general market downturns, while retaining capacity to preserve our triple-A rating and play a countercycli- cal role. IFC's current and projected capacity over the medium term is considered adequate for these purposes. 40 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS DEVELOPMENT OUTCOME: INVESTMENTS DEVELOPMENT RESULTS Examples of specific General indicators and Performance area indicators assessed IFC's Development Outcome Tracking System--known as benchmarks against targets DOTS--measures the development effectiveness of our invest- Numbers for connec- ment and advisory work. Returns to society, e.g. tions to basic services, Economic performance economic returns at or loans to small enterpris- Beginning with last year's report, IFC is the first multilateral above 10% es, people employed, tax payments development bank to report on current development results Return on invested for its entire portfolio and to have an external firm review the Returns to financiers, capital, return on e.g. financial returns Financial performance equity, project cost application of its methodology and reported results, as part of at or above weighted implemented on time average cost of capital assurance for nonfinancial aspects of our reporting. This year, and on budget we are also reporting on changes to development results for Improvements in envi- ronmental and social investments as compared to last year, and, for advisory services, Environmental and social Project meets IFC's per- management, effluent performance formance standards or emission levels, com- on the results of in-depth evaluations. During FY08 we also munity development launched a development results portal (www.ifc.org/results) to outlays supplement information in the printed report. Number of companies Project contributes to replicating innovations IFC's evaluation framework for investments aligns with Private sector develop- improvement for the by IFC's client company; good practice standards for private sector evaluation agreed ment impact private sector beyond changes in laws, regula- the project company tions, or corporate among multilateral development banks. governance HOW WE MEASURE RESULTS DOTS allows for real-time tracking of results throughout the project cycle. Staff identify clear, standardized, and monitorable For advisory projects, we report on the percentage of indicators, with baselines and targets, at the outset of a project. projects that have received a high rating--in the top They then track progress throughout supervision, which allows half of the rating scale (highly successful, successful, for contemporaneous feedback into operations. For invest- or mostly successful) for IFC overall and for the five ments, the overall development outcome is a synthesis of advisory business lines. four performance areas that are informed by achievement of DEVELOPMENT OUTCOME: ADVISORY OPERATIONS industry-specific indicators. For advisory services, it is a synthe- sis of the overall strategic relevance, effectiveness (as measured Examples of specific General indicators and Performance area indicators assessed against by project outputs, outcomes, and impacts), and efficiency of benchmarks targets the advisory operation. To obtain a high development outcome rating, a project must make a positive contribution to the host Potential impact on local, Client contributions, align- Strategic relevance regional, national economy ment with country strategy country's development. This report provides the percentage of investments that have Cost-benefit ratios, project Returns on investment in Efficiency implemented on time and advisory operation achieved a high rating--in the top half of the rating scale--for IFC budget overall and for specific departments. We describe departmental Improvements in opera- Project contributes to tions, investments enabled, performance, compared with the IFC average, as follows: improvement for the client, jobs created, increase in Effectiveness the beneficiaries, and the revenues for beneficiaries, broader private sector cost savings from policy Strong .......................................... 10% or more above reforms Above average ..................................... 5 - 10% above Solid ................................... within 5% of the average Moderate .............................................. 5 - 10% below Weak ............................................ 10% or more below IFC A N N U A L REPORT 2008 41 IFC'S DEVELOPMENT RESULTS FOR INVESTMENTS INVESTMENT RESULTS IFC's development results improved substantially compared to Development 439 71 71% Outcome ($9,848) 87 87% last year, with the percentage of investments with high devel- Financial 64 64% opment outcomes rising from 63 to 71 percent this year. This Performance 82 82% improvement is evident in all regions and nearly all industries, Economic 70% 70 Performance 85 85% and in part it reflects improving economic conditions and Environmental &and 65 65% investment climates. Social Performance 68% 68 Results weighted by IFC's investment volume were even Private Sector 76 76% stronger, with the percentage of projects with high develop- Development Impact 90 90% ment results increasing from 81 percent in FY07 to 87 percent 0 20% 20 40 40% 60% 60 80 80% 100% 100 in FY08. Weighted results are higher in all regions and indus- % Rated High tries, but particularly in Sub-Saharan Africa, East Asia and the Unweighted (number Weighted by size of IFC of projects) investment ($ millions) Pacific, agribusiness, information and communication technolo- DOTS data as of June 30, 2008, for projects approved in calendar 1999-2004 gies, and manufacturing and services. This indicates that, on Bars at the top include the number of rated projects for the unweighted series, and total IFC investment rated ($ millions) for the weighted series average, larger investments and companies perform better. This is due in part to a higher risk profile for small businesses and investments, and in part to the fact that larger companies have IFC'S DEVELOPMENT RESULTS BY INDUSTRY economies of scale, often with better management and corpo- 71% 71 87 87% IFC rate governance, and thus find it easier to overcome difficult 52% 52 Agribusiness business environments. 75% 75 59% 59 Global Manufacturing and Services Our analysis finds that economic conditions and the invest- Industry Department 78% 78 71% 71 Health and Education ment climate in our client countries are major contributors to 90% 90 73% 73 Infrastructure strong or weak results. Notably, IFC investments approved in 83% 83 74% 74 the late 1990s in Latin America--including some early ones 94% 94 Information and Communication Technologies 76% 76 in this year's cohort--were affected by the 2001 Argentine 94% 94 Oil, Gas, Mining, and Chemicals 78% 78 crisis, whereas more recent results from the region look much 91% 91 Private Equity and Investment Funds 81% 81 stronger. IFC has also achieved strong results in Europe and 91% 91 Global Financial Markets Central Asia, where several countries were among the stron- 10 20 30 40 50 60 70 80 90 100 % Rated High gest reformers in recent years, according to IFC and the World Bank's annual Doing Business report, which compares the ease Unweighted Weighted by IFC Investment of doing business in 178 economies worldwide. Conversely, moderate results in Africa and the Middle East, particularly in small-scale manufacturing and services, are attributable in IFC'S DEVELOPMENT RESULTS BY REGION part to poor investment climates. In response, IFC has adjusted 71% 71 IFC 87% 87 its strategy, substantially increasing advisory services to help 62% 62 Sub-Saharan Africa 93% 93 improve business environments. 64% 64 Regional Department 66% 66 Middle East and North Africa 65 65% 84% 84 East Asia and the Pacific 67 67% 79 79% Latin America and the Caribbean 76 76% 84% 84 South Asia 84% 84 97% 97 Europe and Central Asia 88 88% 99% 99 World (multiregion) 10 20 30 40 50 60 70 80 90 100 % Rated High Unweighted Unweighted Weighted IFC Investment Weighted by by IFC Investment 42 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS DEVELOPMENT REACH BY IFC'S CLIENT COMPANIES ADVISORY RESULTS CY 2006 CY 2007 Overall, 67 percent of advisory projects had high development Investments Portfolio Portfolio results in FY08; these results are pending further validation by Employment Provided* 694,380 1,918,040 the Independent Evaluation Group. The recently completed Microfinance loans advisory services client survey showed that 77 percent were sat- Number 4.3 million 7.0 million isfied with the quality of advisory services provided by IFC, with Amount $5.0 billion $7.9 billion the satisfaction levels even higher (88 percent) among clients SME loans who paid for these services. Number 0.7 million 1.0 million Amount $52 billion $86 billion IFC'S DEVELOPMENT RESULTS FOR ADVISORY SERVICES Customers reached with services: IFC Water distribution 15.5 million 18.2 million Environmental and Social Sustainability Business Line Power distribution 9.5 million 11.4 million Corporate Advice Gas distribution 10.6 million 8.2 million Business Enabling Environment Phone connections 121.4 million 138.0 million Access to Finance Patients reached 5.7 million** 5.5 million** Infrastructure Students reached 353,000 675,500 10 20 30 40 50 60 70 80 90 100 Local purchases of goods and services* $29.1 billion $54.3 billion % Rated High Contribution to government revenues or savings $14.4 billion $17.3 billion * Selected departments only **Includes just over one million patients in a hospital chain in India, in which IFC has a 1.3% equity stake. Some CY06 data have been revised. Data for 2007 (but not 2006) includes employment by companies in health and education (47,315) and RESULTS: AN INTEGRATED VIEW supported through funds (601,774), and contribution to government revenues or savings by companies supported through agribusiness ($747 million) and information and communication technologies ($ 955 Going forward, IFC's results reporting will help stakeholders million). understand how our investments and advisory work fit together. In infrastructure, for example, IFC makes direct investments and advises governments on private sector participation in infrastructure services. Our FY08 investments and advisory projects will combine to mobilize WHAT DOTS COVERS over $2 billion, reach 61 million customers, and provide revenues or IFC's Development Outcome Tracking System covers all active projects savings of $16.5 billion for host governments. IFC's active infrastruc- in our portfolio, for both investments and advisory services. The ture portfolio in CY07 mobilized private investments of $10 billion, process starts by setting initial objectives, using standard indicators by which reached 431 million customers, and contributed $5.4 billion to industry or business line, and tracking achievements throughout the government revenues or savings. project cycle until closure. k For investments, DOTS covers all 1,272 companies in supervi- sion, and this report focuses on 439 investments approved between 1999 and 2004 that are mature enough to be rated. Every year the cohort of investments we report on shifts by one year. Newer investments are not mature enough to be evaluated, whereas older ones are less relevant for today's operations and may already have closed. We also address the current reach of all active investments in IFC's portfolio. Reach indicators measure the number of people reached by goods and services provided by IFC clients, or the dollar benefit to particular stakeholders affected by the activities of IFC clients. k For advisory services, this report focuses on projects for which completion reports were prepared between June 2007 and June 2008. We also address results from supervision reports of current projects. The periods for which these results are reported differ by business line and specific area. IFC A N N U A L REPORT 2008 43 LEARNING AND USING RESULTS Reaching underserved groups in IDA countries IFC uses development results to inform our strategy, operations, and frontier regions and incentives at all levels. At the strategic level, results are To work in the places where IFC is needed most and to incorporated in departmental and corporate strategy sessions; improve our results, we increasingly direct investments and ad- results are also reviewed and discussed at the portfolio level. visory services toward IDA countries and frontier regions--the Teams responsible for an individual investment or advisory poorer, less developed areas of middle-income countries. IFC project are also required to specify in project documents how today has a much higher share of portfolio in IDA countries, lessons learned are being applied. especially among newer investments, than do foreign investors in general. Our investments need partners--other investors Assisting SMEs typically put up at least $3 for every $1 from IFC--and this IFC has revamped its approach. We focus on providing support can pose a challenge in difficult environments. IFC's advisory to SMEs through financial intermediaries, which proves much services are even more heavily concentrated in IDA countries, more effective. In Sub-Saharan Africa, we used to reach about as they are often needed as a first step that improves the likeli- 50 enterprises through direct investments, at considerable cost hood of success when investing in these environments. Our to IFC; last year, by comparison, financial intermediaries IFC advice often focuses on addressing gaps in access to infra- had invested in provided over 220,000 loans to micro, small, structure or financial services in IDA countries, and on helping and medium enterprises Following a review and cleanup of the investment clients there incorporate local SMEs in their supply portfolio, our financial markets investments in Africa now have chain. IFC also tracks investments in frontier regions, where strong development results. These now frequently combine our investments are increasing as well. investments with advisory services, and a recent IEG evaluation of financial intermediaries supporting SMEs in frontier markets shows that this combination increased the likelihood of high development results by more than 20 percent. 44 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS IFC's countercyclical role In-depth evaluations to assess impacts When country conditions deteriorate, IFC needs to be ready to Assessing long-term impacts from IFC's activities, including their step in. Our analysis shows that during country crises, when impact on poverty, is difficult for both investments and advisory foreign investors tend to withdraw, IFC increases its exposure. services. For example, at the time an advisory project closes, its We continue to support strong projects and sponsors that would impact has often not yet materialized. ordinarily have access to financing, but who suddenly find them- To provide more in-depth assessment for advisory services, selves without it. IFC has had strong results in Russia and Turkey, in FY08 IFC completed 20 external evaluations. We started for example, where we were able to play this countercyclical role. 23 experimental or quantitative evaluations, eight of which were completed this year. For example, a quasi-experimental AFTER A CRISIS, IFC INVESTS AND GETS BETTER RESULTS evaluation showed that IFC's advisory services on privatization 17 country crises between 1994 and 2001 of dialysis in Romania resulted in 29 million euros of private · IFC increased exposure: 12 countries (71%) sector investment to upgrade public health infrastructure be- Foreign investors increased exposure: 5 countries (29%) tween 2005 and 2008, while the quality of service for patients · IFC's development results for investments approved: - three years before a crisis: 41% rated high improved markedly. - during crisis year: 45% rated high For investments, IFC is also launching several case studies - three years after a crisis: 67% high to understand our clients' development impact in more depth. We are working in collaboration with clients and will report ENHANCING RESULTS MEASUREMENT these findings publicly. Adjusting development results for risk IFC seeks to move into countries, regions, and sectors where PROJECT-LEVEL REPORTING we are needed most, often where risk is highest and prospects There is growing interest in project-level reporting on the for success are lowest. We are considering how best to adjust development results of IFC-financed investments. External our results to reflect the inherent risk when comparing results; interest is driven by a number of factors, including a desire to this will help ensure that weaker prospects for high develop- understand project sponsor performance against development ment results are not a disincentive to engage in more difficult outcome targets, particularly for more high-profile investments areas where IFC is most needed. where sponsors, and IFC for its part, may have committed to outcomes of importance to local communities. IFC senior man- Harmonizing results measurement within and beyond IFC agement has also expressed interest in better understanding k Within IFC, we have made much progress in standardizing issues and options around such reporting. the measurement framework and the indicators to compare During FY09, parallel to a three-year independent review and aggregate results across projects. Doing this across sectors of the sustainability and disclosure policies, IFC will carefully remains a challenge. We are studying how we can further review how we and our clients report project-level results harmonize results indicators between investments and advisory information. Any change in policy will reflect consultation with services to present a full picture of IFC's results. During FY09 clients as well as external stakeholders, our Board of Direc- we plan to introduce a new system, DOTS-2, that will cover tors, colleagues from across the World Bank Group, and other both investments and advisory services. multilateral institutions. k Beyond IFC: Our results measurement framework has been considered best practice among multilateral development banks. During FY08, IFC has shared our experience with the broader development community. For example, we organized results measurement conferences to exchange views with foundations and donors. We also responded to the task of developing private sector indicators for how institutions man- age for development results; the indicators were published in the March 2008 COMPAS report (online at http://www.ifc.org/ ifcext/devresultsinvestments.nsf/Content/Our_peers). IFC A N N U A L REPORT 2008 45 CONNECTING THE DOTS WHO BENEFITS FROM IFC PROJECTS AND HOW IFC-supported firms make a wide range of contributions in developing countries. Their growth and success benefit employees and their families, local communities, suppliers and other business partners, and the customers who buy what they produce. These firms also generate significant tax revenues for national and local governments. In many cases they are using IFC's funding and advice to upgrade environmental performance, strengthen corporate governance, and improve their management systems and adherence to industry standards. Often these firms help broadly stimulate the private sector, benefiting competitors and new entrants as well. For most IFC investments (84 percent), benefits to society exceeded profits to the financiers. In fact, we analyzed a representa- tive sample of 63 projects, and for every dollar of project costs (in total $7.75 billion, of which IFC had financed 13 percent), our clients generated almost a full extra dollar (about 88 cents) in value added over and above the costs--and these benefits were evenly split between investors and other stakeholders. We hope that the projects IFC approved this fiscal year--with total project costs of $43 billion--will show similarly strong results. 46 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 2: OPERATIONS AND RESULTS Employees Environment Government Last year, IFC's clients provided Many of IFC's clients are helping ad- Last year, IFC's clients generated hundreds of thousands of jobs. This dress climate change and advancing billions of dollars in government includes 700,000 in manufacturing environmental and social sustainability. revenues; this includes $9.2 billion and services, 380,000 in agribusiness, k IFC recently helped a Latin American from oil, gas, mining, and chemicals and 120,000 in oil, gas, mining, and ceramic tile company modernize its activities; $2.2 billion from manufac- chemicals. plant. Harmful emissions have been turing and services; and $4.0 billion k IFC's investment in one of the first reduced, improving air quality and low- from infrastructure. private cement plants in a North ering energy costs by 22 percent; the k A telecommunications client in Eastern African country resulted--directly and company also plans to use fully treated Europe has paid its host government indirectly--in the creation of over 2,000 wastewater for its manufacturing. over $10 million in taxes and telecom- jobs. k IFC helped a North African company munication fees since 2006. k Support for an Eastern European bever- become the world's first carbon black age manufacturer resulted in a near manufacturer to obtain ISO 14001 certi- Private Sector doubling of its workforce: from 4,000 in fication for environmental management. IFC's activities help companies and 2004 to 7,000 in 2006. other private sector partners in Local Communities developing countries address the Customers Local communities can be affected constraints to private sector growth. In 2007, IFC's clients: positively or negatively by projects, k IFC's investment in a global bank's foray k Had a portfolio of 8 million loans to and IFC's policies, processes, and into finance targeted to sustainability micro, small, and medium enterprises performance standards require our in Latin America resulted in three other totaling $94 billion. Of these, about clients to avoid or mitigate potential local banks undertaking similar credit 7 million loans were for microfinance. negative impacts and to help them activities in the region last year. k Provided basic utilities to over 184 enhance positive ones. Many of k IFC's investment in a private equity fund million customers; this includes water IFC's clients have active programs to in Asia has helped spur its outstand- distribution to 18 million people, power support the surrounding community. ing performance; since 2005, the fund generation and distribution to 158 mil- For example, last year our clients in manager has been able to raise three lion, and gas distribution to 8 million. oil, gas, mining and chemicals alone subsequent funds totaling over $2 bil- k Provided 50.6 million new phone con- spent $115 million on community lion, with very high participation from nections. development programs. commercial investors. k Provided health services to 5.5 million k A South Asian oil and gas client spent patients and education to 675,500 $1.16 million on community develop- Financiers students. ment programs, partnering with IFC to Profits are essential for private k IFC's investment in a private Asian fund a local economic development companies to be sustainable and to university helped 700 students graduate, program that includes skills training, attract more investment--in the 270 of them last year. About 70 per- local supplier development, and health company itself and through demon- cent had jobs within three months, 20 components. stration effects in other companies. percent continued their education, and k IFC helped transform a leading Middle 4 percent started their own business. Suppliers Eastern pharmaceutical client into a In 2007, IFC's clients generated mil- global company, with profit margins lions of dollars for local suppliers; this multiplying to five times the industry includes $47.2 billion in manufactur- average. ing and services and $7.1 billion in oil, gas, and mining. Agribusiness clients reached 806,000 farmers. k An agribusiness client engaged 180 East- ern European farms to supply apples. IFC A N N U A L REPORT 2008 47 REGIONAL OPERATIONS AND RESULTS IFC's global expertise allows us to strengthen private enterprises and improve the climate for entrepreneurship in emerging markets, focusing where the needs are most pressing. IFC provides investment and advisory services to clients in 130 countries, including a growing number of the least developed countries in Sub-Saharan Africa. More than 40 percent of our projects are in the poorest countries--those served by the World Bank's International Development Association. We also operate in middle-income countries, aiming to reach many of their people who still live on the economic margins. We have transformed IFC to meet our clients' changing needs, moving a growing number of staff to field offices nearer our clients. More than half our staff are based in field offices in 81 countries, up from 41 percent five years ago. We pursue opportunities where we can make the biggest difference, including in higher-risk emerging markets. Our approach has helped us achieve strong development results as well as profitability--income that lets us reinvest where the needs are greatest. In fiscal 2008, Latin America and the Caribbean accounted for the largest share of IFC commitments for our own account--26 percent. Our advisory services also continued to grow throughout the developing regions, with the largest project expenditures going to Europe and Central Asia and to Sub-Saharan Africa. 48 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS 3 49A IFC A N N U A L REPORT 2008 49 50 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS Jusueva Patiyla is a woman with a mission: keeping MAKING A DIFFERENCE her country's memories alive. She is the great- granddaughter of Kurmanjan Datka, a central figure in Kyrgyz history, and is preserving local traditions through the Kurmanjan Datka museum and other culturally based businesses she owns. A schoolteacher in Soviet times, she is a businesswoman today, reflecting the progress of the new Kyrgyz economy. None of this would be possible without the loans she received from IFC's local microfinance client, Bai Tushum. IFC has been helping DEEPER Bai Tushum adopt INTO THE a new business strategy, broaden its product range, and prepare to FRONTIER take customer deposits. With our help, its roster of Economic growth over borrowers has risen from 5,000 to more than 13,000, the last decade has and it will soon have the full-scale banking license reduced the number of it needs to become a much bigger player in one of people living in poverty. Central Asia's poorest countries. But progress has been PHOTO: Micro loans from an IFC client have turned Jusueva Patiyla, a former uneven. To address schoolteacher, into a businesswoman. these problems, IFC has expanded operations in the poorest countries while also working to spur development in the poorest regions of middle- income countries, where more than half of the world's poor still live. 51A IFC A N N U A L REPORT 2008 51 SU B-SAHAR A N A F RI C A A new chapter in Africa's development is being written. Fewer conflicts, expanding trade, and growing investments are helping reduce poverty and raise living standards. Pockets of conflict and instability remain, but peaceful resolution of disputes and sound macroeconomic policies are emerging. The result is strong growth--6.1 percent in 2007--with manageable levels of inflation and progress on budget deficits and foreign debt payments across the region. Many nations have begun to make slow, steady progress toward a better investment climate. Nonetheless, the region remains a challenge for IFC, requiring a focused strategy and devotion of significant resources. IFC has made that commitment, and we have begun to achieve significant results. IFC has three strategic priorities in the region: to accelerate and deepen our DEVELOPMENT RESULTS IFC STRATEGY support to SMEs, as they comprise the vast majority of Africa's private sector; IFC's investments clients provided financing for 222,000 MSMEs with a total volume of to catalyze large investment projects through proactive efforts that bring $2.4 billion this year. New telephone connections were added for 6.9 million customers, them to closure; and to bolster reforms of the investment climate that and $2.6 billion was raised in government payments. Development results were promote continued growth in overall private investment. In implementing moderate compared to IFC's average, driven largely by smaller manufacturing these priorities, we pay particular attention to regional projects that support investments that have suffered in difficult business environments. When weighted by cross-border trade and infrastructure, and to the needs of Africa's more investment size, however, Africa outperformed IFC's average. Both the financial sector, challenging investment environments, such as conflict-affected states. We with almost half of recent investments, and infrastructure, responsible for a substantial have expanded our staff in Africa and will decentralize decision-making portion of IFC's growth, have strong development results. Advisory services implemented further. The greater field presence is key to increasing IFC's impact and to by our regional facility, launched in 2005, are generating results: these include 15 laws or improving responsiveness to clients. A key part of this three-part focus on regulations changed to improve the business environment; new access to clean water in SMEs, proactive project development, and investment climate reform is our rural areas for more than 2 million people; 32,000 more Africans employed; new skills for advisory services, which we continue to expand in collaboration with key over 4,500 employees of small firms; a $34.1 million increase in MSME revenues; and partners. We are working more with the World Bank and MIGA in sectors $47.3 million in MSME access to finance tied to IFC investments. where public policy and private investment overlap, such as in infrastructure, extractive industries, and investment climate reform. The needs of clients SUSTAINABILITY continue to drive innovation in IFC products and services, for example in local IFC's leadership on sustainability faces a challenging environment in Africa, where currency finance, and in our approaches in conflict-affected countries. sustainability is often a focus only for large international firms; IFC has faced resistance from smaller firms and businesses that are outside of global supply chains. Still, we have NEW BUSINESS AND PORTFOLIO been able to build awareness in the private sector about potential benefits from Investment commitments reached $1.38 billion for 55 projects in 25 countries in sustainable practices. IFC is helping firms improve environmental and social performance, FY08, and we mobilized an additional $37 million through structured and securitized engage more with stakeholders, educate employees on key human and labor rights products. By number of projects, 88 percent of new investments are IDA projects, and issues, pursue community development plans, and link smaller businesses into their 13 percent are in conflict-affected countries. Our trade finance products have become supply chains. Our regional Lighting Africa program encourages businesses to design and an important entry point for reaching new markets, including Liberia, Sierra Leone, manufacture low-cost lighting sources for rural areas that have no access to electricity. and eight other countries. IFC supported leading financial services and retail IFC completed its first carbon finance operation in Africa, working with a fertilizer companies that are expanding in subregions of Africa; we also helped strengthen producer to reduce harmful emissions. Supported by advisory services, our cleaner regional communications with the East Africa cable (see p. 75). With rapid growth in production initiative encourages better techniques and equipment that reduce waste and investments, our portfolio expanded to $3.25 billion, up from $2.71 billion last year. costs. A new program encourages energy efficiency, especially in the mining sector. We also continue to increase our advisory work, with 191 programs underway in 30 countries, significantly ahead of our targets. The largest concentrations are in access WHAT WE HAVE ACHIEVED, to finance (25 percent), often linked closely to investments in financial institutions, AND WORK STILL TO BE DONE and corporate advice (32 percent). IFC sponsored the first Africa Reformers' Club IFC has exceeded its recent targets for growth in investments and advisory services in awards to recognize five countries that are leading global reformers as tracked by Africa. Yet enormous needs demand that we continue this growth. Challenges include Doing Business. In Liberia, IFC and FIAS helped the government design and improving service to clients, increasing the quality of our investments, and building implement 21 reforms, among the first results the new government can show in its long-term relationships. IFC is committed to achieving a bigger impact in conflict-affected commitment to support private investment. Major partners in IFC's advisory services countries and smaller markets where we have not yet been able to see substantial results. are the Netherlands, Switzerland, the African Development Bank, Sweden, Norway, We are exploring new models for public-private partnerships in infrastructure, which have Denmark, France, Japan, and the United Kingdom, along with companies that are not yet achieved their potential to mobilize new investment. We are developing a strategy direct beneficiaries. to respond to climate change that will provide new products and services to clients. High food prices pose severe hardships on food-importing countries and have fomented political instability, but they also present opportunities to increase food production and make it more efficient. To help address these needs, IFC plans to scale up support to food producers, processors, and the logistics and infrastructure firms they depend on. 52 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS ANGOLA · BENIN · BOTSWANA · BURKINA FASO · BURUNDI · CAMEROON · CAPE VERDE · CENTRAL AFRICAN REPUBLIC · CHAD · COMOROS · DEMOCRATIC REPUBLIC OF CONGO · REPUBLIC OF CONGO · CÔTE D'IVOIRE · DJIBOUTI · EQUATORIAL GUINEA · ERITREA · ETHIOPIA · GABON · THE GAMBIA · GHANA · GUINEA · GUINEA-BISSAU · KENYA · LESOTHO · LIBERIA · MADAGASCAR · MALAWI · MALI · MAURITANIA · MAURITIUS · MOZAMBIQUE · NAMIBIA · NIGER · NIGERIA · RWANDA · SENEGAL · SEYCHELLES · SIERRA LEONE · SOMALIA · SOUTH AFRICA · SUDAN · SWAZILAND · TANZANIA · TOGO · UGANDA · ZAMBIA · ZIMBABWE IDA COUNTRY MIDDLE-INCOME COUNTRY WITH FRONTIER REGIONS OTHER CLIENT COUNTRY ADDRESSING THE AGRICULTURAL DEVELOPMENT REACH MAKING A DIFFERENCE CHALLENGE Portfolio Portfolio New Business Expectations Soaring global food prices and demand for Indicator CY06 CY07 FY08 staples are putting pressure on farmers and MSME loans (number of loans) 173,960 222,830 166,730 other producers. IFC is helping improve the efficiency and development impact of MSME loans (volume in $ million) 2,610 2,440 1,310 agribusiness enterprises. IFC aims to sharply Power generated (millions of customers) 5.9 13.1 9.4 increase our investments to $400 million in the New phone connections (millions of customers) 10.6 6.9 1.0 next two to three years, up from less that $10 million last year. We made significant progress Employment 32,460 120,140 8,520 in FY08, committing $72.5 million in new Local purchase of goods and services ($ million) 541.4 1,074.7 25.1 investments in Ghana, Kenya, Tanzania, and Payments to government ($ million) 1,453 2,563 208 Uganda. To help countries address food prices, IFC will scale up investment and advisory Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. Some data from previous years have been revised. support to agribusiness operations in Africa and elsewhere. IFC aims to finance new investments as well as the expanding working capital PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES requirements of firms; to develop new financial ($ millions) FY07* FY08* Development 65 ($677) 62% instruments that facilitate commodities trade; Outcome 439 ($9,848) 71% Financing committed for IFC's account $1,379 $1,380 and to address such fundamental constraints as Financial 53% land titling, supply chains, and infrastructure. Loans $823 $541 Performance 64% We are also working with stakeholders to Economic Equity $160 $202 60% improve the sector's competitiveness and Performance 70% seeking further opportunities to engage with Guarantees and risk management $397 $638 Environmental and 60% agribusiness multinationals. Social Performance 65% Loan syndications signed $261 $0 Private Sector 66% HELPING CONFLICT-AFFECTED Total commitments signed $1,640 $1,380 Development Impact 76% BUSINESSES THRIVE AGAIN Committed portfolio for IFC's account $2,712 $3,252 Department 0 20% 40% 60% 80% 100% IFC is increasing our presence to help rebuild Committed portfolio held for others (loan and IFC % Rated High the private sector in Africa's conflict-affected $386 $326 guarantee participations) countries. In the Democratic Republic of Congo, DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $3,098 $3,578 calendar 1999-2004. Bars at top include the number of projects we are supporting new mining projects and rated and total IFC investment in them (in $ millions). *Includes regional shares of selected investments that are officially classified as working with the government to improve the global projects. investment climate. In Liberia, we have provided trade finance and advised the government on IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) attracting private investment to rebuild the COMMITMENTS Based on IFC's account, excluding individual country shares of regional electricity network. With IFC's help, the (financing in $ millions) FY05 FY06 FY07 FY08 and global projects. government passed a package of 21 reforms to Country Portfolio Development Number of projects 30 38* 52 55** ($ millions) Score* ease business registration, import-export operations, and land development. In Sierra Number of countries 14 11 17 25 Nigeria Leone, we are helping the government improve Financing for IFC's own account $445 $700 $1,379 $1,380 FY08 $587 44% the investment climate, strengthen the domestic Syndications $0 $0 $261 $0 FY07 $684 50% financial sector, and finance telecommunica- * Includes Veolia AMI tions. In the Central African Republic, IFC **Includes ECOM WC-IDA and Mixta Africa South Africa invested in Capital Financial Holdings, which FY08 $535 55% includes support for a local bank, and we began FY07 $349 45% an advisory program on investment climate Kenya reform. We expect to do more with local banks in these countries, including through our global FY08 $193 86% trade finance program. IFC is increasing local FY07 $185 86% staff presence in each of these countries. * Percent of tracked companies with high development results. 53A IFC A N N U A L REPORT 2008 53 EA ST A SIA AND T H E PA C I F I C Developing countries in East Asia and the Pacific grew by an average of 10 percent in 2007, consolidating the region's role as an anchor for economic growth. The benefits have not been fully shared, however, and over half a billion people still live on less than $2 a day. Poorer countries and lagging regions of larger countries, some affected by recent conflict, need a sustained commitment to upgrade infrastructure and create an enabling environment for a growing private sector. With two of the world's top three countries for greenhouse gas emissions--China and Indonesia--the region is contributing to climate change pressures that have consequences for the planet as a whole. During the fiscal year, the region faced many challenges, including macroeconomic instability, particularly in Vietnam, and a devastating earthquake in China. IFC is focusing advisory and investment services to help IDA countries and SUSTAINABILITY IFC STRATEGY frontier regions that have not participated in the region's growth, and we are By focusing on energy efficiency, renewable energy, clean technology, carbon finance, working to address climate change. To broaden our impact in frontier markets and sustainable forestry management, IFC is using investment and advisory services and small states, we are strengthening our investment teams in the Pacific to help the private sector address climate change. This was the focus of much of the island and Mekong countries, as well as Mongolia. We are working to $200 million in manufacturing and services investments during FY08. We are helping improve the investment climate, promote reform, and support private clients save energy and money in their production process, for example by generating investment through innovative financing structures. In frontier regions of electricity from waste heat, biomass, and other renewable sources. IFC energy China and Indonesia, which have 80 percent of the region's poor people, IFC investments and planned projects include wind, coal bed methane, and hydroelectric is using advisory services to stimulate investment in agribusiness and power. By supporting leading wood products companies, we are promoting the financing for rural areas and microenterprises. To help reduce climate sustainable sourcing of wood and helping lower the region's greenhouse gas pressures, we are focusing business development and product innovation emissions from deforestation. In January 2008, IFC signed an agreement with China's work on environmental sustainability. Ministry of Environmental Protection to introduce our environmental and social performance standards and expertise in sustainable finance. IFC is the first NEW BUSINESS AND PORTFOLIO organization to help China develop and strengthen its Green Credit Policy, which Investment commitments reached $1.63 billion for 60 projects in eight countries in aims to improve compliance with environmental regulations. IFC also continued to FY08, and we mobilized an additional $230 million through syndications and support responsible management practices in Indonesia's palm oil sector. structured and securitized products. By number of projects, 50 percent of new investments are IDA projects, and 22 percent are in frontier regions of middle-income WHAT WE HAVE ACHIEVED, countries. More than 48 percent were with new clients, and 27 percent focused on AND WORK STILL TO BE DONE SMEs. A growing number of investments (22 percent) have a significant climate To address the region's challenges, IFC is more active in IDA countries and in sectors change component. Our committed portfolio in the region reached $4.67 billion, with that have traditionally had the highest development impact here--infrastructure and the largest concentrations in the financial sector, infrastructure, and manufacturing. financial markets. We have tripled our infrastructure commitments over FY07, Our committed portfolio in the region reached $4.67 billion, with the largest particularly through climate change­related investments in China and a power sector concentrations in the financial sector, infrastructure, and manufacturing. IFC had privatization program in the Philippines. We also expanded our advice to govern- more than 130 active advisory projects, with a total value of $150 million. Major ments on public-private partnerships for infrastructure, with new mandates signed in partners in regional advisory work include Australia, Canada, Finland, Japan, the Indonesia, Vanuatu, and Vietnam. Financial markets represented half of IFC Netherlands, New Zealand, and the United Kingdom. investments in IDA countries during FY08. We helped Vietnam cope with the impact of macroeconomic volatility and supported the recovery of Sichuan through efforts to DEVELOPMENT RESULTS restart financing (see box, p. 123). We financed the first private telecommunications In 2007, IFC's clients had 1.2 million MSME loans outstanding worth $17 billion, operator in the Pacific and launched an initiative to increase our investment presence generated power for 13 million customers, distributed water to nearly 6 million in the region. We also supported a major conference on microfinance in Mongolia customers, and provided 5 million new phone connections. IFC investments achieved that highlighted mobile banking and other emerging technologies. Going forward, IFC moderate development results and a significant improvement over the previous year. is building momentum to help IDA countries participate more fully in the region's The improvement was driven mainly by strong performance of infrastructure, financial dynamic growth. markets, and health and education investments. Manufacturing investments had weaker performance, mirroring the pattern in other regions. Compared with FY07, performance improved substantially in Cambodia, China, and Indonesia, even as IFC focused increasingly on the most difficult frontier markets. Advisory work in supply-chain development is supporting livelihoods for thousands of small farmers in rural China and conflict-affected communities of Mindanao in the Philippines. Our work on secured transactions in China, coupled with the creation of the country's first movable assets registry, resulted in $270 billion in assets being formally registered. 54 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS REPUBLIC OF KOREA LAO REPUBLIC · MALAYSIA · MARSHALL ISLANDS · MARSHALL ISLANDSOF CAMBODIA · CHINA · FIJI · INDONESIA · KIRIBATI · LAO PEOPLE'S DEMOCRATIC PEOPLE'S DEMOCRATIC REPUBLIC MALAYSIA FEDERATED STATES MICRONESIA · MONGOLIA · MYANMAR · PALAU · PAPUA NEW GUINEA · PAPUA NEW GUINEA FEDERATED STATES OF MICRONESIA MONGOLIA MYANMAR PALAU PHILIPPINES · REPUBLIC OF KOREA · SAMOA · SOLOMON ISLANDS · THAILAND · PHILIPPINES SAMOA SOLOMON ISLANDS THAILAND TIMOR-LESTE · TONGA · VANUATU · VIETNAM IDA COUNTRY MIDDLE-INCOME COUNTRY WITH FRONTIER REGIONS OTHER CLIENT COUNTRY IMPROVING THE BUSINESS DEVELOPMENT REACH MAKING A DIFFERENCE ENABLING ENVIRONMENT Portfolio Portfolio New Business Expectations Improving the business climate is a major thrust Indicator CY06 CY07 FY08 of IFC's advisory work in East Asia and the Pacific. Pacific. MSME loans (number of loans) 310,940 1,231,560 1,856,750 Working with FIAS and the World Bank, IFC has an active portfolio of more than 30 projects in the MSME loans (volume in $ million) 12,842 17,030 4,870 region. Our strategy involves working with client Power generated (millions of customers) 18.5 13.4 9.9 governments to address impediments highlighted Water distribution (millions of customers) 5.1 5.9 - in the World Bank Group's annual Doing Business survey; this includes developing a better Patients reached 800,930 1,268,490 485,500 regulatory framework and marketing their New phone connections (millions of customers) 10.0 5.2 0.18 improved business environment to potential Employment 97,209 484,370 16,000 investors. During FY08, IFC worked in Indonesia, the Lao PDR, Timor-Leste, Tonga, and Vietnam to Local purchase of goods and services ($ million) 3,540 3,647 930 highlight how specific reforms at the national specific Payments to government ($ million) 443 451 1,214 level could improve the business climate. IFC and Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. definitions Some data from previous years have been revised. the World Bank jointly launched a Pacific regional Pacific program that will help Papua New Guinea, the Solomon Islands, Tonga, and Vanuatu. PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES These initiatives are expected to help Development ($ millions) FY07* FY08* 66 ($1,361) 65% improve the countries' Doing Business Outcome 439 ($9,848) 71% indicators. At the subnational level, IFC and Financing committed for IFC's account $944 $1,634 Financial 56% China's Academy of Social Sciences recently Loans $654 $1,134 Performance 64% launched the first Doing Business report first Equity $220 $287 Economic 61% covering 30 Chinese cities. In the Philippines a Performance 70% similar benchmarking review covered 21 major Guarantees and risk management $70 $212 Environmental and 68% business centers. Social Performance 65% Loan syndications signed $128 $59 Private Sector 68% FINANCING ENERGY EFFICIENCY Total commitments signed $1,072 $1,693 Development Impact 76% IN CHINA AND BEYOND Committed portfolio for IFC's account $3,579 $4,671 Department 0 20% 40% 60% 80% 100% The innovative IFC China Utility-Based Energy Committed portfolio held for others (loan and IFC % Rated High Efficiency Finance program expanded in FY08; Efficiency guarantee participations) $599 $519 IFC is combining a risk-sharing facility with DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $4,178 $5,190 calendar 1999-2004. Bars at top include the number of projects advisory assistance to build Chinese banks' rated and total IFC investment in them (in $ millions). capacity to finance energy efficiency investment. finance efficiency *Includes regional shares of selected investments that are officially classified as officially classified global projects. We provided Industrial Bank in China with $100 million to help it extend 1.5 billion renminbi IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) ($210 million) in energy efficiency loans. Projects efficiency COMMITMENTS Based on IFC's account, excluding individual country shares of regional these loans support are expected to reduce (financing in $ millions) (financing FY05 FY06 FY07 FY08 and global projects. carbon emissions by 5 million tons a year, the Country Portfolio Development Number of projects 40 41* 38** 60*** ($ millions) Score* equivalent of replacing ten 100-megawatt coal-fired power plants in China. To date, IFC's coal-fired Number of countries 11 5 8 8 China partner banks have made 57 loans totaling Financing for IFC's own account $740 $982 $944 $1,634 FY08 $2,150 62% $180 million under the program; most go to Syndications $72 $243 $128 $59 FY07 $1,680 43% SMEs that are implementing energy efficiency efficiency Phillipines projects. IFC has launched similar models in * Includes Soco Facility and Avenue Asia ** Includes Italcementi Indonesia, the Philippines, and Vietnam. *** Includes ECOM WC-IDA and Aloe 2 FY08 $898 45% FY07 $411 53% Indonesia FY08 $830 83% FY07 $743 60% 55A * Percent of tracked companies with high development results. IFC A N N U A L REPORT 2008 55 SO UTH A SIA South Asia is home to more poor people than any other region: more than a billion people here live on less than $2 a day. While economic growth has been strong, averaging 8.1 percent a year across the region over the last three years, inequality has been rising. India, in particular, presents a complex challenge. Large sections of the population, particularly in rural areas, remain untouched by the benefits of growth; 31 of India's 35 states and territories have incomes comparable to those of IDA countries. To distribute benefits more evenly, the region's infrastructure development and rural growth--including job creation--are urgent priorities. Climate change, which disproportionately affects the poor, is a particularly pressing challenge. IFC's three key priorities for the region are to promote economic inclusion by financial institutions have helped over 15,000 SMEs access finance. Our advice has IFC STRATEGY increasing access to infrastructure and financial services and by supporting introduced efficiencies that save steel mills $2.5 million a year, supported productivity growth in rural areas and lagging regions; to mitigate and adapt to climate improvements in the garment industry, and helped some 19,000 poultry farms in change; and to encourage regional economic integration. We deliver on these Bangladesh raise incomes by $1.3 million. priorities with a coordinated program of investment and advisory projects. To enhance economic inclusion, our rural growth strategy encourages investment SUSTAINABILITY in agribusiness and rural finance and infrastructure. We work with financial The region faces serious challenges related to sustainability; the most urgent relate to intermediaries to help smaller companies access finance and provide climate change. In addition to financing a growing portfolio of renewable energy and long-term sustainable finance for infrastructure projects. Through advisory clean technology investments, we help generate energy efficiency revenue streams for services we partner with client companies to enhance local economic linkages, clients through innovative carbon finance products. IFC also provides reimbursable HIV/AIDS prevention programs, and corporate governance. We work with grants to clients in energy-intensive sectors (pulp and paper, cement) to help them clients on cleaner production, energy efficiency, and carbon finance and reduce energy and water consumption. In India, we are funding private sector­led promote clean energy by investing in hydropower and wind projects and projects that demonstrate the sustainability and scalability of renewable, off-grid cleaner coal technologies. We also work with national and subnational power generation. We worked with India's Bureau of Energy Efficiency and the governments to improve the investment climate for all investors. Alliance to Save Energy on a guide for building local capacity to develop, finance, and implement energy efficiency projects. Going forward, we will expand our work NEW BUSINESS AND PORTFOLIO beyond climate change mitigation, to support adaptation efforts by private Investment commitments reached $1.26 billion for 37 projects in five countries in companies and national and subnational governments. To support rural development, FY08, and we mobilized an additional $28 million through structured and secure ties IFC has partnered with Cairn India in a remote part of Rajasthan on vocational skills products. All of these investments are IDA projects. We invested $590 million of this development, a dairy project to enhance household incomes, and a child and (47 percent) in infrastructure, including $460 million in power and $130 million in maternal health awareness initiative. logistics and transportation, with a further $200 million in telecommunications. On a portfolio basis, $2.9 billion of our regional investments are in India, with significant WHAT WE HAVE ACHIEVED, amounts in Sri Lanka ($209 million) and Bangladesh ($157 million). Our advisory AND WORK STILL TO BE DONE work focused on infrastructure, value addition to firms, access to finance, and In FY08, South Asia was a pilot region for IFC's decentralization, we moved environmental and social sustainability. With donors, IFC set up facilities to decision-making closer to our clients and invested significantly in expanding our local strengthen the investment climate in Bangladesh (see p. 105) and to develop presence. This has helped enhance our work in infrastructure, energy efficiency, public-private partnerships for infrastructure, which complement our main regional carbon finance, and rural development across the region. Significant challenges advisory effort. In FY08 we launched 27 new advisory projects, and our active remain. We will continue to address the infrastructure deficit through direct portfolio is 82 projects valued at $57 million. Major partners in regional advisory investment and advisory work. To help address India's enormous energy deficit, for work include the United Kingdom, Canada, the European Commission, the example, IFC's financing to Tata Mundra will add about 4 percent to generation Netherlands, and Norway. capacity and provide affordable power by introducing a highly efficient technology that is less carbon-intensive per unit of electricity produced. In the rural sector, we will DEVELOPMENT RESULTS significantly increase our investment and advisory work in agribusiness, rural IFC activities have produced tangible development results: our clients have provided infrastructure, and rural finance. IFC has also committed more resources in Bhutan jobs, higher wages and tax revenues, and better supply-chain linkages. In 2007, they and Nepal to build a strong pipeline of investment and advisory work. While over 25 had loans of $5.4 billion with MSMEs and generated power for 32 million customers. percent of our investment projects in India contribute to economic development in South Asia's development outcomes have been above average relative to IFC. the lagging states, we plan to increase our work further in these poorer areas. We are Telecommunications has had particularly strong results, as this sector provides a vital also substantially scaling up our advisory work in India, with a focus on the critical part of the region's infrastructure backbone. IFC's advisory partnerships with 18 issues of rural growth, climate change and lagging states. 56 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS BANGLADESH · BHUTAN · INDIA · MALDIVES · NEPAL · SRI LANKA IDA COUNTRIES REACHING SMEs AND WOMEN DEVELOPMENT REACH MAKING A DIFFERENCE BORROWERS THROUGH Portfolio Portfolio New Business Expectations MICROLENDING Indicator CY06 CY07 FY08 BRAC, based in Bangladesh, is the world's MSME loans (number of loans) 754,890 880,680 - largest nongovernmental organization, with more than 100,000 employees. Its microfinance MSME loans (volume in $ million) 4,806 5,407 8,218 and development programs cover all 64 regions Power generated (millions of customers) 27.4 31.5 17.7 of Bangladesh. IFC is supporting BRAC's Patients reached 1,489,460* 1,523,390* 120,000 lending with local currency funding that will benefit smaller businesses. The country's New phone connections (millions of customers) 24.7 34.0 17.0 fragmented and relatively small banking sector, Employment 62,050 103,240 12,430 whose total assets of $30.5 billion are coupled Local purchase of goods and services ($ million) 2,573 5,037 54 with single-client exposure limits, hinders the ability of the local market to meet BRAC's Payments to government ($ million) 476 1,180 1,757 growing needs. With IFC's guarantee, BRAC will Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. Some data from previous years have been revised. be able to reduce its dependence on grants for * Includes just over 1 million patients in a hospital chain in India, in which IFC has a 1.3% equity stake. growth and thus accelerate its outreach to the poor, particularly women borrowers. This is one of many activities that IFC and BRAC have PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES pioneered together in Bangladesh during a long Development 41 ($785) 76% ($ millions) FY07* FY08* relationship: other ventures have included Outcome 439 ($9,848) 71% investments to support housing finance and Financing committed for IFC's account $1,073 $1,264 Financial 66% SME lending. Loans $885 $850 Performance 64% Economic 85% Equity $170 $330 INDIA: EXPANDING THE PRIVATE Performance 70% SECTOR'S REACH Guarantees and risk management $19 $84 Environmental and 72% India's growth has averaged 9.3 percent in the Social Performance 65% Loan syndications signed $102 $0 last three years, but progress has not yet Private Sector 83% touched many of the country's neediest people, Total commitments signed $1,176 $1,264 Development Impact 76% on whom IFC increasingly focuses investments Committed portfolio for IFC's account $2,645 $3,546 Department 0 20% 40% 60% 80% 100% and advisory services. Many states are lagging Committed portfolio held for others (loan and IFC % Rated High behind, and throughout rural India people still guarantee participations) $669 $635 face inadequate basic infrastructure, with little DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $3,314 $4,180 calendar 1999-2004. Bars at top include the number of projects access to clean water, energy, telecommunica- rated and total IFC investment in them (in $ millions). tions, transportation, health care, and education. *Includes regional shares of selected investments that are officially classified as global projects. Even in the country's cities, significant poverty remains, while services reach mainly people IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) with higher incomes. Some 30 percent of India's COMMITMENTS Based on IFC's account, excluding individual country shares of regional households still lack access to electricity, and 20 (financing in $ millions) FY05 FY06 FY07 FY08 and global projects. percent have no sanitation facilities. India Portfolio Development Number of projects 20 25* 30** 37 Country presents a significant share of global poverty: ($ millions) Score* 80 percent of its 1.1 billion people live on less Number of countries 2 3 3 5 India than $2 a day, and 400 million on less than $1 Financing for IFC's own account $443 $507 $1,073 $1,264 FY08 $2,876 72% a day. It is a country where IFC and the private Syndications $200 $200 $102 $0 FY07 $2,117 72% sector can make a very significant difference. Sri Lanka * Includes Avenue Asia ** Includes Italcementi FY08 $209 75% FY07 $57 67% Bangladesh FY08 $157 100% FY07 $147 71% 57A * Percent of tracked companies with high development results. IFC A N N U A L REPORT 2008 57 EU ROPE A N D CE N T RA L A S I A Europe and Central Asia remains one of the world's fastest-growing regions, with 8.2 percent GDP growth in 2007. Strong exports, closer integration with global markets, better access to credit, and high commodity prices are among the drivers. These same forces have made the region's countries vulnerable to recent turmoil in financial markets, and the global credit crunch increased demand for IFC financing across the region during FY08. The region also has rising inflation, fueled by higher global prices for food and energy and greater government spending. Challenges to private sector development include outdated infrastructure, persistent financial market weaknesses, cumbersome regulatory regimes, and weak institutions. Because the region accounts for a significant share of global carbon emissions, improving its energy efficiency is also a priority. IFC is working to increase investments in the region's 13 IDA and conflict- companies, such as Russia and Turkey; weaker results reflect difficult business IFC STRATEGY affected countries by strengthening financial sectors, improving infrastructure environments, where IFC is responding by increasing advisory services. IFC's advisory through direct investments and public-private partnerships, and modernizing services contribution has been significant. We helped remove red tape, saving $301 industries. Throughout the region we are supporting more local companies and million in potential costs for businesses and releasing $72 million through successful helping financial institutions that serve MSMEs and low-income households. mediation. We also enabled more than $3 billion in investment by local and foreign Donor-funded advisory services remain important to simplifying regulation and companies, and we have helped governments adopt 170 laws that improve the strengthening institutions and corporate legislation. In more mature markets, business environment. such as Russia and Turkey, we are supporting strong midsize companies, working more in less developed regions, offering new products to finance SUSTAINABILITY housing and energy efficiency, and encouraging South-South investments. In IFC has strengthened its advisory and investment programs that use or promote Russia, we plan to target real sector investments, and we are promoting energy efficient technologies or mitigate climate change. We continue to promote cleaner production to help address climate change. Our approach in EU sound corporate governance in the region, working with governments to strengthen countries is selective: we invest only where IFC's development role is crucial. legislation and advising companies and banks on best practices. We work with clients to implement higher social and environmental standards and help them engage with NEW BUSINESS AND PORTFOLIO local communities through dialogue, public disclosure, and supply chain linkages; in Investment commitments reached $2.68 billion for 86 projects in 19 countries in FY08, Southeast Europe an advisory program is helping companies meet international and we mobilized an additional $1.19 billion through syndications, structured and industry standards and improve their competitiveness. We help agribusiness clients securitized products, sales of IFC loans, and parallel loans. By number of projects, 26 strengthen food safety standards and adopt efficient waste management practices. percent of new investments are IDA projects, and 16 percent are in frontier regions of Across the region, we are bringing private investments into power, water, and waste financial significant middle-income countries. Half our portfolio is in the financial sector, with significant management infrastructure. IFC cosponsored a major conference on housing finance portions in manufacturing and services and in infrastructure. IFC increased advisory in Turkey, and our CEO participated in panels on Russia's infrastructure needs and operations by 34 percent, to $30 million in FY08, with a strong emphasis on IDA and agribusiness potential at the St. Petersburg International Economic Forum. conflict-affected conflict-affected countries (34 and 16 percent of expenditures, respectively). Our advisory services launched 40 new projects in 12 countries and three regional ones in WHAT WE HAVE ACHIEVED, Southeast Europe, with new donor commitments of $24 million, including $4 million AND WORK STILL TO BE DONE from IFC. Activity in Azerbaijan and Central Asia rose from 18 to 30 percent of the total. IFC's portfolio in the region's financial institutions is $2.8 billion, of which $1.75 In FY08, we completed 71 advisory projects, and we have an active portfolio of 131 billion is in 89 institutions focusing on micro, small, and medium enterprises. This projects valued at $140 million, of which 31 percent are in IDA markets, focused on represents 43 percent of IFC's total global investments in the sector. We are doing finance improving access to finance (28 percent of portfolio) and corporate advice (27 percent). more in IDA and conflict-affected countries, where the number of investments has Major partners include Austria, Canada, Italy, the Netherlands, Sweden, Switzerland, risen steadily (20 in FY08, from 11 in FY05) and where have we provided 85 percent advisory projects an advisory and the United States. Some 37 percent of FY08 investments haveare linked to at of our advisory services. Our new financing represents more business with new clients least one investment project. component. (60 percent of FY08 investments) and local companies (80 percent), with particular growth in Central Asia and the Caucasus and in regional infrastructure. IFC advisory DEVELOPMENT RESULTS services helped many countries improve their Doing Business ranking, grew leasing In 2007, IFC's portfolio companies lent $50 billion to 1.1 million MSMEs and markets across the region, and enabled about $70 million in SME loans. Advisory purchased local goods and services worth $29.4 billion. Development results have programs in infrastructure are expected to enable $500 million in related investments, been strong, driven by investments in manufacturing and services and in financial improving access to services for over 3 million people. Priorities include South-South markets, where microfinance lending grew an average of 30 percent a year. In both investments, access to finance for MSMEs, more investments in agribusiness and sectors, IFC addressed major weaknesses during the transition period and improved infrastructure, and efforts to mitigate climate change and promote sustainable conditions for private sector development. The strongest investment performance development. came in countries where IFC has established long-term partnerships with local 58 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS ALBANIA · ARMENIA · AZERBAIJAN · BELARUS · BOSNIA AND HERZEGOVINA · BULGARIA · CROATIA · CZECH REPUBLIC · ESTONIA · GEORGIA · HUNGARY · KAZAKHSTAN · KYRGYZ REPUBLIC · LATVIA · LITHUANIA · FORMER YUGOSLAV REPUBLIC OF MACEDONIA · MOLDOVA · MONTENEGRO · POLAND · ROMANIA · RUSSIAN FEDERATION · SERBIA · SLOVAK REPUBLIC · SLOVENIA · TAJIKISTAN · TURKEY · TURKMENISTAN · UKRAINE · UZBEKISTAN IDA COUNTRY MIDDLE-INCOME COUNTRY WITH FRONTIER REGIONS OTHER CLIENT COUNTRY IFC SUPPORTS A STEEL PLANT'S DEVELOPMENT REACH MAKING A DIFFERENCE ENERGY EFFICIENCY Portfolio Portfolio New Business Expectations The Industrial Union of Donbass, a Ukrainian Indicator CY06 CY07 FY08 steel company, plans to modernize its facilities MSME loans (number of loans) 871,230 1,113,150 674,800 to boost competitiveness and slash carbon and particulate emissions by 2011. IFC helped MSME loans (volume in $ million) 24,821 49,934 14,548 finance the first phase of this ambitious Power generated (millions of customers) 19.7 11.2 5.7 program in FY06, and in FY08 we provided a Patients reached 1,779,580 750,000 1,289,500 loan and syndication package to maximize the Students reached 12,200 11,750 - environmental benefits of the renovation. IFC has been committed to improving energy New phone connections (millions of customers) 1.9 3.0 - efficiency and environmental sustainability in Employment 131,840 522,630 55,510 Central and Eastern Europe since 1997. After Local purchase of goods and services ($ million) 8,363 29,419 698 pioneering investments in the region, we began Payments to government ($ million) 2,096 3,660 1,616 providing credit to banks for energy efficiency Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. lending and introduced programs to help Some data from previous years have been revised. companies assess modernization projects. These and other initiatives--such as IFC's new PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES cleaner production advisory program, which Development 116 ($3,286) 84% ($ millions) FY07* FY08* helps Russian companies minimize waste and Outcome 439 ($9,848) 71% raise productivity--are priorities for IFC as we Financing committed for IFC's account $1,785 $2,680 Financial 74% continue to explore ways to mitigate climate Performance 64% Loans $1,164 $1,925 change and promote sustainable development. Economic 81% Equity $513 $682 Performance 70% IFC HELPS SMALL ENTERPRISES Guarantees and risk management $109 $73 Environmental & 71% REBUILD AND RAISE INCOMES Social Performance 65% Loan syndications signed $775 $1,041 Central Asia's small businesses are its economic 86% Private Sector backbone. IFC is supporting the region's Total commitments signed $2,560 $3,721 Development Impact 76% commercially viable microfinance operations, Committed portfolio for IFC's account $7,033 $9,038 Department 0 20% 40% 60% 80% 100% helping these local financial institutions improve Committed portfolio held for others (loan and IFC % Rated High services and increase lending to smaller guarantee participations) $1,387 $2,225 businesses while expanding our reach and DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $8,420 $11,263 calendar 1999-2004. Bars at top include the number of projects development impact. In the Kyrgyz Republic, we rated and total IFC investment in them (in $ millions). provided a $1.2 million loan to one such client, *Includes regional shares of selected investments that are officially classified as global projects. Bai Tushum, which has transformed itself from a nonprofit fund into a leading microfinance IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) institution, reaching about 13,000 clients. In COMMITMENTS Based on IFC's account, excluding individual country shares of regional Tajikistan, IFC portfolio company First (financing in $ millions) FY05 FY06 FY07 FY08 and global projects. Microfinance Bank is providing microcredits to Portfolio Development Number of projects 67* 80** 67*** 86**** Country smaller enterprises. Its loan portfolio has grown (millions) Score* rapidly, and it is expected to help more than Number of countries 15 17 15 19 Russian Federation 110,000 people in the next five years. In Financing for IFC's own account $1,938 $2,084 $1,786 $2,680 FY08 $2,718 100% Uzbekistan, IFC provided two credit lines and Syndications $419 $241 $775 $1,041 FY07 $2,238 89% advisory services to Hamkorbank, the country's * Includes RI Facility, Arcelik, Melrose largest privately owned bank. We are helping Turkey ** Includes EECFII *** Includes Melrose II, Melrose II Expansion, and Italcementi broaden its funding base and supporting its **** Includes Lydian Resources, Lydian International RI, Lydian RI, TAV Tunisia, FY08 $1,806 94% and Melrose Resources lending to smaller enterprises. IFC's support to FY07 $1,342 76% Hamkorbank is key to supporting small business Ukraine growth, which in turn fosters creation of jobs and income in less developed regions. FY08 $651 100% FY07 $487 N/A * Percent of tracked companies with high development results. N/A = Not available (less than 4 companies). 59A IFC A N N U A L REPORT 2008 59 L ATIN A MER I C A A N D T H E C A RI BBE A N The region has grown, with low inflation, for a fifth consecutive year, although this growth has lagged behind that of other emerging market regions. The economy has been bolstered by sound macroeconomic policies, high prices for export commodities, and strong growth in trade. In many countries, domestic demand stimulates growth, and both investment and private credit have expanded. Despite macroeconomic stability, however, poverty and inequality persist, giving rise to social and political tensions in some countries. The region also lags behind other emerging regions in its competitiveness. Crucial reforms in the pension, labor, fiscal, infrastructure, and financial sectors are needed to sustain its growth. IFC focuses on key development challenges facing the region. We work to Overall the region's investments have had solid development results. IFC has also IFC STRATEGY improve the business environment, broaden and deepen access to finance, increased advisory services, particularly in IDA countries: we have completed and encourage infrastructure development. We are increasing our focus on municipal simplification projects in 18 municipalities (up from one in FY05), with 16 smaller countries, especially IDA countries; this includes a strategic approach of these in Bolivia, Honduras, and Nicaragua. These efforts are encouraging in the Caribbean islands, which have some of the world's highest income registration of new small businesses, creating opportunities and reducing the informal inequality but also some comparative advantages that investment and advice sector in some of the region's poorest countries. can build upon. In middle-income countries, we are working to expand IFC's reach to underserved people at the bottom of the economic pyramid. We SUSTAINABILITY have developed an integrated approach of investment and advisory products Latin American banks were among the first from developing countries to adopt the to address development challenges. We support growing companies in areas Equator Principles, and IFC is also helping clients address sustainability issues. For where the region has a comparative advantage, providing a combination of example, we have provided Brazil's Banco Real a $200 million credit line for equity and debt to support them as they grow. Going forward, IFC will focus on-lending to support environmental, supply chain, and corporate governance on addressing key product needs, such as equity and local currency financing, lending. We are encouraging sustainable practices--for example, through advice to while continuing to support our clients' sustainability and innovating in Petrotesting in Colombia and Shahin in Brazil that is helping them adopt a strategic advisory services. approach to sustainability and their reporting on community engagement. We are also developing partnerships with NGOs and supporting new markets in energy NEW BUSINESS AND PORTFOLIO efficiency lending. IFC is launching the Brazilian Amazon Initiative, a program for Investment commitments reached $2.94 billion for 81 projects in 16 countries in sustainability-driven private sector investments and advisory services in agribusiness, FY08, and we mobilized an additional $2.43 billion through syndications, structured forestry, sustainable financing, and biodiversity-related products that aims to develop and securitized products, and sales of IFC loans. Investments are increasing, sector benchmarks and environmental standards. This year, we provided $378 million particularly in Central America and the Andean region. We have stepped up efforts to in clean energy financing through five investments, including two in Central America. reach the poorest: 15 percent of new investments are IDA projects, and 14 percent In Chile, IFC is helping expand the sustainable energy sector, with emphasis on are in frontier regions of middle-income countries. The main concentration is in renewables; here we invested in a start-up hydropower plant that will reduce financial markets, infrastructure, and extractive industries; and a significant share of emissions by displacing thermal power generation. IFC's agribusiness portfolio is located in the region. Our portfolio continues to be diversified across countries and sectors. Our advisory services have an active portfolio WHAT WE HAVE ACHIEVED, of 94 projects, valued at $59 million. Based on value, 20 percent of our advisory AND WORK STILL TO BE DONE projects are in IDA countries, with emphasis on improving the business environment IFC focuses on making markets work for all people in such areas as infrastructure; and infrastructure. Major partners in regional advisory work include Canada, the agribusiness; and access to finance, housing, and technology. In infrastructure, we Netherlands, Switzerland, the United Kingdom, and the United States. In FY08, 33 provided $508 million through 12 investments; we also signed several advisory advisory projects were directly linked to IFC investments. mandates in the Caribbean. In agribusiness, we support companies in subsectors where the region has a competitive advantage; this year we provided $258 million DEVELOPMENT RESULTS through 10 investments. About 25 percent of new investments will help finance micro, IFC's investments have contributed to higher employment, greater access to finance, small, and medium enterprises. In addition to our focus on IDA countries, we are and better infrastructure. In 2007, our clients provided more than half a million jobs, reaching underserved people in middle-income countries; examples include Vinte in and many of them substantially increased their employment compared to 2006. They Mexico (see p. 87) and Ruralfone in Brazil (see p. 24). We will continue expanding our also provided power for over 57 million people, reaching one of every 10 people in presence in the Caribbean and Central America, emphasizing priority sectors and the region. Our microfinance clients provided 3.7 million loans, a 37 percent rise incorporating advisory services as added value to our clients and ways of strengthen- from 2006. We are also strengthening our focus on IDA countries: IFC committed ing our development impact. $165 million through 10 investments in FY08, more than tripling the FY07 amount. 60 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS ANTIGUA AND BARBUDA · ARGENTINA · THE BAHAMAS · BARBADOS · BELIZE · BOLIVIA · BRAZIL · CHILE · COLOMBIA · COSTA RICA · DOMINICA · DOMINICAN REPUBLIC · ECUADOR · EL SALVADOR · GRENADA · GUATEMALA · GUYANA · HAITI · HONDURAS · JAMAICA · MEXICO · NICARAGUA · PANAMA · PARAGUAY · PERU · SAINT KITTS AND NEVIS · SAINT LUCIA · TRINIDAD AND TOBAGO · URUGUAY · VENEZUELA IDA COUNTRY MIDDLE-INCOME COUNTRY WITH FRONTIER REGIONS OTHER CLIENT COUNTRY HONDURAS: INTEGRATED DEVELOPMENT REACH MAKING A DIFFERENCE SOLUTIONS IN AN IDA COUNTRY Portfolio Portfolio New Business Expectations IFC's strategy in Honduras is to create synergies Indicator CY06 CY07 FY08 between our investment products and advisory MSME loans (number of loans) 2,714,560 3,711,940 229,380 services. We are improving the business environment: we helped the municipality of MSME loans (volume in $ million) 9,653 15,475 11,892 Tegucigalpa reduce the number of days it takes Power generated (millions of customers) 35.6 57.7 0.4 to obtain an operating license from 30 to one, Patients reached 1,430,110 912,000 437,100 resulting in a 40 percent rise in licenses for new businesses last year. IFC is also promoting New phone connections (millions of customers) 3.9 1.4 0.6 access to finance for micro, small, and medium Employment 287,910 587,880 86,900 enterprises--only 1 percent of them have Local purchase of goods and services ($ million) 13,360 14,275 911 access to commercial banks, though they account for 25 percent of the country's GDP. In Payments to government ($ million) 9,326 8,507 *13,166 FY08, we sought to fill this gap by financing Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. Some data from previous years have been revised. and helping create Bancovelo, a major new * Expected payments to government revenues capture payments from 2008-2015 and include $11.3 billion by one large client. microfinance institution, as well as providing $20 million to Banco Ficohsa's microfinance activities. In the next five years, Bancovelo is PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES expected to reach 22,000 microentrepre- Development 110 ($3,095) 67% ($ millions) FY07 FY08 Outcome neurs--60 percent of them women--while 439 ($9,848) 71% Ficohsa aims to disburse 1,300 loans for Financing committed for IFC's account $1,781 $2,943 Financial 67% Performance MSMEs and provide up to 30,000 housing Loans $1,229 $2,050 64% loans to low- and middle-income families. Economic 66% Equity $295 $378 Performance 70% ACCESS TO FINANCE: SUPPORTING Guarantees and risk management $256 $515 Environmental and 60% MORE INCLUSIVE GROWTH Social Performance 65% Loan syndications signed $299 $1,619 Expanding access to financial services for Private Sector 72% smaller businesses and low-income households Total commitments signed $2,080 $4,562 Development Impact 76% is a focus of IFC's advisory services and Committed portfolio for IFC's account $6,780 $8,234 Department 0 20% 40% 60% 80% 100% investments throughout the region. In FY08, we Committed portfolio held for others (loan and IFC % Rated High signed 15 advisory projects in MSME finance, guarantee participations) $2,005 $3,086 for a total of $5.2 million in more than 10 DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $8,785 $11,320 calendar 1999-2004. Bars at top include the number of projects countries, including Haiti, Honduras, Nicaragua, rated and total IFC investment in them (in $ millions). and St. Lucia. We started five low-income housing advisory projects with financial IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) institutions in Honduras, Nicaragua, and Peru. COMMITMENTS Based on IFC's account, excluding individual country shares of regional To improve financial infrastructure, IFC provided (financing in $ millions) FY05 FY06 FY07 FY08 and global projects. advice on credit bureaus to 18 countries in the Portfolio Development Number of projects 54 69 68 81 Country region, with a focus on IDA countries. We also ($ millions) Score* provided more than $500 million in direct Number of countries 17 18 14 16 Brazil financing through 14 investments that will Financing for IFC's own account $1,398 $1,747 $1,781 $2,943 FY08 $2,487 71% expand access to finance. In Peru, for example, Syndications $385 $888 $299 $1,619 FY07 $1,618 58% our $13 million guarantee to a microfinance institution with enable it to offer more than Mexico 100,000 loans and other financial products to FY08 $1,000 64% low-income customers. FY07 $1,228 69% Argentina FY08 $998 29% FY07 $768 8% * Percent of tracked companies with high development results. 61A IFC A N N U A L REPORT 2008 61 MIDD LE EA ST AN D N O R T H A F RI C A The region's economies continue to perform relatively well amid the global financial turmoil and economic slowdown. GDP growth estimates for 2008 remain at about 6 percent. Liquidity also remains satisfactory. While inflationary pressures have emerged in the region along with the increase in world prices for food and other commodities, most countries have maintained macroeconomic stability. Despite overall strong performance, however, many countries face challenges of high unemployment (especially among youth), conflict and political instability, limited access to finance (especially for poor people, women entrepreneurs, and smaller businesses), inadequate physical and financial infrastructure, and weak legal and regulatory frameworks for private sector development. IFC focuses on providing long-term finance to the private sector in ways that were instrumental in reducing the time to start a business by half in two countries; IFC STRATEGY benefit underserved communities. Our priorities are in areas with high across the region we have helped reform or amend 28 laws, regulations, and codes development impact and where IFC can make the greatest contribution, and 109 procedures and policies. Some 41,000 participants have been trained in SME including access to finance for the underserved, especially MSMEs and management skills. mortgage and student borrowers; investments in infrastructure; and opportunities in IDA, conflict-affected, and resource-poor middle-income SUSTAINABILITY countries. IFC will pursue these objectives by combining investment and IFC is promoting environmental and social sustainability best practices through our advisory services and facilitating South-South investments. investment-related advisory work; activities include developing the policy framework for mining industries in Egypt and Yemen; strengthening food quality standards for NEW BUSINESS AND PORTFOLIO raisins and pomegranates in Afghanistan and olive oil in the West Bank and Gaza; Investment commitments reached $1.44 billion for 50 projects in 12 countries in and improving labor standards in Jordan's apparel industry, in collaboration with the FY08, and we mobilized an additional $819 million through syndications and ILO. In Saudi Arabia, IFC has advised on the introduction of private sector structured and securitized products. By number of projects, 32 percent of new participation for a new desalination plant to supply potable water to the King investments are IDA projects, and 14 percent are in conflict-affected countries. New Abdulaziz International Airport and its facilities. This project will significantly lower sponsors accounted for 78 percent and South-South investments for 32 percent of the cost of water and introduce international best practices in plant operations, total projects. Our portfolio is spread across the region, with the biggest concentra- leading to a larger, more sustainable water supply. IFC continues to promote tion in the financial and infrastructure sectors. In advisory services, we have been women's entrepreneurship to create jobs and raise the rate of women's participation active in 14 of the region's 19 countries in FY08; we approved 32 new projects, 34 in the region's labor force. We are also working to build the capacity of business- percent of them in IDA and 13 percent in conflict-affected countries. Total women's associations and research centers in Tunisia and the United Arab Emirates. expenditure for advisory services in FY08 was over $22 million: 47 percent were related to access to finance and corporate advice; 26 percent focused on the business WHAT WE HAVE ACHIEVED, enabling environment; and 25 percent on infrastructure, including public-private AND WORK STILL TO BE DONE partnerships. Major partners include Canada, France, the Islamic Development Bank, IFC has substantially increased investment and advisory services in the region in the Japan, Kuwait, the Netherlands, the United Kingdom, and the United States. last four years, reaching many new clients. This outreach is improving the business environment and helping many companies become more competitive. Going forward, DEVELOPMENT RESULTS we will increase our focus on infrastructure, including public-private partnerships; IFC's activities have generated tangible results, increasing employment, mobilizing increase access to finance for underserved groups; support development of smaller additional financing, and assisting smaller businesses. In 2007, our clients had businesses; and help improve corporate governance and sustainability across the 852,000 loans outstanding to MSMEs and generated $787 million in government region. Assisting the private sector in IDA countries and those affected by conflict will revenues. Compared to the IFC average, development results have been weak. In the remain a priority, and we will continue to tailor approaches to the specific market West Bank and Gaza and neighboring Jordan, political instability affected the conditions of our client countries. performance of some investments. Our portfolio fared best in infrastructure, funds, and telecommunications, while operations in some small nonbank financial institutions and particularly small manufacturing businesses showed weak results. The performance of our two largest exposure countries--Pakistan and Egypt--has generally been above IFC's average. To date, advisory services have facilitated an estimated $1.5 billion in infrastructure investment and helped generate government revenues of nearly $1.3 billion through public-private partnerships and privatizations. Using a variety of programs, we have helped underserved groups access financing of about $3.8 billion, which includes 1.6 million microfinance loans. Advisory services 62 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 3: REGIONS AFGHANISTAN · ALGERIA · BAHRAIN · ARAB REPUBLIC OF EGYPT · ISLAMIC REPUBLIC OF IRAN · IRAQ · JORDAN · KUWAIT · LEBANON · LIBYAN ARAB JAMAHIRIYA · MOROCCO · OMAN · PAKISTAN · SAUDI ARABIA · SYRIAN ARAB REPUBLIC · TUNISIA · UNITED ARAB EMIRATES · WEST BANK AND GAZA · REPUBLIC OF YEMEN IDA COUNTRY MIDDLE-INCOME COUNTRY WITH FRONTIER REGIONS OTHER CLIENT COUNTRY REBUILDING THE PRIVATE SECTOR IN DEVELOPMENT REACH MAKING A DIFFERENCE THE WEST BANK AND GAZA Portfolio Portfolio New Business Expectations Reviving the private sector is critical to jump- Indicator CY06 CY07 FY08 starting the economy and creating opportunities for MSME loans (number of loans) 206,860 851,710 1,088,950 many unemployed youth in the West Bank and Gaza. IFC is helping local banks expand access to MSME loans (volume in $ million) 2,397 3,612 4,334 finance for underserved segments of the economy. Power generated (millions of customers) 16.6 19.9 2.5 We are supporting trade finance operations with two local banks, Al Rafah Microfinance Bank and Employment 64,180 63,360 15,850 Bank of Palestine. This year we signed an Local purchase of goods and services ($ million) 474 602 29 agreement to establish a long-term housing Payments to government ($ million) 561 787 1,039 finance facility in a unique partnership with the Reach data for select industries; indicator definitions and reporting periods vary somewhat across industries. Palestinian Investment Fund, the U.S. Overseas Some data from previous years have been revised. Private Investment Corporation, the Bank of Palestine, the U.K Department for International PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES Development, the Palestine Mortgage and Housing Development 33 ($411) 64% ($ millions) FY07* FY08* Corporation, and the World Bank. IFC is taking an Outcome 439 ($9,848) 71% equity stake in the new housing finance company Financing committed for IFC's account $1,217 $1,442 Financial 52% that will be created, and both IFC and the World Performance 64% Loans $879 $818 Bank will provide advisory services to help ensure Economic 58% Equity $205 $267 the initiative's success. The effort is expected to Performance 70% finance affordable housing for 30,000 middle- and Guarantees and risk management $134 $358 Environmental and 57% low-income families. Another landmark initiative is Social Performance 65% Loan syndications signed $210 $531 the first student loan program in the West Bank 74% Private Sector and Gaza, which IFC is introducing along with the Total commitments signed $1,427 $1,973 Development Impact 76% Bank of Palestine and the Palestine Education Committed portfolio for IFC's account $2,477 $3,452 Department 0 20% 40% 60% 80% 100% Fund. The new facility will disburse up to $10 Committed portfolio held for others (loan and IFC % Rated High million in loans, funding higher education for about guarantee participations) $497 $734 8,000 students a year. DOTS data as of June 30, 2008, for projects approved in Total committed portfolio $2,974 $4,186 calendar 1999-2004. Bars at top include the number of projects rated and total IFC investment in them (in $ millions). LINKING ADVISORY AND *Includes regional shares of selected investments that are officially classified as global projects. INVESTMENT WORK IN JORDAN Infrastructure is a key sector in the region's IFC'S LARGEST COUNTRY EXPOSURES (June 30, 2008) development. We advise governments on COMMITMENTS Based on IFC's account, excluding individual country shares of regional structuring innovative public-private partnerships in (financing in $ millions) FY05 FY06 FY07 FY08 and global projects. critical sectors. In other cases, we provide financing Portfolio Development Number of projects 21* 29** 40*** 50**** Country to innovative infrastructure transactions that ($ millions) Score* commercial banks consider too risky to fund Number of countries 8 12 12 12 Pakistan without IFC's involvement. For example, our Financing for IFC's own account $315 $668 $1,217 $1,442 FY08 $665 71% integrated investment and advisory services Syndications $0 $0 $210 $531 FY07 $522 75% contributed to the largest private investment in * Includes BAPTFF and Melrose Egypt Jordan's history--the $1 billion upgrade of the ** Includes Soco Facility and Violia AMI *** Includes Melrose II and Melrose II Expansion and Italcementi Queen Alia International Airport. IFC advised the **** Includes MelroseResources FY08 $499 67% government on a competitive bidding process, and FY07 $517 75% the bid was awarded to Airports International Tunisia Group, a consortium based in Abu Dhabi. Some six months later, IFC helped provide a $120 million, FY08 $304 N/A 18-year loan and mobilized $160 million through a FY07 $58 N/A syndication that attracted six European and Middle * Percent of tracked companies with high development results. Eastern banks. The Islamic Development Bank and N/A = Not available (less than 4 companies). the World Bank also provided significant funding. 63A IFC A N N U A L REPORT 2008 63 INDUSTRY OPERATIONS AND RESULTS IFC gives clients a special edge, providing comprehensive and sustainable solutions to the challenges private enterprises face in developing countries. We provide global expertise across the spectrum of economic activities that make for a robust private sector--from agribusiness to finance; from manufacturing and services to information technology; and from health and education to infrastructure. We help our clients raise their standards to become more competitive and sustainable. In fiscal year 2008, IFC's industry operations allowed us to play a role in alleviating the global food crisis--we helped many agribusiness firms get food to world markets. We are leading the way in encouraging sovereign wealth funds to invest directly in Sub-Saharan Africa. Amid the global credit crunch, we improved prospects for private enterprises in developing countries by increasing the amount of local currency financing we provide. Our investments in global financial markets totaled $4.6 billion in FY08, accounting for 40 percent of our activities. IFC investments in infrastructure reached $2.4 billion, increasing substantially to 21 percent from 11 percent the year before. 64 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES 65A IFC A N N U A L REPORT 2008 65 66 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES Muhamad Nasir leads a farmers' group in a remote area MAKING A DIFFERENCE of Indonesia. Until recently, the group found it nearly impossible to obtain affordable credit. Indonesian farm- ers need land certificates to use their property as collat- eral for loans, but most small farmers cannot afford the certificates. As a result, Nasir says, "We used to depend on credit provided by loan sharks." IFC stepped in to help by signing a credit agreement with Bank Sulsel, which purchases land certificates on be- half of farmers from the National Land Agency. Once a farmer has repaid the loan, Bank Sulsel gives him the GLOBAL FINANCIAL MARKETS certificate. Since 2005, IFC has facilitated loans BUILDING of 2.2 billion rupiah for THE Nasir and other farmers. FOUNDATION "When our credit pro- posal finally got approval Building financial markets from the bank, I felt like a sick person who instantly got is a priority for IFC. We healed," Nasir says. "With the credit, I can buy more fer- help smaller businesses tilizer and more seed. It makes my production increase get financing. We provide local currency financing from four or five tons to six or seven tons a year." that helps clients mitigate PHOTO: IFC's help has allowed Muhamad Nasir to obtain affordable loans to buy fertilizer and seed. foreign exchange risk. We help develop new markets for business leases, home mortgages, and student loans. We broaden access to credit for people who most need it. 67A IFC A N N U A L REPORT 2008 67 G L OBAL FI N A N C I A L M A RKE T S Financial market development is critical to reducing poverty and improving lives. Sound and efficient financial markets can ensure that resources are allocated where they are most productive, creating jobs and spurring economic growth. IFC places a priority on investment in the financial sector because it underpins development in all other sectors; it accounts for about 40 percent of IFC's new commitments and investments each year. In FY08, financial market instability and higher interest rates slowed global growth and lessened access to finance. Tightening credit conditions also present challenges in many markets in which IFC operates. The effect of the credit crunch is being closely monitored, and the financial markets strategy may be adjusted to address related challenges. IFC focuses on the financial sector of underserved frontier markets, including reach (see p. 37). The financial markets sector continued to achieve strong IFC STRATEGY IDA countries and poorer regions of middle-income countries. Our strategy is development results. Performance was best in Africa, demonstrating the potential for to identify needs and opportunities so that we offer clients the right mix of impact in some of the least developed markets. The Middle East and North Africa investment and advisory services. IFC products help extend access to finance, region had the biggest improvement over FY07, with a diversified portfolio in including through microfinance, SME banking, leasing, housing, and trade commercial banking, housing finance, microfinance, and financial infrastructure. East finance; we also help build institutions and capacity in financial and insurance Asia had relatively weaker results, due mainly to certain developmentally underper- markets. IFC has launched a wholesaling approach that allows us to deliver forming projects in China's nonbank sector. (For advisory results, see the Access to products and services through a global network of financial institutions to Finance advisory business line, p. 95.) clients in sectors including agribusiness, infrastructure, and health and education. This enables us to reach smaller businesses we would not typically SUSTAINABILITY finance directly and offer client financial institutions a broader range of IFC is developing innovative financing products that can advance sustainability and products. We are also working on products that will help financial institutions help mitigate climate change. The focus includes energy efficiency, renewable energy, and their clients address climate change risks and tap into business cleaner production, sustainable supply chains, sustainable construction, and corporate opportunities. The Financial Markets Department has decentralized to become governance. In FY08, we increased our investments to promote sustainability, more client-oriented, with more than half of staff now based in field offices. reaching over $500 million in 11 projects, including over $300 million for investments related to climate change. With the Financial Times, IFC continues to sponsor the NEW BUSINESS AND PORTFOLIO Sustainable Banking Awards, which have helped establish sustainability as a business In FY08, our commitments reached $4.60 billion for 154 projects spanning 65 objective for the broader banking community, including in emerging markets. In their countries. We mobilized an additional $2.4 billion through syndications, structured third year, the awards received 182 entries, up from 90 in 2006, and had 128 banks and securitized products, and sales of IFC loans, and a further $1.8 billion through from 54 countries competing. Brazil's Banco Real was named Sustainable Bank of the Global Trade Finance Program (see trade finance, p. 37). By number of projects, 52 the Year. percent of new investments are IDA projects, and 6 percent are in frontier regions of middle-income countries. Our investments rose 75 percent in Sub-Saharan Africa, WHAT WE HAVE ACHIEVED, reaching $887 million, and 21 percent in the Middle East and North Africa, to $609 AND WORK STILL TO BE DONE million. Our investments benefiting micro, small, and medium enterprises hit a record IFC made strong progress in expanding our financial markets business, investing over $2.3 billion; of this, microfinance commitments were $316 million in 37 investments, $1 billion in 29 IDA countries through products including housing, trade, and MSME up from $196 million in FY07. Our microfinance portfolio totals $848 million invested finance. Addressing constraints to financial sector development and helping reduce in 91 microfinance providers, making IFC the leading international investor in them. poverty through such programs remain a top priority going forward. We will also Our new wholesaling approach led to $34 million invested in agribusiness, increase our activities in the agricultural sector, using our wholesaling approach, trade infrastructure, and education. Around 50 percent of FY08 transactions were with new finance, and insurance products. We are working with a partner company on the clients. Our committed portfolio is over $12 billion, with 468 clients in 97 countries Global Index Reinsurance Facility, which will establish index-based insurance against worldwide. Over half IFC's financial markets investments now have an advisory weather and other catastrophe risks in developing countries, particularly benefiting component; see also the Access to Finance advisory business line, p. 95. farmers. IFC will also establish a program offering short-term debt products; this will provide much-needed liquidity to markets affected by the tightening of global credit DEVELOPMENT RESULTS markets and help further expand IFC's activities in conflict-affected and IDA countries. IFC's investments reached many smaller businesses, and we worked to ensure that We will continue to establish and strengthen standards in financial services, with microfinance reaches people and places most in need, including in IDA and initiatives including a tool to help banks benchmark their SME banking business, and conflict-affected countries. As of 2007 our clients had provided 1 million SME loans an effort to promote global standards for responsible microfinance lending. worth $86 billion and 7 million microloans worth $7.9 billion. Our clients' housing finance portfolio was $14.3 billion. Trade finance is also significantly broadening IFC's 68 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES EXPANDING ACCESS TO DEVELOPMENT REACH MAKING A DIFFERENCE AFFORDABLE HOUSING Portfolio Portfolio New Business Expectations Indicator Affordable housing is a key to improving CY06 CY07 FY08*** people's lives: IFC continues to invest more and $52,180 million/ $86,000 million/ $41,430 million/ SME loans (amount / number of loans)* expand our advisory services in housing finance, 0.72 million 1.02 million 0.89 million while developing innovative financial products. Microfinance loans $4,950 million/ $7,890 million/ $4,240 million/ In the Middle East, we have helped develop (amount / number of loans)* 4.31 million 6.99 million 3.13 million Sharia-compliant housing finance, are helping Housing finance loans $14,320 million/ $2,970 million/ n.a. set up a mortgage lender in the West Bank and (amount / number of loans)** .51 million 69,340 Gaza (see p. 63), and have pioneered housing * Portfolio reach figures represent SME and microfinance sub-loans issued by IFC portfolio clients in CY06 and 07. 178 and 197 clients were required microfinance in Afghanistan and Tunisia. We to report their end-of-year SME and microfinance portfolios in 2006 and 2007, respectively. 140 and 163 clients did so as of June 30, 2007 and 2008, respectively. The missing data were extrapolated provided housing finance training in Pakistan **Portfolio reach figures represent housing subloans issued by IFC portfolio clients in CY07. 32 housing clients reported their end-of-year housing portfolios for 2007, and for an additional 11 housing clients, the data were extrapolated. and have efforts underway in Egypt, Iraq, and *** For FY08 New Business Expectations, dollar amounts represent the expected outstanding portfolio by the end of CY12, and the number of loans represents the number of expected new loans to be disbursed during CY08-12 by IFC clients with whom IFC committed SME/microfinance/housing the West Bank and Gaza. In Ghana, IFC related projects in FY08. invested in four banks as part of a larger program to boost the country's residential Global Trade Finance Program Indicators FY 2006 FY 2007 FY08 mortgage lending--an approach we are now introducing in other IDA countries across Africa. Guarantees $267 million/ $767 million/ $1,429 million/ The banks in Ghana are using the IFC Mortgage (amount / number of guarantees) 320 564 1,008 Toolkit, which offers guidance on introducing SME (by number of guarantees) 81% 71% 75% mortgage products; this product is also helping Africa (by amount) 70% 49% 41% banks in Albania, Egypt, Mexico, Peru, and South-South (by number of guarantees) 38% 36% 34% Uganda. IFC is facilitating knowledge-sharing across the housing finance industry; initiatives TOTAL TRADE SUPPORTED $395 million $1,160 million $1,880 million include a Web portal we launched with the Wharton Business School as well as the Global Housing Finance Conference, which we held with the World Bank this year to highlight key PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES issues in the sector. IFC's main challenges are ($ millions) FY07 FY08 Development 149 ($4,855) 81% Outcome to continue addressing demand in client 439 ($9,848) 71% countries and to keep expanding our reach in Financing committed for IFC's account $3,374 $4,605 Financial 74% markets with limited access to housing finance. Performance 64% Loans $1,818 $1,978 Economic 80% HELPING BANKS PROMOTE Equity $679 $890 Performance 70% RENEWABLE ENERGY AND ENERGY Environmental and 65% EFFICIENCY Guarantees and risk management $877 $1,737 Social Performance 65% IFC is working with the Global Environment 84% Loan syndications signed $113 $1,034 Private Sector Facility and donor countries to help local Development Impact 76% financial institutions finance renewable energy Total commitments signed $3,487 $5,639 Department 0 20% 40% 60% 80% 100% and energy efficiency. In China, we are setting IFC % Rated High up risk-sharing facilities with commercial banks Committed portfolio for IFC's account $9,448 $12,216 that support energy efficiency equipment loans, DOTS data as of June 30, 2008, for projects approved in Committed portfolio held for others calendar 1999-2004. Bars at top include the number of projects mostly to smaller businesses. We have also $404 $1,358 (loan and guarantee participations) rated and total IFC investment in them (in $ millions). supported sustainable energy financing in Total committed portfolio $9,852 $13,574 Russia. In Latin America, this year we supported banks with sustainability credit lines of $300 million, which helps them provide loans to COMMITMENTS clients, usually small and medium enterprises, (financing in $ millions) FY05 FY06 FY07 FY08 for environmental projects or corporate governance initiatives. Number of projects 93 117 129 154 IFC's clients also increasingly see the Number of countries 48 49 56 65 business value of managing social and Financing for IFC's own account $2,183 $2,468 $3,374 $4,605 environmental risk. For example, Banque Marocaine du Commerce Exterieur, the Syndications $28 $219 $113 $1,034 second-largest private sector commercial bank in Morocco, is one of the first banking groups in its region to begin developing a social and environmental management system. 69A IFC A N N U A L REPORT 2008 69 PRIVATE EQ U I TY A N D I NV ES TMEN T FU N D S Private equity has become a recognized asset class among private sector companies, institutional investors, and capital markets focusing on developing countries. Fund managers add value to portfolio companies in far-reaching ways, such as improved technology and operations, up-to-date accounting methods and systems, better and more frequent reporting, and better corporate governance. All of these value additions translate into stronger, faster-growing companies that are able to generate more and better jobs, pay more taxes, and be better corporate citizens. Private equity funds also play an important role in deepening capital markets, as they provide otherwise unavailable risk financing and often enable companies to broaden their shareholder base and even list on local stock exchanges. IFC is placing more emphasis on IDA countries and on emerging local fund The successful implementation of our clients' growth strategies, helping small and IFC STRATEGY managers, resulting in more development impact. This focus moves our midsize companies grow faster and more consistently, has significantly boosted job development results from pure job creation to a catalytic and market creation. The quality of fund managers and their strategies are more important drivers development role. We are increasingly venturing into economies where than region- or country-specific factors. IFC supports many first-time and emerging private equity is in its infancy and working with credible and qualified but less managers, at greater risk; and the overall success of these managers has strength- experienced managers who often focus on small and medium businesses. This ened our development results. allows us to go where we can have the greatest development impact. Fund investments advance IFC's strategic priorities, such as IDA coverage, support SUSTAINABILITY to smaller businesses, climate change initiatives, rural reach, and frontier IFC increasingly focuses on actions to mitigate climate change, and we are investments and infrastructure. Although private equity fund-raising continues developing strategies for private equity funds. As private sources are expected to to increase in developed markets, it remains limited in emerging markets such finance more than 80 percent of climate-friendly development, private equity fund as Africa, the Middle East, and Latin America. Local first-time fund managers investments play an important role in helping companies address climate change. also find it difficult to attract institutional investors to their funds. Specialized funds invest in companies that focus on climate change mitigation, clean and renewable energy, energy efficiency, environmental improvements, and water and NEW BUSINESS AND PORTFOLIO wastewater, contributing to a lower-carbon economy. IFC has committed to invest in Investment commitments reached $394 million for 23 projects in FY08. Including a two such funds--Aloe Environment Fund II in Asia and Evolution One in southern large share of investments classified as regional, 60 percent are IDA projects; 23 Africa--and we are working to identify new funds. percent of country-specific funds are in IDA countries. SME-focused private equity funds accounted for 74 percent of this year's investments; other sector priorities WHAT WE HAVE ACHIEVED, included infrastructure and agribusiness. About 75 percent of investments are AND WORK STILL TO BE DONE managed by emerging managers based in client countries. The portfolio grew to We are now able to work increasingly in poorer countries, and with less experienced $1.35 billion in a total of 147 investments. The global credit crunch has had only a fund managers, as we help develop the private equity sector. The challenge and limited effect on IFC's fund valuations, because few of our funds depend on leverage business opportunity for IFC is to work with emerging fund managers in new markets for their return, focusing instead on the growth of companies they invest in through and help them bring their funds in line with international standards. Shifting the capacity expansion as well as operational and management improvements. portfolio to newer managers has increased demand for our advice in such areas as basic fund structuring and terms, and we are helping funds develop social and DEVELOPMENT RESULTS environmental risk management systems to meet IFC's standards. Grooming capable Since 2000, IFC-supported funds have provided capital and management expertise to new fund managers means incorporating good corporate governance: aligning about 500 companies, and they are expected to support an additional 200 companies investor and manager interests, establishing mechanisms to resolve potential conflicts by the end of these funds' lives. Over half of these companies have been SMEs; about of interest, and ensuring that investors avoid getting involved in day-to-day fund 25 percent have been located in IDA countries. Fund investments have created management. IFC also promotes networking between emerging fund managers and 162,000 jobs, and employment growth has been significantly higher than the national investors. Going forward, we will focus on increasing the potential of our investments average employment growth rates. These funds have mobilized $18.7 billion of equity through joint venture funds that respond to the need for bankable projects in some and quasi-equity for emerging markets. IFC's more structured, centralized approach regions and that cater to the real sector's needs in developing countries. We are since 2000, helped by better market conditions, has improved long-term development rapidly building up our investments in SME and small business funds, especially in outcomes of our funds portfolio. Last year, investments had above average results. IDA countries. 70 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES IFC AND FUND MANAGER PARTNER DEVELOPMENT REACH MAKING A DIFFERENCE TO EXPAND FINANCIAL SERVICES Portfolio* Portfolio* New Business Expectations IN AFRICA Indicator CY06 CY07 FY08** In Africa, IFC's financial markets group invested in Letshego, a consumer finance company in New jobs 60,580 162,100 33,600 Botswana, along with the PAIP Pan-African Number of SMEs reached 164 255 90 fund. At the time of investment in 2004, Letshego operated only in Botswana. IFC Number of emerging managers 52*** 61 22 invested a combination of equity and debt in Number of supported investee companies**** 329*** 498 212 the company that has enabled it to expand access to finance to over 100,000 low- and Number of investee companies with frontier middle-income borrowers in several other 66 112 107 exposure/IDA countries, including Tanzania, Uganda, and Zambia. With the guidance of IFC and the PAIP Number of high-growth investee companies 89 223***** 115 (>20% growth / + growth) fund manager, Letshego has established successful subsidiaries in six African countries. * Calculations are based on new business committed between 2000 and the respective year, and not on the total portfolio of projects. IFC's long-term partnership with the fund ** FY08 expectations are projected for 2013. *** Data have been revised. manager has enabled both parties to support **** Number of active investees is 397. *****60% of investees have shown positive growth - sample is out of 374 companies. Letshego from its start-up stage to its current status as a regional financial services provider that is a role model for other consumer lending entities in the Sub-Saharan region. Letshego PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES has also drawn upon IFC's financial expertise in ($ millions) FY07 FY08 Development 40 ($500) 78% Outcome developing new product lines for clients. 439 ($9,848) 71% Financing committed for IFC's account $250 $394 Financial 74% IFC GLOBAL PRIVATE EQUITY Performance 64% Loans $0 $0 CONFERENCE Economic 77% Each year, IFC organizes the Global Private Equity $250 $394 Performance 70% Equity Conference in partnership with the Environmental and 73% Guarantees and risk management $0 $0 Emerging Markets Private Equity Association. Social Performance 65% The premier conference in its industry, the event Loan syndications signed $0 $0 Private Sector 77% convenes participants from around the world to Development Impact 76% discuss trends, share best practice in private Total commitments signed $250 $394 Department 0 20% 40% 60% 80% 100% equity investing and fundraising, and network Committed portfolio for IFC's account $1,071 $1,350 IFC % Rated High with peers. This year's 10th annual conference attracted more than 600 practitioners. The 2008 Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $0 $0 calendar 1999-2004. Bars at top include the number of projects theme, "Creating Opportunities and Building (loan and guarantee participations) rated and total IFC investment in them (in $ millions). Value," examined the global economic impact Total committed portfolio $1,071 $1,350 of private equity, how Asia is driving the growth of other markets, and which frontier markets are attracting the most interest. Sessions also COMMITMENTS looked at trends in such fast-growing sectors as (financing in $ millions) FY05 FY06 FY07 FY08 clean technology and infrastructure. Number of projects 12 15 14 23 Number of countries 7 6 7 9 Financing for IFC's own account $181 $273 $250 $394 Syndications $0 $0 $0 $0 71A IFC A N N U A L REPORT 2008 71 72 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES Cell phones are nearly everywhere in South Africa. MAKING A DIFFERENCE But barely one in four people has a bank account--an obstacle to the country's economic growth that IFC is helping remove. We are helping expand the activities of WIZZIT a cell phone­ based banking facil- ity that allows South Africans to open bank accounts by using their cell phones. We took a 10 percent stake in the company. "At any single point in time, it is esti- mated that there is 12 billion rand under mattresses in this country," says Brian Richardson, WIZZIT's chief executive. "If we could take GLOBAL INFRASTRUCTURE just a small portion of that into the formal banking sys- CLOSING THE tem, the impact on the economy is enormous." WIZZIT INVESTMENT also is creating jobs. It has hired about 2,000 previously unemployed people--known as WIZZkids--who have GAP the local knowledge and contacts to sign up potential IFC is addressing a big customers across the country. gap in financing for financing PHOTO: IFC client Wizzit Bank is enabling people who lack bank accounts to critical infrastructure. We use cell phones for banking services. committed more than $2 billion to infrastructure projects in the past fiscal fiscal year. We also advise governments, including municipalities, on ways to bring private sector participation into essential public services such as roads and water treatment plants. 73A IFC A N N U A L REPORT 2008 73 G L OBAL I N FO R M AT I O N A N D C O M M U N I C ATI O N T E C H N O L O G I E S Information and communication technologies are critical catalysts of development. They help communities and local businesses access information and services and facilitate rural and local market integration with the global economy. There is growing evidence that these technologies contribute to economic growth and poverty reduction. A study on the impact of mobile phones in developing countries has shown that a 10 percent increase in telephone usage can lead to a direct GDP gain of 0.6 percent and a larger indirect gain. As the biggest global platform, with over 3.5 billion users, mobile phones also offer unprecedented opportunities for extending health, education, financial, and other basic services to underserved people. Investments in mobile telephony over the last decade have been significant, with 75 percent of the world's people now covered, although much remains to be done to extend access to rural and less developed areas. IFC focuses on improving access to information infrastructure and services, as most challenging markets, and have also helped extend financial services to over a IFC STRATEGY well as using ICT to expand the delivery of public and private services and million people. Since 2000, our client companies in the IT and media sectors have promote innovation in industry and grassroots entrepreneurship. Access to provided 45,000 jobs, most of them highly skilled and well-paid. Overall, the sector's these services is fundamental to expanding the reach of development. IFC development results were solid. Although early-stage IT projects are considered prioritizes investments in frontier and conflict-affected markets where relatively risky due to the uncertainty of the underlying business models and market potential for impact is greatest. In middle-income countries, we now focus on uptake, we are encouraged by the results, which are steadily improving. Advisory rural access and the Internet's underlying infrastructure--backbone and activities are underway in the sector, but are too new for IFC to report on their results. wireless broadband technologies--as new sources of growth and development. IFC helps introduce industry best practices, and we work with SUSTAINABILITY other financiers to invest in viable business models that can be replicated Environmental and social risks from the information and communication technology across markets. We make venture capital investments in IT products, services, sector are limited. The technologies themselves help lower these risks by reducing the and infrastructure companies and are facilitating innovative IT-enabled need to travel and by providing information and communications services to solutions that extend services to poorer people in remote areas. Global underprivileged people. Any risks associated with IFC's specific investments can be Information and Communication Technologies is a joint IFC­World Bank avoided or mitigated by following generally recognized performance standards, department: where possible, IFC draws on World Bank expertise in policy and guidelines, and design criteria. IFC helps clients meet these standards when the client regulatory matters to implement sector reforms, share cross-border does not already have an adequate environmental management system in place; this experience, build the capacity of public sector officials, and promote year the East Africa cable is a key example. public-private partnerships. WHAT WE HAVE ACHIEVED, NEW BUSINESS AND PORTFOLIO AND WORK STILL TO BE DONE Investment commitments reached $366 million for 18 projects in FY08. By number of There are enormous opportunities for businesses in developing countries to use ICT as projects, 54 percent of new investments are IDA projects, 17 percent are in frontier a springboard to introduce new services and move beyond established business regions of middle-income countries, and 11 percent are in conflict-affected countries. models. Hence we are continuing our focus on extending access, in particular to IDA Over the next five years, we expect that these new commitments will give nearly 19 and conflict-affected countries and to frontier and rural areas. It will be critical to million people telephone connections, create 4,300 new highly skilled jobs, and address market gaps by replicating successful models for public-private initiatives, contribute $1.1 billion in fiscal revenues and license, spectrum, and numbering fees. and to support the application of technologies that can expand the delivery of Our portfolio, with outstanding commitments of $1.14 billion, has been healthy, with services in health, education, and other key areas. As we are starting to see the no nonperforming loans, an average net spread of 2.6 percent, and strong rates of benefits of our long-term commitment to investing in ICT, we will also continue to return in telecommunications, IT, and media. Some 27 percent of the new strengthen our relationships with specialized sectors across the World Bank Group investments have an advisory component. and with global strategic sponsors and investors, helping transfer successful models across emerging markets. About 10 percent of clients are prepaying our loans, a good DEVELOPMENT RESULTS indicator that we can move toward riskier investments in less developed markets, IFC's investments in this sector have led to tangible development results. Mobile where we can make the biggest difference. telephone investments have helped drive strong performance--our clients have added connections for more than 182 million customers since 1996, often in the 74 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES CONNECTING EASTERN AFRICA DEVELOPMENT REACH MAKING A DIFFERENCE As part of IFC's strategy to extend access to Portfolio Portfolio New Business Expectations broadband Internet services, we helped develop Indicator CY06 CY07 FY08* and finance a landmark fiber-optic cable that will connect 21 East African countries to each IT and media employment 53,100 66,500 - other and the rest of the world with high-quality Internet and international New IT and media employment ** 9,920 17,800 4,310 communications services. Widely considered a model for cooperation among IFC, the World Total phone connections (million) 121.4 138.0 - Bank, and five other major development finance institutions, the project raised a total of $70.7 New phone connections (million) ** 52.7 50.6 18.8 million in long-term financing, including $18.2 million from IFC. Donors paid special attention New internet connections (million) - - 2.0 to environmental and social due diligence, seeking to avoid new rights of way and impacts Payments to government ($ million) n.a. 955 1,100 on sensitive terrestrial landing points. The process took over a year to complete and * FY08 expectations are projected for end 2012. ** Between 2005 and 2006 for CY06, and between 2006 and 2007 for CY07. engaged local consulting firms. The integrated corporate environmental and social manage- ment system will be consistent in all eight landing-party countries and could serve as a PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES benchmark for backbone network development. ($ millions) FY07 FY08 Development 23 ($317) 74% Outcome The cable is expected to reduce the cost of 439 ($9,848) 71% Financing committed for IFC's account $399 $366 broadband services from one of the world's Financial 61% highest rates. It is also expected to stimulate Performance 64% Loans $376 $293 the development of new knowledge-based Economic 65% industries, call centers, and similar ventures. Equity $22 $72 Performance 70% Educational and health activities in the region Environmental and 96% Guarantees and risk management $0 $0 will also benefit from low-cost Internet access. Social Performance 65% Loan syndications signed $449 $0 Private Sector 83% TECHNOLOGY EXPANDS ACCESS Development Impact 76% TO FINANCIAL SERVICES Total commitments signed $848 $366 Department 0 20% 40% 60% 80% 100% India's vast rural population is mostly beyond IFC % Rated High Committed portfolio for IFC's account $970 $1,140 the reach of commercial banking networks. Informal money lenders control up to 75 Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $469 $461 calendar 1999-2004. Bars at top include the number of projects percent of loans to farmers and charge interest (loan and guarantee participations) rated and total IFC investment in them (in $ millions). rates as high as 90 percent. IFC is helping to Total committed portfolio $1,439 $1,601 bring affordable banking services to this market. We are a founding investor in Financial Information Network & Operations, a financial COMMITMENTS services provider that now has more than a (financing in $ millions) FY05 FY06 FY07 FY08 million customers in India's rural and semi-urban areas. FINO provides a smart card Number of projects 12 15 17 18 with fingerprint data and other personal Number of countries 8 9 16 10 information that allows customers to conduct Financing for IFC's own account $200 $366 $399 $366 fraud-proof financial transactions. FINO's technology also allows customers to pay for Syndications $0 $0 $449 $0 hospital treatment or handle insurance claims. IFC's early experiences with mobile banking also promise far-reaching development impact; WIZZIT in South Africa (p. 73) is a good example. We continue to invest in pilots and share best practice from across the globe. With partners we cosponsored the inaugural Mobile Money Sum- mit in May 2008, convening nearly 500 repre- sentatives from the financial, telecommunication, and regulatory sectors in 67 countries. 75A IFC A N N U A L REPORT 2008 75 I NF RASTR U C TURE Infrastructure is basic to economic growth, better living standards, and broader development. Its catalytic role in poverty reduction has been widely recognized, yet it remains inadequate in many developing countries. Transport infrastructure (roads, ports, railways, airports) and services (shipping, airlines, logistics) are necessary for domestic and international trade. The World Bank estimates that infrastructure investment needs in developing countries amount to about $400 billion a year, but only about half that amount is being spent. These figures are well beyond what the public sector alone can meet. Engagements in poorer countries also have long lead times and require time-intensive structuring. Infrastructure sectors also need efficient management, which is often lacking. IFC is working to address the global infrastructure access gap by encouraging entrenched markets; and particularly in road and railroad investments affected by IFC STRATEGY private sector investments, particularly in IDA countries and with regional their relative higher exposure to national economic downturns. See also the advisory emphasis on Africa, the Middle East, and Asia. We are collaborating across business line, p. 98. financial the World Bank Group and externally with financial institutions and donors to ensure that more than a third of all new IFC infrastructure investments are in SUSTAINABILITY IDA countries. More coordination between IFC and IDA will increase both the In developing countries, more than 1.7 billion people live without access to electricity, level of assistance and the impact of these investments. IFC will support 1.1 billion lack clean drinking water, and 2.6 billion people need basic sanitation. IFC national and regional infrastructure development and provide advisory has sharpened its strategy within the electricity sector, aiming to maximize access to financing. services and financing. We are also working to implement IFC's climate energy through private sector investment in power generation and transmission while change strategy across all infrastructure sectors. supporting adoption of the cleanest technologies and fuels. We will increase investments in renewable energy by using commercial and concessionary funds, NEW BUSINESS AND PORTFOLIO financing financing efficient integrating carbon financing wherever possible, and financing highly efficient coal- Investment commitments reached $2.40 billion for 39 projects in FY08, and we oil-fired and oil-fired generation where no other realistic options exist. IFC seeks to encourage mobilized an additional $1.28 billion through syndications. By number of projects, 37 private investment in the water sector by bringing together private sector partners, percent of new investments are IDA projects, and 10 percent are in frontier regions of governments, and other multilateral institutions to address critical issues of access, middle-income countries, with a heavy concentration in Europe and Central Asia and scarcity, and quality. We are creating a pipeline of bankable transactions, providing South Asia. In line with our objective to promote responsible, carbon-neutral ways to financing innovative structures to address the financing gap that many clients face, and increase energy access, IFC's infrastructure departments committed $344 million in efficient supporting clean production and efficient technologies. We are also working with To help reduce new renewable energy investments, a 74 percent increase from FY07. Tata Mundra, a partners in the agriculture, energy, and industrial sectors to explore opportunities that coal-fi large energy deficit, Tata Mundra, year, is expected to will generate 4,000 India'sred project in India committed this a coal-fired project, generate 4,000 efficiency, link the water sector to agricultural efficiency, pollution, and climate change. Projects affordable electricity using highly efficient consumers, in addition megawatts of electricity and will serve 16amillion domestictechnology that is less to significant such as Petstar--a waste management project in Mexico that has had significant carbon-intensive per unit enterprises. See also the Infrastructure advisory business industrial and agriculturalof power produced. See also the Infrastructure advisory environmental and social impact across its supply chain--demonstrate the unique business line, line, p. 98. p. 98. value added by IFC's support. DEVELOPMENT RESULTS WHAT WE HAVE ACHIEVED, IFC client companies provided basic services--water, gas, and electricity--to 184 AND WORK STILL TO BE DONE million customers last year, mostly in underserved areas, and transportation services IFC is decreasing emphasis on investments in middle-income countries, top-tier for 470 million passengers. IFC's infrastructure investments have a long track record companies, and conventional projects. IFC continues to look for ways to unlock new of strong development results. Recent performance has been solid, driven by our markets and extend the pipeline of bankable projects, such as IFC InfraVentures. water and gas investments, mainly in Latin America and East Asia, followed by those Public-private partnerships will continue to afford new opportunities in all in the power sector, while investments in transportation have had lower performance. infrastructure sectors--especially in IDA countries--where traditional concession or In countries that have strong government policies to promote private sector privatization approaches cannot be relied on. IFC will work with the World Bank, engagement in infrastructure, as well as sound regulatory frameworks and stable applying lessons learned to develop new partnerships, particularly in sectors where economic conditions, results have been solid. Mixed or poor performance occurs significant the public sector bears a significant risk as part of attracting private investment. We where reforms are weak or reversed; where clients are unable to penetrate deeply will also identify new approaches to help address climate change. 76 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES IFC INFRAVENTURES DEVELOPMENT REACH MAKING A DIFFERENCE IFC InfraVentures is a $100 million fund through Portfolio Portfolio New Business Expectations which we play a key role in the early Indicator CY06 CY07 FY08* development of private and public-private Power generated (millions of customers) 123.7 146.8 45.6 partnership infrastructure projects in the power, transport, and utilities sectors of IDA countries. Power distribution (millions of customers) 9.5 11.3 1.8 IFC is engaging early with private infrastructure Water distribution (millions of customers) 15.3 18.1 - companies, working with project developers, Airport passengers (million) 13.2 26.4 10.2 and helping governments introduce private participation and structure partnerships. Our Roads - number of vehicles (million) 269.3 229.2 - institutional recognition and standing as a Transport and road customers (million) 3.8 member of the World Bank Group help us Airline passengers (million) 46.4 57.7 1.8 persuade governments, sponsors, and other sector players to move forward with investments Cargo/grain ports (million tons) 15.6** 15.9 4.7 in the most challenging markets. The fund is Container ports/moves (million) 4.9 6.6 2.5 drawing on and coordinating a wide range of Rail freight (million tons) 200.2 189.3 1.7 advisory and financial products and services from across the World Bank Group to support Railway passengers (million) 2.4 153.5 0.6 infrastructure development in IDA countries. The Payments to government ($ million) 4,850 4,015 16,012*** first investments include a geothermal plant in Gas distribution (millions of customers) 10.6 8.2 - Djibouti, a hydropower plant in Nicaragua, a Shipping (million tons of freight) - 12.9 - methane power plant in Rwanda, and a power transmission line in Tajikistan. Wastewater treated (million m3 p.a.) - 395.7 274.5 * Expectations projected for 2011. Payments to government for 2008-2015. IFC AND METITO EXPAND WATER ** Data have been revised. *** Expected payments to government revenues capture payments 2008-2015 and include $11.3 billion by one large Latin American client. TREATMENT The Middle East and North Africa region is experiencing a steadily growing demand for water supply and irrigation service, as well as PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES greater pressure to address industrial and urban ($ millions) FY07 FY08 Development 45 ($1,048) 73% Outcome pollution. In response to this looming crisis, IFC 439 ($9,848) 71% Financing committed for IFC's account $936 $2,404 has partnered with Metito, an international Financial 69% desalination, water, and wastewater-treatment Performance 64% Loans $789 $2,143 specialist to increase its capital and finance its Economic 73% expanding activities in the region's water and Equity $134 $248 Performance 70% wastewater infrastructure. IFC took a 7.4 Environmental and 75% Guarantees and risk management $13 $13 percent equity stake and provided a $20 million Social Performance 65% loan in a partnership that will enable Metito to Loan syndications signed $50 $1,279 Private Sector 77% undertake water treatment investments across Development Impact 76% the region. Planned projects are an important Total commitments signed $985 $3,683 Department 0 20% 40% 60% 80% 100% part of World Bank Group's Country Assistance IFC % Rated High Committed portfolio for IFC's account $3,727 $5,314 Strategies for Egypt, Jordan, Lebanon, Morocco, Pakistan, and Tunisia. Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $1,332 $1,989 calendar 1999-2004. Bars at top include the number of projects (loan and guarantee participations) rated and total IFC investment in them (in $ millions). Total committed portfolio $5,059 $7,304 COMMITMENTS (financing in $ millions) FY05 FY06 FY07 FY08 Number of projects 23 35 29 39 Number of countries 15 19 16 20 Financing for IFC's own account $598 $955 $936 $2,404 Syndications $156 $383 $50 $1,279 77A IFC A N N U A L REPORT 2008 77 O IL , GA S, MIN I N G , A N D C H E M I C AL S High commodity prices are substantially increasing revenue, through taxes and profit shares, for governments in mineral-rich developing countries; these funds offer them the opportunity for greater spending on development. The key is the management of these flows, to ensure that the revenues are well spent for the benefit of local communities. For poorer developing countries that are not commodity exporters, on the other hand, the current high oil prices are an added cost that could slow their growth and may also have more direct poverty impacts. Concerns about climate change have also deepened, presenting challenges to improve the efficiency of energy use in production and processing. IFC builds partnerships with investors that are committed to sustainable SUSTAINABILITY IFC STRATEGY development of the oil, gas, mining, and chemicals sectors. We continue to IFC continues to focus on sustainable outcomes for its activities, both at the project seek innovative approaches that broaden and deepen the development and sector levels. We work with investors to ensure that projects are implemented in impact of our investments, and we help smaller and local companies expand line with IFC's environment and social safeguard policy and performance standards. into IDA countries and underserved regions across the globe. Oil, Gas, Mining, In some cases, we work with smaller companies to strengthen their environment and and Chemicals is a joint IFC-World Bank department, and in partnering with social management capacity, so that their operations--whether IFC remains involved the World Bank, we aim to address broad sector issues, such as governance or not--can meet high standards and community expectations. We also work with and transparency, as well as climate change and energy security. investors to widen the positive development impacts of companies' operations, for example through programs to increase the role of local enterprises, including small NEW BUSINESS AND PORTFOLIO businesses, in the supply chain. We are working to change the way community Investment commitments reached $1.09 billion for 31 projects in FY08, and we development projects are implemented, with more participation from stakeholders mobilized an additional $480 million through syndications. By number of projects, 28 and more use of local counterparts. IFC has programs in Colombia, Peru, and South percent of new investments are IDA projects, and 25 percent are in frontier regions of Africa that seek to increase governance capacity and accountability at the local level middle-income countries. Companies that have commenced or scaled up their so that investments make a lasting development contribution. With the World Bank, operations during this fiscal year will benefit host countries and communities in a we have also supported efforts to enhance sector governance at the national level, variety of ways, including through the payment of $1.2 billion in government revenue including global initiatives that promote transparency, small-scale mining, and and the procurement of $650 million in goods and services from domestic suppliers. reduction in gas flaring. Our portfolio, with outstanding commitments of $3.48 billion, continues to perform well. IFC's extractives-related advisory services increased this year, with one-third of WHAT WE HAVE ACHIEVED, all new extractives investments expected to have an advisory component. AND WORK STILL TO BE DONE Looking forward, IFC will continue to address the challenge of ensuring that DEVELOPMENT RESULTS communities and countries achieve the greatest possible development benefits from In 2007, companies in our portfolio generated $9.2 billion in revenue to national and their oil, gas, mining, and chemicals investments. We will support the renewed effort local governments, and they provided 119,000 direct and indirect jobs. They also by the World Bank, in partnership with governments and others, to address spent $115 million on community development programs and purchased $7 billion in governance issues related to sustainable development of extractive industries along local goods and services domestically. IFC investments in the oil, gas, mining, and the whole value chain. We also remain committed to scaling up activities that can chemicals sectors demonstrate solid development results. High commodity prices and help address concerns about climate change and that contribute to development and sustained profitability in the chemicals sector largely explain these results, along with poverty reduction in our client countries. The focus includes gas development and the solid environmental and social performance of portfolio companies. more efficient production, use, and transformation of energy and chemicals. 78 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES EXTRACTIVE INDUSTRY REVENUES: DEVELOPMENT REACH MAKING A DIFFERENCE ENSURING BENEFITS FOR Portfolio Portfolio New Business Expectations DEVELOPMENT Indicator CY06** CY07 FY08* Many of the world's poorest people--including across much of Sub-Saharan Africa--live in Employment 87,770 119,340 14,690 countries that are rich in oil, gas, and minerals. Revenues from extracting these resources can Payments to government ($ million) 8,420 9,250 1,160 be a powerful tool to improve lives--if carefully managed. The President of the World Local purchase of goods and services ($ million) 4,525 7,140 650 Bank Group recently announced a new initiative to help countries harness opportuni- Outlays for community development 127.4 115.4 5.4 programs ($ million) ties from the boom in commodity prices. The World Bank Group aims to work with * FY08 expectations are projected for calendar year 2008. governments, development institutions, and ** Data have been revised. others to address issues across the entire chain from extraction and processing to the distribution of government revenues, helping PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES ensure that these activities promote ($ millions) FY07 FY08 Development 21 ($680) 76% Outcome sustainable growth and reduce poverty. IFC will 439 ($9,848) 71% Financing committed for IFC's account $985 $1,085 play an active role to advance this initiative. Financial 75% We already require our extractive industry Performance 64% Loans $802 $823 clients to publicly disclose payments to Economic 67% governments, and we ensure that local Equity $183 $184 Performance 70% communities benefit from resource extraction. Environmental and 67% Guarantees and risk management $0 $78 Social Performance 65% COMMUNITY DEVELOPMENT 74% Loan syndications signed $481 $480 Private Sector AROUND EXTRACTIVES PROJECTS Development Impact 76% Last year, IFC launched CommDev, a program Total commitments signed $1,465 $1,565 Department 0 20% 40% 60% 80% 100% that engages and empowers local communities IFC % Rated High and governments around our investments in Committed portfolio for IFC's account $2,675 $3,478 extractive industries. CommDev agreed to Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $1,192 $1,501 calendar 1999-2004. Bars at top include the number of projects finance 10 projects, four of them in Africa. This (loan and guarantee participations) rated and total IFC investment in them (in $ millions). year, CommDev launched its online information Total committed portfolio $3,867 $4,980 clearinghouse, a repository of knowledge, case studies, tools, and research collected from its network of internal and external community COMMITMENTS development practitioners. IFC is building the (financing in $ millions) FY05 FY06 FY07 FY08 interactive platform that will be used for creating a network of practitioners to share Number of projects 22 24 22 31 their ideas, approaches, issues, and successes. Number of countries 12 16 14 15 With nearly 1,500 resources available, the Financing for IFC's own account $478 $788 $984 $1,085 clearinghouse should establish a more sustainable foundation for long-term Syndications $205 $347 $481 $480 socioeconomic development in communities affected by extractive industries. 79A IFC A N N U A L REPORT 2008 79 SU BNATIO N A L FI N A N C E In many developing countries, local and regional authorities are being entrusted to provide more infrastructure services, including water and sanitation, waste disposal, energy, and transportation. As local governments become more self-reliant, they increasingly seek financing from commercial sources. Likewise, nationally owned enterprises that deliver key infrastructure services are increasingly expected to operate commercially, at arm's length from government regulators, and to raise financing on their own credit. As part of the World Bank Group's strategy for middle-income countries, IFC and IBRD in FY07 launched a joint subnational finance initiative to help local governments and public utilities improve their creditworthiness and access financing for essential infrastructure. Subnational Finance is a joint IFC-World Bank department that combines road program funded by our local currency loan to Russia's Chuvash Republic is also IFC STRATEGY IFC's private sector approach with IBRD's public sector experience. Using a well advanced; the 167 kilometers of rural roads already built or rehabilitated provide wide variety of financial products, including loans, equity, credit guarantees all-weather access to markets and services for over 40,000 people in rural areas. In and risk-sharing facilities, we encourage local investors to finance subnational South Africa, IFC's guarantee of the first local bond issue by the city of Johannesburg projects, fostering the development of local capital markets in the process. We facilitated the municipality's access to capital markets, allowing it to finance capital also work with nationally owned enterprises that provide essential expenditures for investments in the water and wastewater sector. infrastructure services in natural-monopoly sectors where public investment complements the role of the private sector. Although the program focuses on SUSTAINABILITY middle-income countries, it can also support responsible borrowings by viable Many of the subnational projects we finance produce environmental and social subnational entities in IDA countries and frontier regions of middle-income benefits. For example, a $20 million risk-sharing facility enabled four Moroccan countries. To improve the project preparation and implementation capacity of financial institutions to provide a loan for a sewer and sewage treatment project to local governments, advisory services are being provided through a multidonor RADEEJ, a municipal utility in El Jadida, Morocco. The investment will bring El Jadida grant facility. to national wastewater management standards and is expected to reduce health hazards from the discharge of untreated sewage and the associated pollution of local NEW BUSINESS AND PORTFOLIO beaches. In addition to raising living standards, it is expected to foster the The ramp-up of the subnational investment program has been slow amid the development of tourism and other local industries. challenges of tailoring our strategy and products to comply with the regulatory context of each country and to cope with capacity constraints of public sector clients. WHAT WE HAVE ACHIEVED, Investment commitments were $49 million for two projects in FY08, one of which has AND WORK STILL TO BE DONE an advisory component; and we mobilized an additional $21 million through The Bank Group's subnational financing has developed a strong pipeline. So far, more structured and securitized products. Our committed portfolio comprises eight than 3 million people have benefited from better public services as a result of our investments totaling $200 million. Over the next five years, we expect to make investments. We have identified the most promising countries and segments, and in investments that will help subnational clients improve the quality of their infrastruc- the next few years will concentrate resources in these areas, with departmental or ture services, benefiting several million individuals. The portfolio is diversified across dedicated regional staff in a few key countries. IFC joined the World Bank and the regions and infrastructure sectors. Investments include a risk-sharing facility in U.K. Department for International Development in 2007 in creating a multidonor Guatemala for a transport project, equity in a geothermal power company in the advisory grant program that helps subnational entities improve their financial Philippines, and a risk-sharing facility in the energy efficiency sector in Hungary. management and prepare for future commercial borrowing. The advisory effort has mobilized $20 million and committed $6.1 million for 26 advisory projects. DEVELOPMENT RESULTS Subnational finance is a relatively new line of business for IFC; most operations are not yet sufficiently mature to evaluate results fully. The Bus Rapid Transit system in Guatemala City has reduced commuting times and increased the availability and safety of public transportation, benefiting about 150,000 passengers per day. The 80 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES SUPPORTING GOOD MUNICIPAL DEVELOPMENT REACH MAKING A DIFFERENCE MANAGEMENT IN KAMCHATKA Portfolio Portfolio New Business Expectations The municipality of Petropavlovsk-Kamchatsky, Indicator CY06 CY07 FY08* the capital of a remote Russian province, has been improving its management and fiscal Power customers (number of customers) - 50,000 - responsibility. But its large infrastructure needs cannot be addressed without long-term Water and sewerage (number of customers) 238,000 115,000** 40,000 borrowing, and the tenor of financing available from local banks is limited to 12 or 18 months. Transport and road (number of customers) 190,000 150,000 IFC has provided the municipality an eight-year ruble loan that will enable it to accelerate its * FY08 expectations are projected for end 2013. ** Data have been revised and do not yet reflect reach by one large client. capital expenditures program. Parallel advisory support from IFC will further improve financial management systems, helping the municipality adopt modern practices for road maintenance PROJECT FINANCING AND PORTFOLIO planning. About 20 percent of local roads will ($ millions) FY07 FY08 be rehabilitated and resurfaced, benefiting Financing committed for IFC's account $75 $49 some 200,000 people. Loans $50 $29 MOBILIZING LOCAL CURRENCY FINANCING FOR SEWER PROJECT Equity $25 $0 IN MOROCCO Guarantees and risk management $0 $21 IFC helped the municipal utility in El Jadida, Morocco, mobilize long-term local currency Loan syndications signed $0 $0 financing for a $70 million sewerage project. IFC's $20 million risk-sharing will help the utility Total commitments signed $75 $49 rehabilitate and extend its infrastructure as well Committed portfolio for IFC's account $148 $200 as build new wastewater treatment and discharge facilities. A first of its kind in the Committed portfolio held for others $0 $0 Middle East and North Africa, IFC's investment (loan and guarantee participations) supports a broader strategy of the World Bank Total committed portfolio $148 $200 Group to assist the Moroccan authorities in their effort to foster the disciplined transition of creditworthy municipalities and their enterprises COMMITMENTS to market-based financing without sovereign (financing in $ millions) FY05 FY06 FY07 FY08 guarantees. The investment is expected to benefit 40,000 people by 2014. Number of projects 0 4 2 2 Number of countries 0 4 2 2 Financing for IFC's own account $0 $52 $75 $49 Syndications $0 $0 $0 $0 81A IFC A N N U A L REPORT 2008 81 82 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES China's rapid economic growth has made it one of MAKING A DIFFERENCE the world's largest consumers of paper and forestry products. But it faces shortages of wood, prompting some manufacturers to rely on unsustainably logged imports and pollution-causing nonwood fibers. IFC is helping alleviate the shortages and ensure environmen- tally sustainable development by assisting Stora Enso, which is implementing a tree-planting project in Guangxi Province, one of China's poor- est regions. Over the last few years, we have provided $300 million in financing to Stora to help expand tree planta- GLOBAL MANUFACTURING tions in China. The effort FOSTERING has generated 28,000 jobs, with annual pay PROSPERITY about 80 percent higher In a time of global than the regional aver- economic uncertainty, IFC is age. The plantation in supporting manufacturing Guangxi also helps address concerns about greenhouse and services clients by gas emissions by sequestering more than 2 million tons helping organize cross- of carbon dioxide a year. border investment and trade between businesses PHOTO: To alleviate China's wood shortage, IFC is helping our client Stora Enso finance tree-planting projects. in developing countries. We have also worked to alleviate the food crisis by providing capital to agribusiness clients. And we are expanding our operations in health and education. 83A IFC A N N U A L REPORT 2008 83 A G RIBU SIN ESS Agribusiness comprises many functions in the food supply chain for domestic and international markets: production, marketing, logistics, processing, and distribution. Most of the world's poor live in rural areas and are directly involved in agriculture, which accounts for 34 percent of GDP and employs 64 percent of workers, on average, in the least developed countries. The demand for food and agricultural products in developing countries is increasing along with population growth and better living standards, even as high energy prices drive up the demand for biomass and biofuel feedstocks. Food price increases in 2007 and 2008 underline the magnitude of the challenge for agribusiness to satisfy an increasing demand for food while safeguarding natural resources. IFC has made agribusiness a priority because of its potential for broad agribusiness projects have closed early. Larger investments tended to perform better, IFC STRATEGY development impact and its importance to the social fabric of developing and if weighted by the size of IFC's investment, three-quarters had high development countries. We combine investments and advisory services to help the sector results. Our experience demonstrates better results with nonperishable products address higher demand and escalating food prices in an environmentally (beverages, grains, oilseeds, sugar) and with agribusiness infrastructure than with sustainable and socially inclusive way. We also support global initiatives for animal products or fresh produce. IFC's advisory services also help clients increase sustainable production of agricultural commodities. The food crisis is putting the development impact of their investments by setting standards of environmental pressure on the global supply chain and threatening progress in reducing and social sustainability, improving food safety and quality management systems, or poverty. In the immediate term, IFC is investing in firms that can help increase extending the reach of their operations to smaller farmers and SMEs. production in middle-income countries with strong agribusiness potential: Argentina, Brazil, Kazakhstan, Russia, Ukraine, and Uruguay. IFC has offered SUSTAINABILITY working capital facilities to help clients prefinance inventories and farmers' Agribusiness companies increasingly recognize that the sector needs to preserve a inputs; we are also helping eliminate barriers to credit. In the medium term, healthy base of natural resources, many of which are at risk, while increasing supply we will scale up the financing of agribusiness and address critical constraints to meet market demand. The sector also faces social challenges, including the need to in Africa. We aim to bring unused land into production, improve productivity improve labor practices. IFC seeks commercially viable solutions and helps companies by transferring technologies from middle-income to poor countries, and make set benchmarks of responsible production so that solutions become widely adopted. the best use of water and other resources. We will pursue investments, both In such areas as sequestering carbon, managing watersheds, preserving biodiversity, private and with the public sector, in infrastructure (ports, warehouses, cold and producing renewable energy resources, this work can also help generate new storage, telecommunications) that can facilitate trade and lower cost. For income through environmental services. At the global or regional level, IFC supports more impact on small farmers and rural enterprises, IFC will increase its commodity roundtables for palm oil, soybeans, sugar, cotton, and beef to help define wholesaling work through trading companies and financial intermediaries, global standards of sustainability. IFC is working with clients to strengthen their including microfinance lenders, helping channel financing and advisory supply chains with small farmers as well as apply appropriate environmental, social, services effectively. and quality standards: examples include Bertin (see p. 106) and ECOM. This year we extended our partnership with ECOM through a new investment in IDA countries of NEW BUSINESS AND PORTFOLIO Africa and Asia. This will replicate a successful program implemented in FY07 in Investment commitments reached $762 million for 32 projects in FY08, and we Central America that combines financing for small coffee farmers with advice to mobilized an additional $146 million through syndications and sales of IFC loans. By achieve certification for sustainable production. number of projects, 42 percent of new investments are IDA projects, and 20 percent are in frontier regions of middle-income countries. We expect that these commit- WHAT WE HAVE ACHIEVED, ments will support 96,400 jobs and reach more than 18,600 farmers and 13,380 AND WORK STILL TO BE DONE MSMEs. Our portfolio, with outstanding commitments of $2.19 billion, is performing IFC has significantly scaled up agribusiness lending in recent years, and we have well. Its performance is driven by our strict standards for selecting clients, a focus on diversified the range of financial services we provide. IFC is also helping raise clients' sectors where countries have a competitive advantage, favorable commodity markets, awareness of environmental and social sustainability, and companies that aspire to a and the growth and greater stability of emerging countries. Some 24 percent of FY08 high level of social responsibility increasingly seek our assistance. We have started investments are expected to have an advisory component. reaching greater numbers of small farmers and rural enterprises by increasing their access to services in tandem with local financial intermediaries, processors, and DEVELOPMENT RESULTS commodity traders. In view of the challenges faced by the industry, we will continue IFC investments show the potential that agribusiness offers for development: in 2007 to scale up our financing of agribusiness, increasing the number of countries where our portfolio companies employed 380,000 workers, paid $746 million in taxes, and we have investments as well as integrating advisory services with our investments. reached 800,000 farmers and 100,000 MSMEs. Development results of our active projects were lower than the IFC average, in part because many well-performing 84 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES REBUILDING THE ECONOMY DEVELOPMENT REACH MAKING A DIFFERENCE IN LIBERIA Portfolio Portfolio New Business Expectations Experience in conflict-affected countries Indicator CY06 CY07 FY08* indicates that agricultural growth significantly contributes to early economic recovery, Employment 138,900 379,540 96,400 particularly in rural areas. In Liberia, IFC has been focusing on financial markets and Number of farmers 538,300 806,350 18,600 agribusiness as key sectors to jump start economic growth following a decade of civil Number of MSMEs reached 57,000 104,360 13,380 war. After many years of neglect and lack of * FY08 expectations projected through 2013 investment, the Salala Rubber Corporation was acquired in 2007 by a group of investors. We are supporting their effort to rebuild the company's productive base through an PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES accelerated program of planting; they are also ($ millions) FY07 FY08 Development 23 ($533) 52% Outcome 439 ($9,848) 71% restoring extensive but dilapidated social Financing committed for IFC's account $628 $762 infrastructure that includes housing, clinics, and Financial 57% Performance 64% schools for the local population. The company is Loans $555 $605 a major source of income and social stability for Economic 52% Performance 70% its 1,600 employees and many local farmers Equity $23 $157 who supply wet rubber to its operations; in all, Environmental and 60% Guarantees and risk management $50 0 Social Performance it supports about 30,000 people. 65% Loan syndications signed $188 $136 Private Sector 60% CONSERVING SCARCE WATER Development Impact 76% IN INDIA Total commitments signed $816 $898 Department 0 20% 40% 60% 80% 100% Jain Irrigation Systems Ltd. is an integrated IFC % Rated High Committed portfolio for IFC's account $1,698 $2,188 agribusiness player in India that has operations in micro irrigation systems, plastic pipes, Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $444 $505 calendar 1999-2004. Bars at top include the number of projects dehydrated onions, and processed fruits. (loan and guarantee participations) rated and total IFC investment in them (in $ millions). Partnership with such a company is an important Total committed portfolio $2,142 $2,693 step for IFC to expand our investment in efficient irrigation systems. India's agriculture has some of the world's least efficient water use, but this COMMITMENTS can be improved. The country's central and state (financing in $ millions) FY05 FY06 FY07 FY08 governments have recognized the importance of Number of projects 17 22 23 32 adopting micro irrigation, particularly as climate change may affect water availability. Currently, Number of countries 13 13 15 20 less than 5 percent of India's irrigated land is Financing for IFC's own account $377 $456 $628 $762 under micro irrigation; the investment will allow Jain to irrigate an additional 1 million hectares Syndications $53 $219 $188 $136 of farmland in four years. 85A IFC A N N U A L REPORT 2008 85 G L OBAL MA N U FA C T U RI N G A N D SER VI C ES Manufacturing and services account for 40 percent of developing countries' GDP and receive about 40 percent of total foreign direct investment. The sector is growing at about 9 percent a year, three times the rate in high-income countries. Driven by GDP and income growth, the demand for manufacturing and services in developing countries has risen significantly. Within this arena, IFC focuses on key industries that form the foundation of sustainable growth and that provide affordable goods and services to consumers, create jobs, contribute to government revenue, and stimulate the growth of local small and medium enterprises. These sectors include construction materials, retail, tourism, and property, which support infrastructure development; pharmaceuticals, as part of ensuring affordable health care; and forest products and energy-efficient machinery, to help address the impact of climate change. IFC invests in companies that are developing new products and markets, IFC's average. In the Middle East and North Africa, difficult country environments and IFC STRATEGY restructuring and modernizing to become internationally competitive, and weak sponsors contributed to low performance, while in Sub-Saharan Africa expanding and moving toward a regional or global presence. IFC focuses on numerous underperforming small investments contributed to weaker results. clients that are, or have potential to be, strong players in their local markets. Investments in Europe and Central Asia and in South Asia performed best. Advisory In middle-income countries, we increasingly support local second-tier activities are underway in the sector--examples include a program with Serena companies and South-South investments. We also aim to play a strong role in Hotels in Kenya to educate staff on HIV/AIDS and other health issues, as well as those developing local companies in IDA countries. Our emphasis on building local in the following section. capacity, providing cutting-edge global expertise as well as financing, enables client companies to become more competitive and sustainable. Our focus is SUSTAINABILITY on building centers of excellence in the sectors in which we operate, so that IFC investments increasingly integrate cost-effective mitigation of greenhouse gas IFC offers global sector knowledge and best practices to clients. As these emissions with other environmental improvements. In Bulgaria, our cleaner industries represent some of the most carbon-intensive sectors, we are production lending instrument will enable Drujba to use more recycled glass cullet in helping clients develop and undertake investments that help reduce carbon its bottle manufacturing. With float glass producer China Glass Holdings and emissions and energy consumption. Ukraine's Industrial Union of Donbass, a steelmaker, we are supporting installation of more efficient furnaces, better control of emissions, and power from recovery of NEW BUSINESS AND PORTFOLIO furnace gas. Also in China, we are helping forestry client Stora Enso line up local Investment commitments reached $1.42 billion for 55 projects in 37 countries in small businesses to assist in planting, cultivation, and harvesting. IFC has worked FY08, and we mobilized an additional $360 million through syndications, sales of IFC with Nile Suez, a towel manufacturer in Egypt, to help ensure high standards for labor loans, and parallel loans. By number of projects, 39 percent of new investments are and working conditions at its subcontractors' manufacturing sites in South and East IDA projects, and 13 percent are in frontier regions of middle-income countries. Asia. In the Kyrgyz Republic, we are helping Altyn Ajydar, a manufacturer of About 69 percent of our commitments were in building materials, forestry products, packaging and building materials, enhance its occupational health and safety and the retail, hotel, and property sectors. Over the next five years, we expect that practices. these new commitments will support about 70,000 jobs, contribute $810 million annually in tax revenues, and pay about $2.1 billion annually for local purchases. Our WHAT WE HAVE ACHIEVED, portfolio, with outstanding commitments of $5.81 billion in 420 investments, has AND WORK STILL TO BE DONE been performing well. Some 20 percent of FY08 investments have an advisory IFC increasingly emphasizes investments in IDA countries, which represent 45 percent component in such areas as corporate governance, cleaner production, business of our portfolio exclusive of regional projects, and in conflict-affected countries. We linkages, and HIV/AIDS. IFC's sector experts continued outreach at conferences on are helping local companies become competitive and adapt to changing local, retail and tourism and at other industry-specific events; this year we also cosponsored regional, and global market dynamics. Our long-term partnerships with clients, often a seminar with Greek firms seeking to invest in emerging markets. through South-South investments, allow us to develop tailored financing, provide technical and industry knowledge, and help improve environmental and social DEVELOPMENT RESULTS performance. Our ability to process small direct investments across IDA countries has In 2007, IFC client companies provided 700,000 jobs with total wage payments of been instrumental in reaching small entrepreneurs, and as demand for our services $19.5 billion, paid $2.2 billion in taxes to governments, and purchased $47.2 billion grows we will continue to broaden the scope and reach of this program. We will in local goods and services. These results have increased compared to previous years, incorporate advisory services with our investments to maximize our contribution to with 70 percent more jobs being created or preserved and more revenues being developing manufacturing and service companies in our client countries and deepen generated for governments. Manufacturing clients tend to create or maintain more our development impact. employment and generate more local purchases than any other sector. While developmental reach is notable, overall development results are weak compared to 86 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES IFC HELPS EXPAND AFFORDABLE DEVELOPMENT REACH MAKING A DIFFERENCE HOUSING IN MEXICO Portfolio Portfolio New Business Expectations In Mexico, midsize homebuilders face Indicator CY06 CY07 FY08* constraints in accessing long-term working Employment 414,600** 703,600 70,500 capital finance. This raises construction costs and home prices, making homes unattainable Net sales ($ million) 62,600 114,500 22,150 for many middle- and low-income families. IFC Net income ($ million) 3,300 5,600 2,230 is helping change this situation by investing in Payments to government ($ million) 1,100 2,240 810 Vinte, a progressive company that serves these housing markets. The investment will enable Local purchase of goods and services ($ million) 24,580 47,160 2,130 Vinte to build more homes at affordable prices, * FY08 expectations are projected for 2013 while educating buyers on ways to preserve ** Data have been revised clean, safe neighborhoods. Vinte's integrated, environmentally friendly approach to housing development includes an emphasis on community, amenities, and property PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES maintenance. ($ millions) FY07 FY08 Development 123 ($1,829) 59% Outcome 439 ($9,848) 71% Financing committed for IFC's account $1,375 $1,418 BUILDING CEMENT CAPACITY IN Financial 47% Performance AFRICA: A KEY TO INFRASTRUCTURE Loans $1,180 $1,267 64% DEVELOPMENT Economic 59% Sub-Saharan Africa's current capacity for Equity $179 $148 Performance 70% cement production can meet only 70 percent of Environmental and 54% Guarantees and risk management $16 $3 Social Performance domestic demand, and consumption is 65% projected to grow by more than half in the next Loan syndications signed $495 $305 Private Sector 68% five years. To help meet this demand, IFC is Development Impact 76% supporting new capacity in countries that have Total commitments signed $1,870 $1,723 Department 0 20% 40% 60% 80% 100% good growth prospects and where a supply gap % Rated High Committed portfolio for IFC's account $5,210 $5,811 IFC is expected to continue. In Ethiopia, for example, IFC invested in Midroc Derba to finance the Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $1,696 $1,689 calendar 1999-2004. Bars at top include the number of projects construction and operation of a cement plant (loan and guarantee participations) rated and total IFC investment in them (in $ millions). with production capacity of 2.2 million tons a Total committed portfolio $6,905 $7,499 year, which will reduce an acute supply shortage and offer lower prices than imported cement. The plant is expected to create COMMITMENTS employment opportunities for over 400 people (financing in $ millions) FY05 FY06 FY07 FY08 and play a key role in improving local infrastructure. Number of projects 48 44 46 55 Number of countries 24 22 26 37 Financing for IFC's own account $1,275 $1,218 $1,375 $1,418 Syndications $635 $404 $495 $305 87A IFC A N N U A L REPORT 2008 87 H EA LTH AND EDU C AT I O N The private health and education sectors continue to grow in most emerging markets, providing services to people from all income groups that complement those offered by public systems. Governments increasingly support private provision of health and education services along with improved regulations, better licensing and quality controls, and more reliance on public- private partnerships. Growth and change also stem from technological innovation, a more commercial focus in these sectors, and globalization, with more providers expanding operations across borders. Health and education are increasingly seen as productive economic sectors that provide jobs for skilled and unskilled workers, tax revenue for governments, and essential infrastructure to support economic development. IFC focuses on supporting health and education institutions that have sample of our mature investments is relatively small, a trend toward a greater share IFC STRATEGY potential to deliver strong development impact. This year, we launched our of investments with high development results reflects IFC's growing experience health strategy for Sub-Saharan Africa, a joint initiative with the Bill and through a team of investment officers and specialists dedicated to the social sectors. Melinda Gates Foundation and other partners to mobilize up to $1 billion The improvement also reflects the better performance of a number of institutions hit over the next five years for socially responsible health care (see p. 105). We several years ago by macroeconomic shocks. Since then, IFC has worked closely with are expanding our work in student finance, helping private banks lend to clients to help them regain financial health. Our advisory services have also helped students. In IDA countries, we have the greatest reach through our wholesale clients improve their overall operations. operations, working through local financial institutions to reach numerous small institutions that cater to lower-income households. We also offer SUSTAINABILITY advisory services to improve the performance of lenders and borrowers. We Investments in health and education institutions typically carry environmental and seek to engage with the growing number of companies that operate social risks related to the structures themselves. IFC's guidance helps clients meet networks of institutions, within and across countries. Such operations can international standards that serve as a model for other institutions. In addition, this deliver services to many individuals and introduce best practices and year IFC made its first investment in a medical waste treatment company in China, efficiencies to sectors. which has broader implications for the sector overall. Most of China's existing incinerators for medical waste do not meet new national standards for pollution NEW BUSINESS AND PORTFOLIO control and cannot cope with increasing demand for waste disposal in the country. Investment commitments reached $315 million for 20 projects in FY08, and we Future investments in such subsectors will enable IFC to have a wider impact on mobilized an additional $49 million through syndications and structured and public health and pollution control. securitized products. By number of projects, 38 percent of new investments are IDA projects, and 5 percent are in frontier regions of middle-income countries. Many WHAT WE HAVE ACHIEVED, mark the first such investment of their kind in a country or region, including the first AND WORK STILL TO BE DONE private hospital in Bosnia and the first private student loan program in Jordan. We Since establishing the Health and Education Department in 2001, IFC has worked to expect that our new investments will reach 3.2 million patients and 78,100 students. translate unique expertise into initiatives that have an impact beyond the support of More than 25 percent are expected to have an advisory services component. The an individual company. To effect change on a broader scale, we have launched the portfolio is performing well, both for loans and equity. Nonperforming loans have Africa health initiative, developed mechanisms to spur private student financing, and declined substantially over the past three years and are now in line with IFC averages. rolled out our wholesaling products. Going forward, IFC will expand these operations, The equity portfolio--benefiting from broadly positive markets, strong demand, and particularly in IDA countries. We will also focus on other innovative means of disciplined deal selection--has substantial unrealized capital gains. This year, we financing and delivering services, including public-private partnerships, and continue also held our third international education conference, bringing together people from to seek partnerships with other multilaterals, donors, and private operators to 30 countries to discuss the latest trends in education provision and financing. leverage our resources for greatest impact. DEVELOPMENT RESULTS IFC clients reached 5.5 million patients and 675,000 students and employed 47,000 people in 2007. Beyond what can be quantified, our investments provide vital social infrastructure that helps benefit the rest of the economy. The development results of the sector's investments continue to improve, and were solid this year. Although the 88 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 4: INDUSTRIES EGYPT AND YEMEN: MAGRABI DEVELOPMENT REACH MAKING A DIFFERENCE EYE HOSPITALS Portfolio Portfolio New Business Expectations In Egypt and Yemen, demand for high-quality Indicator CY06 CY07 FY08* eye care services has been outstripping the supply. To ease the problem, IFC teamed up Number of patients reached (million) 5.7** 5.5** 3.2 with Saudi Arabia's Magrabi Group, which runs Number of students reached*** 353,000 675,500 78,100 a charitable foundation that provides free exams and free eye surgery to low-income Payments to government ($ millions) 15.8** 44.8 26.3 people. Magrabi needed $45 million to set up a * FY08 expectations are projected between 2010 and 2015. new 30-bed, low-cost eye hospital in Yemen ** Data have been revised, and includes just over 1 million patients in a hospital chain in India, in which IFC has a 1.3% equity stake. *** Includes students reached with IT services in universities in Africa (255,000 in CY06, 350,000 in CY07). and to open several eye hospitals in Egypt. IFC provided the funds both to expand the availability of health care in those countries and to encourage other private sector companies in PROJECT FINANCING AND PORTFOLIO DEVELOPMENT OUTCOME SCORES the region to invest in health care enterprises. ($ millions) FY07 FY08 Development 14 ($84) 71% Outcome Magrabi's new hospitals in Egypt and Yemen 439 ($9,848) 71% Financing committed for IFC's account $199 $315 are expected to result in 500,000 more eye Financial 64% examinations and 50,000 eye operations a year. Performance 64% Loans $79 $228 Collaborating with Magrabi and its Al-Noor Economic 64% Foundation helps maximize our development Equity $91 $60 Performance 70% results: the foundation dispatches regular Environmental and 75% Guarantees and risk management $28 $27 caravans to rural areas to screen patients and Social Performance 65% provide free medication and eyeglasses. Loan syndications signed $0 $17 Private Sector 71% Development Impact 76% KENYA STUDENT LOANS Total commitments signed $199 $332 Department 0 20% 40% 60% 80% 100% Many Kenyan students are eligible to attend IFC % Rated High Committed portfolio for IFC's account $466 $668 university but cannot pay the full cost upfront. To make higher education more accessible, IFC Committed portfolio held for others DOTS data as of June 30, 2008, for projects approved in $6 $22 calendar 1999-2004. Bars at top include the number of projects has joined with Commercial Bank of Africa to (loan and guarantee participations) rated and total IFC investment in them (in $ millions). establish affordable, commercially sustainable Total committed portfolio $472 $690 tuition fee financing, the country's first such program with a private commercial bank. IFC will share the risk in a portfolio of student loans. COMMITMENTS ($ MILLIONS) Commercial Bank of Africa will originate and (financing in $ millions) FY05 FY06 FY07 FY08 administer the loans and manage the program. A partner university or third party, such as a Number of projects 8 10 18 20 donor or philanthropic organization, will Number of countries 6 7 13 14 contribute funds to cover initial losses on the Financing for IFC's own account $81 $126 $199 $315 portfolio, and IFC will provide a structure to reduce the remaining risk. Students attending Syndications $0 $0 $0 $17 Strathmore University will be the first to receive loans covering annual tuition fees, with repayments in a maximum of 12 monthly installments. Once the pilot risk-sharing facility is established, loans will be introduced that are repayable over longer periods and with payments deferred until the student enters the job market; this will help reach students who have excellent secondary examination results but whose families do not have the means to repay loans. The facility is expected to serve about 2,400 students and extend up to $16.9 million in loans. 89A IFC A N N U A L REPORT 2008 89 ADVISORY SERVICES OPERATIONS AND RESULTS IFC paves the way for sustainable development by advising businesses and governments on how to remove obstacles to private enterprise and improve business standards in emerging markets. IFC's advisory operations constitute one of our fastest-growing businesses. In FY08, we approved 299 advisory services projects in 75 countries. This funding, in which is IFC is joined by an array of donor partners, represents an increase of more than 50 percent over FY07. IFC is addressing a strong appetite in developing countries for advice on how to build a robust private sector. Our advisory work is a unique competitive advantage for IFC--no other multilateral financial institution offers client companies such a range of financing and business advice. We also advise governments on how to spur development through partnerships between the public and private sectors. IFC increasingly integrates advisory services with investments. The work includes advising national and local governments on how to improve the investment climate, strengthen basic infrastructure, and raise social and environmental standards. We also help investment clients sharpen their competitive edge, improve corporate governance, and become more sustainable. In FY08, IFC had advisory projects in 29 conflict-affected countries. Because such countries often seem too risky for private investors, our advisory work plays an important role in laying the foundation for future investment. 90 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 5: ADVISORY SERVICES 5 IFC A N N U A L REPORT 2008 91 92 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 5: ADVISORY SERVICES Issac Murenzi, a 48-year-old farmer from Rwanda's MAKING A DIFFERENCE Gitarama Province, knows the back-breaking pain in- volved in hauling 50-kilogram bags of freshly picked cof- fee beans. So he is delighted with the bicycle he obtained under an IFC-designed lease-to-own program. "The coffee bike has changed my life," says Murenzi. "It has helped us farmers transport our coffee on the same day, improving the quality of coffee we deliver. This in turn has increased our earnings." The specially fitted bicycles are able to carry up to 200 kilograms of coffee, about four times what even the strongest farmers can move on their backs. The bikes allow farmers to get their harvest to AN distant washing stations INTEGRATED much faster, so that beans are fresher and APPROACH obtain a higher price at IFC paves the way for market. IFC teamed up sustainable development with Vision Finance, the financial arm of World Vision by promoting a healthy International, to expand and commercialize the coffee business and regulatory bike program. About 1,200 Rwandan farmers are using environment. We advise the bikes. clients on how to develop PHOTO: An IFC program is helping Rwandan farmers obtain bicycles that can successful business models. haul 200 kilograms of coffee. We develop international standards for lowering the environmental and social costs of private sector growth. We improve access to finance in the poorest countries and help make financial services affordable. IFC A N N U A L REPORT 2008 93 BUSINESS ENABLING ENVIRONMENT What We Do IFC's advisory work is helping client countries create a more robust RAMPING UP TAX REFORM investment climate. We have organized our work around the following In Madagascar, our work in simplifying business core products: simplifying regulatory barriers to business entry, opera- taxation mechanisms has substantially streamlined the tion, and taxation; rapid response to governments on reforms covered administrative hurdles that business face. The country by the Doing Business report and benchmarking at the subnational has eliminated some taxes, including the professional level; alternative dispute resolution; and investment policy and promo- tax and tourism-related fees, while merging others into tion. During FY08, we were active in 65 countries through 224 advisory a single income tax at a lower rate. In South Africa, FIAS projects, with expenditures of $35 million. Almost half our spending was helped the government continue reforms of the economic in IDA countries, while 29 percent of our projects are in conflict-affected system. A cut in the corporate tax rate from 30 to 29 per- countries. We are also supporting reforms in specific sectors, such as cent brought tax relief of $255 million; secondary taxes agribusiness and tourism, and facilitating cross-border trade by address- on companies were lowered from 12.5 to 10 percent ing administrative barriers. and are slated to be replaced with a dividend tax. We are also introducing wide-ranging programs to improve How We Do It tax systems in Sierra Leone and Yemen, including their We have integrated business enabling environment programs that legal framework, administrative procedures, and capacity. involve FIAS--the multidonor investment climate advisory service of the Knowledge to strengthen the product is being shared by World Bank Group--with field-based teams in all IFC regional advisory a group of staff from across the World Bank Group and services. Client demand, whether national or subnational, is gener- from external partners including the IMF, OECD, and bilat- ated through such vehicles as Doing Business, a joint IFC­World Bank eral donors who have expertise in tax issues. initiative that has inspired more than 170 legal and regulatory reforms across 68 countries, as well as through investment climate assessments and other diagnostic work. We also exchange information with partner institutions on international good practices. DEVELOPMENT RESULTS Product Time frame Results FY08 EXPENDITURES In Ecuador, average number of Licensing, permits, inspections 20% days to obtain a business license Business entry 2007 in municipalities helped by IFC Business entry 19% was reduced by 93 percent Investment policy and promotion 11% In Colombia, $140 million in Business taxation 6% Investment FDI (in hotels, call center, and Alternative dispute resolution 4% policy and 2007-2008 manufacturing) facilitated through promotion IFC-sponsored Bogota investment promotion agency $310 million aggregate private Public-private sector savings from recommended 2003-2007 dialogue changes in Cambodia, Lao PDR, and Vietnam 2,030 mediations completed in Bosnia and Herzegovina and Alternative in Serbia; $65 million released dispute 2006-2008 through mediation in Albania, resolution Bosnia and Herzegovina, Pakistan, and Serbia 94 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 5: ADVISORY SERVICES ACCESS TO FINANCE What We Do Over 3 billion people in developing countries have little or no access to EXPANDING ACCESS TO FINANCE financial services. IFC's access to finance advisory work helps increase the THROUGH CREDIT BUREAUS availability and affordability of financial services, focusing particularly on Credit bureaus help small businesses get financing. micro, small, and medium enterprise clients. At the end of June 2008, They offer timely, credible, and objective information on 235 projects and programs were active in 59 countries, with about 60 borrowers, allowing financial institutions to reduce loan percent in IDA countries and 14 percent in conflict-affected countries. processing time and cost by 25 percent or more and Altogether these projects represent $37 million in expenses. cut default rates by 40 to 80 percent. These savings can mean lower interest rates, making credit more affordable How We Do It and available to those in need. IFC has promoted credit IFC delivers access to finance advisory services mainly through regional bureau development in over 45 emerging markets, departments, with more than 120 dedicated staff. We also coordinate providing legal and regulatory advice, feasibility studies, these services with the World Bank to deliver policy advice and joint direct assistance to credit bureaus, research, public interventions. IFC focuses in three key areas: awareness projects, and long-term coaching and advice. k Building bank and nonbank financial institutions, with emphasis on SME We have set up or significantly strengthened credit banking, microfinance, housing finance, leasing, trade finance, insur- bureaus in 10 countries: Bosnia and Herzegovina, ance, and energy efficiency finance. Bulgaria, Costa Rica, Guatemala, Honduras, Nicaragua, k Improving financial infrastructure, such as credit bureaus and securities Pakistan, Panama, Romania, and South Africa. In 2007 markets, as well as collateral registries, payment, and remittance systems. alone, these bureaus received 34.7 million inquiries and k Improving the legal and regulatory framework to help develop the leas- supported an estimated $17 billion in financing to retail ing, credit reporting, and housing markets. and small borrowers. IFC is also developing new products including mobile banking, sus- tainability finance, and index-based weather insurance for farmers. DEVELOPMENT RESULTS Product Time frame Results FY08 EXPENDITURES Helped clients mobilize $24.6 SME banking 2008* billion in financing to 175,221 SMEs Helped clients mobilize $1.6 bil- Microfinance 2008* lion in financing to 2.1 million microfinance institutions Helped clients mobilize $2.5 Housing 2008* billion in housing finance loans finance to 69,558 homeowners Helped clients mobilize $1.7 billion in lease financing for Leasing 2008* 19,715 micro, small, and me- dium leasing enterprises Helped create or significantly improve credit bureaus in 10 countries, resulting in 34.7 mil- Credit bureaus 2008** lion credit inquiries and helping generate about $17 billion in financing * Portfolio outstanding reported by clients for 2007 calendar year ** Cumulative results as of 2008 fiscal year. IFC A N N U A L REPORT 2008 95 CORPORATE ADVICE What We Do IFC offers corporate advice to existing and potential investment clients. GHANA'S COMMUNITIES BENEFIT The business line consists of four major products: FROM IFC'S PARTNERSHIP WITH Linkages: IFC helps large companies in extractive industries, telecoms, NEWMONT MINING agribusiness, and manufacturing industries reach small businesses as In 2007, IFC joined our client, Newmont Mining, to suppliers of goods and services. launch a program that offers sustainable economic Corporate governance: IFC helps strengthen board and management opportunities to communities affected by Newmont's supervisory practices in corporates and banks. operations in Ahafo, Ghana. As of June 2008, results HIV/AIDS and other diseases: IFC offers mitigating plans against include around 670 new supplier contracts worth $6.5 diseases that pose a risk to clients' business operations. million that have been awarded to 142 local MSMEs. IFC Business Edge and IFC SME Toolkit: IFC's training tools help SMEs Other income-generating opportunities have been identi- improve their management practices, become more competitive, and fied and developed in egg production, vegetable farming, gain access to finance. and pottery and brick production. Our efforts have strengthened the local business association and built Through 242 projects, IFC is reaching SMEs in 63 countries, including the capacity of local trainers; and activities for women's 36 IDA countries. Our expenditures in FY08 were $41 million, with 47 economic participation, HIV/AIDS awareness, and other percent of spending in IDA countries, and 17 percent in conflict-affected health-related education will soon be launched. While countries. We are working on a number of innovations, including mea- communities benefit from the supplier contracts, local surement of the carbon footprint of supply chains, supply chain financ- governments report a 35 percent increase in their tax ing, and farmer finance in Africa. revenues from small businesses and an overall 20 percent increase in their revenue base over previous years. This How We Do It program highlights the opportunities for communities IFC collaborates with global and local entities to broaden impact and when companies like Newmont join IFC in social and ensure the sustainability of our engagements. We have joined with IBM economic development programs. and local partners, such as ICICI in India, to scale up the IFC SME Toolkit. IFC's SME management training solution--IFC Business Edge--builds the capacity of local trainers. We have set up the Linkages Business Roundta- DEVELOPMENT RESULTS ble in collaboration with Harvard's Kennedy School and the International Business Leaders Forum, facilitating the sharing of successful implemen- Product Time frame Results tation models among corporates. IFC is working with the World Business Council for Sustainable Development on an impact measurement frame- Reached over 8,500 companies and banks and clients raised work. This year about 30 development finance institutions joined with Corporate 2000-2007 $2.7 billion in investment that governance IFC to sign the Corporate Governance Approach Statement. they attribute to better corpo- rate governance FY08 EXPENDITURES Linkages 21% Reached over 1.2 million people IFC Against including 104,000 employees of Corporate governance 17% 2004-2007 AIDS IFC client companies in Africa Business Edge 4% and India SME Toolkit 3% IFC Against AIDS 2% Other 53% Enabled small businesses to win Linkages 2004-2007 contracts from IFC clients worth an estimated $307 million $307million 96 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 5: ADVISORY SERVICES ENVIRONMENTAL AND SOCIAL SUSTAINABILITY What We Do IFC focuses on sustainability to drive innovation, increase our develop- ECO-ENTERPRISE FUND ment results, and add value to clients by helping them improve their IFC has worked since 2001 with the Eco-Enterprise business performance. Products include: Fund, which supports innovative, biodiversity-friendly k Biodiversity: Helping businesses blend biodiversity protection with bet- business practices in Latin America and the Carib- ter overall management. bean. IFC provides guidance and channels a Global k Carbon finance: Delivering innovative financial products and helping Environmental Facility grant of $1 million for advisory partners meet their commitments to mitigate climate change. services that accompany a $9 million investment from k Cleaner technologies: Supporting environmentally friendly business the Inter-American Development Bank. The effort has initiatives that must overcome uncertainties associated with new markets helped protect 65,000 hectares of land in vulnerable and technologies. areas with fragile ecosystems, and more than 11,000 k Gender entrepreneurship: Helping women increase their access to suppliers have increased their [economic benefits and finance and reducing gender barriers in the business environment. livelihood]. Income generated by new business models k Social responsibility: Supporting proactive management of social, envi- and financial products supported by the fund totals more ronmental, and labor dimensions of a company's business practices. than $150 million. k Sustainable energy: Transforming markets for clean energy through investments and capacity building. k Sustainable investing: Increase the sustainability of emerging market DEVELOPMENT RESULTS investment, while helping investors capture the potential for superior Product Time frame Results long-term returns. Public-private partnership During FY08, IFC's business line portfolio totaled $146 million, and we established for managing a national park in Indonesia were active in 32 countries. Our activities included 50 projects in IDA countries generated $427,000 for a Biodiversity and 18 projects in conflict-affected countries. Some 25 percent of our expen- and sustainable conservation fund between 2006-2007 May 2006 and December ditures were in IDA countries and 16 percent in conflict-affected countries. natural resource 2007 and is becoming management financially self-sustainable; similar approaches have How We Do It been used in Peru and IFC believes sustainability is good business. We train financial institu- Mongolia tions in structuring loan portfolios to achieve social and environmental benefits, and we work with consulting firms in clean production and In partnership with ILO, IFC launched $4.7 million Better energy efficiency. We promote preservation of biodiversity, particularly Work Jordan program to where it links to sustainable forestry, agriculture, and ecotourism. We are improve labor conditions Social 2006-2007 for 54,000 workers in the also promoting the adoption of labor standards (see p. 104). IFC's efforts responsibility country's apparel industry include advice to firms, collaboration at the industry or sector level, and boost international competitiveness of the support for research and assessments, and investments in firms that are sector applying innovative business models. A renewable energy law was FY08 EXPENDITURES enacted in Mongolia and the Sustainable energy 2005-2007 first 50-megawatt wind park Biodiversity and sustainable natural resource management 31% was launched there Social responsibility 30% Sustainable energy 23% Sustainable investing 11% Other 6% $100 million in funds being Sustainable 2006-2007 managed in the Brazilian investing sustainability index IFC A N N U A L REPORT 2008 97 INFRASTRUCTURE What We Do Infrastructure is essential to economic growth, better living standards, LESOTHO HOSPITAL GAINS FROM and broader development. Access to basic services, such as water, PUBLIC-PRIVATE PARTNERSHIP sanitation, and electricity, improves health and social welfare. It also Queen Elizabeth II Hospital in Maseru, Lesotho's only underpins modern industry and commerce. IFC supports client coun- large hospital, has long needed an upgrade: staff and tries' infrastructure development through advisory work as well as patients have faced shortages of hot water, medical investments. Our advisory work seeks to increase private investment in supplies, and reliable equipment. The government, with infrastructure, help governments create public-private partnerships, and limited resources to build a more modern facility, hired improve access to services, including health and education. IFC to advise on design and implementation of a public- private partnership, drawing on our extensive experience Product areas include: with 100 such partnerships in more than 30 countries. In k Power: We advise governments on design and implementation of December 2007, the government announced that a re- projects, mobilizing private sector participation in electricity generation gional consortium led by South Africa's Netcare had won projects developed by independent power producers. the bidding to build and operate the new facility. The new k Water and municipal services: We structure public-private partner- National Referral Hospital will have 390 beds and provide ships in water, wastewater, and municipal services, designing concessions much better services without increasing costs for patients. that help improve coverage, water quality, and customer service. The consortium also will refurbish three semi-urban clin- k Transport: We help governments structure and implement privatizations ics that will serve as a regional health network. of state-owned assets in airlines, ports, railways, and urban transit. We have also undertaken concessions to rehabilitate, restructure, maintain, and operate assets such as roads and ports. k Social sectors: We help governments develop and implement public- How We Do It private partnerships for design, construction, financing, competitive IFC's most established advisory activity in infrastruc- tenders, or maintenance of educational and medical facilities. ture is our assistance to governments in structuring and implementing public-private partnerships. We During FY08, business line portfolio totaled $121 million, and we have unique skills and experience, particularly in help- were active in 40 countries. Our activities included 51 projects in IDA ing balance the needs of investors with public policy considerations. Our work is closely coordinated with countries and 18 projects in conflict-affected countries. Some 50 percent other World Bank Group entities and partners such of our expenditures were in IDA countries and 17 percent in conflict- as the Private Infrastructure Development Group. We affected countries. are undertaking more than 40 such mandates as of FY08. IFC's advisory work also supports broader ac- cess to health and education in Africa. FY08 EXPENDITURES DEVELOPMENT RESULTS Advisory mandates 65% Product Time frame Results Project development with sponsors 9% Subnational finance 6% Helped mobilize $10 billion in Africa schools 3% investment Other 17% Advisory $1.7 billion in concession fees mandates and 2000-2007 and other fiscal benefits for other projects governments Reached 6.4 million people with improved basic services 98 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 5: ADVISORY SERVICES Infrastructure is a key area where IFC increasingly integrates investments and advisory services in our client countries. For an integrated view of this year's development results, see p. 43. IFC A N N U A L REPORT 2008 99 WORKING WITH PARTNERS IFC's success in fostering private sector development reflects our many innovative partnerships with governments, foundations, and civil society. IFC maximizes the results we can produce by collaborating with others who share our objectives. Collaboration helps us achieve what we could not on our own. It allows us to pool our resources and capitalize on the competitive advantages of each of our partners. It lets us share knowledge and helps improve the design and implementation of programs. In FY08, we teamed with a range of partners to tackle the highest-priority challenges on the development agenda--including the food crisis, climate change, and aid to conflict- affected countries. Our donor partners helped finance the expansion of IFC's advisory operations, making a record $211 million contribution. Corporate philanthropies and foundations also increased their contributions to this work, accounting for 5 percent of all donor contributions to IFC's advisory work. And we continued to build our cooperation with financial institutions that have adopted the Equator Principles for sustainable development. 100 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 6: PARTNERS 6 IFC A N N U A L REPORT 2008 101 102 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 6: PARTNERS Pakistan's mountainous north is one of the world's more MAKING A DIFFERENCE remote, inaccessible places, and a place where most people live in poverty. IFC, through a long-term part- nership with the Aga Khan Development Network that spans many countries, is helping change the situation. Together we have helped create profitable, sustainable enterprises that are improving lives. We invested jointly in the First Microfinance Bank of Pakistan, which offers small loans, sav- ings accounts, and other financial products that are helping more than 50,000 people across the country work their way out of poverty. IFC's funds have also helped the bank build capacity and upgrade its management information systems. Zubaida Khannum, a typical client in northern Pakistan, uses earnings from the small food business her FMB loan helped finance to provide her children with better clothes, education, and health care. MAXIMIZING PHOTO: Micro loans from an IFC client have allowed Zubaida Khannum to OUR IMPACT run a small food business. IFC strives to obtain the best development outcomes by working in partnership with a wide array of entities--donor governments, charitable foundations, international organizations, nongovernmental organizations. IFC A N N U A L REPORT 2008 103 WORKING WITH PARTNERS WORKING WITH THE DONOR COMMUNITY IFC continued strategic partnerships with the donor community IFC's many partnerships extend our influence on private sec- this year, collaborating on shared priorities for development. tor development, and working together also strengthens our Donor partners play a key role, allowing us to expand and partners' prospects for success in emerging markets. We make improve our advisory work. Partnerships include cooperation it clear to partners how their funds--and ours--are being through trust funds and joint projects; IFC also serves as an invested, and we place a priority on tracking and learning from implementing agency to some of our partners. the development results of our engagements. Governments, In FY08, donor partners entrusted us with their high- foundations, and other donors and partners recognize the con- est contributions to IFC advisory services to date, with $211 tribution that IFC makes to their own efforts--and the amount million--an increase of 87 percent from FY07. Some 78 of collaborative work we do has increased as a result. percent came from donor governments, while foundations, institutional, and private partners contributed 22 percent. With this support, we were able to start work on 299 new projects. SETTING STANDARDS FOR The largest share of donor contributions went to the South and SUSTAINABLE DEVELOPMENT East Asia regions, with a combined 36 percent of total funding IFC plays a leading role in setting global standards for sustainable to IFC. private sector development. This work extends far beyond our clients and involves many of our partners. We are working with participants Donor partners' continued support has allowed us to con- at all levels of the global supply chain to achieve a broad consensus on tinue programs in several regions during FY08. Donors that ini- standards that will advance social and environmental best practices. As tiated or intensified their cooperation with IFC this year include commodity prices have soared, we have focused on raising standards Austria, the European Commission, Finland, the Inter-American for export sectors that pose the biggest social and environmental Development Bank, Norway, and the United States. risks, including palm oil, soy, sugar, cocoa, and cotton. We have also Three main challenges have marked the international devel- joined forces with the International Labour Organization to improve labor standards and competitiveness across global supply chains. Our opment agenda this year: the food crisis, climate change, and "Better Work" program with the ILO is being introduced in the apparel aid to conflict-affected countries. industries in Jordan, Lesotho, and Vietnam and is expected to benefit On the food crisis, IFC is working with the World Bank more than 800,000 workers. In addition, we are working to establish Group and the United Nations, focusing mainly on the agribusi- standards for microfinance lending. We are also helping develop a ness supply side. We also began a strategic dialogue with our variety of innovative indexes--among other things, to measure the donor partners, and will continue stepping up our collaboration. performance of emerging markets with respect to sustainable develop- ment and to promote gender-based business opportunities. To address climate change, we have joined with donor partners to catalyze the private sector. With our Nordic donor partners--Denmark, Finland, Iceland, Norway, and Sweden-- we organized the first high-level, multistakeholder meeting on FINANCIAL COMMITMENTS TO IFC ADVISORY SERVICES (US$ MILLIONS EQUIVALENT) climate change in the region. We also organized a workshop SUMMARY FY07 FY08 with our Norwegian partners to scale up clean energy invest- ments worldwide and discuss the role IFC could play. Governments 75.71 164.53 For conflict-affected countries, IFC established a $50 Institutional/ million global trust fund that will allow us to move swiftly to 30.39 33.82 Multilateral Partners help with reconstruction. Efforts include rapid diagnostics and Private Partners/ 6.28 12.37 support for several priorities: a stronger investment climate; Foundations assistance to SMEs and related institutions; and more private Total 112.38 210.72 sector participation in infrastructure. Ireland and Norway have already pledged their support to an additional trust fund aimed at helping conflict-affected countries in Sub- Saharan Africa. 104 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 6: PARTNERS GOVERNMENTS' FINANCIAL COMMITMENTS TO WORKING WITH FOUNDATIONS IFC ADVISORY SERVICES (US$ MILLIONS EQUIVALENT) IFC's partnership with foundations, corporate philanthropies, Governments FY07 FY08 and private donors is steadily increasing. In FY06, these partners Australia 11.37 3.27 contributed 2 percent of total donor contributions to IFC; in Austria 3.35 15.75 FY08, their share increased to 5 percent. To maximize the im- Belgium 2.69 1.47 pact of this collaboration, we foster long-term strategic partner- Canada 2.99 2.16 ships through dialogue, coordination, and knowledge-sharing. Denmark 2.77 2.92 Finland 4.77 10.86 During FY08, highlights of our joint work included: France 1.29 0.03 k Working with Bill and Melinda Gates Foundation to study the Iceland 0.16 0.55 current scope and future potential of private health care in Ireland 2.45 4.41 Africa. Italy 0.00 0.51 k Developing a training program and toolkit with the Reuters Japan 2.62 2.93 Foundation to help journalists in emerging markets report on Kuwait 2.00 0.00 corporate governance issues more effectively. Luxembourg 2.49 1.93 k Convening a meeting of foundation, academic, and IFC moni- The Netherlands 15.24 22.68 toring and evaluation practitioners, with the German Marshall New Zealand 0.31 1.23 Fund of the United States, to discuss innovations in results Norway 5.14 10.28 measurement. Slovenia 0.30 0.00 k Cooperating with the Global Alliance for Improved Nutrition to South Africa 0.63 0.62 provide financial and advisory support to companies seeking to Spain 2.00 1.47 improve infant nutrition in Latin America. Sweden 1.69 5.59 k Participating, with the BBVA Microfinance Foundation, in in- Switzerland 7.48 12.11 vestments in emerging Latin American microfinance institutions United Kingdom 0.99 57.55 to increase access to finance for the poor. United States 0.51 6.20 Cape Verde* 0.57 0.00 IFC AND THE GATES FOUNDATION: PARTNERS TO Nigeria* 1.40 0.00 STRENGTHEN AFRICA'S PRIVATE HEALTH CARE Rwanda* 0.50 0.00 In FY08, IFC published The Business of Health in Africa: Partnering with Total 75.71 164.53 the Private Sector to Improve People's Lives, a report that expects spending on health in Sub-Saharan Africa to double over the next Unaudited figures. *Client governments' commitments. decade. Partly financed by the Bill and Melinda Gates Foundation, the NOTE: This is a corrected version of a chart published in IFC's annual report on Oct. 1 2008. That chart contained erroneous data for Iceland and omitted data for Italy. report finds that the private sector plays a significant role in health care for people in the region. The findings have encouraged IFC and our TACKLING THE INVESTMENT CLIMATE partners to mobilize up to $1 billion over the next five years for IN BANGLADESH investments and advisory services that will boost socially responsible IFC, the U.K. Department for International Development, and the Eu- health care in Africa. IFC's strategy for the sector includes an equity ropean Commission established a partnership in 2007 to strengthen investment vehicle for health care entrepreneurs and businesses, the investment climate in Bangladesh. IFC serves as implementing partnership with local financial institutions to improve access to agency for the Bangladesh Investment Climate Fund, jointly funded long-term debt for health care organizations, and advisory services to by DFID and the EC. This is the largest country program focusing on build the capacity of local financial intermediaries and health care a single IFC advisory services business line--the business enabling companies. IFC will also expand our life sciences team in the region, environment. In FY08, the first projects got underway: already the support public-private partnerships for education of health care workers, fund has helped the government establish a commission to oversee and encourage the development of health insurance companies. To regulatory reforms, develop an economic zones policy that promotes improve the business environment, we will work with governments to more private sector participation, and set up a private-public forum reform private health care regulation, expand public-private partnerships, that makes recommendations for improving the country's business and support country assessments. IFC will produce a biannual report on and investment climate. the region's investment climate for health care. IFC A N N U A L REPORT 2008 105 WORKING WITH NONGOVERNMENTAL PARTNERING WITH CIVIL SOCIETY IN BRAZIL ORGANIZATIONS IFC is helping Brazil's beef industry grow while raising environmental IFC engages with nongovernmental organizations in several and social standards. When we first considered supporting Bertin, the ways. We maintain an ongoing dialogue on many aspects of country's second-largest meat processor, some stakeholders worried our work, strategy, and policies, and we are collaborating on a that the company's expansion could aggravate deforestation, pollu- tion, and agrarian violence in the Amazon region. IFC and Bertin held variety of initiatives. a year-long consultation with local people and built partnerships with IFC convened a Labor Advisory Group in FY07, bringing NGOs to address concerns. Under the terms of IFC's loan, Bertin is together labor specialists from civil society, academia, trade ensuring that its beef does not come from recently deforested land. unions, and the private sector to provide feedback on the It has agreed to improve its wastewater treatment and obligates its implementation of our labor performance standard and other suppliers not to buy from farmers convicted of wrongdoing in land initiatives on labor rights. IFC also has an external advisory acquisition. With IPAM and Aliança da Terra, IFC and Bertin have launched a project that promotes land titling. With the World Bank, group for extractive industries, with representatives from civil we have helped set up a sustainable beef working group that brings society and industry who continue to provide perspectives on together major Brazilian meat packers, NGOs, associations, and IFC and World Bank activities in this area. banks. We also participate in a forum that promotes cooperation for With the World Bank, IFC is consulting stakeholder organi- sustainable development of the Amazon. With IFC's help and the zations to develop a new framework for civil society relations. watchfulness of stakeholders, Bertin is becoming a standard-setter for The new IDA/IFC Secretariat has also begun a dialogue with sustainable development in the region. civil society to seek input into the World Bank Group's strategy and work on private sector development in IDA countries. In recent years, IFC has initiated strategic partnerships Other highlights of our work in FY08: with NGOs at the operational level, producing better projects k With the World Business Council for Sustainable Development, and greater development impact. Examples include collabora- we developed a Measuring Impact Framework to assess the tion with the WWF Global Forest Trade Network to promote contribution of private businesses to economic and broader sustainable forestry, joint work with the Rainforest Alliance to development goals in societies in which they operate. assist coffee growers in Central America and southern Mexico, k With the Global Reporting Initiative, we promoted a standard- and projects with Oxfam Hong Kong to develop sustainable ized approach to sustainability reporting in emerging markets tourism in Cambodia and the Lao PDR. IFC also works in part- to help companies improve performance. nership with WWF to promote better agricultural management k With the World Bank and ImagineNations Group, we launched practices: we participate in sustainability roundtables in a num- the Global Public-Private Partnership for Youth Investment to ber of industries, such as palm oil, soybeans, and sugar cane. help improve the lives of young people, especially adolescent girls and young women, through their economic advancement and social inclusion. k We established IFC's Grassroots Business Initiative as an inde- pendent NGO and investment fund. With ongoing financial support from IFC and such other partners as the Omidyar Network and the Netherlands' FMO, it will continue to bring business know-how and risk capital to the grassroots business sector. k We engaged with One World Trust on a profile of IFC in the forthcoming Global Accountability Report. 106 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 6: PARTNERS WORKING WITH FINANCIAL INSTITUTIONS Tracking Greenhouse Gas Emissions IFC continues to act as the key technical and strategic resource IFC is working to develop a methodology that can help us, for financial institutions in developed and emerging markets. and various stakeholders, better understand the implications IFC is sharing experience and lessons learned in applying our of greenhouse gas emissions related to our investments. We performance standards, using our convening power to promote will apply a widely used carbon accounting methodology for knowledge sharing across the global financial industry. private business that was established by the World Business Council for Sustainable Development and the World Resources The Equator Principles: A Global Benchmark Institute. We will also build on the World Bank's experience and In financial markets worldwide, IFC's performance standards are working with other multilateral financial institutions to de- have been catalyzing the swift convergence of environmental fine approaches to carbon accounting that meet the financial and social standards for cross-border investment. To date, 61 sector's needs. banks and financial institutions, including 11 from emerging Subject to approval from our Board, IFC proposes to markets, have adopted the Equator Principles, which were up- measure the emissions of our new real sector investments from dated to refer to the new performance standards in 2006. The the start of FY09, to be followed in subsequent years by our principles are estimated to cover nearly 90 percent of global corporate lending and financial sector investments. Investments cross-border project finance. During FY08, 29 of the Equator will be tracked annually; with the turnover in our portfolio, the institutions provided 53 percent of new syndications in IFC approach should enable full coverage after about six years. We investments. In addition, 32 export credit agencies from OECD will share results and lessons learned with other multilateral countries and 15 European development finance institutions institutions and partners that have adopted the Equator Prin- are benchmarking their private sector projects against the per- ciples. For more information on the footprint of IFC's portfolio, formance standards. Within the World Bank Group, MIGA has visit our climate change Web site, http://www.ifc.org/ifcext/ recently adopted the performance standards for its operations; sustainability.nsf/Content/ClimateChange. and a number of other multilateral institutions are looking to achieve "Equator equivalence" in their policy updates. In May 2008, IFC convened the second Community of Learning Event for Equator Banks, export credit agencies, and other bilateral and multilateral financial institutions. GEMLOC: BUILDING BOND MARKETS IN DEVELOPING COUNTRIES IFC has a key role in GEMLOC--the Global Emerging Markets Local Currency Bond Fund, which the World Bank Group initiated this year to help develop local currency bond markets so that they can attract more local and global institutional investors. The effort will establish local currency debt markets in developing countries as a separate asset class, measured against a new index of performance. In cooperation with the data and index provider Markit, IFC has developed a transparent index of emerging market local currency bonds. Launched in April 2008, the index offers investors transparent data on 20 countries, and will soon add more. Inclusion in it is based on market size and a set of criteria, developed by the ratings, research, risk, and policy advisory company CRISIL in collabora- tion with IFC, that assess the investment climate. The new index and underlying criteria set out guidelines countries can use to implement reforms that improve their index weight and attract additional investment; the program also offers advisory services to countries with a strong commitment to such reforms. A leading fixed-income investment manager, PIMCO, is also developing strategies to promote investment in these markets. The initiative responds to many governments' requests for help in strengthening bond markets as a way to support sustainable growth. It has a sunset provision of 10 years, when Bank Group involvement will cease and the private sector is expected to be fully engaged. IFC A N N U A L REPORT 2008 107 HOW WE WORK IFC's accomplishments reflect the shared values of our staff worldwide--an emphasis on excellence, commitment, integrity, and teamwork helps us make a difference for the clients and countries we serve. IFC delivers results for clients by pursuing best practice in every aspect of our operations--in our governance, our accountability to stakeholders, our focus on sustainable development, and our commitment to the people who comprise IFC. Our strong corporate culture--articulated this year as The IFC Way--is keeping us focused on results amid rapid changes. Our organization is growing fast: about 40 percent of employees joined IFC less than two years ago. We have increasingly gone local, with most staff based in field offices, close to clients. As we have increased our activities in the poorest countries, and the number of IFC staff there has nearly doubled since 2003. We work to ensure that development brings sustainable benefits to people in emerging markets. We reach out to our local communities and aim to model the high standards we ask of clients: IFC's own operations, for example, were carbon-neutral for the first time in fiscal 2008. 108 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK 7 IFC A N N U A L REPORT 2008 109 110 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK Karla Quizon does not relish getting up before six on a MAKING A DIFFERENCE Sunday morning to go and level ground on the outskirts of Cambodia's capital, Phnom Penh. But eight hours later, sweaty and bedraggled after laying the foundation for a new house, she feels a sense of satisfaction. Karla, an IFC program manager, joins a group of volunteers most weekends to help build housing for former gar- bage collectors, some of the city's poorest inhabit- ants. So far, Karla and the team, together with the future homeowners, have built 21 homes in a year. "Working for IFC, I get to make a differ- ence in people's lives at GLOBAL a higher level, and this house-building effort allows me to make a difference at EXPERTISE, the grassroots," says Karla. "Learning to physically build LOCAL a house--well, that's quite a skill." INITIATIVE PHOTO: IFC staffer Karla Quizon helps build housing for poor residents of Phnom Penh. IFC offers clients a powerful combination of global expertise and local savvy that allows us to respond rapidly to changing needs. More than half our staff are based in 100 field offices in 81 countries, including 39 of the world's poorest. Our employees reflect the rich diversity of the clients we serve. IFC A N N U A L REPORT 2008 111 FROM LEFT TO RIGHT: (standing) Gino Alzetta, Svein Aass, Giovanni Majnoni, Herman Wijffels, Alexey Kvasov, James Hagan, Sid Ahmed Dib, Michael Hofmann, Masato Kanda, Mohamed Kamel Amr, E. Whitney Debevoise, Ambroise Fayolle, Michel Mordasini, Samy Watson, Felix Alberto Camarasa; (seated) Dhanendra Kumar, Abdulrahman Almofadhi, Zou Jiayi, Mat Aron Deraman, Caroline Sergeant, Jorge Botero, Mulu Ketsela, Louis Phillippe Ong Seng IFC BOARD OF DIRECTORS Directors and Alternates as of June 30, 2008 This fiscal year the Board of Directors maintained close over- sight of IFC's efforts to increase and measure its development DIRECTORS ALTERNATES impact. Directors reaffirmed their support for IFC's corporate Svein Aass Jens Haarlov strategy, including a focus on growth in response to demand, Abdulrahman M. Almofadhi Abdulhamid Alkhalifa efforts to streamline procedures and move closer to clients, and Gino Alzetta Melih Nemli an emphasis on portfolio and risk management amid changing Felix Alberto Camarasa Francisco Bernasconi market conditions. The Board approved a number of invest- E. Whitney Debevoise Ana Guevara ments and joint World Bank­IFC­MIGA country assistance Mat Aron Deraman Chularat Suteethorn strategies and continued to encourage stronger collaboration, Jorge Familiar Jose Alejandro Rojas Ramirez both across the World Bank Group and with partners and Ambroise Fayolle Alexis Kohler stakeholders. Alex Gibbs Caroline Sergeant Issues that Directors discussed with management included James Hagan Do Hyeong Kim the net transfer to IDA, IFC's additionality, our ongoing decen- Merza H. Hasan Mohamed Kamel Amr tralization, our role in Bank Group strategies to address climate Michael Hofmann Ruediger Von Kleist change and the food crisis, and our experience with advisory Mulu Ketsela Mathias Sinamenye services, both generally and with regard to SMEs and credit Dhanendra Kumar Zakir Ahmed Khan bureaus. Management also briefed the Board on our work in Alexey Kvasov Eugene Miagkov infrastructure, local currency financing, and information and Giovanni Majnoni Nuno Mota Pinto communications technology. The Board continued to monitor Michel Mordasini Jakub Karnowski new methods for measuring development outcomes of IFC's Louis Philippe Ong Seng Agapito Mendes Dias activities, as well as progress in implementing IFC's environmen- Toru Shikibu Masato Kanda tal and social performance standards. Rogerio Studart Jorge Humberto Botero Javed Talat Sid Ahmed Dib Samy Watson Ishmael Lightbourne Herman Wijffels Claudiu Doltu Zou Jiayi Yang Yingming 112 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK GOVERNANCE INCENTIVE PROGRAMS Human resource management is integral to IFC's strategy and IFC is an international organization established in 1956 to fur- business planning. In our efforts to build a performance-based ther economic growth in its developing member countries by culture and help IFC achieve sustainable, high-quality business promoting private sector development. It is part of the World results, IFC has implemented several incentive programs as part Bank Group, which also includes the International Bank for Re- of an integrated performance management system. These in- construction and Development, the International Development centives reinforce IFC's results measurement and accountability Association, the Multilateral Investment Guarantee Agency, and while ensuring recognition for high-performing staff. the International Centre for Settlement of Investment Disputes. IFC recognizes and rewards individuals and teams for IFC is a legal entity separate and distinct from the other Bank superior performance during the annual review period or over Group institutions, with its own Articles of Agreement, share the longer term. Performance metrics emphasize development capital, financial structure, management, and staff. Member- effectiveness, financial performance, and productivity. Awards ship in IFC is open only to member countries of the World range from on-the-spot payments of up to $400 for extraor- Bank. As of June 30, 2008, IFC's entire share capital was held dinary efforts of short duration to as much as 15 percent of by 179 member countries. salary for superior annual performance. Staff in investment Member countries guide IFC's programs and activities; each operations can, in addition, receive up to 20 percent of salary appoints one governor and one alternate. Corporate powers for outstanding long-term performance. (Percentages are based are vested in the Board of Governors, which delegates most on a market reference point that aligns World Bank Group sal- powers to a board of 24 directors, whose voting power on ary ranges with comparable salaries in the U.S. labor market.) issues brought before them is weighted according to the share Underscoring the importance of teamwork in achieving results, capital each director represents. Directors meet regularly at 55 percent of staff who receive awards do so as part of team World Bank Group headquarters in Washington, D.C., where recognitions. Most individual awards fall in a range of 5-10 they review and decide on investments and provide overall percent of salary. The average individual award in FY08 was strategic guidance to IFC management. $6,700. The Executive Vice President and CEO and the mem- Robert B. Zoellick is President of IFC and the other World bers of IFC's Management Group do not receive performance Bank Group institutions; he also serves as chairman of the awards but are eligible for long-term performance awards for boards. Lars H. Thunell is IFC's Executive Vice President and periods prior to joining the Management Group. CEO and leads IFC's overall strategy and operations. The Man- This year, IFC added the IDA Impact Award to recognize agement Group is responsible for much of IFC's key decision- the success of investment and advisory project teams in IDA making and strategic planning; it is headed by Mr. Thunell and countries. A critical element of the new award is to ensure that includes the 10 IFC vice presidents. project teams have an opportunity to present their experiences and lessons learned to IFC management and more broadly across IFC. IFC A N N U A L REPORT 2008 113 COMPENSATION EXECUTIVE COMPENSATION IFC's compensation guidelines are part of the World Bank The salary of the President of the World Bank Group is deter- Group's framework. The international competitiveness of com- mined by the Board of Directors. The salary structure for IFC's pensation is essential to our capacity to attract and retain highly Executive Vice President and CEO is determined by positioning qualified, diverse staff in jobs subject to international recruit- a midpoint between the salary structure of staff at the highest ment. The salary structure of the World Bank Group for staff level, as determined annually by independent U.S. compensa- recruited in Washington is determined with reference to the tion market surveys, and the salary of the World Bank Group U.S. market, which historically has been globally competitive. President. The compensation of our executive leadership is This competitiveness is reviewed every four years. Salaries for transparent. In fiscal 2008, the President, Robert B. Zoellick, staff hired in offices and countries outside the United States are received a salary of $420,930 net of taxes; and IFC's Execu- based on local competitiveness, as determined by independent tive Vice President and CEO, Lars Thunell, received a salary of local market surveys. $334,990 net of taxes. Both received additional cash benefits Based on the World Bank Group's status as a multilateral per the adjoining table. Benefits in cash and in kind apply organization, staff salaries are determined on a net-of-tax equally and consistently to all staff, including members of basis. the Management Group, and are determined by guidelines approved by the Board of Directors. There are no executive incentive compensation packages. STAFF SALARY STRUCTURE (WASHINGTON, D.C.) During the period July 1, 2007, to June 30, 2008, the salary structure (net of tax) and average salaries and benefits for World Bank Group staff was as follows: Market Staff at grade Average Average benefits Grade Representative job titles Minimum ($) Maximum ($) Reference ($) level (%) salary/grade ** GA Office Assistant 23,760 30,880 40,130 0.1 28,158 14,761 Team Assistant, Information GB 29,620 38,510 53,910 1.1 39,207 20,596 Technician Program Assistant, GC 35,550 46,220 64,720 11.6 49,821 26,188 Information Assistant Senior Program Assistant, Informa- GD 41,790 54,320 76,050 9.5 60,563 31,898 tion Specialist, Budget Assistant GE Analyst 55,660 72,350 101,280 9.9 70,967 37,416 GF Professional 74,750 97,170 136,040 18.0 91,250 48,165 GG Senior Professional 99,020 128,730 180,220 29.6 125,937 66,581 GH Manager, Lead Professional 136,270 177,170 239,000 16.9 172,926 91,973 GI Director, Senior Advisor 188,000 245,000 282,000 2.8 226,384 120,211 GJ Vice President 244,540 273,880 314,970 0.3 277,483 145,456 Managing Director, GK 268,580 304,580 334,990 0.1 317,652 149,597 Executive Vice President Note: Because World Bank Group (WBG) staff, other than U.S. citizens, usually are not required to pay income taxes on their WBG compensation, the salaries are set on a net-of-tax basis, which is generally equivalent to the after-tax take-home pay of the employees of the comparator organizations and firms from which WBG salaries are derived. Only a relatively small minority of staff will reach the upper third of the salary range * These figures do not apply to the U.S. Executive Director and Alternate Executive Director, who are subject to U.S. congressional salary caps. ** Includes annual leave; medical, life and disability insurance; accrued termination benefits; and other nonsalary benefits. EXECUTIVE MANAGEMENT: ANNUAL SALARIES (NET OF TAXES) (IN U.S. DOLLARS) Name and position Annual net salarya Annual Bank Group contribution to pension planb Annual Bank Group contribution to other benefitsc Robert B. Zoellick, 420,930 87,133 182,687 Presidentd Lars Thunell, Executive 334,990 69,343 74,033 Vice President, IFC a. Because World Bank Group staff, other than U.S.citizens, usually are not required to pay income taxes on their WBG compensation, the salaries are set on a net-of-tax basis. b. Approximate WBG contribution made to the Staff Retirement Plan and deferred compensation plans from July 1, 2007, through July 1, 2008. c. Other benefits include annual leave; medical, life and disability insurance; accrued termination benefits; and other nonsalary benefits. d. Mr. Zoellick receives a supplemental allowance of $75,350 to cover expenses as part of WBG contribution to other benefits. Because Mr. Zoellick is a U.S. citizen, his salary is taxable and he receives a tax allowance to cover the estimated taxes on his Bank salary and benefits. In addition to his pension, Mr. Zoellick receives a supplemental retirement benefit equal to 5 percent of annual salary. 114 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK ACCOUNTABILITY INDEPENDENT EVALUATION GROUP IFC strives to learn from our experience. In that respect, we Three independent units oversee IFC's accountability. benefit from the efforts of the Independent Evaluation Group, which has evaluated IFC operations since 1996. IEG reports to COMPLIANCE ADVISOR/OMBUDSMAN our Board of Directors through the World Bank Group Director- Established in 1999, the Compliance Advisor/Ombudsman is the General, Evaluation. Last year IEG independently evaluated the independent recourse mechanism for IFC and MIGA. It assists IFC performance of 65 IFC investment operations and reviewed in addressing complaints by those affected by IFC projects and 130 advisory projects. IFC also produced eight evaluation helps enhance social and environmental outcomes on the ground. reports that identified strengths and weaknesses with our The CAO has three roles. As Ombudsman, it works to operations and recommended ways to improve our effective- resolve complaints from project-affected communities. CAO ness. The latest IEG flagship report, the Independent Evaluation Compliance conducts audits of IFC and MIGA's adherence to of IFC's Development Effectiveness, focused on IFC's additional- social and environmental policies, guidelines, procedures, and ity, or the unique inputs--financial and nonfinancial--that IFC systems. As Advisor, the CAO provides independent advice to provides to advance developing country projects. IEG made the World Bank Group President and Board, with an empha- several recommendations, including that we map out addition- sis on improving institutional performance on systemic issues ality in our strategies. IFC and IEG track recommendations to identified in CAO cases. ensure their compliance, and progress is reported to IFC's Board The CAO works closely with IFC staff, clients, civil society, of Directors. and other stakeholders to resolve issues of concern around IFC Although IEG is independent, it encourages learning projects. The CAO also conducts outreach to raise awareness through self-evaluation. IEG worked closely with IFC staff to about accountability at IFC, participating in internal and exter- ensure that they understand and correctly apply evaluation nal events worldwide. methods for private sector investment and advisory projects. During FY08, the CAO responded to 11 complaints relat- IEG participates in IFC's training programs in Washington and ing to nine IFC projects and released three advisory reports the field to raise awareness of evaluation findings and lessons intended as best practice guides for IFC management, industry, learned. Beginning in 2008, under its new disclosure policy, IEG government, and civil society. These reports focused on local- has disclosed its findings on IFC's projects to the public and has level development results reporting, grievance mechanisms, expanded its communication activities to reach external stake- and participatory water monitoring. holders. IEG's reports are available at www.ifc.org/IEG. More information on the CAO is available at www.cao-ombudsman.org. INTERNAL AUDITING DEPARTMENT IAD provides objective assurance and advice to help the World Bank Group enhance risk management, control, and INTEGRITY AND CONFLICT RESOLUTION IFC staff and the public have a number of mechanisms to address governance, as well as to improve accountability for results. ethical issues, harassment, and other issues of conflict. Assurance services are generally initiated by IAD, while advisory The World Bank Group's Conflict Resolution System offers staff services are generally initiated by internal client requests. ombudsman services, mediation, advice on ethics and business con- Advisory services are conducted primarily to answer specific duct, and an appeals committee and administrative tribunal. questions aimed at improving risk management, control, or The following telephone hotlines, available 24/7 with multilingual governance processes. Typical advisory services include analyz- staff, are anonymous and toll-free. ing controls built into systems under development, providing k The Ethics Helpline. Calls can relate to issues of any scale, such recommendations for analyzing operations, assisting in fraud as staff misconduct, discrimination, or conflicts of interest. See www. and corruption investigations, and raising awareness of internal worldbank.org/ethics. control activities. k The Department of Institutional Integrity Hotline. The de- partment investigates allegations of fraud and corruption in World Bank Group operations and allegations of misconduct. See www. worldbank.org/integrity. IFC A N N U A L REPORT 2008 115 DISCLOSURE INQUIRIES IN FY08 WORKING RESPONSIBLY Full disclosure 45 IFC is committed to working with clients and other stakehold- Partial disclosure 5 ers to achieve our shared goals of reducing poverty and im- No disclosure 16 proving lives through private sector development. We recognize Total 66 that we need to be transparent in our operations and to set an example of good governance, with high standards for ourselves as well as for our clients. We have developed internal processes Through investments and advisory services, we engage with that help ensure transparency, accountability for decisions and clients, partners, and communities. We draw on feedback to impacts, support to people, and consistency with what we ask identify issues of importance to stakeholder groups, and we of clients. In FY08, for example, we launched IFC's Role and frequently adapt our strategies and procedures in response. Additionality: A Primer, guidance that helps staff communicate Feedback includes an annual client survey and ongoing en- the unique benefits and value addition that IFC's involvement gagement with stakeholders, including representatives of civil brings to the client in a particular investment. We are also society, local communities affected by our projects, industry as- committed to continuous improvement through learning and sociations, governments, international finance institutions, and knowledge-sharing. academia. During FY08 we worked with our nonfinancial as- IFC manages investments and advisory projects closely surance providers, Corporate Citizenship, to gather stakeholder throughout their life cycle. This involves finding appropri- feedback on IFC's 2007 Annual Report; this report addresses ate sponsors who will be partners with us; managing and key findings from that effort. mitigating risk; monitoring and measuring results; and ensuring IFC discloses information about investments prior to their accountability for decisions taken throughout the project cycle. approval as part of a commitment to transparency and ac- We continue to move more decision-making authority to the countability. Sharing information strengthens public trust in IFC field, allowing our regional offices to be more responsive to and our clients. Following adoption of our updated Disclosure client needs and local conditions. Policy in 2006, we have established a demand-driven system for disclosure inquiries, in addition to enhanced project disclo- ENGAGING WITH STAKEHOLDERS sure for all proposed investments. We aim to provide all or part As a global multilateral finance institution with operations in of any requested information within 30 days or explain why the many regions and sectors, IFC has an impact on a diverse range request has been delayed or denied. For members of the public of stakeholders. In addition to client companies, our stakehold- who feel that an initial request for information has been unrea- ers range from communities and nongovernmental organiza- sonably denied or that our policy has been incorrectly applied, tions at the project level, to governments and civil society at we have established a complaints mechanism. Complaints are the global level. The extent to which we engage with particular reviewed by the Disclosure Policy Advisor, who reports directly groups varies depending on the issues at hand, the stakehold- to IFC's Executive Vice President and CEO. For full information, ers most directly affected by our operations, and the opportuni- see www.ifc.org/disclosure. ties offered by collaboration. 116 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK CARING FOR THE ENVIRONMENT OFFSETTING IFC'S CARBON FOOTPRINT At IFC we strive to ensure that our business operations are consistent BENEFITS RURAL INDIA with corporate commitment to sustainability. Our goal is to achieve To offset the carbon footprint of our global business operations, IFC best practices in how we manage IFC's own global footprint. has purchased carbon credits from the Andhyodaya Biogas Utilization Project, generating credits through small-scale biogas plants operated by 15,000 rural households in southern India. The project, which gen- FY08 highlights include: erates no smoke or soot, is operated by an Indian NGO that focuses k Governing committee--oversight and accountability for our on nonconventional energy promotion, environment sanitation, low- footprint strategy includes four directors and four vice presidents. cost building technology, and assistance to farmers. This renewable k Regional plans--one of our regions coordinated a footprint action energy project has a strong community benefit component, with a de- plan with regional goals, leading the way for all regions in FY09. livery model that expects to enhance the health, safety, and economic well-being of the communities in which Andhyodaya operates. IFC achieved carbon neutrality for our global business opera- tions for the first time this year (see box). We have progressed FY07 CARBON EMISSIONS INVENTORY to a rigorous, corporate-wide greenhouse gas inventory, FOR IFC'S GLOBAL INTERNAL BUSINESS OPERATIONS building on a pilot with country offices in FY07, and on annual inventory and offset for headquarters since FY06. Air Travel 52% 20,567 tonnes CO2 IFC's annual Footprint Program Awards recognize staff who Electricity 44% generated and promoted innovative footprint ideas around the 17,053 tonnes CO2 world in our offices and surrounding communities. This year, Fuel & Refrigerants 4% our Dhaka office won funds to initiate and lead a community- 1,384 tonnes CO2 IFCS's current global carbon emissions wide effort that addresses local waste management issues, air inventory is based on FY07 data. When completed, IFC's FY08 carbon emissions pollution, and energy conservation. At the staff level, a col- inventory will be available at ifc.org/footprint. league from headquarters was recognized for coining a slogan for IFC's footprint efforts: "Our mission starts at home." For full information on our footprint activities, visit www.ifc.org/footprint. IFC ADVISORY SERVICES CYCLE 1 2 3 4 5 6 BUSINESS EARLY REVIEW APPROVAL IMPLEMENTATION / PROJECT EVALUATION DEVELOPMENT SUPERVISION COMPLETION Advisory staff prepare Advisory staff prepare a Measurement of results Guided by IFC's IFC signs an agreement When a project ends, a brief concept detailed project proposal takes place throughout strategic goals with the client. the transaction leader document describing reflecting peer review from the life of the project. In and development Implementation is carried submits a Project IFC's role, the intended relevant Bank Group staff. addition, IFC engages objectives, IFC advisory out either by IFC staff Completion Report. result of the project, This includes standardized external experts in and investment staff or contractors managed This provides a rating a description of the measures of project cross-cutting program respond to client by IFC or IFC's partners. of performance on planned intervention results--outputs, outcomes, reviews and coordinates requests for advice. Supervision reports are project spending, reflecting lessons from and impacts--which allow experimental design In addition, donor prepared semiannually. project timeline, and other engagements, aggregation of results across evaluations led by external governments, other These include performance achievement of planned and a high-level similar projects over time. experts, such as the MIT partners, and member ratings on project spending, results. The form budget. Leadership The proposal also includes Poverty Action Lab. IEG country stakeholders project timeline, and includes a development from the relevant a detailed budget and also includes advisory look to IFC to help achievement of planned effectiveness rating using region and advisory planned sources of financing programs in its annual address market and results. Regional and the same scale that IFC services business line from donor governments, work program governance needs business line leaders review applies to investments. decide whether the other partners, and clients. for evaluation. affecting the private their portfolios periodically. IEG reviews a sample concept should move Leadership from the region sector. of these reports for forward. and business line decide independent evaluation. whether the project should be approved. IFC A N N U A L REPORT 2008 117 COMMITMENT TO CONTINUOUS Implementation IMPROVEMENT During implementation of an investment or advisory project, Our ability to learn and improve the way we work is crucial to we monitor performance to make adjustments as well as our long-term success and lasting development impact. We transfer lessons from one project to another. Communities of constantly seek feedback from our clients and stakeholders, practice are emerging as a useful tool for IFC staff to share and we modify our approaches accordingly. Our decentraliza- information, transfer lessons, and replicate successful models tion initiative, for example, partly reflects suggestions offered in across the World Bank Group. annual client surveys. We also develop and publish lessons from our investments and advisory projects, seeking to learn from Evaluation experiences where things did not run smoothly. A key example IFC increasingly evaluates investments and advisory projects is SmartLessons, a print and online series that allows staff to internally after completion to capture lessons. We have scaled share lessons learned from investment and advisory work with up the exchange of lessons among our staff, with the long- colleagues across our operations. In addition, we have been term goal of making this knowledge available to our partners responsive to recommendations from our Board, including its and the wider public. Lessons are also continuously developed call for us to focus more of our efforts in fragile and conflict- and integrated into the training of new staff. Case studies used affected countries, and to reports and recommendations from in training increasingly cover the aspects of doing business in a the Compliance Advisor/Ombudsman and the Independent sustainable way. Evaluation Group. Preparation SHARING KNOWLEDGE ON SUSTAINABILITY Before we make an investment or launch a new initiative, we The IFC Sustainability Knowledge Network facilitates the systematic use lessons from previous projects and staff expertise to evalu- application and communication of IFC's knowledge and industry ate the proposed course of action. Peer review meetings, for best practice on sustainability and climate change, both within our organization and with clients and external stakeholders. It coordinates instance, have become a formal part of our environmental and the work of over 200 practitioners across our investment and advisory social review procedure, allowing our specialists to pool their operations, at headquarters and in the field, through learning events, knowledge. Similarly, formal decision points, such as the invest- collaborative online platforms, and best practice publications. The ment review meeting, allow senior staff to contribute insights network is also developing communities of practice in specific areas, based on a wide understanding of the organization's history in including sustainable energy and community development. specific industries and regions. 118 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK IFC INVESTMENT CYCLE 1 2 3 4 5 6 BUSINESS EARLY REVIEW APPRAISAL INVESTMENT REVIEW NEGOTIATIONS PUBLIC NOTIFICATION DEVELOPMENT (DUE DILIGENCE) A Summary of Proposed The IO prepares a Based on an assessment of The team negotiates Guided by IFC's The investment team Investment (SPI) and description of the the investment's expected the terms and strategic goals assesses the full business the environmental and investment, with IFC's financial, economic, conditions of IFC and development potential, risks, and social review, where role, the anticipated environmental and social participation. These objectives, our opportunities through applicable, are posted on contribution to performance, the team makes include conditions investment officers discussions with the client IFC's Web site before the development and its recommendations to IFC of disbursement (IOs) and business and visits to the project investment is submitted benefits to stakeholders, departmental management, and covenants, development officers site. Questions include: Is to the Board for review. and any potential deal- who decide whether to performance identify suitable the investment financially The SPI presents the breakers. Lessons from approve the investment. and monitoring projects. This initial and economically sound? anticipated development previous investments are This is a key stage in the requirements, and conversation with Can it comply with IFC's impact and IFC's considered and, in some investment cycle. The main agreement about the client helps us social and environmental expected contribution cases, a pre-appraisal visit expected development results action plans and understand their Performance Standards? to bring this about. The takes place to identify are identified, by stakeholder resolution of any needs and determine Have lessons from prior length of the disclosure any issues in advance. group, and results indicators outstanding issues. whether there is a role investments been taken period is determined IFC senior management are identified for tracking. for IFC. into account? Have by the environmental then decides whether The team and departmental disclosure and consultation category of the to authorize project management must be requirements been met? investment. See appraisal. confident that the client is How can IFC help the client www.ifc.org/projects. able and willing to meet IFC improve the sustainability standards and to work with us and development results of to improve the sustainability of the investment? their enterprise. 7 8 9 10 11 12 THE BOARD REVIEW COMMITMENT DISBURSEMENT PROJECT SUPERVISION EVALUATION CLOSING AND APPROVAL To supplement IFC's We close our books on IFC and the company Funds are often IFC monitors investments The investment is submitted ongoing tracking the investment when sign the legal paid out in stages to ensure compliance with to IFC's Board of Directors for and help improve our lending is repaid in agreement. This includes or on condition the conditions in the loan consideration and approval our operational full, when we exit by the client's agreement of certain steps agreement and to track through regular or streamlined performance, each selling our equity stake, to comply with the being completed as development results. The procedures. "Streamlined'' means year investment staff or in the few cases applicable Performance agreed in the legal company submits regular that members of the Board review carry out more in- where we have to write Standards and reporting agreement. reports on financial as well the documents but do not meet depth evaluations of a off our investments. requirements, for as social and environmental to discuss the investment. This representative random At that stage we make example to report performance, on key option is available to certain sample of investments a final assessment immediately any serious development indicators, low-risk investments of a small that have reached early of the investment's accident or fatality, and on other factors that enough size, which can be operating maturity, development results. But and to provide regular might materially affect approved by IFC management typically five years our goal is to help the monitoring reports. The the enterprise. Ongoing under delegated authority. The after approval. These client reach a high level legal agreement will also dialogue allows IFC to due diligence process and public evaluations are then of sustainability that will covenant the client's support clients, both in disclosure remain the same in all validated by IFC's continue long after our Action Plan. terms of solving issues cases. For each investment to be Independent involvement has ended. and identifying new approved, there needs to be a Evaluation Group. opportunities. clear role for IFC and a positive expected development impact, reflecting IFC's commitment to social, environmental, economic, and financial sustainability. IFC A N N U A L REPORT 2008 119 OUR PEOPLE DEVELOPMENT IMPACT: We are diverse. Diversity enriches our perspectives, allows for WHY WE ARE HERE fresh ideas, and helps us respond more effectively to clients and The mission of the World Bank Group--working for a world stakeholders. Over the last few years, IFC has increased staff free of poverty--is the main reason people join IFC. Our staff representation from developing countries to 64 percent. make a difference by promoting open and competitive markets and providing investment and advisory support to private sec- REGIONAL ORIGINS All Full-Time Staff tor clients. Developed Developing Of which IDA Total IFC supports staff by helping improve their ability to assist (Part I) Countries (Part II) Countries clients, including by meeting our environmental, social, and 1,207 2,118 1,068 3,325 corporate governance standards and identifying innovative op- 36% 64% 50% portunities. We reward staff based on the development results and financial performance of their projects. REGIONAL ORIGINS All Staff At Officer Level And Higher Developed Developing Our good work can happen only with high-quality staff, Of which IDA Total (Part I) Countries (Part II) Countries who are driven by passion and a commitment to deliver on 868 992 510 1,860 building the private sector and improving lives in our client 47% 53% 51% countries. WHO WE ARE GENDER DISTRIBUTION All Full-Time Staff IFC staff are your neighbors. We are based in 100 cities in 81 Women Men Total countries, including 39 of the poorest countries--those served 1,768 1,557 3,325 by IDA. We represent 135 countries, including 55 IDA nationali- 53% 47% ties. Today, 53 percent of our staff are based in the field, up from 41 percent in FY03. GENDER DISTRIBUTION All Staff At Officer Level And Higher Women Men Total 722 1,138 1,860 Washington, D.C., vs. Field Staff (End of FY08) 39% 61% Field Offices Washington Total 1,759 1,566 3,325 53% 47% "Development impact is the key driver of our work. Every aspect of IFC, including our human resource practices, links to how we can increase our development impact." Dorothy Berry, Vice President, Human Resources, Communications, and Administration 120 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK SCALING UP IFC'S IMPACT DECENTRALIZING TO SERVE OUR CLIENTS IFC is moving closer to clients so that we can better serve their needs We are expanding our reach. IFC's staff increased by 58 in a rapidly changing world. percent--from 2,107 to 3,325--from FY03 to FY08. More Business opportunities are expanding fast in the low- and than 53 percent of IFC staff are in the field. Investment staff, middle-income countries we serve, where 70 percent of our clients who represent 17 percent of IFC's workforce, have increased are now located. At the same time, our clients and other partners by 51 percent--from 380 to 575--since FY03. The number of expect swift and nimble decision-making. IFC has recognized that we field-based investment staff has nearly tripled in the past five need to build more capacity in the field to be able to offer solutions for clients and ensure sustainable private sector development. years--from 111 to 294--with 51 percent of investment staff Today, more than half our staff are based in field offices, and and 57 percent of managers in investment departments now our presence in the world's most fragile economies has doubled over field-based. The fastest-growing area of IFC's business--advisory the last seven years. Investment decisions are increasingly being services--has increased its staff from 544 in FY03 to 1,191 in made at the local level. In FY08 we began delegating authority for FY08, and now accounts for 36 percent of the workforce. More many project decisions to field staff in our Asia regional departments; than 80 percent of advisory staff--about 955--are field-based. building on this experience, we will roll out the approach to all IFC regions in FY09. The change is significant: last year, 37 percent of IFC We are going deeper into IDA countries, where we have commitments were led by investment officers in the field--up from nearly doubled our staff--from 377 in FY03 to 678 in FY08. 20 percent in 2006. Average processing time for an IFC transaction As a result of FY07-08 recruitment efforts, IFC improved on has been cut by a third since 2001. the diversity of professional-level staff: As part of our decentralization, we aim to put the right people in k Officer-level female staff increased from 41 to 44 percent the right place, making sure that knowledge and skills are deployed k Sub-Saharan African and Caribbean regional representation where they are most needed. Many senior employees have shifted to field offices, and we are working to make such moves attractive for of staff on international contracts increased from 8 to 9 percent staff with high potential. We are also hiring a growing number of our k Staff representation from developing countries at officer level staff locally and improving their options to build a career at IFC. Both and higher rose from 48 to 49 percent at headquarters and in the field, we are improving our methods for sharing knowledge and lessons learned. Retaining high-quality staff in the global marketplace is a Our decentralization is making IFC more efficient, helping us challenge. Competition for skilled finance and investment talent tailor approaches to the specific needs of countries and frontier markets, and increasing our ability to have a positive impact on the in emerging markets is high, and compensation is rising in the pri- development of emerging economies. vate sector. Hence IFC's turnover of investment officers is now 9.7 percent a year, up from 6.4 percent in FY06. About 30 percent of staff hired between 1998 and 2003 have already left IFC. WORKFORCE TRENDS SINCE FY03 3500 3,325 3,134 2,880 Total IFC Staff 3000 2,433 2500 2,254 2,107 Field Staff 2000 1,759 1,584 1,498 1,351 1500 1,240 1,291 1,566 1,550 1,382 Washington Staff 1000 1,082 963 867 500 0 FY03 FY04 FY05 FY06 FY07 FY08 IFC A N N U A L REPORT 2008 121 An organization's corporate culture plays a central role in its ability to succeed. For IFC, which now has more than 3,000 employees in more than 80 countries, the need for shared objectives is especially important. In fiscal year 2008, we undertook the most extensive consultative process in our history in an effort to define our corporate culture, conducting 52 consultations in 31 countries over a 10-week period. About 45 percent of IFC staff participated, evenly distributed between headquarters and field offices. We also considered recommendations from the 2007 IFC staff survey. The result is The IFC Way, a four-part set of principles that will help us build a corporate culture to advance IFC's strategy for a more inclusive and sustainable world. Our Vision That people should have the opportunity to escape poverty and improve their lives. Our Purpose To promote open and competitive markets in developing countries; to support companies and other private sector partners; to generate productive jobs and deliver basic services; and to create opportunity for people to escape poverty and improve their lives. Our Core Corporate Values Excellence, commitment, integrity, and teamwork. The Way We Work We help our clients succeed in a changing world Good business is sustainable, and sustainability is good business One IFC, one team, one goal Diversity creates value Creating opportunity requires partnership Global knowledge, local know-how Innovation is worth the risk We learn from experience Work smart and have fun No frontier is too far or too difficult Going forward, IFC management has committed to sustaining this focus on IFC's corporate culture and brand so that staff can serve clients better by attuning more closely to their needs, as well as work together more closely across geographical, sectoral, cultural, and professional borders. 122 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK INVESTING IN IFC STAFF IFC provides a wide range of benefits and professional develop- IFC PERFORMANCE STANDARDS HELP CLIENTS RECOVER FROM CHINA'S EARTHQUAKE ment opportunities. We strive to create an environment that The earthquake that hit China's Sichuan Province in May 2008 helps staff perform their best. resulted in 69,000 casualties, 5 million people homeless, and economic losses of $86 billion. Within hours, IFC confirmed the Health Care safety of our colleagues and their families in Chengdu, 80 kilometers IFC provides staff with comprehensive medical insurance. from the epicenter, and contacted clients to inquire about their staff Washington-based staff are covered by Aetna, contracted and business operations. Two of these companies confirm that IFC's environmental and social standards helped them minimize losses and through an open procurement process. Other staff are covered by resume operations quickly. During project appraisal, IFC had advised La Garantie Medicale et Chirurgicale, an international health care Jiuda Salt, western China's largest salt producer, to buy earthquake provider. Medical insurance costs are shared--75 percent paid by insurance and set up business recovery and continuity plans. Com- IFC and 25 percent by the insured. pany chairman Mr. Fu Gangyi notes that Jiuda Salt has been able to restart its business "much faster than enterprises of comparable size." Pension Management Huarong Chemical, which produces chemicals for many industries, is based in Pengzhou, one of the worst-hit areas. IFC's advice on design IFC's pension is part of the World Bank Group plan, based on and operation of the company's innovative plant, including input on two benefit components--the first, years of service, salary, and emergency response planning, helped Huarong prevent leakage of retirement age; the second, a cash savings plan, which includes hazardous chemicals. Mr. Liu Yonghao, president of its parent com- a mandatory contribution of 5 percent of salary, to which IFC pany, New Hope China, notes that by getting back to work in half the adds 10 percent annually. Legacy pension benefits from earlier time of similar plants, Huarong could "produce disinfectant products World Bank Group pension plans include termination grants and that were badly needed in the relief and reconstruction effort." additional cash payouts. Professional Development STAFF PARTICIPATION IN TRAINING IFC invests in its staff. All new staff attend mandatory courses Completions 9,955 Core Skills Areas on understanding who we are; what we do; and how we work. Hours 72,462 Other courses include credit review, core skills, and leadership Completions 567 development. Course offerings are increasing in the regions: in Credit FY08, more than 60 percent of corporate-sponsored training was Hours 28,712 held in the field. E-learning courses are also available on demand Completions 183 anywhere in the world. Leadership Development Hours 5,476 Total Course Completions 10,705 Total Hours of Learning 106,650 IFC A N N U A L REPORT 2008 123 REACHING OUT TO LOCAL COMMUNITIES IFC encourages staff to make a difference in their local com- munities. Staff are given time off each year for volunteer work. There is an annual Community Connections Campaign; this year, 46 percent of headquarters staff participated and raised $172,092 for various charities. The World Bank Group matched this figure with an additional 50 percent. IFC staff volunteer in their communities in several ways. This year, for example, staff in the Dhaka office used funds from an internal award to convene community members and address several key issues: waste management and air pollution; energy conservation; and reduction of greenhouse gas emissions. Staff stimulated community outreach activities through consulta- tions, communications, and promotional activities. In Russia, A Chance to Work continues to gain momentum: this IFC program helps orphans gain job skills through paid internships with private companies. Today 30 private companies are partici- pating, four of which have become donors to the effort as part of a commitment to corporate social responsibility. By the end of FY08, 240 of 300 interns had secured permanent jobs, and 51 had entered universities to continue their education. 124 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK ...DOING OUR PART... ...DOING OUR PART... IFC is dedicated to creating opportunity where it is most needed. We know the task is formidable-- helping the private sector reduce poverty and promote sustainable development in an era of rapid global change. We achieved much this year, however, and are ready to do more. We have enjoyed sharing with you, the reader, our vision, our purpose, and our work. We thank you for taking time to read our story--especially the impact we are having on people in emerging markets. IFC A N N U A L REPORT 2008 125 VISION PURPOSE DEVELOPMENT SOLUTIONS PEOPLE DELIVERING RESULTS IFC investments and advice last year touched the lives of people in measurable ways 126 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK What IFC's clients achieved: · 700,000 manufacturing and services jobs provided · 5.5 million patients cared for · 7 million microfinance loans provided · 396 million cubic meters of water treated · 50 million telephone connections established · 800,000 farmers assisted · 154 million rail passengers carried IFC A N N U A L REPORT 2008 127 128 I F C A NNUAL R E P ORT 2 0 0 8 NONFINANCIAL ASSURANCE CHAPTER 7: HOW WE WORK IFC ANNUAL REPORT 2008 EXTERNAL ASSURANCE STATEMENT AND COMMENTARY ON CERTAIN NONFINANCIAL ASPECTS OF THE REPORT INTRODUCTION IFC has commissioned Corporate Citizenship to provide IFC's management with external assurance and commentary on certain nonfinancial aspects of its 2008 Annual Report, specifically economic, social, and environmental sustainability and development effectiveness information contained in this report. IFC's management has prepared the report and is solely responsible for its content. Our objectives were to review specific aspects of its content and presentation, to conduct selected checks of underlying corporate records, and to provide this statement, for which we have sole responsibility, in accordance with the terms of reference with IFC. As part of our assignment, we have examined IFC's Development Outcome Tracking System (DOTS), which measures the development effectiveness of IFC's investments and advisory services. In addition, we have reviewed certain development results for investments published on IFC's report web site. Corporate Citizenship is a specialist management consultancy advising organizations that seek to improve their economic, social and environmental performance around the world. A detailed note describing our relationship with IFC and the assurance process we have adopted appears in our full statement online at www.ifc.org/annualreport. OUR OPINION In our opinion, having reviewed relevant underlying IFC systems, the report provides a fair and balanced representation of the progress IFC is making in carrying out its stated commitments as set forth in the text sections on the five strategic pillars and "Where We Work" in the "Creating Opportunity" chapter. We have relied entirely on data and information provided by IFC and published on IFC's web site, except where we expressly state to the contrary in our note on the assurance process. Where we have identified material gaps in the completeness of available performance data and responsiveness to stakeholders, we note these below in the Commentary section. In forming our opinion and making our comments, we have referred to the principles underlying the international assurance standard AA1000 (www.accountability21.net), notably those concerning materiality, completeness and responsiveness. We have also considered the reporting principles for defining content and the reporting principles for defining quality contained in Global Reporting Initiative's (GRI's) G3 sustainability reporting guidelines (www.globalreporting.org). In reviewing DOTS, described on page 41, nothing came to our attention to suggest that IFC's methodology, which is consis- tent with the good practice standards for private sector evaluation agreed among multilateral development banks, had not been applied. Nor did it come to our attention that information had been materially misstated. Our methodology for testing DOTS is presented in our full statement online. IFC A N N U A L REPORT 2008 129 COMMENTARY This is IFC's second Annual Report that combines information on its investments and advisory services, sustainability, development effectiveness and donor partnerships. We believe this approach to reporting performance to be a good reflection of IFC's commit- ment to integrate economic, social, and environmental considerations into its activities around the world. Having pioneered a new approach to its reporting last year, we believe that IFC's 2008 Annual Report has been refined on several fronts, marking a step forward from last year's report. IFC's report clearly articulates its activities to fulfill its mission through the overview of its opera- tions, case studies, human interest stories, and discussion of its development results. Non-financial reports, such as this one, should explain how an organization impacts society, taking account of the key eco- nomic, social and environmental concerns of its stakeholders. Reports should show how crucial decisions are made and differing interests reconciled. They should be both balanced and honest about shortcomings. Our commentary is designed to assist readers in understanding the extent to which this report measures up against that objective. Tackling the world's development challenges in a sustainable manner often raises difficult dilemmas at both the policy and project level and requires balancing different stakeholder concerns. A report in line with best practice would illustrate the approach to and resolution of dilemmas and challenges and allow stakeholders to see values in action. While the report does address IFC's material operations, providing various levels of detail about different activities, it could do much more to explain to readers how policy dilemmas and project-level challenges have been managed and resolved, particularly with regard to potentially conflicting stakeholder interests. One such specific challenge that IFC faces is the corruption found in some of the countries where it does business. IFC has en- hanced practices related to its internal anti-corruption program and has an approach for considering corruption when evaluating potential investments. The report would be more complete if it discussed more fully these activities and other steps IFC is taking to combat corruption in relation to its activities, both internally and more widely in society. Another major challenge is climate change, and we acknowledge the reference to IFC's climate change strategy in the report and the work done to measure its own direct environmental impacts including carbon emissions. We recommend incorporating into the report an emissions reduction component, covering targets for direct emissions. More challenging is to measure indirect emissions, where work has begun, but reporting is not planned. However, given the importance of the issue and IFC's leadership position, we recommend that IFC does report on the progress it is making on defining and measuring indirect emissions, describ- ing its approach and providing even partial data when it becomes available. We recognize IFC's efforts in the report to address key findings from stakeholder feedback, including feedback we gathered on IFC's Annual Report 2007. Responsiveness to stakeholder concerns would be further strengthened, if the report discussed the lessons learned from such engagement and how these lessons were applied to other projects. We commend IFC on its continued efforts to openly assess, clearly quantify and systematically report the development ef- fectiveness of its investments and advisory services and on the inclusion of additional information provided on the results mea- surement web site. With the implementation of DOTS-2 during FY09, we expect data scope and quality to improve further. The comparability of development results for investments across industries and regions would be further enhanced if development results reflected varying degrees of challenge and risk associated with different types of investments and recipient countries. Reporting the development effectiveness of advisory services has been challenging for IFC, as the application of the monitoring and evaluation framework is still in its early stages. However, efforts to enhance consistent data capture exist, and we expect the streamlining of results indicators to enhance data quality and coverage. Corporate Citizenship www.corporate-citizenship.com September 8, 2008 130 I F C A NNUAL R E P ORT 2 0 0 8 CHAPTER 7: HOW WE WORK IFC A N N U A L REPORT 2008 131 ACRONYMS CAO ............ Compliance Advisor/Ombudsman ICT............... information and communication technology CEO ............. Chief Executive Officer IDA .............. International Development Association CY ............... calendar year IEG .............. Independent Evaluation Group DFID ............ Department for International Development IFC ............... International Finance Corporation DOTS ........... Development Outcome Tracking System ILO............... International Labour Organization EC ............... European Commission IT ................. information technology ESRR ............ environmental and social risk rating MIGA........... Multilateral Investment Guarantee Agency EU ............... European Union MSME.......... micro, small, and medium enterprise FIAS ............. FIAS, the Investment Climate Advisory Service NGO ........... nongovernmental organization FY ................ fiscal year OECD .......... Organisation for Economic Co-operation and GDP ............. gross domestic product Development GRI .............. Global Reporting Initiative SME ............. small and medium enterprise IAD .............. Internal Auditing Department SPI ............... Summary of Proposed Investment IBRD ............ International Bank for Reconstruction and Development ICSID ........... International Centre for Settlement of Investment Disputes NOTES AND DEFINITIONS The fiscal year at IFC runs from July 1 to June 30. Thus, FY08 began on July 1, 2007, and ended on June 30, 2008. Investment amounts are given in U.S. dollars unless otherwise specified. On-lending is the process of lending funds from IFC's own sources through intermediaries, such as local banks and microfinance institutions. Loan participants and IFC fully share the commercial credit risks of projects, but because IFC is the lender of record, participants receive the same tax and country risk benefits that IFC derives from its special status as a multilateral financial institution. Quasi-equity instruments incorporate both loan and equity features, which are designed to provide varying degrees of risk/return trade-offs that lie between those of straight loan and equity investments. Rounding of numbers may cause totals to differ from the sum of individual figures in some tables. The World Bank includes both IBRD and IDA. The World Bank Group includes IBRD, IDA, IFC, MIGA, and ICSID. PHOTO CREDITS Page 2, Tania Kaddeche, IFC; page 4, China Tourism Press, Getty Images; page 5 (left), Alistair Cotton, iStock; page 5 (right), John Sones, Lonely Planet Images; page 6 (left), Ryan McVay, Getty Images; page 6 (right), Photodisc, Getty Images; page 7, Richard Lord; page 8, Richard I'Anson, Lonely Planet Images; page 9 (left), iStock; page 9 (right), EIGHTFISH, Getty Images; page 11, Frank R. Vincent; page 12 (far left), Gianluigi Guercia, Getty Images; page 12 (center), Adam Struve, IFC; page 12 (right), John Deyegbe, Resolution Studios Limited; page 13 (left), Ronaldo Toledo, IFC; page 13 (far right), Paul Morse; page 14-15 (all), Paul Morse; page 16, Beth Wald, Aurora Photos; page 17, Michael Higgins, IFC; page 18, Sia Chen How, iStock; page 19 (top), Courtesy of CPFL Energia; page 19 (bottom), Tim Flach, Getty Images; page 20, Medioimages, Getty Images; page 21, Peter Solness, Lonely Planet Images; page 22, iStock; page 23, Ted Pollett, IFC; page 24, Digital Vision, Getty Images; page 30, Jason Downes, IFC; page 31, Teresa Ha, IFC; page 32, Monty Rakusen, Getty Images; page 33, Courtesy of FINEM Mexico; page 35, Holger Leue, Lonely Planet Images; page 37, Ricardo Azoury, iStock; page 44, iStock; page 46, Brian Cruickshank, Lonely Planet Images; page 48, Ted Pollett, IFC; page 49, Sattyakee D'com Bhuyan, IFC; page 50, Wayne Eastep, Getty Images; page 51, Courtesy of Bai Tushum; page 64, Courtesy of Banco del Bajio; page 65, Robert John Hatton, IFC; page 66, Greg Elms, Lonely Planet Images; page 67, IFC; page 72, David McKee, IFC; page 73, Courtesy of WIZZIT; page 82, David Partington, iStock; page 83, Courtesy of Stora Enso; page 91, Grant Neuenburg; page 92, Robert B. Horner, IFC; page 93, Belinda Mutesi, IFC; page 99, John Elk III, Lonely Planet Images; page 100, Sheehan Haq Perera, IFC; page 101, Patrick Daneri Carpenter, IFC; page 102, Orien Harvey, Lonely Planet Images; page 103, Courtesy of Aga Khan Agency for Microfinance; page 109, David McKee, IFC; page 110, Doug McKinlay, Lonely Planet Images; page 111, Andrew Chua; page 112, Deborah Campos, World Bank; page 118, John Neubauer, Lonely Planet Images; page 124, Antoine Courcelle-Labrousse, IFC 132 I F C A NNUAL R E P ORT 2 0 0 8