53901 Number 3 FAST TRACK BRIEF October 2008 About IEG-IFC IFC’s Independent Evaluation IFC in Nigeria Group (IEG-IFC) independently evaluates IFC’s investment and An Independent Country Impact Review I advisory services operations and reports its findings to IFC’s EG’s Country Impact Review (the Report) examines if, from July 1998 through December Independent Evaluation Group management and Board of 2007, IFC (i) successfully defined a relevant and appropriate strategy for helping Nigeria Directors. IEG-IFC is a resource tackle its most pressing needs; (ii) provided investment and advisory services that were for helping staff understand what reflective of IFC’s strategy; and (iii) achieved positive development results. IFC has learned and how IFC can do better business in the future. The report’s main findings are: About Fast Track Briefs ■■ IFC’s strategies in Nigeria reflected the characteristics of IFC’s process for development of country Fast Track Briefs help inform strategies jointly with the World Bank. These characteristics include: (i) poor integration with IFC’s the World Bank Group (WBG) main strategy and budget process; (ii) loosely formulated country objectives and priorities in terms managers and staff about of sectors and products; and (iii) little or no resource allocation. As a result, IFC’s strategies for new evaluation findings and Nigeria have not fulfilled their purpose of setting priorities, defining targets, and securing the human, recommendations. The views organizational, and other resources required. expressed here are those of IEG and should not be attributed ■■ IFC investments in Nigeria were heavily concentrated in the financial sector, accounting for 66 to the WBG or its affiliated percent of commitments. IFC recognized the critical importance of infrastructure development for organizations. The findings doing business in Nigeria, repeatedly emphasized infrastructure as a strategic priority for IFC, and here do not support any general inferences beyond the scope of the evaluation, including any Figure 1: Investments: Original commitments by year and by sector International Finance Corporation inferences about the WBG’s past, current or prospective overall 500 700 performance. 450 600 400 350 500 Online access 300 US$million 400 http://www.ifc.org/IEG US$million 250 300 200 150 200 100 100 50 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008* Finance Infrastructure General Chemicals Oil, Gas and Health and Funds Manufacturing Mining Education Fiscal year of approval and Services *Amounts as of December 31, 2008 Sector Source: International Finance Corporation and Independent Evaluation Group The Nigeria Country Impact Review was discussed at a Committee on Development Effectiveness Subcommittee meeting on September 15, 2008 IFC in Nigeria - An Independent Country Impact Review made some progress in infrastructure reforms and some early attempts to assist the government in infrastructure privatization, but IFC failed to sustain its efforts to develop a program in the sector. IFC had limited or no presence in other areas identified as strategic priorities such as agribusiness, oil and gas, and manufacturing. ■■ IFC achieved significant results in the financial sector, initially by providing long-term financing, and later as a source of risk mitigation through trade-finance guarantees. Eighty-two percent of IFC funded projects in Nigeria’s financial sector were rated satisfactory or better, for development and investment outcomes compared to 61 percent success rate for IFC’s financial sector projects worldwide. The high success rate in Nigeria can be attributed in part to the relatively low risk profile of IFC’s investments due to: (i) progress in financial sector reforms; (ii) a high degree of repeat business with good quality sponsors; and (iii) the high share of short-term products, e.g. trade finance. However, of particular concern is the environment and social effects rating of financial sector projects—only 10 percent were rated satisfactory. IFC’s support for the introduction of mobile phones in Nigeria also had a significant impact. ■■ In advisory services, only 42 percent achieved satisfactory impact achievement ratings (much lower than the average rating of 71 percent for all IFC advisory projects in Sub-Saharan Africa). The low rating was a result of two factors: (i) poor client uptake; and (ii) transition in the IFC delivery platform. In spite of the difficulties experienced, some advisory service projects in Nigeria demonstrated discernible positive impacts, strengthening institutions that provide capacity building to small and medium enterprises; and the development of the Nigerian bond market. Common success factors such as strong client demand and sector focus reflected in the deployment of a range of instruments and sustained engagement over time. IEG’s report recommends that IFC: (i) diversify its areas of intervention IFC’s strategy and portfolio in Nigeria to help generate trickle-down effects of oil-driven growth through a more strategic and effective deployment of advisory services and Since 2001, IFC’s strategic objectives in Nigeria have grown in closer cooperation with the World Bank in business climate reforms; number and been defined more broadly, causing the strategy to lose (ii) improve the internal process for developing country strategies focus. Country strategy documents mainly described IFC’s previous and for large countries like Nigeria, ensure a stronger country focus interventions and listed a growing number of strategic objectives in by formulating clear objectives in terms of expected development terms of priority products and sectors. This approach ensured that impacts, and by better linking objectives to organizational resources; essentially any potential project would “fit” within the parameters of and (iii) ensure that proper priority and resources are given to the the board-approved strategy. As a result, management exercised fairly supervision of environmental, and social effects of IFC projects. broad discretion in implementing investment and advisory services operations. Challenges and opportunities for IFC in Nigeria IFC’s Nigeria strategies reflected characteristics of IFC’s process for development of joint country strategies jointly with the World Within Sub-Saharan Africa, Nigeria’s population is the largest and its Bank. These characteristics included: (i) poor integration with IFC’s GDP is second only to South Africa. In recent years, Nigeria’s economy main strategy and budget process, resulting in little ownership of has grown at a fast pace, with average annual real GDP growth of 8.1 country strategies by management and staff; (ii) a predominant sector percent over the 2003–06 period, more than double that of the late focus, with country objectives and priorities loosely formulated in 1990’s when GDP grew at about 2.6 percent. However, in spite of terms of sectors and products—only indirectly did IFC’s country these positive developments, social and economic conditions have not objectives in Nigeria relate to projected development impacts; and improved for the majority of Nigeria’s 144 million people. (iii) little or no resource allocation, so the country program could Private investment in the non-oil sector has been constrained by only emerge through the implementation of sector and regional a persistently unappealing business climate marked by deficient strategies. As a result, IFC’s strategies for Nigeria did not focus on infrastructure, a lack of access to finance, corruption, economic IFC’s operations, define targets, specify time horizons, or establish instability, a deficient legal framework, and administrative barriers the human, organizational, and other resources required. A focused, to business. These constraints represent both challenges and programmatic, and well-articulated country strategy is becoming opportunities for IFC to contribute to the development of Nigeria. increasingly necessary in light of (i) the size of IFC’s operations in the Given the country’s size, and extent of development challenges, country and their impact on IFC’s effectiveness in Africa; (ii) recent success in Nigeria is important to Sub-Saharan Africa as a whole. improvements in the business environment; and (iii) IFC’s growing country experience and knowledge. IFC in nigeria - An Independent Country Impact Review IFC’s investment portfolio in Nigeria is its largest in Africa and Despite infrastructure development’s critical importance for doing its eleventh largest worldwide. IFC’s investments were heavily business in Nigeria, IFC’s repeated emphasis on infrastructure as a concentrated in the financial sector, accounting for 66 percent of strategic priority, and early attempts by IFC to assist the government commitments (see figure 1). IFC engaged in much repeat business in in infrastructure privatization, IFC did not sustain its efforts and the financial sector, using a similar product-sponsor mix to capitalize did not develop a program in the sector. IEG’s concurrent Country on its early successes. More recently, IFC has funded or considered Assistance Evaluation (CAE) of World Bank operations in Nigeria, funding for other real sector projects (that now account for about 24 arrived at similar findings about the World Bank’s performance in percent of its commitments), including projects in the petrochemical, infrastructure. The CAE found that the World Bank’s efforts were cement, and health sectors. not commensurate with the scale and importance of infrastructure problems in Nigeria and that infrastructure, particularly power, is an IFC’s development effectiveness in Nigeria area where the World Bank Group (WBG) could have worked more Over the review period, 81 percent of IFC’s evaluated investment closely to develop an approach to infrastructure development and to projects in Nigeria were rated satisfactory or above for development have a stronger development impact. and investment outcomes (higher than the 58 percent achieved by Impact achievement was rated satisfactory or better for 42 percent of IFC’s projects worldwide). Ratings for financial sector projects in advisory services operations in Nigeria (much lower than the average Nigeria were 82 percent satisfactory or better (figure 2), compared to rating of 71 percent for all IFC advisory service projects in Sub- 61 percent for all IFC financial sector projects (figure 3), 44 percent Saharan Africa). The low rating resulted mainly from two factors: (i) for financial markets projects in Africa, and 43 percent for financial poor client uptake; and (ii) the transition in IFC’s delivery platform. sector projects in resource-rich countries. IFC’s main contribution The poor client uptake is a direct consequence of advisory service was long-term financing and assistance to improve the corporate projects’ supply-driven design. IFC’s introduction of a new advisory governance practices of Nigerian financial institutions. Additionally, services delivery platform in 2005 temporarily disrupted the delivery IFC achieved development impacts in telecommunications, but had of advisory services. As a result, IFC scored poorly in the area of client limited or no presence, and therefore no impact, in the infrastruc- satisfaction, particularly with regard to client perception of the quality ture, agribusiness, and manufacturing sectors despite their having of IFC’s advisory services. Nonetheless, IFC achieved tangible impacts been identified as strategic priorities. Of particular concern has been through its advisory services operations in strengthening institutions the poor environmental and social rating for the evaluated financial that provide capacity building to small and medium enterprises and sector projects—less than 10 percent of which achieved a rating of in the development of the Nigerian bond market. satisfactory or better.​ ​Figure 2: Nigeria financial sector - Development and investment outcomes by Figure 3: IFC’s financial sector - Development and investment outcomes by number number 88.3% 68.9% 2 1 2 1 HIGH HIGH 5.9% 82.4% 8.1% 60.8% Development Outcome Development Outcome High development High development High development outcome High development outcome outcome High IFC return outcome High IFC return Low IFC return Low IFC return 88.3% 74.3% 4 3 4 3 5.9% 5.9% 17.6% 13.5% Low development Low development Low development Low development LOW LOW outcome outcome outcome outcome Low IFC return High IFC return Low IFC return High IFC return LOW HIGH LOW HIGH Investment Outcome Investment Outcome 17 projects evaluated from 2004 - 07* 74 projects evaluated from 2004 - 07 * Includes all financial sector projects approved in Nigeria from 1999 - 2006 Source: Independent Evaluation Group IFC in nigeria - An Independent Country Impact Review C o n c l u sio n s a n d reco m m e n d atio n s To enhance its development effectiveness IFC should: ■■ Diversify its areas of intervention in Nigeria to: (i) help address development challenges related to poor infrastructure (in particular power and roads) and excessive dependence on the oil sector; (ii) contribute to the trickle-down effects of oil-driven growth; and (iii) expand viable IFC private sector activities beyond the present narrow confines of operations in terms of sectors. This would involve: (i) more strategic and effective deployment of advisory services, particularly in infrastructure and related areas; and (ii) close cooperation with the World Bank to help improve the business environment; ■■ Improve the process of developing country assistance strategies for key countries such as Nigeria by: (i) strengthening the country focus of IFC’s strategy process including enhanced coordination with the World Bank; (ii) formulating country objectives in terms of expected development impacts; and (iii) linking objectives with the allocation of organizational resources; and ■■ Ensure that proper priority and resources are given to supervision of environmental, and social effects in Nigeria. IFC should fully integrate environmental and social supervision into the portfolio management process, and ensure accountability. Resources Task Manager: Director-General, Director, IEG-IFC: Head of Knowledge, IEG-IFC Help Desk: Miguel Rebolledo Dellepiane Evaluation: Marvin Taylor-Dormond Dissemination, and (202) 458-2299 Vinod Thomas Quality, IEG-IFC: AskIEG@ifc.org Sid Edelmann