Th-e IFC RO'riix.s Private Investment in Developi=ng Co tries The IF Re 4 , |0 t~~~~~~V o I _ 4 i 't --= - +21240 ~~~~~~FIE XCOPY:9 a# --+&&0 :f.N,, ' i~~~~~ B~~~~ .,;'0LX. The IFC Review of Private Investment in Developing Countries iFC s a member of the World Bank Group supporting private sector development in member countries through investment, advisory services, and technical assistance./ International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Lo www.ifc.org W i n t e r 2 0 00 V o I. 4, N o . I Rob Wright D e s i g n Patricia Hord.Graphik Design In this issue 1 Thoughts on India and Bangladesh from IFC Executive Vice President Peter Woicke. 2 A $520 million collaboration to expand Internet access in the developing world ... Helping Venezuela bounce back from December's deadly floods. 6 On the Edge Bad news took a big bite out of emerging markets. But here's a look at $4.7 billion worth of deals that still managed to beat the odds - rewarding risk-takers royally. 16 Track Record Panama has done more than take control of its historic canal this year It has also taken up the cause of railway privatization - a growing global trend, bringing economic benefits far and wide. 22 Broadband: Revolution in the Air? The communications picture changes when fiber optics comes along. Just ask El Salvador. 25 A Healthy Choice A pioneering private health care provider offers new alternatives in Central and Eastern Europe. Tell us what you think! Fax: 202-974-4384 E-mail: Impact@ ifc.org Cover and pp. 6-12, 14-17 illustrations: The Image Bank AIL references to dollars are US dollars unless orherwise indicated. My View Lan ds of Vision Peter Woicke 've been in international finance for 30 years now -been to a reduce income inequality, not increase it. So while we work on tech- lot of places, seen a lot of things. But in all honesty, I don't nology in India, there is also a vast need for IFC and our colleagues in think I've ever done anything quite as exciting as the trip I the World Bank to help in health, education, and other areas that will took to India and Bangladesh in February. bring direct benefits to lower-income groups. There are many excel- lent new interacrive educational software packages being developed I say this because of the rare opportunity it gave me to meet peoplc that offer great promise, and perhaps we can support them, or other who can only be described as visionaries -people whose vision has innovative approaches of this kind. For how much longer can India go changed not just their industries, but their countries. Today the on with 350 million poor in its midst? entire world respects the high-tech sector in India and the micro- finance organizations of Bangladesh, thanks in large part to the n tackling such difficult issues, there is no substitute for knowing impassioned commitment their leaders have shown for 20 years or so. what works. And anyone looking for proven solutions in the fight And while their countries remain home to some of the world's most against poverty should go to Bangladesh. That is where microfi- grinding poverty, the irresistible energy of these pioneers of develop- nance - the art of going outside the conventional hanking svs- rnent offers all the inspiration to address it we wvill ever need. tem to make small loans to poor people wanting to create their own jobs - has had a greater impact than anywhere else. In Bangladesh it It had only been about 18 months since my last visit to India, but I reaches a full 60% of the low-income population. This is a far higher couldn't help being struck by the enormous changes in the country rate than most other poor countries report, and largely because of the in that time. Everywhere I went I found strong, competitive busi- work of two local NGOs with whom we are proud to be associated, nesses. They saw the whole world as their playing field, just like Grameen Bank and BRAC. Between them, they finance entrepre- their best counterparts overseas. The old mindset of seeking suh- neurial self-help activity in 7 million households. They do so. I might sidies and other forms of government protection that had long add, with far better repayment rates than many larger banks. helped keep this country from meeting its vast potential seemed to have vanished from the scene. IFC is glad to leave its traditional sphere a hit and work with these nonprofits as they increasingly seek out new partners and move into In New Delhi, for example, I met with Rajendra S. Pawar and his commercial activity. In a village called Porahari, I paid a local management team at NIIT Ltd., a nationwide network of private woman 12 taka to use the cell phone she rents out at a 13"'o com- information technology (IT) training centers. Its 40,000 highly skilled mission through a joint venture between Grameen and Telenor of annual graduates help form a big part of the country's booming high- Norway that IFC financed. Like any good business deal, this one tech sector. A for-profit, locally owned company, it fills a crucial made sense for both sides: it contributed to her income and kept void left by the public universities, and now offers courses in 21 me in touch in an area with no conventional phone service. different countries. That makes it a perfect early example of some- thing I'm sure will soon be more common: the cutting-edge Indian I also spent a memorable day with BRAC, attending an adult firm that holds its own not just at home hut abroad. I was also fasci- education class where poor women learned valuable life skills for nated to see NIIT's sophisticated research and development team surviving divorce. It was just one aspect of BRAC's comprehen- working hard on new ways to bring computer-assisted education to sive social vision, something that should serve it well as it works slum children around the country. with IFC and others to start a new for-profit commercial bank targeting small and medium enterprises - a vital market seg- Bangalore is the hub of this Indian IT industry that now generates ment that is unfortunately far less served in Bangladesh today more than $2 billion in annual revenues. There I had the chance than microfinance. to sit down with a world-class entrepreneur named N.R. Narayana Murthy. Last spring his software firm, Infosys Technologies, In meeting the foLnding fathers of Grameen and BRAC, Prof. became the first Indian company to list on a US stock exchange. Muhammad Yunus and Fazle Hassan Abed, it was clear that they are A meteoric rise since has left it with a Nasdaq market value of just like their counterparts in the Indian high-tech scene: men of more than $37 billion. That provides quite a role model for a poor vision and energy who have built world-class organizations. And it country in today's highly competitive knowledge economy. The was equally clear that they add another, all-important element to the new confidence Infosys and others like it have given the broader equation: compassion. Indian business community is truly a sight to see. It was a pleasure to see India and Bangladesh with the help of these Throughout Bangalore's "Silicon Plateau," ideas and business plans are visionary leaders who have accomplished so much through sheer moving between entrepreneurs and investors at an incredible rate, will to succeed. They offer great inspiration to all of us at IFC as we cteating a great many new skilled jobs. I saw no reason to doubt play our own small part in improving living standards in these two India's claim to being no. 2 in the world in software, trailing only the unforgettable countries. - US. But like all who go there, I also saw deep poverty that no amount of high-tech start-ups will ever cure. Indeed, our challenge everywhere Peter Woicke is the executive vice president of IFC and a managing in the year 2000 is to use the awesome power of the Internet to help director of the World Bank Impact Winter 2000, Vol.4, No. I Softbank and IFC aking on one of the new millen told reporters in Tokyo Feb. 14. "With of global industry leaders and local nium's most urgent development this initiative by IFC and Softbank, we partners challenges - the "digital divide" are taking a lead in the effort to close the that separates rich and poor gap. This investment will accelerate the Help entrepreneurs in developing inclusion of the developing countries in countries use established business the information revolution. It will trans- models to start up locally adapted fer technology from the rich countries to versions of some of the world's U . . S 1 *i! the developing world, fostering sustain- leading Internet companies able new local businesses, which will pro- mote prosperity and reduce poverty. And 0 Provide risk capital and support for it will, I hope, encourage others to follow entrepreneurs in the developing with their own investments and initia- world to turn their own business tives to establish technology and informa- concepts into successful Internet tion centers all around the world." enterprises. The investment will bring successful lead- oftbank CEO Masayoshi Son, one ing-edge Internet models to developing the world's leading Internet markets and foster local enterprises. The investors, said the partnership growth of e-business and Internet-based = "will play a crucial role in building enterprises in the developing world that the new digital economy in developing it supports will help narrow the gap countries around the world." His company between countries with access to informa- operates or has strategic equity holdings in countries on Internet access IFC is tion technology and countries that are more than 300 Internet companies around joining with Japan's Softbank Corp. in a constrained by reliance on traditional the world, showing a strong track record $520 million initiative to spawn start-up communication and business tools. in fast-paced development of online Internet companies in some 100 develop- enterprises. In Japan it is active in distri- ing countries. SBEM will be based in Silicon Valley, bution, publishing, Internet media plat- funded 75% by Softbank and 25% by forms, and a broad range of e-commerce, The two partners will jointly launch a IFC. It will: businesses, and joint ventures with new $200 million entity to incubate Microsoft, Cisco Systems, and others. It is Internet-related businesses in the develop- X Nurture new Internet enterprises also a 50-50 partner with NASD, Inc., in ing world called Softbank Emerging both by investing seed money and creating Nasdaq Japan, a new trading Markets (SBEM). IFC is also participating by providing an array of technolog- platform designed to increase the trans- in other initiatives Softbank has recently ical, legal, and management sup- parency and liquidity of Japan's equity announced totalling $320 million. port to quickly turn ideas into solid markets. In the US, it is the largest businesses ("incubation") shareholder in many leading Internet "The digital divide is one of the greatest companies, including Yahoo. impediments to development, and it is a Speed the creation of Internet- growing exponentially," World Bank anchored businesses in developing SBEM will also establish a Global Group President James D. Wolfensohn countries by working with a network Incubation Center to facilitate the IN Impact n Winter 2000, Vol. 4, No. I transfer of the latest Internet technolo- on business concepts while a core of set up joint ventures with local entre- gies and business models from developed centrally based experts handles many of preneurs and investors to build, launch, countries to emerging markets. This tech- the ancillary business start-up require- and operate local Internet companies, uti- nology company will ensure adequate ments. In addition, SBEM will create lizing the parent's model, for each targeted Now Is the Time: Internet investor Masayoshi Son (I.) and World Bank/IFC president Wolfensohn (r.) launch a landmark deal. technical resources for the incubated joint ventures with successful Intemnet country. SBEM plans to announce its companies and foster the development of companies to oversee the company's global first incubated company in Mlay 2000. U a mature technological base in the target rollout in the targeted developing coun- countries, allowing entrepreneurs to focus tries. These partnerships will, in turn, Impact , Winter 2000, Vol. 4, No. I A NATION REBUILDS ecember 1999 was a time of recovery efforts. The international comr utility, Electricidad de Caracas (EDC). horror Venezuelans may munity also pledged financial assistance The funding will speed up restoration of never forget. Four days of tor- to help absorb the costs of the disaster, electricity to the poor living in the area's rential rains caused massive flooding which could reach $30 billion. But shantytowns, low-income neighbor- and mudslides in a mountainous there were still enormous needs facing hoods, and fishing villages. coastal area, killing up to 50,000 of its those who bore the greatest burdens in 350,000 residents. At least 200,000 the aftermath, the poor. "Power is a basic need for everyone in more were left homeless. Roads were the community, and EDC is an ideal buried, bridges washed away. In the Although not generally in the business vehicle for channeling money into state of Vargas, the area worst hit, of providing humanitarian aid, IFC directly helping the poor," said Sybile entire settlements were buried under quickly found a role to play. Just 48 Lazar, IFC's lead investment officer on tons of earth, warehouses were ripped hours after the tragedy, a team of invest- the project. "Working with a company apart, and water and sanitation sys- ment officers, engineers, and social spe- that understands the needs of the poor tems completely destroyed. cialists set the framework for an emer- made the humanitarian effort possible." gency $30 million loan to the With the scale of human tragedy almost local power ooting and other crimes soared beyond belief, relief organizations during the blackouts that immedi- immediately initiated