IFC: Trends and Opportunities in Emerging Markets

Karin FinkelstonIFC Vice President, Asia Pacific

Dublin, Ireland, June 19, 2012

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IFC: Who We Are, What We Do

IFC is the largest global development institution focused exclusively on the private sector – the global leader in private sector development finance

• We promote private sector development

• We promote open and competitive markets in developing countries

• We help generate productive jobs and deliver essential services to the underserved

• Catalyze and mobilize finance for private sector development

• We create opportunity for people – to escape poverty and improve their lives

• We make a unique contribution to development

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Three Complementary Business Lines

o Equity/ Quasi Equity

o Loans

o Trade Finance

o Risk Management

o Mobilizations

o Treasury Operations

InvestmentServices

o Investment Climate

o Access to Finance

o Sustainable Business Advisory

o Public-Private Partnerships Transactions Advisory

AdvisoryServices

o IFC Capitalization Fund

o Africa/Latin America and Caribbean Fund

o Others to come. . .

AssetManagement

*IFC Provides Corporate and Project Finance

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IFC’s Global Reach3,400 staff in over 100 offices worldwideDecentralized organization with 56 percent of staff in the field

Dakar

Nairobi

Johannesburg

Cairo

Washington

Mexico City

Bogota

Buenos Aires

São Paulo

Moscow

Hong Kong

New Dehli

Almaty

Istanbul

IFC HQ/Regional Hub

IFC Hub Offices

IFC Regional Operations Center

IFC Country Offices

Santo Domingo

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Global Business Context• The global recovery is at a difficult juncture with significant downside

risks. Lower global growth, together with increasing financial instability in some parts of the world (particularly Europe) is a reality.

• In the US, insufficient job creation, stagnant earnings and alarming long-term unemployment underscore persistent unemployment crisis. Thenumbers also speak to a synchronized slowdown that is now taking hold of the global economy.

• China’s economic slowdown now appears to be more pronounced than anticipated. China rebalancing its economy by relying less on exports and raising domestic consumption (WB forecast: 8.2% GDP growth in 2012 , 8.6% in 2013; after 10.4% in 2010, 9.2% in 2011)

• Developing countries activity will be vulnerable to varying degrees to:

A further decline in international capital flows;

Reduced exports; falling commodity prices or remittance levels; and

A reduction in international aid

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A deterioration in conditions could have serious consequences for developing countries

GDP growth, 2012 various scenarios

Notes: Baseline assumes muddling through; scenario 1 assumes an additional freezing out from capital markets of two small Euro Area economies equal to around 3-4 percent of Euro Area GDP; Scenario 2 assumes crisis spreads to 1-2 larger European countries whose total weight equals around 30 percent of Euro Area GDP. Source: World Bank, Global Economic Prospects, 2012A.

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Emerging Markets expected to lead longer term growth

Source: IMF, October 2011

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Emerging Markets—Higher Risk, Higher Return

Greece

PortugalSpain

Ireland

Italy

Germany

France

UKUS

IndiaChina

Brazil

Russia

Turkey

Mexico

Colombia Peru

South Africa

Egypt

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Ann

ualised

  Returns

σAnnualised Std Dev.

Risk ‐ Return Plot(last 5 Years) Emerging World

Developed World

Euro Peripheral World

Source: IFC analysis based on MSCI information, October 2011

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Global Companies are increasingly based in the Developing World

Outward FDI Flows by Top Countries(1990 vs 2010)

South-South investment flows have become more important(34% of all FDI in 2010, up from 25% in 2007)

(US$ million)

2010 1990United States 328,905 Japan 50,775 Germany 104,857 France 36,233 France 84,112 US 30,982 China, Hong Kong 76,077 Germany 24,235 China 68,000 UK 17,948 Switzerland 58,253 Sweden 14,746 Japan 56,263 Netherlands 13,660 Russian Federation 51,697 Italy 7,614 Canada 38,585 Switzerland 7,176 Belgium 37,735 Luxembourg 6,314 Netherlands 31,904 Canada 5,237 Sweden 30,399 Spain 3,349 Australia 26,431 Finland 2,708

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“New Normal”—Future Demand in Emerging Markets

Trends Opportunities

• Rising middle-classes and the Base of Pyramid (BOP) ConsumersMulti-polar Growth

• SMEs, Microfinance, PPPs, South-South investmentsPrivate Sector a Priority

• Local Financial Market DevelopmentFinancial Sector Constraints

• Health and EducationDemographic Changes

• Infrastructure, including Water, Sewage, Energy, and HousingUrbanization

• Logistics, infrastructure, irrigationDemand for Food and Commodities

• Clean-tech, energy efficiency, renewable energy

Climate Change—a cross-cutting trend

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New Trends in Development Finance – Role of Private Sector Clearly Recognized –

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Wide recognition that private sector is key for successful development and poverty reduction

Need for mobilization, PPPs and leveraging private sector resources using public funds, including concessional financing

Focus on regional/ strategic themes e.g. MENA, Africa, fragile states, agribusiness, infrastructure, climate change, gender, etc.

Increased focus on results, monitoring and efficiency of aid

Partnerships amongst DFIs

Busan: The Private Sector is On the Aid Agenda

Fourth High-Level Forum on Aid Effectiveness (HLF-4) in Busan, Korea (Nov-Dec 2011) marked a turning point:

Private sector at the table for the first time, recognized as an equal and complementary partner in development.

41 partners (incl. governments, private sector, IFC/IFIs endorsed the Joint Statement on Expanding and Enhancing Public and Private Co-operation for Broad-based, Inclusive and Sustainable Growth.

A Building Block on Public Private Cooperation has been created to guide further work in this area.

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IFC Continued to Grow Through Global Crises

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

US$

bill

ions

IFC's own account Mobilization* Loan Participations

New commitments$ Billions

* “Mobilization” for 2006 and 2007 includes structured finance, loan participations, and parallel loans.

5.6

18.7

+19% p.a.

$0

$50

$100

$150

$200

$250

FY07 FY08 FY09 FY10 FY11

US$

mill

ions

207

118

+15% p.a.

Advisory Program$ Millions

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Long Term Strategic Focus AreasOur strategy is guided by our Vision: people should have the opportunity to escape poverty and improve their lives

Where: Our geographic focus is Frontier Markets:IDA (poorest countries)Fragile Situations Frontier regions in non-IDA countriesWherever we can support the poor wherever they are located (e.g. even in middle income countries)

What: Our priority sectors are:Infrastructure, including water; health; education; and the foodsupply chainLocal financial market development, with an emphasis on MSMEsClimate change and environmental and social sustainability

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IFC Strategic Priority: Africa

FY11 Investment Volume $3.0 billion in 95 new projects in 31 countries

Hub offices in Dakar, Johannesburg, and Nairobi, plus 18 local offices

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IFC Strategic Priority: Fighting Climate Change

• IFC invested $1.7 billion in energy efficiency, renewable energy, clean tech and other climate-friendly projects in FY11

By FY13, over 20% of IFC investments will be in climate-friendly projects, up from 14% last yearIFC launched the EUR150 million Post 2012 Carbon Facility in Feb 2011

• Along with investments, IFC also adds value to clients through:

Advisory servicesLinks to concessional donor funds

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IFC & Ireland: Investing in Emerging Markets – We Can Do More Together –

• Irish companies’ current commitments to projects is $235 million.

• Global Trade Finance Program – Bank of Ireland

• Ireland’s significant annual support for IFC’s advisory services at $1.5 m in FY12 ($21.5 million in the last 9 years).

• Working together, IFC and Irish companies can encourage economicgrowth in emerging markets and generate private sector profits.

Ireland

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Inclusive & Profitable Business Solutions: IFC Client DigicelGlobal Partnership: IFC helped Digicel offer affordable mobile phone service in countries considered too risky by big operators.

Going into remote markets paid off: Digicel $1.1 bln profit March 2010…

…and revolutionized commerce: Mobile phones connect people with markets across multiple islands and 1000s of miles; Farmers check crop prices on cell phones; villagers safely transfer money via phones.

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“IFC’s Business Edge product will help our retailers better manage and grow their businesses.This is a win-win proposition for our clients as it will improve customer service and increase access to telecommunications products and services.”John Mangos, CEO Digicel Papua New Guinea

PNG: telecoms competition adds 0.7 % GDP growth in 2008.

Samoa: Digicel's introduction lets prices drop 60%.

Nauru: coverage jumps from 0 to 90%

Inclusive & Profitable Business Solutions– IFC Client Altobridge in Sulawesi, Indonesia –

• Mobile phones have revolutionized commerce in developing countries. But in remote areas, installing equipment is uneconomical … or is it?

• Low-cost, solar cell-operated mobile carriers make systems profitable in ultra-rural areas.

“Remote communitiesare not lost causes… There is now substantial evidence…throughout Africa, Asia, and the Middle East dispelling the myth that remote communities cannot deliver highly attractiveROI.”Mike FitzgeraldAltobridge CEO

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Improving Competitiveness and Sustainability in the Apparel Sector– Better Work Mekong Program –

Building cooperation between governments, employers’ and workers’ organizations, and international brands to improve compliance with labor standards and competitiveness

in global supply chains

Highlights:

• $1.8 million aggregated private sector savings through reduction of duplicative compliance audits

• 12 regional Buyers’ Forum meetings bringing together 30+ international companies to discuss common approaches

• Supervisory skills training improve productivity by up to 10% in some participating factories

• 470,000 workers benefiting from improved labor practices, 85% of them women

Working with Irish Aid to scale up experience from the Mekong to achieve global reach and expand to other sectors:

•Better Work programs now operational in seven countries•Better Work looking to expand its reach to the footwear sector and to assess feasibility of addressing environmental compliance issues in apparel supply chains

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Thank you

Questions welcome…

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