IFC Operations & Strategy in Iraq

Ziad A. Badr

Iraq Country Manager

Feb 2, 2014

Agenda

• Introduction to IFC

• IFC Activities in Iraq

Investments

Advisory Services

• Overall IFC Strategic Priorities & Focus areas

• Challenges Facing International Investors in Iraq

2

3

Multilateral

Investment Guarantee Agency

1988

Provides political

risk insurance /

guarantees

against losses

from non-

commercial risks

to facilitate FDI in

developing

countries

International Development Association

1960

Provides

concessional

loans/guarantees

to governments of

the poorest

countries. Total

credits outstanding

in 2011 were c.

$125bn

International Bank for Reconstruction and Development

1945

Lends to

governments of

middle income

developing

countries. Total

loans outstanding in

2011 were c.

US$132bn

International

Centre for Settlement of Investment Disputes

1966

Settles

investment

disputes

between foreign

investors and

host countries

International Finance Corporation

1956

Provides loans,

equity, and Advisory

services to stimulate

private sector

investment in

developing

countries. Total

committed

investments in 2011

were c. US$31bn

The World Bank Group

IFC is a member of the World Bank Group responsible for promoting private sector development

in developing countries and frontier markets

• IFC is the only global multilateral institution focused exclusively on the

private sector — the global leader in private sector development finance

• Largest investor in emerging markets and developing countries

• Facilitate transfer of knowledge, expertise and introduce best industry

practice

• We invest, advise, mobilize capital, and manage assets — providing solutions

for an inclusive and sustainable world

• We create opportunity for people — improving lives in developing countries

Who We Are, What We Do

5

Owned by 181 countries

Highly decentralized with more than 100 offices worldwide in 86 countries

Dakar

Nairobi

Johannesburg

Cairo

IFC HQ

IFC Hub Offices

IFC Regional Operations Center

IFC Country Offices

World Bank Group Hub Office

Washington

Mexico City

Bogota

Buenos Aires

São Paulo

Santo Domingo

Moscow

Hong Kong

New Dehli

Almaty

Istanbul

Singapore

IFC’s Global Reach

IFC Offers Clients

A Unique Role • Emphasis on development impact World Bank affiliation

• Participates only in private sector ventures.

• Market discipline: has market pricing policies

• Long-term partnerships; countercyclical role

• Risk-taking and risk management. Shares same risks as other investors. Takes Equity

risk.

• Does not accept government guarantees.

• Is profit oriented but balanced with development impact

IFC presence reassures Foreign and local investors, and

Governments. It is a Catalyst for other investors and lenders

IFC’s Key Roles

Financier

World’s largest multilateral provider of financing for private enterprises

with over US$45 billion in outstanding investment commitments

Lender:

provides loans

Shareholder:

provides equity

Guarantor:

provides guarantees

Advisor

IFC also provides technical assistance and advisory services to governments and private sector businesses

in:

Access to

Finance

Investment

Climate

Sustainable

Business

PPP

& Infra advice Asset manager

through IFC Asset

Management

Company (AMC)

IFC Activities in Iraq

• First IFC mission after the end of the War in July

2003.

• Active involvement in 2003 and 2004, then slow

down due to security and other constraints.

• IFC representative stationed in Baghdad in Sept

2011.

IFC’s committed portfolio in Iraq currently stands at US$700 million in 6 companies/projects:

• 10% equity stake in Credit Bank of Iraq in partnership with National Bank of Kuwait

• US$29 million loan for the first 5-star Greenfield hotel in Erbil – Erbil Rotana Hotel.

• US$135 million loan to Gulftainer to support their investments in ports

• US$400 million IFC-led facility for Zain Iraq

• US$135 million loan to Lafarge for the Bazian and Karbala cement plants

• US$25 Million equity investment in Commercial Bank of Iraq (CBIQ)

Target investments in the range of US$ 800 m over the next 3 years

PROGRAM TO DATE

Building long term relationships in Iraq is key.

IFC Investments in Iraq

Centers around the following objectives:

• helping diversify the economy away from the oil sector

and the creation of jobs in its non-oil economy.

• Strengthening and building institutions.

• Developing a favorable business and regulatory

environment.

• Strengthening private sector led growth in non-oil

sectors.

IFC Can Play a key role in Iraq’s Development

Overall IFC Strategy Framework in Iraq

The Implementation of the strategy is guided by 4 key

principles:

• Identifying and supporting local investors who have the

potential to grow

• Support South-South investments (e.g., investors from

GCC, Lebanon, Jordan, and Turkey).

• Mobilization of additional funding from DFIs and other

financial institutions particularly in Infrastructure

development

• collaboration with the World Bank & other Donors

IFC Can Play a key role in Iraq’s Development

Implementation of the Strategy

Promoting sustainable and private sector led

infrastructure development

• Target investments in the range of US$ 800 million over

the next 3 years across various sectors.

• IFC focus will be to promote private investments in

Power, Gas, Agriculture, banking, and Transportation.

• Active PPP transaction Advisory can play a key role

Advisory Services would be supported by a $28 million

Multidonor Trust Fund

Overall IFC Strategy Framework, cont’d

STRATEGIC PILLARS

% of firms identifying constraint as "major" or "very severe"

Investment Strategy in Brief Challenges Facing Investors in Iraq

0 10 20 30 40 50 60 70 80

Telecommunications

Labor Regulations (Like Social Insurance)

Customs and Trade Regulations

Courts

Inadequately educated workforce

Water

Tax Administration

Regulatory Uncertainty

Business Licensing and Operating Permits

Transportation

Tax Rates

theft,disorder and crimes

Access to Land

Practices of competitors in the informal …

Access to Financing (Ex: Collateral)

Corruption

Political instability

Electricity

Leading Constraints to Firms Operating In Iraq

Source: World Bank, Enterprise Survey, 2011

Challenges Facing International Investors in Iraq

Increased government spending as % of GDP

Healthy economic performance, stable inflation

Rising FDI flows

Strong growth prospects driven by the need for greenfield

infrastructure and essential services

Government keen for private investment in infrastructure

Substantial upside potential provided proper risk management

Poor legal and regulatory framework

Lack of transparency

Unsophisticated and underdeveloped financial and labor market

infrastructure

Unreliable mechanism for dispute resolution and allegation of

corruption

Delays in granting project approvals and cumbersome bureaucracy

Challenges facing Iraq also represent opportunities

when rewards are viewed to be worthwhile & risks can be adequately managed

Appraisal – Presence of experienced local consultants on

the ground in Iraq provides comfort

Market Information – Ability to get sufficient and close

to accurate market and sector information

Security Cost and restrictions

Lack of knowledge in international practice from local

investors

•Concept notes & Feasibility studies

•Financial models

•Audited Account

•Credit Reporting

•Investors due diligence

Investment Strategy in Brief … Cont’d

Challenges Facing International Investors in Iraq

Challenges for Setting a National Investment Fund

• Experienced team

• Clear Strategy, sector focus, rate of return…

• Appraisal

Market Study

Feasibility studies

Financial model

• Investor Due diligence

Thank You!

IFC Web site: www.ifc.org