71, 7,77"T~~~~~~~~~~~~~~~~1~2~';FT 5F! r! .11 IV AilS v~~~~~~ IL~~~~~~~~~~~~~~~~~~~~~~~~~N F H I 11iiv~'F~ ~ $~~'Y F F 0 bF~~~~~~~~~\ ~~~~~ ~ ~~~~~ . Fl~~~~~~~J FL F UI;.%7F. IrF~~~~~~~~~~~~~iiF; ~ ~ ~ ~ 4 f - t'llF }C7eqpment IF approved projects in 65 countries in fisca 1994, sIn up from 54 countries in fiscal 1993. This increase Enew - X x r was due to changes in the imvestment environment S271 in a number of countries as the movement to market economies accelerated, and it furthered the Corpora- tion's long-term objective of achieving a regionally balanced and divefied portfolio. The amount of financing approved for lFCs own account increased Cerent for most regions, with the biggest percentage increase development materisnd in Central Asia, the Middle East, and North Africa- devdOpllent EilanUtCt . - . mati* filuscrvkces -sm9 Of the total number of projects approved. 98, repre S6F8 senting S1.1 billion in financing, were located in ChGInicals. | -S309 countries wiith per capita incomes of $830 or less. petrocicis. I . Loans and investments approved for projects in these fertiiz5rs M*ui, nonlferrous countries accounted for 50 percent of the number Total S4.28 S35Z of projects and 44 perocet of the financing approved for IFC"s own account. REPORT ON OPERATIONS :: - ~ ~ ~~~~~~~~5 - THE PAST TEN YEARS (iniliouis of US. dollars) FISCAL YEAR 1985 19S6 1987 1988 1989 1990 1991 1992 1993 1994 OPERATIONS Investment Approvals Nunmber ofprojects 75 85 92 95. 92 122 152 167 185 231 Total financing 938 1,164 914 1,270 1,710 2,201 2,846 3,226 3,936 4 ,87 Finandng for IFC's own account 611 710 790 1,039 1,292 1,505 1,540 1,773 2,133 2,463 Undervriting and syndications 328 454 124 231 418 695 1,306 1,452 1,803 1,824 Total project costs 2,788 3,588 4,343 5,010 9,698 9,490 10,683 12,000 17,427 15,839 Committed Pbortfolio Number offirms 366 377 409 454 468 495 618 703 798 868 Total committed portfolio 3,318 3,441 3,795 4,270 4,968 5,884 7,008 8,718 10,026 11,512 For IFCs own account 2,116 2,387 2,756 3,374 4,045 4,752 5,494 6,423 7,132 7,893 Held forothers 1,202 1,054 1,039 896 923 1,132 1,514 2,295 2,894 3,619 RESOURCESAND INCOME Capital-iation Borrowvings 825 1,223 1,581 2,047 2,255 3,580 4,130 5,114 5,565 6,531 Paid-in capital 546 602 722 850 948 1,072 1,145 1,251 1,423 1,658 Retained earnings 258 284 338 438 635 792 957 1,138 1,280 1,538 Earnings Net income 28.3 25A 53.8 100.6 19635 157.0 165.9 180.2 141.7 258.2 Sectoral breakdown of projecs. is an important element in its investment program, As in previous years, the Corporation approved and about 37 percent of the financng approved by financing for projects in a broad range of sectors, IFC for capital markets projects in fiscal 1994 was induding capital markets, infrastructure, extracive in the form of equity investments. lFC's support for industries, agribusiness, and general manufacturing, various types of financial intermediaries is also a The improved poliqc environment in many member key component of its strategy for reaching small countries made it possible for IFC to increase its cap- and medium-sized businesses indirectly. ital markets activities. IFC approved loans and equity investments for a broad variety of financial institu- Demand for IC financng for infrastructure projects tions, including commercial and investment banks, grew as more governments, particularly in Latin leasing companies, discount houses, insurance com- America and Asia, opened sectors such as telecom- panies, and venture capital funds. In fiscal 1994 IFC's munications, transportation, and power to the pri- investments in this sector accounted for 24 percent vat seCtor. IFC approved financing of $599 million of total financing approved for the Corporation's own for its own account for infiastructure projects in fis- account IFC's role as a shareholder in new financial cal 1994, in addition to $731 million in loans to be institutions and an investor in various kinds of funds syndicated with international commercial banks. It REPORT ON OPERATIONS 6 placements by IFC of securities issued by client FINANCING APPROVED, FY90-94 companies during the year came to $230 million. (millionis of U.S& dollars) 5,000 Syndications The principal direct means by which IFC mobilizes third-party funds is the loan participation program, 4X000 _ - whereby lFC makes its lender-of-record Uumbrellan - - available to particpating financial institutions. By sharing with its partners both the commercial risks 3.000 --of projects and the benefits it derives from its multi- lateral status, IFC has for many years been successful -,00- I i_ in mobilizing finance for borrowvers that would not °°° _ _ . g ~ othenvise have access to long-term project loans from international financial markets. While leading pnvate sector borrowers from the cdeveloping world were able to raise finance from A B E L the international securities market on attractive 1 990 1991 1992 1993 1994 terms during part of fiscal 1994, commercial banlks rcinained reluctant to increase their long-term cross- * Syndications and undewdting border exposure to many countries, other than in * Financig forIFC's own account. - cofinancings with IFC and other multilateral institu- tions. In OECD countries where banks are required to mainmtin minimum levels of country-risk- provi- approved a £50 million investment in a global fund sioning, exemptions are now generally available for that wil provide mezzanine financing for power pro- participations in IFC loans. jects throughout the developing world and a SI mil- lion invstment in the fund management company. The volume and number of IFC syndicated loans signed in fiscal 1994 wvere considerably higher than in The agribusiness and food-processing sectors any previous year. The total volume of signings accounted for a greater share of total financing exceeded S1.47 billion, compared with S816 million approved than in recent years. IFC approved in fiscal 1993, and involved a total of 111 participant S224 million in financing for 29 projects, induding banks from 25 countries. The total number of indi- AEF projects. vidual loan participations was 264. Finally, IFC's involvement in privatization continued, Reflecting the timing of several large projects, the not only ir. terms of advisory mandates, but also volume of loans approved by IFC's Board of Directors in terms of investment activity. LFC approved financ- for syndications was slightly lower in fiscal 1994. ing totaling $184 million for 10 projects involving Total approvals reached S172 billior for 65 projects, privatization. compared with $1.79 billion for 53 projects in the previous year. However, for the fourth year running, Project financing activities are described in more the volume of Board-approved syndications exceeded detail in the Regional Reports. that of loans approved for IFCGs own account RESOURCE MOBILIZATION IFCs principal financing partners have for more than The Corporation continued to be successful in mobi- a decade been leading European banks-particularly hzing capital for private sector projects in developing from France, Germany, the Netherlands, and Switzer- countries-for every Si in financing approved by land. While these institutions remain highly valued IFC for its own account in fical 1994, other investors partners, the Corporation has been seeking to and lenders wil provide $5.43. Some of this financing broaden its participant base at a time of rapidly will be in the form of cofinancing; $1.8 billion will increasing overall demand for its loan syndication be mobilized direcly, through loan syndications services. Fiscal 1994 saw progress in this direction. and securities underwriting. In addition, private The share of loan participation signings taken by REPORT ON OPERATIONS 7. IFC LOAN SYNDICATIONS SIGNED IN FISCAL YEAR 1994 Participants induded the foliowing: ABN AMRO Bank N.V. Caia Genil de Dep6sitos Korea First Finance Ltd. Amrnican Express Bank Ltd. Chlase Manhattan Bank N.A. (The) Kredietbank N.V. Arab Investment Company SAA. Cho Hung Bank Landesbank Hessen-Thuiringen Ltd. Christiania Bank og Krediitlasse Girozentrale Arab Petroleum Investments CitLbank, N.A Long-Term Credit Bank of Japan, Corporation (APICORP) Comerica Bank Ltd. (The) Asahi Bank Limited (The) Commercil Bank of Korea Ltd. Mediocredito Centrale Asian Finance and Investment CThe) MeesPierson N.V. Corporation (AFRC) Credit Lyonnais MHB Mitteleuropiische ASLK-CGERBank Credit National HandelsbanklAG Australia and New Zealand Credit Suisse -Mitsubishi Trust and Banling Banking Group Limited Creditanstalt-Bankverein Corporation (The) Banc Agriculi i Commercial Credito Italimno SpA Mitsi Trust & Bankdng Co., Ltd. d'Andorra Dai-[chi KIangvo Banlc, Limited (The) Banco di Napoli (The) MTB Bank Banca di Roma . Daiwa Bank, Ltd. (The) Nationsbank Banco Bilbao Vizcaya De Nationale Investeriagsbank NBD Bank N.A. Banco Central Hispano N.V. Nederlandse Fmanciering- Banco dc Negocios Argentaria Den norske Bank Maatschappj voor BancD Espafiol de Credito Deutsch-Suidamerikische Bank- Ontwkelingslanden N.V. (BANESTO) AG (FMO) Banco Exterior de Espania Deutsch-Tiirkishe Bank AG Nippon Credit Bank, Ltd. (The) Bank Austria AG Deutsche Bank AG Nordbanken Bank Bumiputra Malaysi Berhad Development Bank of Singapore Orix USA Corporation Bank of America N.T. & SA Ltd. (The). Rabobank Nederland Bank of Seoul Ltd. (The) Dresdner Bank AG Raifissm Zentralbank Osterreich Bank of Tokyo, Ltd. (The) Fuji Bank Limited (The) AG Banque et Caisse dlEpargne d Generale Banik Royal Bank of Scotland plc (The) I'Etat Luxembourg GiroCredit Bank Sahean Merchant Banking Banque Europeenne pour Aktiengesellschaft der Corporation rrAmnrique Latine (BEAL) SA Sparkassen Sakura Bank, Linited (The) Banque Francaise du Commerce Gulflnternational Bank BSC Sanwa Bank, Lmited (The) Exterieur Hongkong & Shanghai Societe G6nErale Banque Indosuez Banking Corporation Sumitomo Bank, Limited (The) Banque Internationale a Limited (The) Swiss Bank Corporation Luxembourg SA- Industil Bank of Japan, Ltd. Swiss Volksbank Banque Nationale de Paris (The) Tat Lee Bank Limited Banque Panibas Internationale Nederlanden Bank Tokai Bank, Ltd. (Ihe) Banque Sudameris N.V. Union Bank of Fmland Ltd. Banque Worms Joyo Bank, Ltd. (The) Union Bank of Switzerland Barclays Bank PLC KEXIM Bank (UK) Limited United Overseas Bank Limited Bayerische Vereinsbank AG IKKBC International Ltd. Westdeutsche Landesbank BerlinerBank AG KLB Asia Finance Ltd. Girozentrale I West LB BHF-BANK - Korea Development Bank (The) Westpac Banlkng Corporation REPORT ON OPERATIONS Q European banks w%as 71 percent, compared with institutions. The Corporation currently administers 84 percent in fiscal 1993, while the sharc talen by a loan portfolio in excess of $3.6 billion for the Asian banks rose to 22 percent, compared with account of its participants. 12 perctnt; U.S. banks also increased their share slightly, from 4 percent to 5 percent. Banks partici- Securities underwriting pating for the first time in IFC loan syndications IFC helps private sector companies in developing included lenders from Andorra, Italy, the Republic countries gain access to the international capital mar- of Korea, Singapore, and Spain. kets through securities issues. It advises, structures, underwrites, and places international corporate issues IFC is also wsrorking to involve non-bank financial of equity, quasi-equity, and debt securities as well as institutions in its loan participation program. Major pooled investment vehicles. IFC joint-lead manages insurance companies, leasing companies, and special- these offerings in partnership with prominent inter- ized finance companies are showing increasing inter- national investment banks. IFC often plays a catalytic est in participatii.g in the Corporation's project loans, role, and many of the investment vehides it under- particularly for infrastructure projects requiring large writes are the first of their kind in the host countries. amounts of long-term finance. During fiscal 1994 the Board approved IFC's invole- During fiscal 1994 IFC's largest-ever loan syndication ment as joint-lead manager in a total of eight securi- wvas signet: a $350 million facility for a new refinery ties offerings with an aggregate value of $715 million. in Thailand constructed by Star Petroleum Refining Equity and quasi-equity issues accounted for 47 per- Company, Ltd., a joint venture between Caltex Trad- cent of this total, with specialized investment funds ing and Transport Corporation and the Petoleum representing the balance. Authority of Thailand. This project, to which IFC and Barclays Bankl PLC were joint financial advisers, IFC underwrote a portion of the intemational involved a record number of 51 participant banks in securities issues of three important Indian companies the IFC syndicated loan. -an S80 million convertible bond issue for Gujurat Amnbuia Cements Limited, a $100 million converble Other major syndications signed included loans for bond issue for The Tata Iron and Steel Company lim- Tuntex Petrochemicals (Thailand) Ltd., for a purified ited. and a $75 million equity issue for Tata Electric terephthalic acid plant in Thailand ($137.5 million); Companies--introducing these companies to the inter- Edenor SA., an electricity distribution company in national markets. The issues were all oversubscnbed. Argentina (SU8 million); Empresa Eletrica Pangue SA., for additional finarice for a hydroelectric powver A major market innovation during the fiscal year was plant in Chile ($100 million); Celulosa y Derivados, an emerging markets index fund, which tracks the SAL de C.V., and Masterpak, S- de C.V., two subsid- performance of 23 emerging stock markets in the IFC iaries of Cydsa SA with activities in fibers, packag- Investable Composite Index (IFCI Index). The fund's ing, chemicals, and plastics in Mexico (S50 milion); structure and broad coverage are aimed at a distinct Yacylec SA, for an electricity transmission line in class of major institutional investors, induding pri- Argentina (S45 million); Grupo Idesa, S.A. de C.V., vate and public pension funds in the United States for the modernization of an ethylene plant in Mexico and abroad. (S42.5 million);Apasco, SA de C.U, for the expansion of a cement plant in Mexico (S40 million); and Bacell Emerging Markets Data Base SA, for a viscose pulp plant in Brazil (S36 million). Since the introduction in fiscal 1993 of the IFCI Index, which supplements IFC's Global hIdesc series Of the S1.47 billion total volume of syndicated loans (the IFCG Indexes) by reflecting the degree to which signed by IFC during fiscal 1994,51 percent is for certain emerging markets are open to foreign inves- borrowers in Latin America, folloLved by4l percent tors, the use of services related to FC's Emerging for Asia, 6 percent for Europe, and 2 percent for Markets Data Base (EMDB) has grown rapidly. Central Asia, the Middle East, and North Africa. EMDB data are increasingly being used as a bench- mark by portfolio managers to gauge performance. Since its loan syndication program began more Equally important, the IFCI Index is being used by than 30 years ago, IFC has placed-participations of fund managers in structuring investment vehides more than S6.5 billion with some 350 financial such as indexed funds and deivative products. The REPORT ON OPERATIONS 9 first index fund was the State Street Bank and Trust risks that would not be available to them through the Company/lFC Emerging Markets Index Common commercial banking sector, mainly because of coun- Trust Fund, which IFC launched early in fiscal 1994. try risk and the credit-sensitive nature ofthe financial derivatives markets. During the year the Emerging Marklets Data Base Unit continued to improve customer service and to Since the inception of its risk management services expand its product line. Five emerging markets were program, IFC has obtained 28 Board approvals for added to the Data Bas China, Hungary, Peru, hedging (in aggregate) a notional amount of up Poland, and Sri Lanka. EMDB now covers 25 mar- to S1.8 billion- In these risk- management projects kets, and the number of companies it covers has lFC has either provided the hedging transactions increased to more than 1,400. -mostly currency and interest rate swaps-directly, or cooperated wzith commercial banks on a risk- IFC provides publications and services related to its sharing basis. In either case, IFC has provided sub- Emerg Markers Data Base to more than 200 sub- stantial technical advice to dients on developing scrbers. In addition to products available on-line apprpriate hedging strategies -the weekly and monthly stock series, weekdy and monthly index series, and mondlly markxet series- In fiscal 1994 the Corporation approved 7 risk man- IFC publishes a monthly update, a quarterly review, agement projects for companies and banks located in and an annual Emertng StockMarks Factbookj Asia. Europe, Latin America, and the Middle East wthical includes a comprehensive directory of emerg- These projects wil enable the Corporation to hedge ing markets around the world, an analysis of individ- financial risks of up to 5221 million in notional ual markets and market trends, and data on historical amounts on behalf of its dients, resulting in an IFC lFC indexes. Now in its eighth edition, the Factbookl exposure of approximately $28 nllion. A significant is considered the foremost publication on stock mar- effort was made this fiscal year to identifyr clients with kets in developing countries risk management requirements in countries where lFC had not yet undertaken hedging transactions. EFC Newv capital marlet products is helping a Russian private sector bank. Tokobank to During fiscal 1994 the Global and New Product hedge its currency and interest rate mismatches, with Development Division structured and helped launch a view to enabling it to offer hedging instruments an emerging markets index fund, a new investment to its Russian clients in the fiture. IFC approved its vehide that tracks 23 developing-country stock mar- first risk management transaction in India, for Indo kets covered by the IFa Index In selected countries Rama Synthetics (India) Limited. This company faces IFC is also engaged in establishing specialized domes- a 10-year deutsche markl currency exposure because tic financial institutions that would structure and of a deutsche mark-denominated loan it contracted enhance the credit of securitization transactions although its export revenues are in Us. dollars. The involving housing mortgages, consumer finance company plans to swap deutsche mark for US. dol- receivables, and other financial assets. IFC has also lars with IEC's asistance [PC is also work-ing on developed structured commercial paper programs its first risk management transactions in Peru and designed to enable companies in developing coun- the Philippines. In Peru EFC is discussing hedging tries to gain access to the U.S. commercial paper alternatives with a mining company exposed to markeL deutsche mark currencq risk. A power plant in Northern Mindanao in the Phiippines wishes to RISK MANAGEMENT SERVICES manage inte-est rate exposure on its borrowings by IFC has beers ulfring risk- management services to its undertaing swap transactions with IFC. clients for the past four years. The objective of lFCs program has been to assist customers in devising and TECHNICAL ASSISTANCE AND ADVISORY executing risk management strategies to hedge finan- SERVICES cial risks emanating from changes in interest rates, Demand for IE's advisory services and technical exchange rates, or commodity prices Left unhedged. assistance continued to grow in fiscal 1994 IFC movements in these financial variables can have a sig- signed 56 new advisory mandates, more than 20 nificant negative impact on the financial performance of which related to privatization. Mandates were of a company or a financial institution. IFC makes obtained in all regions but were concentrated in accessible to its diaits products for hedging their Central and Eastern Europe andAsia. REPORT ON OPERATIONS - - - ~~~~~~~~~~~~~~~10- PROJECT APPROV'ALS BY REGION, FY94 AND FY93 FY94 FY93 Fuancing Financing Total forlFCs Toul for lFCs Number financing' own account ?Number finandng' own accunt muliionsof U.S4 dogr) (millios of U.S dolaars) Sub-Saharan Africa S7 "26 157 45 261 193 Asia 44 1,229 605 39 1,144 521 Central Asia, Middle East, North Africa 30 599 383 28 387 270 Europe 46 596 443 20 784 419 Latin America and Caribbean 52 1,577 815 52 1,340 710 WMorldwside 2b 61 61 1' 20 20 Total 231 4,287 2,463 185 3,936 '2133 .Ate Fgr sar xadd up ra raows becaus ofmiug1 a. DoUr amounn arescowlJinamch approswdJbr lFCs ar lean syndiaom and unAewri_i h GaWbPerInmGs Compan SteSmren Bank and Tusr CompanylECEnzegigMairtslndaCGmnwn TrF ant c_EmerngMarfrrs CodFAn IFC normally charges market rates for its technical During the year IFC provided considerable technical assistance, but occasionally provides such a e assistance to a number of member countries on on a concessionary basis when donor funding is capital market development, induding drafting sec- available, rities marlet laws and regulations, providing advice an the regulatory environment for new types of Demand wvas especially strong for IFCs advice on financial institutions, establishing supervisory and pnriatization and corporate restructuring, where its enforcement entities and mechanisms for securities experience has proven valuable, particularly with markets, and creating or developing stock exchanges. respect to establishing ownership structures and In addition IFC advised govemrnments on the develop- positiomnig companies to face the increased competi- ment of collective investment vehicles, entry and exit tion that comes vith a market economy.. During the requirements for foreign portfolio investment, prac- vear IFC helped the Government of Poland to com- tices related to non-voting shares, and the develop- plete the sale of five cement and lime companies, and meat of dearing, settlement, and depositonr svsters. the Government of Trinidad and Tobago to sell shares IFC also collaborated with the IBRD on several finan- in a methanol companyr. These were the largest priva- cial sector reviews and helped government authori- tization transactions in these countries last year and a ties in several countries to design studies of finarcial major source of revenue for the governments The sector development For ecanple,jIFC assisted in the buyers committed themselves to making substantial creation of Zambia's new stock exchange-, carried out investments in rehabilitation and modernization. a study on creating a legal and fiscal regulatory frame- The Corporation also provided advice on the privati- work for a regional leasing industry in West Africa; zation of infiastructure services in a numnber of coun- and provided advice on establishing a financial futures tries and has begun to w,ork in countries such as and options market in Thailand, restructuring com- lndia, Kena, Ukraine, and Zimbabwe that have merdal bankls in Slovenia, and setting up a privrate begun to move twvard private ownership. pension fund system in Perun More details about these activites can be found in the Regional Reports. IFC also continued to provide technical assistance in At June 30, 1994, IFC was wsork-ing on 32 technical privatization in the former Soviet republics, design- assistance activities in 23 countries or regions. ing and helping to implement a program fiur the privatization of agricultural lands in NizhIy IFC's Technical Assistance Trust Funds Program was Novgorod, in Russia With respect to the privatiza- established in 1988 to provide the technical assistance tion of small enterprises, it ertended its program in and funding neeeded to develop projects and prepare Uklraine, begun in L'viv in fiscal 1993, to ten cities, proposals capable of satidsfying the criteria of prospec- and launched a program in Belarus. tive investors, induding IFC During fiscal 1994 IFC REPORT ON OPERATIONS 1 1 financed 55 technical assistance projects in 40 coun- policies, programs, and institutional arrangements tries and a number of projects focused on particular that would help them attract more and better foreign regions, induding sub-Saharan Africa, the Baltic direct investment. In fiscal 1994 FIAS completed republics, and East Asia. These projects involved advisory projects in 25 countries. It also conducted a feasibility studies, technology transfer, sector and number of seminars on foreign investment policy, project identification studies, operational technical induding the Conference on Investment Promotion assistance, and expert advice on privatization and Techniques for 25 Arab countries, and the Round- capital market development. With funding support. table on Foreign Direct Investment in Infiastructure from the EC (Asia) Trust Fund, IFC conducted a in Asia for 12 Asian countriem. FIAS also continued a study on the use of mixed waste paper to produce multi-year program of institutional development for high-value paper goods in South Asia and East Asia- the Board of Investment of Bangladesh. It launched This study, which is described in detail in the chapter two research initiatives, one to asses the strategies of entitled IFC and ther Environment: Anual Revieiv firns considering investments in Eastern Europe and 1994, has led to the identif cation of several projects. the former Soviet Union, and the other to determine The results of the study have been published. IFC is why developing countries restrict ownership by for- also considering new initiatives related to the estab- eign investors. In addition FIAS continued to test and lishment of joint ventures that would provide envi- implement a computerized investor tracking system ronmental services to firms in developing countries in several investment promotion agencies. FLASs and the conversion of gasoline- and diesel-powered advisory activities, seminars, and reseach projects vehides to compressed natural gas. are described in detail in the Regional Reports and in the box on page 108. During the year two new trust funds -were set up with the Govement of Denmark to help provide techni- IFCs operations are complemented by several pro- caI assistance-one for IFC member countries on the grams that help entrepreneurs in smaller economies list of the Development Assistance Committee of the develop business proposals and raise finamcing for OECD, and one covering countries in Central and projects the Africa Project Development Facility, the Eastern Europe and the former Soviet Union. New Business Advisory Service for the Carbbean and trust funds were also set up with the Governments of Central America, the Polish Business Advisry Ser- Norway and the United Kingdom to support techni- vice, and the South Pacific Project Facdity. IFC cal assistance in member countries in Central and helped to establish these programs, which are Eastern Europe and the former Soviet republics. described in greater detail in the Regional Reports, Replenishment of funds has been secured from the and is the executing agenqc for all of them- Governments of Fimland, Italy, and Japan. Australia, Canada, India, the Nethedands, Sweden, Switzerland, and the United States are also donors. An equityline established in fiscal 1993 with the European Commu- nity was used in fiscal 1994 to support IFC invest- ments in parallel with European Community investments that support smaR and medium-sized private ventures in South Asia and North Afiica. To date, some 180 projects involving more than $16 million in cofinancing have been funded through the Technical Assistance Trust Funds Program, which has doubled in size since it was established. IFC now manages 21 trust finds totaling appronxmately $35 million contributed by a number of bilateral and multilateral agencies. The Foreign Investment Advisory Service (FLAS), which is jointly operated by IFC, the Multiateral Investment Guarantee Agency (MIGA), and the IBRD, provides advice to member governments on REPORT ON OPERATIONS 12 GLOBAL PROJ ECTS APPROVED IN FISCAL 19 94* FINANCING (ndhlilnsof U. daolars) PROJECT DESCRIPTION TYPE TOTAL IFC wil invest in commonshare oftheGlobalPowerlnvestments Company, Equity 51.1 51.1 which will provide mezzanine financing for power projects in developing countries. Project cost $1.0 billion. IFCstructuredandisassitingintheplacementoftheStateStreetBankand Equity 10.0 10.0 Trust Companyl1FC Emerging Markets Index Common Thist Fund, an equity fund for passive global investment in 23 stock- markets covered by the IFC Investable Indexes Project cost $2001 million. GLOBAL TECHNICAL ASSISTANCE AND ADVISORY PROJECTS FOCUS DESCRIPTION Financial advisory IFC provided assistance on a best-efforts placement with Japanese institutional investors ofthe initial offering of dte $33 million Capital International Asia Pacific Trust - Project technical assistance Through its Technical Assistance Trust Funds Program, IFC supported a study to identify business opportnities for small and medium-sized private sector ventures in Albania, Eritrea, and Mozambique. Project technical assistance Through its Technical Assistance Trust Funds Program, IFC secured funding for a three-city study to identifr prospectivejoint ventures to create high-tedcnology diagnostic centers and clinics in Egypt, Hungary, and Poland. Technical advice IFC is serving as a member of the International Organization of Securities Commissions Task Force on Derivatives. IFC is working with the U.S. Securities and Exdhange Commission in assistng Turkish and Thai authorities in preparing case studies for the development of their derivatives markets. Technical advice IFCpreparedthefirstcomprehenzsive studyontheprospectsfordomesticfutures and options markets in developing member countries. Se tabksiRegwn Report for imrst approvl; anfd cniMasbsaasc and adviypm inch rewn REPORT ON OPERATIONS .13 FINANCIAL REVIEW J FC's strong financial performance in fiscal 1994 z was reflected in an 82 percent increase in net NET INCOME, FY9O-94 income to S258 million-a record level-from (rinonnif US. dolars) S142 million in fiscal 1993. This sharp incr ise can be autibuted primarily to the exceptional perfor- mance of IFC's equity portfolio. It wvas, to a lesser extent, the result of other fictors as well an increase 250 in loan interest income, induding the recovery of past-due interest, and greater fee revenues. Net income represented an 8.8 percent return on average 200 net wvorth. IFC;s funding program continued to expand; IFCs borrowings in the international mar- kets during the year totaled Sl473 billion. Member countries paid in 5240 million under the capital in- creases approved by the Corporation's Board of Gov- ernors in fiscal 1992 and 1993, as well as fiscal. 1985. INCOME 50 During fiscal 1994 the equityportfblio continued to perform strongly, generating income of S269 million. Dividends amounted to $28 million. As in fiscal 1993, 0 _ _ _ _ _ a substantial portion of dividends came from cornpa- 1990 1991 1992 1993 1994 nies paying for the first time. Capital gains reached a record S241 million, as the Corporation sold a number of mature investments in response to oppor- maintain loan spreads in line with market rates and tmuites presented by surgng equitv markets m to achieve greater efficiency in the processing of new ieveral countries investments. SOURCES OF INCOME, FY94 AND FY93 Income from the liquid assets portfolio was S130 mil- (millions of US. dollars) lion, 25 percent lover than in fiscal 1993. IFC earned a gross return on liquid assets of 35 percent,com- FY94 FY93 pared with 4.7 percent in fiscal 1993. This resuIt Interest and financial fees 354.5 319J reflects the lowv level of interest rates prevailing at Dividends and profit participations 282 382 the start of the fiscal rear, combined with the sharp Realized gains on equity sales 241.1 117.0 increase m interest rates in U.S. dollars (the predomi- Senrice fees 51.6 36A4 nant currency in which the liquid asset portfolio is Deposits and securities 129.8 133.2 denominated) during thethird quarterof fiscal Other income 23 3.7 1994 (US. dollar interest rates rose by 100 to 225 - - basis points across aU maturities). 807.5 648.2 Fee income from syndications and from advisory Despite the lower interest rate environment, which services provided in connection with privatizations, restrained the revenue generated by IFCs lending capital markets transactions, and other types of oper- activities and liquid asset during the fiscal year, ations rose. IFCs activities in these areas continued to income from loans rose as a result of the growth growas a result ofthe Corporation's efforts to marlet of IFCs disbursed loan portfolio, an increase in its specialized technical expertise. recoveries of past-due interest, and a slightly higher collecion rate of interest payments. The increase in Gross income increased to $807-5 million in fiscal loan income also reflects management's efforts to 1994, from S648.2 million in fiscal 1993. FINANCIAL KEVIEWV 14 ADMIN[STRATIVE EXPENSES BY CATEGORY FY9O-FY94 (millions of U.S. dollars) EXPENSE CATEGORY 1990 1991 1992 1993 1994 Staff costs 63.0 64.8 78.6 95.7 105-5 Consultants 4.4 65 8.5 910 9.2 Operational travel and representation 10.5 12.7 15.8 16.8 15.2 Payments to IBRD for office space and services 15.0 17.7 17.7 16.2 17.4 Overheads and other 13.0 18.0 19.1 5. 27.9 Total 105.9 119.7 139.7 163.2 175.2 EXPENSES received during fiscal 1994; this brings cumulative The Corporations total expenses were 5549 million payments under the GCI to $314 million, which rep- -8.5 percent highertan in fiscal 1993, when expenses resents 3' percent of the shares subscribed to date. were S506 million, but in line with projections. In addition Estonia, Kazalkhstan, Latvia, Ukraine, and Administrative expenses increased to $175 mnllion, Uzbek-istan became members of IFC under the 5150 from $163 million in fiscal 1993, to cover the growth milion special capital increase (SCI) approved in fis- of the Corporation's business. The ratio of total cal 1993 to accommnodate the republics of the formner administrative costs for investment operations for Soviet Union. With these new memberships, nine fiscal 1994 dropped to 2.7 percent of the average of the former Soviet republics (accounting for 90 per- disbursed portfolio, fom 2.8 percent in fiscal 1993. cent of the shares allocated under the SCI) have joined IFC. Payments for shares subscnrbed under Finandal charges increased by 11 percent, from the SC aggregating S39 million were received during S219 million in fiscal 1993 to S243 million in fiscal the year- 1994, as the cost of new borrowings offset savings from lower interest rates. Fnally, several member countries received and paid for special allocations of shares in IFC, either to take In fiscal 1994 the Corporation contnbuted $3.5 mil- up shares originally allocated under the 1985 general lion to special programs-the Africa Project Devel- capital increase, or in some other cases (induding opment Facility, the South Pacific Project Facility, China and Mexico) to increase their shareholding in the Polish Business Advisory Service, and the Foreign IFC During the year $16 million of capital was Investment Advisory Service-compared with received from special allocations. $33 million in fiscal 1993. In total these payments and payments under IFC's Net provision for losses in fiscal 1994 was S127 mil- 1985 capital increase raised IFC's paid-in capital by lion, compared with $121 million in fiscal 1993. Loss $240 million to S11 billion. reserves at June 3D, 1994, at $637 million, represented 103 percent of the disbursed loan and equity port- As the high level of net income brought retained folio of 56;2 billion, the same percentage as at earnings to $15 billion, IFC's total net worth June30, 1993. increased to $3 2 billion at June 30,1994, compared with $2.7 billion at the end of fiscal 1993. CAPITAL AND RETAINED EARNINGS During the fiscal year, several more member coun- During fiscal 1994 the Board of Directors approved tries completed the subscription process to IFC's a new financial policy that requires the Corporation $1 billion general capital increase (GCI), which was to maintain a minimum capital adequacy ratio of approved by the Board of Governors in fiscal 1992. 30 percent of risk-weighted assets. This replaces the Byyear-end, 92 percent of the allocated shares had leverage poliqc limit of 2.5:1 that has governed IFC been subscnbed. Payments are scheduled to be made since 1989, and the maximum risk assetstequity ratio over five years, and payments of $183 million were of 2.7:1 that was adopted as an interim measure in FINANCtAL REVIEW 15 1993. tFC's leverage will continue to be subject to the lire, Japanese yen, Spanish pesetas, and Greek drach- limit of 4.0:1 contained in the Corporation's Articles mas. IFC's largest borrowing was a S500 million of AgreemenL Eurodollar issue. That five-year transaction provided an important benchmark for tihe Corporation, since IFC's capital adequacy ratio is calculated in line with it was IFC's largest bond issuc to date and it was the methodology recommended by the Basle Com- launched at IFC's tightest-ver spread to a US. Trea- mittee, under the auspices of the Bank for Inter- surybenchmarkl bond. Favorable market conditions national Setdements, for assessing the financial allowed IFC to largely complete its borrowing pro- health of commercial banks. The ratio compares gram by February 1994, before interest rates world- the level of IFC's capital (induding paid-in capital. wide began increasing in response to the tightening retained earnings, and general loss reserve) to the of monetary policy by the U13S. Federal Reserve Bank. Corporation's risk-weighted exposures, both on- and off-balance sheeL In fiscal 1993 the Board of Direc- Other highlights of the fiscal year wvere IFC's first tors had approved the adoption of a capital adequacy repurchases of outstanding debt and its first issuance frameworkl as the principal policy goveming IFCs in Greek draclhnnis. In November 1993 IFC made a growYth (with the maximum leverage ratio providing successfiil public tenderfor $200 million of four of its an additional check on the level of IFC's borrowings), seasoned Eurodollar bond issues launched during a and had asked management to define guidelines four-year periodL from fiscal 1989through fiscal under the new framework that are appropriate to 1992; these bond issues had an aggregate principal IFC's unique business mri Policy research and analy- amount at issuance equal to $1.1 billion and maturity sis during fiscal 1994 led to the condusion that a dates from 1995 through 1998. The bonds had minimum capital adequacy ratio of 30 percent of - become relatively illiquid and, thus, wrere trading at risk-weighted assets, and maximum leverage of 40:1, relatively low prices. Through the repurchase pro- would provide an appropriately prudent level of pro- gram IFC was able to tighten the spreads to U.S. Trea- tection against the ridsks hced by IFC in its opera- sury benchmark- bonds at which IFC's outstanding tions. The two main U.S. rating agences concurred Eurodollar bonds trade, thereby enhancing the value that this level of capital adequacy would be consistent of those bonds to investors and reducing the spread at with IFCs triple-A credit ratings. which IFC was able to subsequently launch the $500 milion Eurodollar benchmarkl issue. Retiring sea- At June 30,1994, IEC's capital adequacy ratio stood at soned Eurodollar bonds in fiscal 1994 also enabled 43 percent, well above the po cy- minimum. IFCs IFC to improve the overall maturity profile of its out- leverage ratio (outstanding borrowings and guaran- standing debt. Fmally, IFC was able to generate a tees measured in relation to the sum of subscrbed modest profit through the debt repurchases. capital and retained earnings) wLas 1.7:1, the same as at the end of fiscal 1993; this was well withi the limit The Corporation subsequently announced its readi- of 4.01. These ratios convey the strong level of the ness to repurchase other outstanding debt on an Corporation's capital and reserves in relation to its ongoing basis, induding structured notes issued risk exposures and outstanding borrowings. under its Medium-Term Note (MTN) program. As these notes are often tailored to meet the financing FUNDING MANAGEMENT needs of a few investors, secondary mark-et liquidity IFC's borrowing activity increased significantly dur- can be lirnited. By standing ready to repurchase its ing fiscal 1994 to keep pace with the increase in its debt, the Corporation is addressing the liquidity con- lending activities. Total borrowings amounted to cerns of investors and enhancing the relative attrac- S1.65 billion, a considerable increase over the $133 tiveness of IFC as an issuer of structured debt. In billion borrowed during fiscal 1993. As in previous fiscal 1994 the Corporation repurchased $25 million years, the bulk of I[FCs borrowings-S l.47 billion- of commodity-linked notes issued under the MTN was raised in the international markets. The remain- program. All repurchased debt was retired and refi- ing S180 mllion was borrowed from the IBRD, with nanced through new market borrowiings during the which IFC has maintained a Master Loan Agreement. fiscal year. During fiscal 1994 IFC continued to pursue a diversi- IFCs Greek drachma issue was one of the first issues fied borrowing strategy, issuing bonds in six different in Greece's emerging capital market,and the sixteenth currencies-US. dollars, Hong Kong dollars, Italian different currency in which the Corporation has FINANCIAL REVIEW *16 borrowed. Through the Greek drachma issue, IFC continued its practice of borrowsing in emerging capi- tal markes thereby contributing to their develop- ment while at the same time helping to reduce the Corporation's overall borrowing coss IFC also con- tinued the warrants issuance program initiated in fiscal 1993, launching two issues of currency' war- rants, each of which had an underlving face value of S200 million. In fiscal 1994 the Board authorized a pilot program that will enable IFC to borrow and lend to clents in the currencies of up to three developing member countries. At the end of the fiscal year IFC was well advanced in establishing a medium-term note facilin, in Hungary underwhich it will be able to offer its cli- ents the abilt to borrow from IFC in Hungarian forinL All market borrowings during fiscal 1994 were swvapped into variable-rate US. dollars to find dient loans, which are predominantly denominated in that currency and interest rate basis. The sub-LIBOR cost achieved through these swaps, as well as profit gener- ated through the debt repurchase program and war- rants issuance, made significant contrbutions to lowering IFCls overall funding costs and to increasing IFCGs overall profitability for the year. In fiscal 1995 borrowings are expected to show further growth. to more than S2 bilion equivalent, reflecting the continued expansion of IFC's lending operations. FlNANCIAL REVIEW 17 THE PORTFOLIO J FC's committed portfolio at the end of fiscal compared with $15 billion in fiscal 1993. Loan com- 1994 amounted to £739 billion, of which mitments came to $1A billion, equity to $413 million $6A4 billion was in the form of loans and Neyw comnitments were concentrated in Latin Amer- S1.5 billion was in the form of equity invest- ica and the Caribbean (35 percent) and Asia (26 per- ments. In addition IFC held and managed for partici- cent). The sectors with the biggest volume of new pants £3.6 billion in loans it had syndicated. The commitments were capital markets, development following table presents the break-down of IFC's finance, and financial services (23 percent). and infra- portfolio at June 30, 1994: structure (12 percent). Commitments wvere made in Cape Verde, Estonia, Kazakbstan, Papua New Guinea, the Russian Federation, Ukraine, and Viet Nam, (mzlliows of U.S. dollars) countries in which IFC had not previously invested. Total committed portfblio for IFC's account 7,893 Loans 6,398 The total committed portfolio for IFC's owvn account Equity 1,495 increased by 11 percent to $7.9 billion at June 30, Total disbursed portfolio 6,180 1994, from S7.I binlion at the dose of fiscal 1993. The Total undisbursed portfolio 1,713 net increase of the committed portfolio was S761 mtl- Total committed portfolio hed lion after taking into account new commitments, forparticipants 3,619 repayments, sales, cancellations, pre-payments, Off balance sheet commitments 811 wTite-offs, and exchange adjustments. Loan repay- ments during the year came to S653 milion, and $91 million in equity investments were sold or Atyear-end lFs committed portfolio induded loans redeemed. During the year IFC added 152 companies and equity investments for 868 companies. Of these to the portfolio. Eighty-two companies were removed companies, 845 are located in 92 countries, 15 are from the portfolio because they repaid their loans or financial institutions whose operations are regional, IFC sold its equity holding or wrote off its loan or and 8 are hnancial institutions or investment funds equity investment whose scope is globaL. DISBURSEMENTS The acrrency breakdown of the disbursed loan port- The pace of disbursements was strong in fiscal 1994, folio at June 30, 1994, is shown in the Notes to the reflecting not only the record volume of new com- Financial Statements. Off balance sheet, IFC had mitments but also the large volume of commitments outstanding commitments of $811 rillion for pending disbursement at the end of fiscal 1993. Dis- guarantees, intermediary notional interest rate and bursements totaled $1 5 billion, up from $1.1 billion contractual currency swvaps, and other transaction in fiscal 1993. Loan disbursements grew to S 1.2 bil- amounts for 20 dients in 12 countries, lion, and equity disbursements were S319 nDllion, or 21 percent of total disbursements. IFC, as agent, also COMMITMENTS disbursed $671 milion on behalf of financial institu- The demand for IFC's financing remained strong in tions participating in IFC's syndicated loans. fiscal 1994, led by continuing economic reformis in Latin America and Asia as 'we as by the liberalization The total disbursed and outstanding portfolio for of the economies of Central and Eastem Europe. In IFC's own account increased by 14 percent, from addition the trend towvard privatization of state enter- S5A billion at June 30, 1993, to $62 billion at the prises continued in the developing world, as govern- end of fiscal 1994. The disbursed loan portfolio grew ments turned to privatization as a way of financing by 11 percent over the fiscal year, and the equity port- expansion and modmeization prograns in various folio by 28 percent industries and infrastructure services. PORTFOLIO MANAGEMENT Commitments reached record levcls in fiscal 1994. Portfolio quality remains strong overall IFC's New comnu :ments for the year totaled S1L8 billion, management continues to give a high priority to the THE PORTFOLIO 18 COMMnTrED PORTFOLIO, FY90-94 COMM1TTED PORTFOUO BY SECTOR (mnilions of U.& dollars) AT JUNE30, 1994 mwiwonsofU daffars) 12,000 Cea.ent and construction materials 5445 10,000 Capital mark, devdopment _______________ _ - finance finandal services Trnb, pulp, and paper 51,564 5477 slo_o r- Tourkumother S,OOO II 51_ S1,026 services [uf atucture . Tsm =toinotivetomoindustr, -S563 industrial equipment n_ _ _ _ _ =S765-E 1990 1991 1992 1993 1994 j - hg,~~~~~~rMn non-tfru metals iron, steel Chernicals,pt dincic%tls,nliers Held for others S72s -s694- IEC Total $7,893 supervision of investments. Portfolio supervision disbursed loan portfolio, from 8.6 percent at June 30, involves a number of key activities; monitoring of 1993, to 7.2 percent at June 30, 1994. Because of the compliance with investment agreements; regular vis- low interest rate environment prevailing during its to project sites; reporting on project status; and most of the year, however, the increase in interest intensive, case-by-case attention to problem projects- income was relatively modest despite the grovth The implementation of a new risk-management and of the disbursed loan portfolio and higher interest other information systms during the year has collection rate. enhanced IFC's supervisory role. Loan arrears were exacerbated by continued prob- Projects experiencing difficulties are assessed on a lems in sub-Saharan Africa and problem projects in case-by-case basis by the IFC investment departiunts Europe and Latin America. Sectors affected induded responsibl for them and, in selected cases, by IFCs food and agribusiness, tourism, and textiles. In the Special Operations Unit, to determine whether reme- former Yugoslav republics, litde progress can be made dial action is needed. Whem such action is needed, on improving loan performance until conditions are IFC negotiates agreements on burden-sharing that normalized. The problems faced in other countries are fair to all creditors and shareholders to enable the are being resolved on a case-by-case basis. project to continue while problems are being addressed. When the parties caxmot reach an under- The performance of the equity portfolio continued to standing, IFC will take any necessary and appropriate be strong During the year, capita gains of S241 mil- actions to protect its interests. lion were realized on 41 investments. The estimated fair value of IFCs equity investments increased. In fiscal 1994 trends in the loan portfolio indicators were positive overall. The interest collection rate The reserve against losses increased to S637 million in improved slightly. Principal outstanding on non- fiscal 1994, or 10.3 percent of the disbursed portfolio. accruing loans dropped as a percentage of the The increase in the reserve for losses was the net THE PORTFOUO 19 result of the $127 million taken in provisions, recoveries of $0.2 million, and write-offs of $53 mil- lion. The loss reserve comprises specific reserves for investments with significant and relatively permanent impainnent as well as a general reserve that covers risks inherent in the entire portfolio. THE PORTFOLIO 20 THE CLIMATE FOR PRIVATE INVESTMENT RECENT TRENDS addition Canada, Mexico, and the United States Global economic conditions remained generally slug- signed an agreement establishing the North Amneri- gish in 1993, with robust growth in some regions but can Free Trade Area, which will create a relatively very slowr or even negative growth in others. The open market in North America. This agreement growth rate for the industrial countries dropped, as a should significantly benefit all three countries. continuing modest expansion in North America was offset by recessions in both Westem Europe and The U.S. economic recovery, which began in late Japan. On the other hand, average annual growth of 1992, continued, but GDP grev at a much slower rate real GDP in the developing countries (excluding (2.8 percent) than in earlier recoveries. One conse- Central and Eastern Europe and the former Soviet quence of the growth in the United States was that the Union) was about 4.5 percent, once again demon- volume of imports rose 9.3 percent Import growth in strating that, economically, these countries are the United States is important to developing coun- becoming increasingly independent from conditions tries, particularly those exporting manufactured in the industrial countries. As with the industrial products. Three-quarters of U.S. imports from dvvel- countries, however, there was considerable disparity oping countries are manufacturs, a much higher in growth among developing countries. East Asia proportion than in either Europe or Japan. Thus, U.S. again led the way, with a 9-2 percent increase in real growth leads to better export prospects for poorer GDP, a figure heavily influenced by double-digit rates countries, especially in East Asia and Latin America. of growth in China. Output in Western Europe turned slightly negative in The past year was marked by several events that 1993. In all major countries except the United KCing- promise to have a positive effect on economic condi- dom, GDP fell, as a combination of anti-inflationary tions in many developing countries. Of primary polides put in place after German reunification, importance was agreement on most parts of the structural employment problems, and sluggish Uruguay Round negotiations conducted under the demand led to reduced output throughout the Euro- auspices of the General Agreement on Tariffs and pean Union. In contrast with the United States, Trade (GATr). Upon final approval by various par- imports dropped sharply in Europe; this drop had ticipating governments, the agreement wil reduce a strong impact on the continent's major trading barriers to trade even further, induding some barri- partners, which indude several developing countries. ers that affect developing countries (see box). In Moreover, possiblybecause Europe is rnore dependent GROSS DOMESTIC PRODUCa, GROWTH RATES, 1991-1993 1991 1992 1993 Rel Real per Real Real per Real Real per GDP capita GDP GDP capita GDP GDP capita GDP 'even major OECD countries 0.6 0.1 1.7 IA 1.3 1.1 Developing countries 02 (1.6) 0.3 (15) 2.1 0.2 Sub-Saharan Africa 1.5 (1.5) 1.2 (1.8) 1A (1.7) East Asia and Pacific 7.0 5.5 8.7 7.2 9.2 7.5 SouthAsia 2.0 (0.2) 4.6 2.5 3.8 1.8 Middle East and North Africa 3.1 (0.2) 4.0 1.1 1.9 (1.1) Europe and CentralAsia (9.3) (98) (12.7) (13.2) (7.4) (8.0) LatinAmericaand the Canbbean 3.4 1.6 2.8 1.0 3.5 1.6 Developing countries excluding Europe and Central Asia 4.1 2.0 3.6 1.7 4.5 2.9 THE CLtMATE FOR PRIVATE INVESTMENT 21 SHARE OF TOTAL EXPORT VOLUME BY DEVELOPING REGION, 1986-93 10% 41_ - Asia 896 _om, Latin America and Caribbean 6% - _ol Europe _ Middle Es 4% __ _ _:mand North Africa Sub-Sahaa Afiica 2%-_ 0% 1986 1987 1988 1989 1990 1991 1992 1993 than the United States on imports of industrial growth of China's GDP has averaged nearly 10 per- commodities, prices of many minerals and other cent annually. commodities remained at historically low levels. Increased exports ofsome of these commodities from Although it had the highest econonic growth rate the former Soviet republics exacerbated the problem. in the world, China was not the only Asian country to experience rapid expansion. Many of the countries Japan saw ersentially no growth in its GDP in 1993, of Southeast Asia enjoyed robust growth-for exam- for the first time in more than twvo decades. The ple, Indonesia (6.7 percent), Malaysia (8.5 percent), country has been plagued by a rising exchange rate, and Thailand (8.4 percent). All of the Southeast which has affected exports (measured in yen) in Asian countries began to confront infrastructure particular, and by adjustments necessitated by over- bottlenecl-s that will require significant investmnent in investment and asset price inflation. As a result of the the years to come. Infrastructure needs are increas- appreciation of the yen with respect to the U.S. dollar, ingly being met by the private sector, not only in however, the production of components in foreign Southeast Asia but in all Asian countries. countries-especially developing ones-has become more attractive, and Japan has witnessed an increase South Asia presented a mixed economic picture in in imports, including manufactured goods from 1993, with modest growth in India and Bangladesh, developing countries, and slower, declining growth in Pak-istan. India has embarked on a broad program of liberalization in As for the developing regions, the economies of both product and financial markets, which has Asia-especially East Asia-continued to expand already resulted in an expansion of exports and rapidly. China, by far the largest country in the increased foreign investment Pakistan's economy region, also had the fastest-growing economy, at a grew by 2.2 percent, in the face of severe flooding, rate of 13 percent in real terns, despite the Govern- falling cotton output, and political uncertainties. ment's efforts to slow growth. Foreign direct invest- Higher growth rates in Bangladesh in recent years are ment reached record proportions, as investors reacted due primarily to market-oriented improvements in positively to economic liberalization and the rapid the agricultural sector, rather than to increased expansion of the internal market Since 1980, the industrial output as in other South Asian countries. THE CLIMATE FOR PRIVATE INVESTMENT 27 In Latin America a positive annual growth rate for they are not yet complete in many countries, partly the third consecutive year (3.5 percent in 1993) bc=ause political instability continues to plague many caused per capita incomes to rise by 1.6 percent in countries, and-as a result-partly because business real terms in 1993. In most of the region, a combina- confidence has not had sufficient time to revive. tion of continued fiscal restraint and market liberal- Africa, therefore, remains the only developing region ization has raised the confidence of both domestic where public investment exceeds private investment, and foreign investors. Net capital inflows to the region increased, from an average of $8 billion annu- There are some bright spots in Africa, however. ally in the late 1980s to approximately $60 billion Ghana began an economic recovery program ten annually in 1992-1993. In contrast with earlier peri- years ago and, since that time, has achieved an aver- ods, most recent capital inflows have been in the form age growth rate of 5 percent, allowing per capita of foreign direct investment, other equity invest- incomes to rise by 2 percent annually. In Uganda ments, and bond financing. Today these forms of stronger growth has followed reforms that brought investment account for half of all flows to Latin inflation under control, freed prices and exchange America, up from only 16 percent in the mid-1980s. rates, and liberalized the trade regime. Mauritius's positive economic performance of recent years con- Growth in the larger countries was generally strong in tinued in 1993. Some other countries-Madagascar, 1993, with a few exceptions. Argentina, in the context Mozambique, Zimbabwe, for example-are also of Lontinued fiscal stringency and large capital attempting to move from centrally controlled infows, had a growth rate of 6 percent in 1993, economies to market-based ones, and economic slightly lower than in 1992. In Brazil GDP grew by improvement is anticipated as reforms go forward. 5.1 percent, but the country suffered from rampant Devaluation of the currency and th&implementation inflation and its fiscal deficit increased. GDP of complementary economic policies should lead to increased by 6 percent in Chile, and by more than better growth prospects in the CFA franc zone coun- 5 percent in Colombia. Although growth in Mexico tries, and the recent political transition in South slowed to 0.6 percent, the country concluded the far- Africa is a positive development that should contnb- reaching NAFTA accord and remained committed to ute to stability and growth throughout southern an economic structural adjustme't process begun in Africa. 1988. GDP dropped by 1 percent in Venezuela. Political instability is still hampering economic activ- After a decade of rapid growth, most Caribbean ity in a number of countries in sub-Saharan Africa, countries experienced a slowdown in 1993. However, however. Violence and massive movements of refu- the Dominican Republic and Jamaica continued gees are still unfortunate characteristics of life in to show gains. The Caribbean region in general some parts of the continent. Under such circum- improved fiscal performance through expenditure stances it clearly remains difficult, if not impossible, containment and privatization, and inflation contin- to bring to bear consistent policies that might make ued to be low. sustainable development possible for these countries and, often, their neighbors. Of all the developing regions, sub-Saharaii Africa is still the most dependent on commodity exports, The region of Central Asia, the Middle East, and whose prices are highlyvolatile. Economic growth for North Africa comprises an enormously varied group the region as a whole was about 1.4 percent, some- of countries, some of which have only recently joined what higher than in 1992, when a serious drought lFC. Growth in the Middle East and North Africa, devastated southern Africa, but only slightly outpac- at 1.9 percent, slowed from 1992 but is expected to ing population growth. Because economic growth recover somewhat in 1994. The new Central Asian has barely exceeded population growth for many republics are striving to achieve macroeconomic sta- years, Africans today are almost as poor as they were bility and to recover from a coUapsed trading system. 30 years ago. In an attempt to reverse this trend, most Although output was still flling in 1993, several African countries have embarked upon policy and countries in the region began to take steps to regain structural reform programs, seeking to create more stability and to attract foreign investors. stable macroeconomic conditions and develop more responsive and market-oriented policies. These Of the North African and Middle Eastern countries, reforms have had only modest success, partly because Morocco was the most successful in attracting outside THE CLIMATE FOR PRIVATE INVESTMENT - - .' F =- .-, -. : - , =; - , ,23,,---; GDP GROWTH RATES BY REGION, 1986-93 12% 9% _ EntAsia 6% - othi 3% - Lati America nd Caaibean, 0% - MiddklEaa and Koth -3% Africa -6% - Sub-&sh2n Africa -9% *~~~~~~~~~~ Juroand CnrlAsha -12% -15% 1986 L987 1988 1989 1990 1991 1992 1993 investment and seems poised for further growth in former Soviet Union, particularly Russia. Reforms in coming yeas, if current polcies are maintained and Russia have been slow. As a result, inflation has been a reforms continue. Morocco and Tunisia, which were major problem; the fiscal deficit remains huge. and both adversely affected in 1993 bya drought and production continues to fal. Even so, there are posi- a downturn in their primary export markets in tive signs-for example, more tan 8,500 large and Europe, still enjoyed positive growth. Egyptes reform medium-sized enterprises have already been priva- process is well under way. However, growth has been tized, and inflation abated in the spring of 1993. In slow, as in many countries undergoing structural several former Soviet republics, conditions were cha- adjustment. otic in 1993; in a few, armed conflicts ecacerbated economic difficulties. Incomes are still filling in The Central Asian Republics are going through a very nearly aU of the former Soviet republics. difficult period as they make the transition from cen- trally planned to market-based economies. The result Countries in Centrl and Eastern Europe have begun of this transition has been high inflation, large fiscal to reap the rewards of a difficult adjustnent process. deficits, and rapidly lalling production levels Even Both the Czech Republic and Poland enjoyed positive so, their rich resources and promising agricultural growth in 1993, and privatization efforts are moving sectors have made some of these countries quite ahead rapidly. Hungary, which has attracted more attractive to foreign investors. Kazakhstan, which foreign investment than any other country in the introduced its own currency and embarked upon a region, has unfortunately seen exports fall, and difficult stabilization program in 1993, drew about the Hungarian economy's growth was slightly nega- $300 million in foreign direct investment in energy tive in 1993. The economies of Albania and Romania projects, light industries, banks, and hotels. Other seem to be turning around; growth rates were posi- republics-for example, the Kyrgyz Republic and tive in 1993 thanks to the inaeases in output Uzbekistan-have also begun to create more stable achieved by new private firms. Reforms in Slovenia macroeconomic conditions. are also well under way. The economies of the three Baltic states-Estonia, Latvia, and Lithuania- All of these countries are likely to remain quite are depressed to different degrees, but the economies dependent on developments in other parts of the of Estonia and Latria have begun to turn around THE CLIMATE FOR PRIvATE INVESTMENT 24 PRIVATE INVESTMENT AS A PE RCENTAGE OF GDP, 1981-92 (simple averages) 25% - EatAsi 20% - Latin Ameca and Caribbea Middle East 15% _2 and North Afica 3 South Asia 10% c iiatm a N bwPIs ishria mt AefgwesftrSas5iih_ 5% - TurkryhisindaWinr -- sfardtcMkeAEast 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 -WnL*nh*r. and are attracting foreign investment. All tree Private investment in several other developing countnes have undertaken substantial ref countries, although not yet at these levels, also programs. expanded-fbr exmple, Argentina, Mexico, Morocco, Pakistan, the Philippines, Sri Lanka, PRIVATE INVESTMENT and Venezuela. Generally, private investment in TRENDS most of sub-Sahanrn Afica remained very low Data on private investment trends for developing relative to GDP, reflecting slowv economic progress countries exst only through 1992. In 1992 invest- and high investor uncertainty. ment continued a five-year upward trend that- reflected a number of related factors. economic liber- Some of the increase in private investment stems alization in an increasing number of countries, a -from the wave of privatization that has swept over renewed emphasis on private mark-ets in the provi- many developing countries. Recent years have seen sion of goods and services, and, not least, respectable a significant and continuing movement from state rates of economic growth in a number of developing control of production facilities to private ownership. countries. The expectation is that these trends wil The privatization movement has targeted not only continueand that the rate ofeconomic growth will be manufictuiuig plants but, even more important, higher in the developing countries than in the indus- activities ranging from financial services to infra- trial countries. The trends are dearly &vorable to pri- structure, induding electricity, communications, vate investors, who have responded positively. Data transportation, and port &cilities. Between 1988 for foreign direct investment (FDI) are available and 1992, governments of developing countries through 1993 and shov dvh -)I reached record realized more than $60 billion in revenues from levels in 1992 and 1993. the sale of state-owned assets. Most privatizations have occurred in latin America, but the trend is As in recent years, in 1992 private investment visible throughout the developing world: the Czech accounted for a much higher percetmage of gross Ripublic, Hungary, Malaysia, the Philippines, domestic product in East Asia than in any other Poland, Portugal. and Thailand are just a few of developing region; the ratio was particularly high the countries that have made significant progress in the Republic of Korea, Malaysia, and Thailand. in this area. THE CLIMATE FOR PRIVATE INVESTMENT -25 --- NET FDI FLOWS TO DEVELOPING REGIONS, 1981-93 (milios of US dolls) 50,000 40,000 *2Wd& Ea and Nor iAfica 30,000 U LAtn Aerica 30.000 m m ~~~~~~~~~~~~~~~~~~~~~~and Cribban S oaudt Asia 20,000 E*EAi. 10,000 Africa O ~~~~~~~~~~~~~~~~~~~~~~NotcPaanns 0 &thw n dabnr 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 fr SoxshAsi Privatization isbeingdriveti prinarilybytwo factors. INVESTMENT PROSPEC]7S IN DEVELOPING Firstj governments are finding that state-owned COUNTRIES enterpises are a drain on their fiscal accounts at The investnent outlook for developing countries a time when it is difficult to generate revenues. might be considered the most positive feature of the More important, the move to privatize is often global economy. These countries are expected to motivated by the realization that public sector grow faster than the industrial world for the foresee- companies are simply unable to provide many able f&ture, as they have in recent years. In act, types of sevices Efficient operations are rarely the although developing countries in 1993 represented main objective of state enterprises their costs are only about 15 percent of the world economy, they thus often uncompetitie, and they are slow to accounted for more than 40 percent of global GDP respond to changing markets and consumer desires. growth. Since new investment might bc expected to Although most funding to support privatization expand fastest where growth is most robust, the has come from local sources, during the 1988- recent pattern of very rapid growth in developing 1992 period foreign sources provided S 185 billion regions might be expected to continue unabated for -nearly a third of total financing-and foreign some time to come. direct investment accounted for $14.5 billion of this amount. In contrast, the economies of the industrial countries have been relatively sluggish. Although some FDI flows to developing countries have been soar- improvement is lildy beginning in 1994, the pace ing, despite a dedine in DI in the industr coun- of recovery is expected to be slower tha in past tries. Since 1985, FDI flows to developing countries recoveries. Growth prospects appear to be best in have increased at an average annual rate of about the United States, but only a moderate increase in 23 percent, and flows have been increasing even faster the growth rate is likely. The European economies, in recent years. FlD flows to developing countries which stalled in 1993, should begin to recover, but expanded from $8.5 billion in 1985 to $56 bilion the recovery wil probably be slow in comparison in 1993. Again, East Asia and Latin America were with past expansions. Many European countries far and away the largest recipients, accounting face daunting structural problems, particularly between them for more than 80 percent of the totaL in labor markets, and working out solutions will THE CLIMATE FOR PRIVATE INVESTMENT 26 THE URUGUAY. ROUND AND DEVELOPING COUNTRIES One of the defining events of 1993 was the successful conclusion of the Uruguay Round of the GAIT negotiations. Although several important maHers remain to be negotiated, the existing accord promises to introduce several new elements of interest to developing countries. In general the conclusion of the Uruguoy Round will greotly benefit both the industrial and the developing countries over the next ten years, as various provisions are iniroduced. But the effects are likely to be unevenly distributed among countries, and sorme potentially worthwhile changes are to be introduced so slowly that the possibility of delays beyond the decade cannot be entirely discounted. Tariffs, which for most industrial products are already quite low in industrial countries, and non-tariff barriers to trade are to be reduced even further. The main impact of these reductions is likely to be felt by two different groups of countries The first group, which will benefit, consists of countries in East Asia and, to a lesser extent, Latin America that already export manufoctured goods and will become more compebtiive as a result of lower tariffs. These export- ers, unlike many other developing countries, have not been dependent on special preferences to gain a foothold in morkets in the industrial countries. The second group consists of countries that have benefited from special preferences; lower tariffs will cause the value of preFerences to drop and these counbries will need to adopt to the new conditions. Another major change resubing from the Uruguay Round involves the industrial countries' agricultural subsidies, which are expected to drop 30 percent This change is likely to have a strong impact on competitive pro.ucers of temperate zone agricultural items in developing countries. For the most part, Latin America would benefit the most from falling subsidies. With some exceptions in the Caribbean, tropical exporters would be litde affected, since trade barriers were low prior to the GAIT negotictions However, countries that were recipients of subsidized food exports from the industrial regions will see the cost oF food imports rise as subsidies are phased out. One potentially very important part of the GATr accord is the ten-year phase-out of the Multfiber Arrangement If the phase-out occurs according to schedule, textile and apparel production will be reallocated globally based on countries' comparative advantages in the industry. Although it is difficult to sort out a priori just where production would be sited in a more open global market, adjustment difficulties might be anticipated For countries that are now producers bosed solely on the avoilability of quotas in the United States and Europe. In any event, the implemento- tion schedule for this provision is heavily weighted toward the end of the decade; this could result in further delays as the deadline approaches. Nonetheless, the in;lusion oF textiles in the accord represents a major victory for devel- oping countries and for consumers in the industrial countries. Developing countries themselves mode some noteworthy commitments in the Uruguay Round. Most important, export subsidies are to be reduced significantly, as are trade-distorting investment measures Ifor example, local content requirements and trade balancing). Importont concessions were also made in the protection of intellectual property, and over 70 developing countries mode commitments in services. SerWices, it might be noted, were included in GAIT negotiations for the first time; Finai agreement on a number of sensitive issues in services has yet to occur and negotiations continue. TIHE CLMATE FOR PRIVATE INVESTMENT 27 tak-e some time. Recovery in Japan is also likely to Uruguay, is scheduled to take effect in 1995. Since this be slow. accord was announced, Brazil's trade with Argentina has more than doubled. Foreign direct investment Thus, most economic forecasters agree that the aver- flows betwveen countries in Latin America have also age annual growth of real GDP in the industrial been rising. Intra-regional trade and trade with coun- countries will be significantly lower in the next tries outside the region have both increased, forcing few years than it was during the past 20 years. companies to become more efficient and competitive. Although lower growth rates will have a negative effict on exports from developing countries, this is The economies in Latin America and the Caribbean expected to be offset by other developments in the are performing considerably better than during the world economy. First, despite recent increases in 1980ss Private firrns in Argentina, Chile, and Mexico interest rates in the United States, real interest rates have been increasingly successful in raising capital on are expected to remain low worldwide, partly reflect- international financial markets, and companies from ing the slowver pace of economic activity in the indus- other countries are expected to gain access to the trial countries. Second, private capital flows to markets in the next fev vears. Countries in the region developing countries should continue at the brisk are confronting the problems of poverty, lack of edu- rate of the early 1990s, as companies allocate more cation, and inadequate infrastructure. The outlook investments to areas with higher anticipated growth for Latin America is more hopefu nowz than it has rates. Third, completion of the Uruguay Round is been for a long time. expected to accelerate the growth of wvorld trade. And, fourth, commodity prices should first stabilize Civil strife and low levels of physical capital and and then begin a slow recoverv as economic activity human skills are still problems in parts of sub- picks up slowly in Europe and Japam Saharan Africa. Africa's dependency on commodity exports will be a decsive element in its growth pros- South and Southeast Asia are likely to continue to be pects. If commodity prices continue to rise, the past the mos rapidly growing regions in the developing decade's experience with negative per capita income world. All of the major South Asian countries have growth should start to be reversed. This is particu- been hlberalizing their economies; reforms should larly true if African countries can sustain macro- result in higher growth rates for the next few years- economic reforms and if the public sector's domi- especially in Bangladesh, India, and Sri Lanka-and, nance can be lessened. consequently; in enhanced investment prospects for both domestic and international businesses. East Much of southern Africa's very tentative economic Asia, the fastest-growing developing region for at rebound, howevei will depend on events in South least two decades, promises to continue in that role, Africa. South Africa, which has a much larger economy led by China. Intra-regional trade and investment than other sub-Saharan countries, could be an effec- have been accelerating and should help sustain tiveengine for rgional growsth. Ifthe political outlook growth of past leaders as well-namely, Indonesia, in South Africa remains positive, investment flows Malaysia, and Thaland. The Philippines, which in should revive, not only to South Africa but to the region the past has been hampered by hesitant and some- as a whole, resulting in better growth prospects for all times contradictory economic policies, is likely to see countries. On the other hand, poliqc reversals of the a faster rate of expansion in the next few years than it type that have recendy been seen in Nigeria tend to has in the recent past. discourage investors from making long-term com- mitments It is heartening to note that several ne w The approval of NAFTA should give a big push to investment funds specializing in Africa have been trade alliances that have been springing up through- established recently-induding two set up by IFC- out Latin America The G-3 treaty recently signed by demonstrating that private investors art beginning to Colombia, Mexico, and Venezuela will talke on greater see Africa!s growth potential, despite the risks. significance as a result of NAFTA. Since the treaty took effect, trade between Colombia and Venezuela In the Middle East and North Africa, improved has tripled; these two countries have also agreed to a peace prospects increase the likelihood of continued free trade arrangement with Bolivia and Ecuador, to recovery. Jordan, Lebanon, and the Syrian Arab takle effect before the end of 1995. The Mercosur Republic, in particular, should benefit from an easing agreement, signed byArgentina, Brazil, Paraguay, and of tensions. There are signs that Eyt's economy THE CLIUMATE FOR PRIVATE INVESTMENT 28 is beginning to recover from a recession brought about by the first stages of the country's economic reform program. Morocco and Tunisia have under- taken structural reforms and are attempting to build more effective relationships with the European Union. As these relationships deepen and as Europe begins its recovery, both countries should benefit The Central Asian Republics of the former Soviet Union still present a difficult environment for business operations. While growth in the region is not expected in 1994, some indications of a bottoming-out are evident, and foreign investors have shown interest in some of the new countries, despite the uncertainties. In Kazakhstan, for example, foreign investment agreements totaling $3 bilion over the next fourvyears have either been conduded or are well advanced In the region as a whole, how- ever, reconstructing economies will requZre unusual pefsistence and policy steadiness, and the process will be difficulL Investors in such drcumstancs .ill find both opportunities and much uncertainty. The same observation might be made for Russia, the European republics of the former Soviet Union, ard the Central and Eastern European countries that for- merly had command economies. As noted, however, reforms and privatizations in several countries are sufficiently far along that there has been a renewal of growth, and private inestors are responding. Even in the face of recession in Western Europe, foreign investments continue at well over $1 billion annually in the Czech Republic and Hungary, for example, and are increasing rapidly in Poland. The economic future for most of these countries remains uncertain and will depend on the speed and efficacywith which reforms are carried out THE CLIMATE FORPIRIVATE INVESTMENT 29 REGIONAL REPORTS SUB-SAHARAN AFRICA f1irwgla a credit line to Industrial PrumotirinServices rlenya) Lrd. .-. - IFC has indirectly prmidJinance to a numberofsmnai! - - mid mned iun-sLd Kenyan emcprises such as rigo!wn wvicidprocese and atisgremn beans and bnssdsprvuts prinarilyforexpar to Europe. T > he investment climate in sub-Saharan will indude developing and strengthening manage- Africa remains challenging despite some ment information systems and helping to identify improvements. Private investment, both solutions to production and marketing problems. As domestic and foreign, is still low. In this IFC will rely heavily on local consultants to provide context IFC's strategy in the region has four compo- ESSAs services, ESSA will hdp strengthen domestic nents: promotion of small businesses; capital mariet technical capacity. Initially ESSA will be launched on development; financing of projects in manufacturing, a pilot basis in Ghana and will rely on donor funding, infrastructure, and natural resource-based industries; but it is expected to recover a large part of its costs by and advisory services and technical assistance for charging fese IFCs second initiative will make financ- governments and businesses. ing available to microenterprises that are too small for financing by the Africa Enterprise Fund (AEF). In light of the small size of most African economies, the preponderance of small and medium-sized enter- AEF, established in 1989, is a vehicle for financing prises, and the essential role these enterprises play in small and medium-sized projects with costs between economic development, IFC has set up several special $250,000 and $5 million. AEFs loans and invest- financing and technical assistance programs forsmall ments, typically ranging between S100,000 and businesses. In fiscal 1994 IFC began to develop two St million, are processed in Africa under the super- new initiatives in fhvor of small and medium-sized vision of IFC's Regional and Resident Representa- enterprises-the Enterprise Support Service for Africa tives. About half of all projects approved by IFC (ESSA) and a lending program for microenterprises-- in sub-Saharan Africa are financed by AEE IFC both of which are expected to be launched early in also finances smaller African companies indirecly fiscal 1995. ESSA will address a critical gap by provid- through credit lines to financial intermediaries and ing post-investment operational advice. Its services venture capital funds. SUB-SAHARAN AFRICA 30 Another program of assistance for African entrepre- The number of projects approved in Africa by IFC neurs is the Africa Project Development Facility reflects the Corporation's commitment to the region: (APDF), established in 1986 by IFCl UNDP, and the of the 231 projects approved by IFC worldwide in African Development Bank, and managed by IFC. fiscal 1994, one-fourth are in sub-Saharan Africa. APDF's activities are descnbed on pages 34-35. In keeping with IFC's goal of fostering the develop- To alleviate the shortage of well-trained and experi- ment of small businesses in the region, more than enced managers in sub-Saharan Africa, the Corpora- half of the projects for which IFC approved financing tion helped launch the African Management Services were small or medium-sized and were financed Company (AMSCO) in 1989, also in collaboration through AEF In fiscal ' 994 AEF projects accounted with UNDP and the African Development Bank. for $19 mtllion-S 18.5 million in loans and guaran- AMSCO is descnrbed on page 36. tees and $0.5 million in equity and quasi-equity-for 33 projects in 15 countries. This brings total financ- IFC coordinates its private sector development activi- ing approved for AEF projects since AEFs inception ties in sub-Saharan Africa with the [BRD. IFC and the to $61 million for 109 projects in 24 countries. IBRD have jointly produced private sector assessments for all the large countries in the region. In fiscal 1994 The African companies for which IFC approved IFC and the IBRD began work on private sector assess- financing were active in a variety of sectors, induding ments for Cameroon, The Gambia, and Mozambique. oil and gas, telecommunications, agribusiness, A second area of cooperation is financial sector devel- cement and construction materials, tourism, andI opment, where IEC and the IBRD work- together to manufacturing. IFC approved financing for its first improve the legal and regulatory frameworL Finally, project in the health care sector in sub-Saharan IFC maintains a dialogue with the IBRD on private Africa, the construction of a diagnostic center in sector issues in the context of country assistnce Nigeria. In the oil and gas sector, IFC approved a loan strategies and Consultative Group meetings. of up to $105 milion, of which S65 infllion wil be syndicated, for Pecten Gameroon Company, to help PROJECT FINANCING AND RESOURCE finance a program to improve recovery of oil from MOBILIZATION offshore fields and increase production. In the tele- In fiscal 1994 IFC approved 57 projects (induding communications sector, lFC is financing a project by AEF projects) in 22 countries in sub-Saharan Africa, compared with 45 projects in 18 countries in fiscal 1993. At June 30,1994, the Corporation's committed FNANCING APPROVED, FY90-94 portfolio induded loans and investments for 191 (mffionsof USi ddmars) companies in 31 countries, compared with 166 com- 5W3 panies in 32 countries at June 30, 1993. 400 i FY94 FY93 - t~~~~~~~~~~mili;omsf US Jo&sjs Financing approved for IFC's account 157 193 300 - _ ___ Loans and guarantees 142 155 Equity and quasi-equity i5 38 J Hi- Die mobHization 69 68 200** Loan syndications 69 68 Undenrriting - - I'll Total financingapproved 226 261 100..; ; Committed portfolio forIFC's account 813 847 I I I , Loans 727 764 O_0- - -- _ - Equity 86 83 1990 1991 1992 1993 1994 Committed portfolio hed for others 341 418 Syndications and underwriting (loan participations) * Financing for IFC's own account Total committed portfolio 1,154 1,265 SU B-SAIIARAN AFRICA 31 THE ESTABUSH-MEN OF THE ZAMBIAN STOCK MARKET in February 1993 the Govemment oF Zambia, in conjunction with the IBRD, requested IFC's 'assistonce in the establishment of a stock market in Lasaka. The project was funded through a World Bank Technical Assistance Loon to Zambia. IFC helped the Government of Zambia to acrete, in oly/ ten months, the Foundations for a functioning securities market-on entire body of securties laws and regulations, a securities regulatory agency, ond the Lusoka Stock Exchange. The regulatory regime took effect at the end of 1993, and the stock exchange unoffidcaly began operations in February 1994. The regulatory regime is tailored to Zambia's needs and provides bosic protection to investors wihout stifling the market. The stock exchange is small and basic (it has a staff of four, as does the regulatory agency), but can be easily upgraded if trading volume expands (there is an automated trading system as well as a central depository). One of the oblectives in creaofing the stock exchange was to make possible the issuance of shores in 15-25 parastotals slated for privatization. Six companies are already being iraded. Clovergem Celte Ltd., a Ugandan company that diversification of finandal services available in a plans to install and operate a national cellular tele- number of countries-it financed the establishment phone network of Malawi's first merchant bank, Kenas first private reinsurance company, and the only leasing compa- One ofthe agribusiness companies in sub-Saharan nies in Benin and Senegal. It also helped set up ven- Africa for which IFC approved financing in fiscal ture capital finds thatwill attrac foreign portfolio 1994, Pescanova Holdings of Namibia Ltd., is invstment to the region. One of the ftnds will in- increasing its fish-processing and storage f&cllities vest in companies in the export-processing zone of and converting fish trawlers into factory ships. Madagascar; another will provide ventire capital Another, lterfresh (Private) Ltd, a producer of in Mauritius. In Tanzania IFC helped create a coin- firsh fruits and vegetables in Zinbabwe, is expanding mercia! bank specialzed in financing international its facilities. trade and the countryls first leasing company. IFC also approved financing for cement projects in TECHNICAL ASSISANCE AND ADVISORY Ghana, Guinea, and Madagascar; hotels in Ghana, SERVICES Kenya, Mali, Mauritius, Tanzania, Uganda, and APDF and AMSCO, two programs that provide Zimbabwe; a paper mill in Kenya; and projects in technical assistance and advisory services to Afiican general manufacturing in a number of countries- businesses, are descnibed in detail on pages 34-36. In for example, padcaging materials in C6te dlIvoire, addition the Corporation provides substantial advice Ghana, Tanzania, and Uganda. in connection with matters such as project appraisal and structuring and debt mobilization, either on a fee In support of capital market development in sub- basis or in conjunction with an IFC investnenL Saharan Africa, IF continued to provide loans and equity investments for leasing and insurance compa- IFC has been particularly active in providing techni- nies, as well as for merchant and commercial banks. cal assistance and advisory services in connection In fiscal 1994 IFC contributed to the broadening and with capital market development in the region. The SUB-SAHARAN AFRICA .32 Corporation has provided advice on the establish- Software developed by FIAS for tracking foreign ment of a stock market in Zambia and is continuing investment has been installed in an investment pro- to assist in the creation of a regional securities market motion agency in Malawi. In conjunction wiith the for the countries belonging to the West African Multilateral Investment Guarantee Agency, FIAS Monetary Union. It is also providing advice on the sponsored a series of workshops on deregulation for creation of an over-the-ounter mechanism in four African countries: Benin, C6te d'Ivoire, Ghana, The Gambia and the modernization of the stock and Senegal. At these meetings, high-ranking govern- exchanges of Ghana, Mauritius, and Zimbabwe. The ment officials from developing countries where Governments of Malawi and Swaziland are receiving deregulation has been successfully implemented to advice on developing securities markets, and IFC promote private investment discussed the reasons for advised Mozambique, Tanzania, and the countries their success and the problems encountered. The aim of the West African Monetary Union on leasing regu- is to help other African countries inplement their lations. In Zimbabwe the Corporation is helping to o wn deregulation programs. formulate a unit trust law and regulations for non- bank financial institutions. It is also conducting a fea- sibility study on a venture capital fund for Kenya, Tanzania, and Uganda Several member governments sought IFC advice on the resructuring and divesiture of public enter- prises. In Zimbabwe IFC has evaluated the commer- cial viability of Affretair the only scheduled cargo airline in southem Africa, and is advising the Government on its strategic options, induding privatization. IFC has also been asked to assist in the restructuring of Kenya Airways' ownermhip, induding the introduction of a strategic partner and divestiture. In Tanzania IFC is supporting the Government's efforts to develop a privately owned and operated national data comunications networlq a study is being financed through IFC's Technical Assistance Trust Funds Program. If such a network should prove commercially viable, [FC wil help set it up and finance it. IFC has also provided advice on financial and opera- tional rmmcturing to private businesses In Nigeria the Corporation is helping United Africa Company Nigera to review its operations, reorient its business lines, and attract joint venture partners IFC is also helping to arrange debt financing of $2.5 billion for Nigeria LNG Ltd., to help finance a proposed lique- fied natural gas export scheme. During fiscal 1994 the Foreign Investment Advisory Service (PIAS) carried out a diagnostic study of the investment environment in Swaziland and provided assitance on institutional development to investment promotion agencies in Ghana, Mozambique, and Zimbabwe. A diagnostic review of the incentive framework was conducted in SenegaL SUB-SAHARAN AFImC: 33 THE AFRICA PROJECr DEVELOPMENT FACILrrY APDF, which has offices in Abidjon, Accro, Douala, Harare, and Nairobi, was estabbished in 1 9B6 to provide advice to African entrepreneurs seeking lo expand or modemize their businesses or start new ones. APDF normally supports projects with investment costs ranging between $250,000 and $7 million, olhough it moy consider bigger or smeller projects that are likely to hove a significant economic impact. APDF provides technical assistance to clients in the preparation of bankable investment proposals. It also helps them find local and foreign financial and technical partners, raise debt and equily financing, and negotiate equitoble financing terms. In addition APDF advises African entrepreneurs interested in buying local companies from foreign shareholders or stote enterprises sloted for privati- zotion. Although APDF does not provide proje t financing, it may finance port of the cost' of market and feasibility studies- During the yeor ended December 31, 1Q953, APDF helped raise financing of $21.2 million for 33 projects with estimated totol investment costs of $36.6 million. These projects are expected to result in the creation of more than 1,700 new jobs and have an annual foreign exchange impact of $21.9 million. From its founding in 1986 to December 31, 1993, APDF assisted a total of 163 projects with total esmakted costs of $270 million, of which APDF helped raise $188 million in loans and equity. The 163 projects are expected to result in the creation of more than 14,000 jobs and will generate estimated onnual foreign exchange eamings or savings of $96 million. APDF is a UNDP project managed by IFC, the executing agency; the African Development Bank is the regional spon- sor. Funding for APDF's operations is provided by UNDP, IFC, the African Development Bank, and the governments oF 15 industrial countries. In addition, Brazil, Israel, and the Export-Import Bank oF India provide technical experts for shoterm use by APDF During fiscal 1994 the Government of Denmark established a Irust fund with an inifial grant contribution of Danish kroner 14 million (approximately $2 million) to finance the cost oF consultants worldng on APDF prolects in eight countries. APDF's managemnent is assisted by an advisory board composed of senior representatives from the three sponsoring agencies and business leaders from AFrica and the donor countries. EXMPLES OF APDF PROJECTS Angola APDF advised Angofrongos, Wa, a poullry producer, on a tophose project. During the first phase, the company will begin producing poultry meat, and it expects to produce 630 tons per year at full capocity; during the second, it will double its annual production oF eggs, from 2.5 million to 4.9 million. The expansion of the company will result in the creation of 60 jobs, and local skills will be developed with the support of a foreign technical partner. Cameroon SOCIAA, which imports and distributes frozen fish, received APDF advice on the creation of a Fleet of industrial fish- ing boats that will enable it to export shrimp and fin-fish to Westem Europe. A small part of SOCLAAs catch will be sold locally. Installation oF the fleet vwill create 84 permanent jobs, and hcird currency eamings are expected to be - bout$2.9 million onnually. SUB-SAHAIA AFRICA 34 Cote d'Woire Lobotec, a new company set up wilh APDF's advice, will perform chemical and bacteriologicol analyses. The company's main clienis are expected to be SIR, the local oil refinery, and mulfinational petroleum companies that are marketing lubricating products mixed locally. At capacity, the company is expected to analyze about 16,000 somples annually; 16 new jobs will be created. Ghana APDF provided advice to BMK, a wood-processing plant that is diversifying into the manufacture of porticlebord. BMK is located in Takoradi, Ghana's mojor timber port, and feedstock for the plant will be waste wood from sawmill- ing operafions in Talkorodi. Much of this waste is currendy being bumed, posing an environmental hazard. Annual production is expected to be 16,000 cubic meters. Madagascar Martin Pdcheurs received APDF advice on the expansion of its copocity to harvest and collect gelidium seoweed, from 200 tons to 600 tons per year. The project will generate about $500,000 annually in foreign exchange from gelidium exports and create 35 fulWlime jobs. Its economic impact wifl be felt in the 50 villages localed on the 200-kilometer coosdine between Fort Dauphin and Cap Faux, many of whose 3,000 inhabitants will be involved in seaweed collection. Seaweed harvesting will offer these communities an alternative economic adcivity to lobster fishing, which has an inactive season from November to January. Seaweed collection is done largely by women. Tanzania APDF has provided advice on the firt phae of a venture to set up a light aircraft passenger service, Precision Air Services. The new company will be the Frst to provide scheduled passenger services from Arusha to destinations on Tanzania's northern tourist circuit, in addition to charter services. During this phose the company will buy one 7-seater and one 1 0-seater aircraft. The company will expand as it gains market share and operating experience. About 15 permanent jobs will be created. Zimbabwe APDF provided advice on the expansion and rationalization of Shamu Pen-rp Company (PN Lid., a manufacturer of ballpoint pens, brass boll pen-tips, plastic adopters, and ref;i!s. The company will be manufacturing a value-added product from brass, while eaming foreign exchange.of approxirnately $200,000 per year fromn exports and provid- ing economic benefits to the rural area in which it is located. SUB-SAHARAN AiRCA. 35 AFRICAN MANAGEMENT SERVICES COMPANY AMSCO, a compony incorporated in the Netherlandds, was founded in May 1989 to carry out the activities of the AFrican lroining and Monagement Services project, a joint initiotive by IFC, UNDP, and the African Development Bonk. AMSCO's main objective is to help rehobilitate ailing companies in subSahoran Africa and create a pool of well-quolified African managers. It thus contributes to the development oF locally managed businesses that are profit- able, competitive, self-sufFicient, and integrated into the international business community. AMSCO provides its client companies with experienced business executifes under secondment arrangements. At the some time, it trains the staff and manogers of these companies so ihat they can take over when the seconded executives' terms expire. AMSCO is supported by its three sponsors and the governments of 11 countries. About 70 percent of its share capital is held by IFC, the African Development Bank, and bilateral agencies from seven industrial countries. The remaining 30 percent is held by more than 50 international private companies with business experience in Africa. In addition UNDP and the donor governments provide grant funding For a Management Loan Fund and a Management Development Fund. The Management Loan Fund pays for loans to companies that have management services con- tracis with AMSCO but lack the foreign currency to cover expenses incurred under the contract. The Management Development Fund finances part of the cost of training local staff and managers. During calendar year 1993 AMSCO signed monagement contracts with 13 companies located in 10 countries in sub-Sharan Africa. By the end of 1993 AMSCO had management contracts with 25 companies located in 15 countries; 51 business executves hod been seconded to these componies. From May 1989 to December 31, 1993, $8.9 million in loans from the Management Loan Fund and $3]1 million in training grants from the Management Development Fund were granted to African componies. SUB-SAHARAN AFRICA 36 PROJECTS APPROVED IN FISCAL 1994 SUB-SAHARAN AFRICA FINANCING (tiiltioios of U.S. giollar) PROJECT DESCRIPTION TYPE TOTAL Benin Equipbail will be the first leasing company established in Benin and will lease Loan 0.7 capital equipment to small and medium-sized companies. Project cost: Equity 0.2 0.9 $1.9 million. Burkina Faso Societe Africaine pour le Commerce et l'Industrie will establish a plant that Guarantee 0.6 0.6 will use locally produced ethyl alcohol to produce 820,000 liters of vinegar annually. Project cost $1.7 million. (AEF) Cameroon Pecten Cameroon Company will improve recovery and extend the produc- Loan 40.0 tion of oil from the Rio Del Rey and Lokele offshore oil fields. Project cost: Syndications 65.0 105.0 $135.0 million. Societe de Production, de Collecte, de Transfonnation et de Loan 1.0 1.0 Conditionnement de Ligunes au Cameroun will establish a 120-hectare farm to produce and process fresh and frozen beans for export to Europe. Project cost $3.7 million. (AEF) United Transport Cameroon, the largest long-haul trucking company in Loan 1.1 1.1 Cameroon, will buy new tractors 0nd trailers. Project cost $4A million. (AEF) C6te d'Ivoire IFCs loan facility will help Banque Atlantique C6te d'Ivoire fund its trade Loan 5.3 5.3 finance and term loan operations. Project cost $7.5 million. Fan Milk-a will establish a factory with an annual capacity of 3.6 million Guarantee 0.3 0.3 liters to produce yogurt, ice cream, and other products from imported milk powder and other reconstituted raw materials. Project cost $1.0 million. (AEF) Filtisac S.A, the country's largest producer of jute and polypropylene bags, Loan 1.1 1.1 is undertaldng a modernization and rehabilitation program to increase production and efficiency. Project cost $10.8 million. Multi-produits, the fourth largest distributor of food and household products Loan 0.4 OA in C6te d'Ivoire, will complete a diversification, modernization, and expan- sion program Project cost $4.4 million. (AEF) Gambia,The Lyefish Company Limited will replace its seafood processing facility to meet Loan 0.4 0.4 the qualityand hygiene standards requiredbythe EC, it! main market Project cost: $0.9 million. (AEF) Ghana Alugan Company Limited* will restructure its activities and finances as it Loan 0.1 0.1 completes its expansion program and establishes a slitting, rollforming, and louvre manufacturing facuity. Project cost $1.6 mllion. (AEF) Ghacem Ltd. will expand its clinker grinding capadty by adding a Loan 3.0 3.0 cement grinding mill with an annual capadty of 300,000 tons. Project cost: $7.0 million. Palm RoyalApartment Hotel CDmpany Limited plans to build an apartment Loan 1.0 1.0 hotel in Accra consisting of 40 self-contained units. Project cost; S4.1 milion. (AEF) SUB-SAHARAK AFRICA 37 PROJECTS APPROVED IN FISCAL 1994 SUB-SAHARAN AFRICA comdnicd FINANCING (familions of U.S. iln/Jars) PROJECT DESCRIPTION 7YPE TOTAL Ghana Shangri-La Hotel,which has the highest occupancy rate in Accra,*will expand, Loan 0.3 0.3 coitinueal modernize, and improve its facilities. Project cost $0-6 million. (AEF) Top Packaging Limited will increase its production capacity and recyde its Loan 0.9 0.9 plastic waste. Project cost: $23 million. (AEF) Guinea Ciments de Guine will build and install a silo and a packing house for Loan 1.5 1.5 the storage, packing, and distribution of imported bulk cement. Project cost: $7.9 million. Guinea Bissau AGRIBISSAU SARL will establish a 1,500-hectare farm to produce raw Loan 0.8 cashew nuts, ma