The International Finance Corporation (IFC) is planning to increase its investments in the Middle East and Africa region during its 2021 fiscal year to support private sector projects amid a weaker economic environment resulting from the Covid-19 pandemic and lower oil prices.
The corporation, a part of the World Bank Group, invested more than $5.6 billion in the region during its 2020 financial year, which ended on June 30. Vice president Sérgio Pimenta did not give a figure for 2021 but said it would be higher than last year.
“We believe that there is really more we can do this fiscal year in the context of the (pandemic) crisis response by bringing both financing and advisory work to help the economies be resilient and rebuild after the crisis,” Sérgio Pimenta, IFC vice president for the Middle East and Africa, said in an interview with The National.
The IFC is a development finance institution whose mission is to bridge funding gaps in emerging economies by providing finance to projects that might otherwise not be able to secure it, unlocking further private sector investment.
The Washington-based institute invested $4.6bn in Sub-Saharan Africa in its most recent fiscal year, exceeding the $4.1bn invested in 2019. In the Middle East and North Africa, the total investment in its 2020 fiscal year reached more than $1bn.
“We have a very solid pipeline for this year and we are looking at instruments in terms of crisis response and in terms of helping projects that will have an impact on SMEs (small and medium enterprises), including job creation or some of the areas such as climate change and water that are very sensitive in the region,” he said. “We also have a pipeline of projects with a long-term perspective with the vision of helping on the infrastructure side, on the manufacturing side.”
The world economy is set to slide into the deepest recession since the Great Depression, with the International Monetary Fund projecting a 4.9 per cent contraction this year and a sluggish recovery in 2021.
The economies of the Middle East and Central Asian countries are projected to shrink by an average of 4.7 per cent, according to the fund.
The IFC has put together a strategy to deal with the crisis that includes providing “immediate and urgent” help for private sector companies hurt by the economic downturn caused by the spread of Covid-19, Mr Pimenta said. As part of its phase one strategy, the IFC is providing an $8bn fast track finance facility to various companies across the globe with “a good part” of that total being deployed in the Middle East and Africa region.
“Beyond that, we have a phase two of restructuring and phase three of recovery. Restructuring is very much around making sure that markets in Mena are resilient and that we help them not be destroyed by what is happening. And the third phase of recovery, which is a long-term phase, is really how you build the future and the new world that comes out of the crisis.”
The IFC is also strengthening its operations in the region, opening new offices and hiring more people as a response to the crisis, Mr Pimenta added.
Covid-19 may “speed up plans for much-needed reforms, especially those related to diversifying economies away from oil and taking the necessary steps to increase private sector participation as [the] fiscal space gets tighter,” he said.
“For us, this means IFC’s role is more important than ever. We are responding by growing our team in the region and launching new initiatives, for example, what we call ‘upstream’, where we will work with governments and the private sector in priority sectors to create new projects and crowd in more private investment.”
Infrastructure, health, education and manufacturing are some of the sectors Mr Pimenta identified as attracting private sector support during the current fiscal year. It is also looking to increase investments in technology, including e-commerce and other digital services.
“This is a sector [where] I believe Mena has a strong competitive advantage in the sense that they have young population with skills in this sector. This is an area where we will do more in years to come.”
IFC has already made a number of technology investments in recent years to help grow the ecosystem. It put in $10 million in Algebra Ventures, one of Egypt’s largest venture capital funds and invested in Flat6Labs Tunis, a $10m accelerator and early-stage VC fund aiming to catalyse the growth of Tunisian start-ups and increase the pipeline of female entrepreneurs.
Egypt is the largest market for IFC in the Mena region. Over the past decade, it invested and mobilised nearly $4bn across different sectors of the Egyptian economy. In Jordan, the IFC has invested $1.4bn in different projects in the past five years. It also signed two major deals in Iraq last year, including an investment of $26m in a new hospital in Erbil and $10m for the National Bank of Iraq to increase access to finance for smaller businesses.
Updated: October 6, 2020 11:09 AM