Devex Invested: IDB Invest doubles down on mobilizing private dollars

IDB Invest, the private sector arm of the Inter-American Development Bank, had a banner year in 2021, hitting a 1-to-1 mobilization ratio for its long-term investments. That means for every dollar that IDB Invest put into a deal, a private investor matched it. That’s notable because DFIs have often been criticized for their inability to mobilize private capital, despite that being a key part of their mandates.

I spoke with IDB Invest CEO James Scriven, who says the institution is doubling down on transforming itself to focus on mobilization instead of just investing its own capital.

• IDB Invest mobilized more than $3 billion from the private sector in 2021, despite foreign direct investment in the Latin American and Caribbean region dropping about 45%, Scriven tells me.

• In the year ahead, the organization will develop new instruments — such as subordinated debt or equity — to de-risk investments and will deepen internal incentives, including staff compensation and how the board evaluates the institution’s progress. Its goal is to play a key role in deal structuring, focusing just as much on the money it mobilizes as it does on the money it invests.

• “We feel that we're creating a new development model — what we call IDB Invest 2.0,” Scriven says. “It's a model of channeling international and local impact investors in our region through us. And that is an entire mindset. We’re probably one-third of the way there, but it’s my idea for the entire business to shift to this.”

• He’s realistic about the new model requiring IDB Invest to take more risk, and that’s why one of the agenda items for the annual meeting starting next month is the amount of capital that IDB Invest would need to make this shift. More ambitious mobilization targets — “multiples” greater than what it achieved in 2021 — are also expected, he says.

Devex Pro on 'IDB Invest 2.0': The strategy that centers on mobilization of private capital 

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Africa’s infrastructure funders

In 2015, multilateral development banks spoke about moving from “billions to trillions” in development financing. But MDB finance for infrastructure hasn’t changed much since then, according to a Center for Global Development study. Here are some numbers representing its other findings:

$9 billion — The average annual figure for sub-Saharan Africa’s domestic and external finance for infrastructure projects with private participation that reached financial close between 2007 and 2020.

$1.4 billion — The average total MDB finance for those transactions from 2016 to 2020 — “a small increase from a very low base in earlier years,” the report says. “Among MDBs, the African Development Bank was the largest funder of public-private transactions,” it says, adding that this is “likely a surprise to some” who would have thought that the World Bank’s IDA or IFC would rank first.

2.5 — Chinese development finance institutions provided 2.5 times more finance between 2007 and 2020 than all other bilateral DFIs combined.

5% — The amount of infrastructure finance in 2020 that went to water and social infrastructure sectors.

2022 funding preview: Earlier this year, we looked at what MDBs are funding in the coming years.

Beating the competition

Ahead of this week’s AU-EU summit, the European Union’s commissioner for international partnerships is calling for EU countries to step up their financing. The added funding is needed to make Europe’s answer to China’s Belt and Road Initiative a success, Jutta Urpilainen tells my colleague Vince Chadwick.

Urpilainen says she hopes this can be a permanent initiative that involves working as a team and, “at the country level … [defining] that these are our policy priorities and these we are going to co-finance and coordinate together.”

Our Pro subscribers can read the full interview, including what she has to say about using budget guarantees to support education projects.

Urpilainen: EU states should step up financing ahead of Africa summit

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DFC has a CEO

Last week, the U.S. Senate confirmed Scott Nathan as the CEO at the U.S. International Development Finance Corporation. At his nomination hearing in December, the former hedge fund manager — who has served in government before — told lawmakers that he plans “to shape and to continue to grow DFC’s capabilities and capacity.”

I’ve asked the agency for an interview with Nathan and hope to bring that to you soon.

From the archives: CEO nominee for US DFC sails through nomination hearing

Back in business

Devoted readers of Invested know that the World Bank axed its old “Doing Business” report last year after “data irregularities” were revealed. The scandal nearly cost IMF Managing Director Kristalina Georgieva her job, amid allegations she may have pushed to rank China more favorably.

But it turns out that the flagship report isn’t quite gone altogether. The World Bank has just launched public consultations for its “Business Enabling Environment Project,” which is set to take over as the new ranking of private sector environments in different countries, my colleague Shabtai Gold reports.

Back in business: The World Bank has a new 'Doing Business' plan

Looking back: Last October, Shabtai looked into the future of Doing Business for Pro subscribers.

Investments of interest

• The U.N. Joint SDG Fund is expanding to add investments in five new countries, nearly doubling the size of its portfolio to $114 million. Those funds are expected to leverage about $5 billion across the 10 countries where the fund operates, including the new group: Kenya, Madagascar, North Macedonia, Suriname, and Zimbabwe.

• CDC Group announced a commitment of $30 million to AXIAN Telecom’s first $420 million public bond. The investment in the fast-growing provider of telecom services and infrastructure in Africa will allow the company to “expand its footprint through increasing access to affordable mobile and data services.” CDC Group expects the support to help “disrupt monopolistic pricing” and improve product offerings, particularly in underserviced markets.

What we’re reading

Financial services company Morningstar removes 1,200 funds from its European sustainable investment list after a review of legal documents. [Financial Times]

Investors seek profits by helping low-income people sue big companies. [Bloomberg]

Building beyond an environmental, social, and governance baseline to “invest with an impact lens.” [Impact Alpha]

The World Bank allocated over $73 billion in 2021. Where is it going? [Devex Pro]

Financial institutions have pledged to go green, but coal still raises trillions of dollars. [Bloomberg]