IFC priorities in 2021

WASHINGTON — The International Finance Corp. will look to take on more risk in the new year, expand on its response to COVID-19, double down on its new strategy, and name new leadership in 2021. The institution has pivoted in reaction to the ongoing health and economic disruption and is trying to learn from its response to the 2008 financial crisis, where an internal evaluation found that it did not respond countercyclically. It took 10 years for private equity and three years for foreign direct investment to return to where they had been in emerging markets prior to the crisis, and IFC this time needs to “act aggressively” to prevent a decadelong setback, Stephanie von Friedeburg, interim managing director and executive vice president at the institution, told Devex. Von Friedeburg has been serving as interim managing director since Philippe Le Houérou stepped down on Oct. 1 and will stay in the post until a new leader for the organization is named. The search process is underway with candidates now being interviewed, and a new managing director is expected to be chosen in the next few months. In the meantime, von Friedeburg is pushing IFC forward, saying that this is an important moment for the institution and that its new strategy is even more important in the wake of the coronavirus pandemic. “I finally believe that the entire development community understands that to get out of this crisis, the private sector has a pivotal role to play because the majority of our countries have very limited [fiscal] space. And in the poorest countries, there's no fiscal space left.” Over half of the world’s lowest-income countries are going to spend more on debt payments this year than they will on health care, she said. “The only way we will come out of this is to really figure out how we rejuvenate the private sector,” von Friedeburg said. COVID-19 response A key focus for IFC in 2021 will be continuing and building on its COVID-19 work as the nature of the crisis evolves. In March, IFC launched an $8 billion fast-track facility to support clients in responding to COVID-19. The facility supports real industries, trade financing, and financial institutions, and it provides working capital to clients to keep them going. So far, IFC has committed about $4.5 billion through the facility and is on track to commit the full amount by mid-2021. “We’re in the process of asking ourselves, ‘Can we and should we go back to our board to increase that?’” von Friedeburg said, adding that IFC is also looking at how to learn from the facility to bring some of those efficiencies to its normal operations. IFC was able to reduce the average time to approve a project from 276 days to 69 days for the fast-track facility. Moving forward, IFC will create a facility to support microfinance institutions in its COVID-19 response, because that has emerged as a key need, she said. There is also a new $4 billion global health facility at IFC to fund private sector production of medical equipment and supplies, including local production when possible, and there is already a roughly $600 million pipeline of projects including therapeutics, vaccines, medical equipment, and supplies. IFC has also adopted a more strategic approach to its response, adopting the “three R’s” framework tackling relief, restructuring, and rebuilding. To date, IFC has been focused on relief, but as companies begin to report problems and reach out, it is looking at how to support companies, particularly those that are large employers, to help them avoid insolvency or help produce and move them through bankruptcy processes quickly, von Friedeburg said. When it comes to rebuilding, IFC needs to “push harder on our strategy so that we’re bringing people back to countries of operation faster,” she said. One way IFC is seeking to tackle that is by establishing a “very large” collateralized debt obligations facility to help companies issue sustainability bonds, with a goal of launching it in the first half of 2021. There is a lot of interest in a CDO, but IFC is still figuring out how it will define sustainability for the instrument so that it is meaningful and based on green and equality principles, von Friedeburg said. Doubling down on the new strategy “Our strategy is probably better now than it was when we created it four years ago,” von Friedeburg said. The strategy is built on two pillars: partnering with the World Bank and other entities to establish the right policy and regulatory environment to attract foreign investors and creating projects, which is counter to how the institution has traditionally functioned. In the year ahead, IFC will stay focused on that strategy and build on a lot of the organizational changes it has already made. IFC has hired about 265 staff members for a new unit engaged in implementation of the upstream work focused on generating investment opportunities. The upstream unit operates differently in that IFC identifies potential projects and then supports them throughout a design, implementation, and investment process. Many of those projects take three to five years to go through the process, and so the first of them are just coming to fruition. “To get out of this crisis, the private sector has a pivotal role to play because the majority of our countries have very limited [fiscal] space.” --— Stephanie von Friedeburg, interim managing director and executive vice president, IFC IFC is working on some big hydropower projects in Africa, and it is growing its Scaling Solar program and seeing how this could be replicated with wind energy. IFC’s telecom business has grown in the past year, so there will likely be significant investment there in the year ahead, von Friedeburg said. “You will see us do some riskier projects and projects that are a little outside of the box for what we typically have done in the past,” she said. “But it is what’s necessary to get us out of the crisis. I think that’s our job.” While the new strategy is meant, in part, to push IFC to work more in low-income countries, there is going to be more demand in middle-income countries in the short to medium term as a result of the coronavirus crisis, von Friedeburg said. Investments there are likely to be shorter-term financing that supports refinancing and restructuring, anchors bonds, and helps with liquidity, she said. There is likely to be a pivot to the International Development Association nations, as well as fragile and conflict-affected countries, as the world emerges from the crisis, she said. “It's really going to be a balancing act, and I think it's not clear to me exactly how it's going to fall out,” von Friedeburg said. “It depends on how long the crisis lasts and how deep it actually is.” Climate IFC needs to do more to tackle climate, von Friedeburg said, and to do so, it needs to partner more with multilateral development banks in a cohesive approach. “I think there's fundamental recognition that we need to do that, that globally, we've got to tackle it,” she said. The private sector is not particularly focused on adaptation, and IFC’s new climate director is charged with considering adaptation and climate risk in the institution’s portfolio, as well as how it might construct a business around initiating climate projects. Climate represents some $23 trillion in potential investment opportunities, so IFC is looking at how to design climate projects and link that to its upstream project creation work, she said. Operations IFC will also continue staffing up to meet the needs of its strategy and developing its structures and measurements in the new year. The organization is still figuring out how to provide the right incentives to improve its upstream work and increase investments in lower-income countries, von Friedeburg said, adding that she’s not sure IFC has the equation right yet but it will continue striving to get there. One of the things IFC has done is hire a diverse staff for the upstream unit, including sociologists, industry experts, and others to help create the type of desired projects, she said. IFC has also changed its corporate awards program, establishing rewards for upstream work and conferring them not just when a transaction closes. Several years ago, IFC introduced its Anticipated Impact Measurement and Monitoring system, which the institution has been using to envision impact on a portfolio level and figure out how projects fit with others to form a broader narrative. However, that system was designed to create markets, and IFC is now trying to preserve markets. So, the institution will need to reconsider how it evaluates restructuring or refinancing work. The scoring system is designed such that projects generating markets score highly, but in the current environment it may need to be adjusted to more highly value projects that produce development impact through preserving markets, von Friedeburg said.