Lights, camera, but where's the action on IFC's creative investments?

When Makhtar Diop took the reins at the International Finance Corporation in 2021, he pushed to diversify and invest in areas the institution hadn’t historically done much business — think music, film, and fashion. Since then, he’s released about 20 podcast episodes, interviewing the likes of movie stars Don Cheadle and Idris Elba and Kenyan Afropop group Sauti Sol about everything from guitar riffs to poverty and the role of the creative industry in growing economies and job creation. He’s also hosted a couple of events about the industry. However, thus far, IFC, the World Bank’s private sector arm, has only made a handful of investments in the sector, totaling about $500 million if you count its own commitments as well as the private funds it expects to attract. It wouldn’t specify how much IFC contributed individually, but Devex calculations put it around $114 million. That relatively small amount — it committed long-term financing of nearly $2.5 billion to infrastructure and $765 million to tourism, retail, and property in 2023 by comparison — is partly because building expertise, a strategy, and a pipeline all take time, according to IFC. Diop’s ambitious plan is to reach $1 billion a year in IFC commitments and third-party investments eventually, but it may take some years because it’s breaking new ground. While IFC is eager to make more investments, the creative industries, particularly in Africa, are in many ways a nascent sector where companies must still develop key skills and solid business models to take on investments. There are also potential mismatches in the size of investment IFC can provide, which tend to be much more than companies need. And it seems IFC still has work to do when it comes to getting the word out. “What is really becoming crystal clear to all of us is that this is a sector that has substantial potential,” said German Cufré, who leads IFC’s work on creative industries. “There’s usually this perception that this is ancillary, an afterthought nobody really cares about but it is a major driver of employment and growth.” Creative industries account for 3% of global GDP and employ more workers aged 18-25 than any other industry, according to UNESCO. So, IFC feels it would be “missing an opportunity” if it didn’t invest in the sector, a spokesperson told Devex. And IFC isn’t alone. In fact, a number of development finance institutions, including the African Export-Import Bank and the French Development Agency, have ramped up their spending in the sector in recent years. What does IFCs work in the sector look like, what are the key bottlenecks, and how does this all connect back to Diop’s priorities? That’s what Devex has set out to discover. The work About a year ago, IFC started to shape its work in the creative industries, thinking through where it could add value and identifying four key verticals to focus investments — audiovisual media, including movies, TV, and music; fashion and apparel; technology that helps creators, influencers, or artisans; and investing through financial institutions. Sports and entertainment is also a focus, but it straddles a few of the verticals. There has been a steep learning curve, Cufré admitted, and IFC is working with advisers and consultants to conduct research, develop a strategy, and identify investment opportunities. It’s unclear exactly how the podcast — most YouTube episodes have been viewed between 200 and 1,000 times — directly contributes to the investment efforts in the sector. IFC declined to say how much it has spent on production but recently built a “state of the art” studio where Diop records his conversations. Still, the podcast series is an innovative way to reach influential voices in the creative industries worldwide and will help IFC engage new people, the spokesperson said. But if these efforts are meant to get the message out that IFC is open for business in the sector, it may be falling short, say observers such as Nigerian film producer and entrepreneur Editi Effiong. “I haven’t heard about their program,” he told Devex, adding that he’s quite familiar with IFC, and IFC’s Lagos office even has some of Effiong’s photographs hanging on its walls. “It’s the kind of stuff that the industry needs and I would be willing to provide any sort of help for insights and stuff they need to do a program,” he said, highlighting that the film industry could be a major employer with a need for patient, or long-term, capital if IFC is willing to provide it. IFC believes it has an important role to play “getting the industry more comfortable to lend to the sector,” Cufré said. It is building expertise to assess creative industries’ business models to help educate and attract commercial investors, he said. Back in June, IFC made its first big investment in the sector as part of this new strategy, a $75 million loan to visual effects company DNEG to expand its operations in India. While it’s unclear if the London-based company could have raised money elsewhere, Cufré said the syndicated loan brought in commercial lenders that otherwise may have been hesitant to invest. Among other investments, IFC also announced a $3.5 million investment in ANKA, an online marketplace that helps small African designers sell their fashion items globally, and $10 million to KukuFM, an Indian audio storytelling platform. It also provided technical assistance funds to Moroccan textile and apparel company Reciclados Tanger, to help develop a new cotton mill expected to create 2,000 jobs. While the goal is for IFC to commit and catalyze about $1 billion annually in creative industries within the next few years, with job creation and gender equality among key objectives, there are still hurdles, Cufré said. Supporting 10 small African production companies is not an “easy sell” to the investment committee and it’s hard to fund small- and medium-sized companies, including individual fashion designers and artists, he said. IFC is working with funds, exploring co-investment frameworks, and supporting project development, he added, and on Oct. 12 announced an agreement with Sony to identify investment opportunities in creative companies with a focus on early-stage startups. “If we have the right toolkit then it will be a question of how can we take that risk,” Cufré said, adding that IFC must be careful to balance investments. “The worst thing that you can do is deploy capital and lose it because then that gives the wrong demonstration effect.” Not quite ready for primetime While there is clearly a growing interest from IFC and others to invest in the nascent creative sector, it’s a stony path. “There are major bottlenecks to developing the creative sector in emerging markets. And this has to do with access to finance, with access to infrastructure, the general digital ecosystem, lack of enabling regulatory environment and promotion to the sector,” Cufré said. The creative sector in Africa is roughly where its tech industry was about 10 years ago, Marie Lora-Mungai, founder and CEO of Restless Global, who has advised IFC and others on the creative industries, told Devex. Back then in tech, it was hard to recruit a team and entrepreneurs often didn’t know how to pitch investors or write good business plans, she said. Like the tech space, creative industries need to build skills and professionalism from scratch. There isn’t much government support or funding for the creative industry, either, and rising interest rates and weak digital technology add to the difficulties, Abdulrahman Khedr, CEO of Egypt's largest animation studio, Giraffics, told Devex. “It’s been a matter of is there a return on investment or not? Because it’s still a very, very young industry you can’t really have the data,” he said, adding that some funders only want to invest large sums and many companies just need $1-2 million to stabilize and grow operations, creating an off-putting mismatch. While access to funding is a frequent complaint, Lora-Mungai said the problem lies more in identifying bankable projects, because investors have expressed interest in the sector. “Investors have seen the opportunity,” she said, adding that what’s needed is to build up the sector’s capacity, including helping entrepreneurs understand what it means to run a business, build well-rounded teams, and identify the right business models, she said. In Nigeria’s movie industry, “the path to making money is challenging,” largely because there aren’t many movie theaters, Effiong said. That’s partly why he is focused on producing material for international platforms. But investments toward expanding theater networks and building smaller venues adapted for the Nigerian market could help create more viable paths for success, he said. The industry needs more patient capital for distribution, production, equipment, and training. Big institutions that can’t invest small amounts of money should partner with organizations that can, Effiong said. But he warned against just funneling money through local financial institutions, as it’s unlikely much would reach the creative companies. In Nigeria, the Central Bank created a fund for creative industries which led people to register film companies to access the money — and then they used it to fund other businesses. He also identified two other challenges: The need for more trained staff who know how to operate sophisticated equipment to a high standard, and financing and availability of the equipment. Effiong rented cameras from a U.K.-based company when filming his movie “The Black Book,” which was recently released on Netflix, because local companies didn’t have adequate equipment, he said. Like IFC, many of the financiers trying to get into the sector have spent years conducting studies and are just now starting to operationalize that work and build investment frameworks, Lora-Mungai said. The African Development Bank has invested in the fashion industry since about 2018 and in March launched an Investment in Digital and Creative Enterprises Program. The African Export-Import Bank started a creative industries facility in 2020 and doubled its size to $1 billion in 2022. The French Development Agency has also been investing in the sector since about 2018. Most of these institutions had a jump start on IFC and therefore have invested more funds and more developed programs. But unfortunately, they’re primarily doing this alone and not sharing their findings with each other or the public, she said. “They need to play to their strengths. They need to play to their geographic footprint to what it is that they’re good at and what they can bring. What would be great is if they could coordinate, which is not the case right now. If this money could be pooled, and there could be collaboration and coordination between these different players, then we would start to have a very, very nice coverage for the sector across the [African] continent,” she said.