How can African companies be helped in the context of an international crisis? How to promote investment and trade on the continent despite the disorganization of the value chains on the continent? These are some of the assignments for International Finance Corporation (IFC), the leading development institution focused on the private sector in emerging markets. Its CEO, Makhtar Diop, gave an interview to RFI to describe his actions and his strategy.
RFI: Makhtar Diop, your start in service was marked by a severe economic crisis and a resumption of global inflation. Food prices are soaring, and even more so since the crisis in Ukraine. How to help companies mitigate this global inflation shock?
Makhtar Diop: We have inflation today, which is the result of a massive imbalance between demand, which is large and which has been encouraged by the strong monetary and fiscal stimulus measures in the countries, and a supply that is being disturbed by logistical bottlenecks. And this is particularly true of developing countries.
In North Africa, for example, we see that 46% of the grain supply comes from Russia and Ukraine. What can be done about this? Work with the offer, ie remove all bottlenecks and allow companies to increase efficiency in value chains. One of the axes we have at IFC level when it comes to Africa is to use this opportunity for the free trade zone to be able to increase trade between Africa. It is worth noting that trade between Africa has increased markedly in recent years.
But we believe that much more needs to be done. We need to integrate the countries’ economic sectors more, have more specializations in the countries in order to be able to effectively integrate the value chains.
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The Covid-19 pandemic has led to an African awareness of the need to first facilitate the import of medical products and vaccines on the continent, and to develop production there. Several manufacturers have now announced that they want to set up vaccine factories in Africa. How do you intervene in these cases?? Do you lend them money??
It was one of my most important projects this year. A year ago, when we talked about producing vaccines in Africa, people looked at us and wondered if we were really realistic. This is a challenge that the IFC has accepted. And we have succeeded, I think, in making a real contribution. Today we work with Institut Pasteur in Dakar, with the authorities in Rwanda, with South Africa, with Ghana, for the manufacture of vaccines.
We believe that these are activities that should be financed by the private sector. We have come a long way in Senegal and Rwanda in setting up commercial structures that can produce vaccines. Kenya has also signed an agreement with a vaccine manufacturer. We will also work with the Kenyans and this company to help with the production of vaccines.
This pandemic has revealed the importance of the state returning to its role as both regulation and protection. When discussing with companies, do you take into account this protective role that the state is increasingly being called upon to play, especially in the troubled times we live in??
In all economies, the state has a role to play, whether it is in the United States, whether it is in Singapore, whether it is Senegal, whether it is Kenya, whether it is Morocco. The role of the state is to regulate sectors because there are sectors that need to be regulated. We must have conditions of competition that are transparent, we must protect the consumer where he needs to be protected. It is a vision of the economy where the private sector is at the center of development.
In the case of Africa, it is clear that investment needs are enormous, that there is room for the private sector and for the public sector. The public sector will be more limited as it faces significant expenditure in the field of health, in the field of social protection and in helping to reduce the shocks at the level of the poorest populations.
The state has a role to play in protecting the poor through subsidies, and all of this requires a lot of government resources. So in the infrastructure sectors and in other sectors, it is increasingly difficult for countries to invest and the private sector has a key role to play in this.
You plead for the development of the public-private partnership, how do you intervene? Do you lend privately? To the public?
IFC lends to the private sector. The World Bank lends to the public, to put it simply. And Mega [l’Agence multilatérale de garantie des investissements], which is our guarantee institution, guarantees the political risk. These three instruments allow us to attract foreign direct investment in the countries. It is also about mobilizing local savings to be able to invest in the productive sectors. This is something I would like to speed up during my time at IFC.
A reproach that is often leveled at you, especially by non-governmental organizations, is that you do not take sufficient account of the environmental impact of your investments. When you decide to invest IFC money in this or that energy production company or in this real estate project, do you take sufficient account of the environmental issue??
It is important. 85% of our portfolio in 2023 will be what we call “Paris aligned”. This means that the investment will be adapted to the criteria for COP21 in Paris. In 2025, 100% of our projects will be in line with the principles developed at COP21. That being said, we were the first institution to issue green coupons over ten years ago. And today you see the impact that has had on the market. It was IFC that started this and created a movement for people to start financing green economies.
We have reviewed all our environmental and social protection routines. This was done in collaboration with NGOs. We launched two other products at COP 26: what is called Planet Emerging Green One (EGO) and Best Bound which also aims to finance the green economy. We are starting investments that help reduce marine plastic pollution. We did this with one of our Indorama companies. We innovate a lot and our innovations are taken up to a large extent by the market.
We have reviewed all our environmental and social protection routines. This was done in collaboration with non-governmental organizations. They have been widely consulted. Their comments and suggestions have been incorporated into our new environmental and social protection policy. And I think what we have today is really the best that exists in this area, when it comes to the development of the private sector.
Let us return to an example cited by several NGOs, the one from the Tata Mundra Power Plant in India. A project supported by IFC that has generated groundwater pollution. Should not the IFC work to introduce a compensation mechanism for the populations that would fall victim to other pollutants in the projects you support??
We discuss the issue. This is called “medicine”. At present, when a company does not respect environmental and social standards, it must compensate the population.
It is not up to us to do that. Because it would still be necessary to be very clear about the division of responsibilities. We are not the ones setting up the project. We lend to a company. The company is ultimately responsible for implementing the social and environmental standards that it follows and that it agreed to implement when it became aware of our resources.
We had several cases. And this case (Tata Mundra Power Plant) is one. We were very involved in the discussions to ensure that the populations were compensated fairly.
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