IFC to grow Middle East and Africa investments amid pandemic, lower oil prices

Exclusive: The total amount invested for the 2021 fiscal year is expected to be higher than the $5.6bn invested last year

Egypt is the largest market for the International Finance Corporation in the Mena region. Getty Images

The International Finance Corporation plans to increase its investment in the Middle East and Africa during its current financial year to support private sector projects amid a weak economic environment caused by 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 the past financial year that ended on June 30, 2020.

Sergio Pimenta, vice president for the Middle East and Africa, did not give a figure but said it would be higher than what was spent in the previous financial 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 [become] resilient and to rebuild after the crisis," Mr Pimenta 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 institute invested $4.6bn in Sub-Saharan Africa in its most recent fiscal year, exceeding the $4.1bn invested a year before that. Its total investment in the Mena region during the past financial year stood at 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-sized 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 and the International Monetary Fund projected a 4.9 per cent contraction this year and a sluggish recovery in 2021.

Middle Eastern and Central Asian economies are expected 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 virus-induced slowdown, Mr Pimenta said.

As part of the first phase of its strategy, the IFC is providing an $8bn fast-track finance facility to various companies around the world, with “a good part” of that being reserved for the Middle East and Africa.

“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, Mr Pimenta said.

The pandemic 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 [the] 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 financial year. It is also looking to increase investment in technology, including e-commerce and other digital services.

“This is a sector [in which] I believe the Mena region 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.”

The 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 venture capital fund that seeks to promote the growth of Tunisian start-ups and increase the participation of female entrepreneurs.

Egypt is the IFC's largest market in the Mena region. Over the past decade, it invested about $4bn across different sectors of the Egyptian economy.

In Jordan, the IFC invested $1.4bn in different projects over 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 in the National Bank of Iraq to increase access to finance for smaller businesses.