IFC investment services should identify avenues that would allow IFC to invest increasingly in PPPs located in countries and markets that do not yet have a well-developed enabling environment, while keeping its mandate of achieving high development outcomes and remaining financially self-sustaining.
Support to PPP transaction through IFC's investments emphasizes countries with already quite well established PPP frameworks, that is, those rated developed" by the Economist Intelligence Unit (EIU) global ranking. Five percent of IFC investment business is located in nascent countries, where arguably the deal flow can be expected to be less reliable. However, this is about half of what the market generates, with 9 percent of all PPPs occurring in these countries. In "emerging" countries, about 38 percent of IFC investments take place, whereas 49 percent of all PPP are structured there. Hence, IFC's investment activity clearly lags behind the rate at which the market itself generates PPPs. By contrast, IFC invests more in developed PPP countries than the market does:
Fully 56 percent of IFC's investments are directed to developed countries compared to 42 percent of all PPPs being structured there. In addition, IFC-supported PPPs tend to be less risky than other infrastructure investments, because of the thorough due diligence. This thoroughness is also reflected in the high work quality ratings for IFC investments in PPPs. As a consequence, IFC-supported PPPs exhibit consistently higher development outcome ratings than other infrastructure investments and significantly higher ratings than the rest of the portfolio. Risk is also adequately priced into IFC's PPP deals resulting in an even higher than average business success and investment outcome.
Supporting more PPPs in emerging countries need not decrease their success rate: in fact 86 percent of PPPs are successful in developed countries and 88 percent in emerging PPP countries, respectively. Even nascent countries exhibit a success rate of 50 percent.
Note: The EIU rating scheme captures 83 percent of IFC investments, hence is representative of IFC's investment portfolio in PPPs. Looking at the 17 percent of IFC investments that are not covered by the EIU ratings, full 90 percent of these are concentrated in only ten countries.
IFC Agrees. IFC plays a convening role in IS, helping bring together different players to support a project developed by the sponsor. In the majority of investment projects that IFC supports, it comes in after the sponsor has already chosen the location and prepared a project. The demand-driven and demand-contingent offering is difficult to execute in less developed (from PPP perspective) markets. With the exception of few cases where IFC can influence project development, it will continue to be a financier of already developed project proposals and one cannot realistically expect too much of a move towards the PPP frontier. However, there are recent efforts in this direction such as an increased focus on FCS countries. The report is also sanguine about the ability of IFC IS to continue achieving high development outcomes in more risky environments. IFC has to proceed with caution, given that it is possible that the high overall development outcome success rate in IS may not be sustained as it grows its PPP IS portfolio in difficult countries.
IFC Investment Services will continue to ramp up its business development and project implementation effo
1. IFC Specific Action
IFC Investment Services will continue to ramp up its business development and project implementation efforts with respect to PPPs in Fragile Situations prudently, while maintaining high development outcomes and remaining financially self-sustaining.
Indicator: (a) Core Infrastructure (Power, Transport, Utilities) project count in Fragile Situations; (b) Core Infrastructure (Power, Transport, Utilities) own account commitment volume in Fragile Situations.
Baseline: (a) 19 projects committed in Fragile Situations in Core Infrastructure in the period FY11-14, an average of 5 projects per fiscal year.
(b) $541 million committed for IFC's own account in Fragile Situations in Core Infrastructure in the period FY11-14, an average of $135 million per fiscal year.
Target: (a) 24 to 28 projects committed in Fragile Situations in Core Infrastructure in the period FY15-18, an average of 6 to 7 projects per fiscal year.
(b) $600 million to $760 million committed for IFC's own account in Fragile Situations in Core Infrastructure in the period FY15-18, an average of $150 million to $190 million per fiscal year.
Timeline: (a) By end-FY18
(b) By end-FY18
The evidence provided by IFC indicates that IFC invested in 6 PPP projects in "FCS countries". Some of them are also rated as "nascent" countries, i.e. countries that do not yet have a well-developed enabling environment (Georgia). From Haiti and Nepal, it may be assumed that they are nascent. In this sense, IFC's investment volume is indeed reaching countries that recommendation 1 suggests.
With 6 projects in FY15, IFC has achieved / surpassed its target value of "5 projects per fiscal year". Investment volume, however, is lower than targeted, i.e. amounts to $42m (own account), compared to $150-190m per fiscal year envisaged.
The implementation plan encompasses four years and at the end of the first, the yearly results for number of projects are well aligned with the overall target and give us confidence the latter will be achieved. In FY15, IFC Investment Services committed 6 new projects in FCS. Those 6 projects resulted in a commitment of $42.1 million. This number is lower than the expectations of $150-190 million per fiscal year. IFC commitment volume in FCS on a yearly basis does not follow a linear path and given a robust pipeline we are expecting to meet FY16 targets.
(note: Isabel Chatterton has reviewed and cleared/approved the assessment/update and the ratings for this recommendations and has asked Kris Luniku to click/approve in the system as a Reviewing Manager on her behalf).