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IFC’s and MIGA’s Support for Private Investment in Fragile and Conflict-Affected Situations

Chapter 3 | Key Factors Influencing IFC and MIGA Business Scale-Up and Effectiveness in FCS


The diversity of characteristics and constraints in fragile and conflict-affected situations (FCS) countries highlights the need for differentiated strategies and approaches adapted to individual country typologies and building on tools such as Country Private Sector Diagnostics, International Finance Corporation (IFC) country strategies, and Country Partnership Frameworks.

Meeting the ambitious FCS business volume targets of IFC and MIGA (Multilateral Investment Guarantee Agency) would require broadening of their client bases to reach and build the capacity of local and international private investors not served by IFC and MIGA and to accept higher risks, and costs and longer time periods to gestate bankable projects.

Upstream engagement and advisory services (in the absence of international investors) can be instrumental in identifying eligible local or regional sponsors and building their capacity for project preparation using blended finance and other instruments to facilitate deal flow in FCS.

IFC’s and MIGA’s cost of doing business in FCS is significantly higher than in non-FCS countries and may disincentivize building FCS pipelines.

Investing in high-risk countries involves a trade-off with IFC’s overall credit risk and calls for reassessing the risk management framework in FCS at the corporate level to align it better with the objectives of increasing business volumes in FCS.

World Bank Group–wide collaboration has helped address the multiple needs of countries emerging from protracted conflicts, reduce high business risk (including weaknesses in the business environment), and facilitate investments.

Weak incentives have been a constraint to expanding IFC’s footprint and increasing its investments in FCS countries.

This chapter examines key factors that may be limiting IFC’s and MIGA’s ability to scale up their activities in FCS countries and, by implication, limiting their effectiveness in supporting private investment and achieving development impact. The World Bank Group’s 2020 FCV strategy identified a set of key factors requiring the adjustment of IFC’s and MIGA’s business models. These include collaboration across the Bank Group and with DFIs; upstream engagements and business development efforts to identify and design new projects; the use of advisory services to address E&S risks, inclusion, and gender issues; the adaptation and selection of instruments; strengthened staff presence and incentives; enhanced risk mitigation; simplified and streamlined processes; and implementation of an appropriate monitoring and evaluation framework (IFC 2020b).

Based on the evidence gathered in this evaluation and on its main findings, this chapter explores the influence that a selection of seven factors linked strongly to those identified in the World Bank Group’s 2020 FCV strategy may be having on the level of IFC and MIGA business activity in FCS. The chapter discusses the issues, links, and trade-offs among them. These factors are (i) country characteristics and constraints, (ii) the availability and quality of IFC and MIGA clients, (iii) the cost of doing business in FCS, (iv) credit risk and financial risk management in IFC and MIGA, (v) adaptation of instruments to FCS contexts, (vi) collaboration inside and outside the Bank Group, and (vii) staffing and institutional incentives.

Country Characteristics and Constraints

Most FCS countries are small and medium economies, which limits the potential volume of private investments. FCS countries include many landlocked, midsize, small, and island economies. Such economies tend to face more challenges in attracting foreign capital, they have small local markets, and project size is typically small. Larger economies tend to attract greater foreign investment flows and support larger IFC and MIGA investments, whereas smaller ones tend to require more work with smaller, less-sophisticated local companies. Only one FCS country (Lebanon) is a regional financial hub, and it, too, has been facing severe political and economic challenges.

Scaling up IFC and MIGA investments in FCS would require differentiated strategies, approaches, and instruments adapted to the variety of country characteristics and constraints in FCS. A differentiated approach would involve diagnostic work to identify key constraints and opportunities for private sector engagement and to identify areas for upstream collaboration. IFC’s and MIGA’s strategies to invest in FCS might need to be informed by country diagnostic work that examines these constraints and characteristics to identify opportunities for diversifying the FCS portfolio and scaling up investments. Half of the FCS countries are resource rich, with distinct opportunities and challenges in attracting investment and generating broad-based growth. Small island developing states account for nearly one-quarter of FCS. For attracting private investments, these countries tend to face greater challenges associated with small local markets, physical remoteness, and vulnerability to shocks compared with those associated with security or political risk issues. To deepen their understanding of country characteristics and constraints, in 2018, IFC (and MIGA) launched a program of Country Private Sector Diagnostics1 and IFC country strategies (box 3.1).

Box 3.1. Case Study Countries and Projects

The evaluation selected seven countries for case studies to represent different fragile and conflict-affected situations (FCS) typologies and encompass a range of country contexts. The sample included countries that the World Bank Group currently classifies as FCS (including Côte d’Ivoire, which graduated from the FCS list recently), conflict-affected or fragile, resource-rich, landlocked, and small island economies. The sample also included low-income and middle-income countries. These countries vary greatly in size, the strength of their institutions, business environment, rate of economic growth, and the size of foreign direct investment inflows they attract. The size and relative isolation of small island developing states create a different type of fragility.

The case studies’ FCS risks include conflict and security risks, including ethnic and extremist violence; political instability; economic, political, and geographic isolation; extremely poor governance, corruption, and patronage-driven political system; weak capacity of the public sector; reliance on extractive industries or an export commodity; and demographic pressures and youth unemployment. Twelve projects cutting across sectors, modalities, and institutions were selected for in-depth reviews among the seven country case studies (appendix B).

Source: Independent Evaluation Group.

Availability and Quality of Clients

Meeting IFC’s and MIGA’s ambitious FCS business volume targets would require them to diversify their portfolios and client bases to reach and build the capacity of local private investors. The shortage of strong clients in FCS implies a need to go beyond the existing client pool to smaller local clients or regional clients and to adapt IFC’s and MIGA’s approaches and instruments to different client groups. IEG’s findings indicate that IFC and MIGA can implement larger-scale projects successfully in FCS, often with experienced international firms and repeat clients, but they are reluctant to invest in smaller and riskier FCS countries. Some adaptation of the approach is evident in IFC’s experience with micro, small, and medium enterprise projects that seek to reach the local private sector by working through financial intermediaries and by keeping overhead costs lower and project sizes larger. However, the existing business model is less suited to supporting newer clients, including the local private sector. This requires more upstream investments to develop the capacity of prospective clients and more project preparation. It would also involve accepting higher risks and costs and longer time periods to gestate bankable projects and being realistic about volume targets that can be achieved when working with new and smaller clients, with a deliberate strategy of building their capacity to help them evolve into repeat clients.

MIGA’s business in FCS depends primarily on demand for PRI and non-honoring products, which is driven by the supply of foreign investments. As an insurer, MIGA’s business model allows little scope for creating markets or designing and developing projects. Additionally, MIGA’s insurance products depend on demand from investors or financiers for risk mitigation, of which insurance is just one option. Moreover, MIGA’s Convention restricts it from providing coverage of commercial risks or comprehensive risk,2 which investors may require just as much as PRI. MIGA may have less scope to broaden its client base because it can support foreign investments but not the local investments, apart from a few exceptional cases. With regard to its nonhonoring product, which applies to purely public sector undertakings, the IMF–World Bank–Group of Twenty Debt Service Suspension Initiative limits MIGA’s ability to market this product to lenders that want to finance public sector projects in FCS.3 This initiative was created to help countries at high or moderate risk of debt distress, and these are disproportionately FCS, commodity-dependent countries, and small states.4 Despite these constraints, collaboration with the World Bank, IFC (including through the IFC-MIGA Business Development Agreement or its successor, the Country Private Sector Diagnostic; country strategy work; and other initiatives), other multilateral development banks, and bilateral insurance agencies can help identify demand for MIGA products. In addition, MIGA could continue to explore the use of brokers, which play an important role in the private PRI industry.

Broadening the client base in FCS is likely to have implications for IFC’s and MIGA’s risk profiles and financial returns. Some project examples involve IFC and MIGA support to broaden the client base to local clients or proactive project preparation and development work. The experience with these approaches involved some challenges. In Côte d’Ivoire, for example, the Société Ivoirienne de Banques Cargill Risk-Sharing Facility (supporting cocoa farmers and processing) was complex and costly and was not compensated by IFC financial returns. In Mali, IFC supported a shea butter producer through extensive advisory support reaching 100,000 farmers. The approach was costly and led to only a small investment. This indicates some of the challenges and trade-offs involved with downscaling investments.

The average quality of sponsors in IFC-supported investments in FCS is similar to the quality of sponsors in non-FCS countries, based on IFC’s proprietary Credit Risk Ratings database (World Bank 2019c). Although the strong quality of sponsors is evidence of prudent risk management, it may constrain IFC’s business expansion in FCS to sponsors and sectors where the country and market risks are acceptable. Sponsor quality varies among sectors. Infrastructure and telecommunications attract stronger sponsors, often well-capitalized multinational corporations with significant experience investing abroad. Manufacturing clients have risk profiles closer to the IFC average. By contrast, natural resources and agribusiness investments involve higher sponsor risks

The Cost of Doing Business

IFC’s and MIGA’s cost of doing business in FCS is significantly higher than in non-FCS countries and may disincentivize building FCS pipelines. A 2016 IFC review of project returns for FY11–15 showed significantly lower risk-adjusted return on capital for loans in low-income IDA and FCS countries than for IFC overall. Returns to IFC were negative across all industry groups in FCS, most strongly for Manufacturing, Agribusiness, and Services projects (−21.9 percent). The review identified higher operating costs to process and supervise projects in FCS as a major driver of the difference in costs (IFC 2016b). This creates a disincentive for IFC and MIGA as they strive to meet a double “bottom line” of development effectiveness and financial sustainability. Appendix F provides detailed analysis of IFC’s and MIGA’s cost of doing business in FCS.

The higher cost of doing business in FCS manifests itself in multiple ways. These include the higher operating costs for appraisal and supervision in FCS at IFC and MIGA; the additional time and resources needed for upstream advisory services and processing times; the lower average size of IFC and MIGA projects in FCS; the need for increased project preparation and capacity building for clients, staff presence, and the longer time horizons required for project gestation; and the higher financial risks in FCS, which constitute an indirect cost of doing business for IFC in FCS.

Despite the higher costs of doing business in FCS, the cost of risk aversion in FCS outweighs the downside of higher costs. IFC and MIGA have a critical role to play in helping FCS evolve toward more effective market economies. The upstream investments in advisory services involving longer processing times and higher costs have the potential to grow IFC’s business in FCS, as evidenced by the performance of repeat clients, to help FCS graduate out of fragility as countries like Côte d’Ivoire, Liberia, and Sierra Leone have managed to do. Furthermore, the small size of average projects in FCS means that the overall impact of riskier projects on IFC’s balance sheet does not represent a major threat to its bottom line. Additional instruments like CASA and the PSW also help reduce the costs and risks to IFC in FCS.

Risk and Financial Implications of Scaling Up

Investing in high-risk countries and accepting higher risks in FCS involves a trade-off with IFC’s overall risk-reward balance. This suggests a reassessment of the risk appetite in FCS at the corporate level, including of risk parameters set by IFC’s and MIGA’s authorizing environments, to align them better with the objectives of increasing business volumes in FCS. The relatively small size of the investments in FCS with local investors could reduce the impact of the expected losses but not the higher cost related to project development, appraisal, and supervision relative to the investment size. The portfolio model that some impact investors follow—accepting low(er) returns in FCS markets—may provide lessons for IFC as it is currently implementing its own portfolio approach. The blending of commercial and concessional finance or the use of off-balance-sheet instruments (trust funds, separate organizational entities, or both) can help create conditions for accepting higher risks in FCS markets by providing first loss cover and reducing expected losses. Scaling up in FCS may also entail a broader review of the underlying criteria of credit (or project) risk and attendant risk appetite of IFC and MIGA. Over time, project experience in FCS could allow IFC and MIGA to fine-tune their risk parameters that determine credit risk and pricing.

IEG’s analysis highlights the importance of credit risks in FCS contexts. Such risks entail the loss of principal or loss of an expected financial return because of credit events such as a default or downgrade in credit ratings or any other failure to meet a contractual obligation that results in financial loss. Credit risk ratings are a key input for IFC’s pricing model, especially in FCS markets where market reference points for pricing are harder to find.

Several case studies highlight the challenges related to IFC’s risk management: risk tolerance, pricing, and policies in FCS. Operating in difficult FCS environments is exacerbated by high operational costs and a perceived lack of flexibility in applying requirements, which may influence the number of bankable projects. These challenges have several aspects: IFC’s pricing, lack of flexibility in applying requirements in FCS countries, and perceived risk-aversion (including exposure limits for projects in some countries).

IFC has experienced higher financial risks in FCS. Projects with nonperforming loans and arrears (including principal and interest) accounted for 8 percent of IFC commitments in FCS versus 2 percent of commitments in non-FCS at the end of FY20. These have implications for the reserves on IFC’s balance sheet and constitute an indirect cost of doing business for IFC in FCS.

The quality of available sponsors and clients in FCS is linked to the credit risk. Scaling up would also involve engaging more with less-experienced and smaller clients, which tend to be associated with lower credit quality and attendant lower credit ratings, making investments less commercially viable for IFC.

Impact investors may have more tolerance for lower or negative returns in FCS and offset them with positive returns elsewhere. Impact investors interviewed for this evaluation pointed to the explicit use of a portfolio approach that accepts lower returns in certain priority countries with low access to finance and high social impact of investments, such as in FCS markets, that they offset by positive returns in other developing markets. Impact investors, which have used a portfolio approach for years, often have specific targets, such as accepting −5 percent return on high-impact investments in SMEs in FCS and 0 percent on financial institutions in FCS. Their business models may also involve lower costs and more use of local presence to provide ongoing support to local clients and entrepreneurs. IFC is formalizing its own portfolio approach that aims to balance returns (based on risk-adjusted return on capital estimation) with development impact (based on Anticipated Impact Measurement and Monitoring scores). This should allow IFC to accept in some cases a lower-than-average return for projects that could have a higher development impact.

IFC’s financial results and AAA credit rating are important considerations for IFC’s sustainability and performance, but they may also hamper expansion of business volumes in IDA low-income and IDA FCS countries. The scenario analysis in box 3.2 shows that increasing IFC’s investments in IDA low-income and IDA FCS countries has implications for IFC’s financial results. Financial and risk considerations and the need to assess the impact of these investments on IFC’s bottom line and its AAA credit rating may constrain IFC’s ability to scale up its business in FCS.

Box 3.2. Financial Implications of Scaling Up Business in FCS: A Scenario Analysis

Between fiscal years 2015 and 2020, the International Finance Corporation’s (IFC’s) annual net income has varied between a loss of $1.67 billion in 2020 and a high of $1.4 billion in 2017, averaging about $250 million a year over the period. ThWese figures reflect a proportion of IFC commitment of about 6 percent (out of IFC’s total annual commitments) in International Development Association (IDA) low-income countries and IDA countries affected by fragile and conflict-affected situations (FCS). The proportion has varied between 5 percent and 8 percent annually.

If the proportion of annual commitments in IDA low-income and IDA FCS countries had increased to 15 percent or 20 percent of IFC’s total annual commitments over these years (scenarios 1 and 2 in table B3.2.1), IFC’s cost may rise significantly, and its net income would decrease correspondingly. The cost increase arises from two factors. First, IFC’s operating costs would rise because of the higher cost of project preparation and supervision, and second, the provisioning for nonperforming assets would also rise to consider the riskier nature of the investments in IDA low-income and IDA FCS countries. However, as private sector clients in FCS mature and the risk profiles of their projects improve over time and with repeat loans, the higher initial costs may result in lower unit costs over time.

Table B3.2.1. Estimate of Increase in Costs Because of a Higher Proportion of Investment in IDA Low-Income and IDA FCS Countries


Scenario 1

Scenario 2

Proportion of commitments in IDA low-income and IDA FCS countries (percent)




Annual project preparation cost (US$, millions)




Increase in project preparation costs (percent)



Annual NPA provisioning (US$, millions)




Increase in NPA provisioning costs (percent)



Annual total cost of preparation and NPA (US$, millions)




Source: International Finance Corporation and Independent Evaluation Group staff calculations.

Note: Cost projections derive from both estimates of the portfolio’s project costs (variable costs from administrative/overhead costs such as travel, project preparation, project management, implementation) and the IFC portfolio’s NPL provisioning cost. Portfolio’s project cost projections are based on an estimate for “IDA and FCS,” “IFC,” and “FCS only” project cost as a percentage of the portfolio’s long-term finance commitment volume for a given FY or the average in FY15–19 ($64, $20, and $51 per $1,000 in commitment volume for these three categories, respectively). NPL provisioning cost projects also apply a similar method, provisioning 8 percent (for IDA-LIC and IDA-FCS) or 2 percent (for IFC projects falling outside of these categories) of total long-term finance commitment volume for a given FY or the average in FY15–19. FCS = fragile and conflict-affected situations; FY = fiscal year; IDA = International Development Association; IFC = International Finance Corporation; LIC = low-income country; NPA = nonperforming asset; NPL =nonperforming loan.

Since 2015, if IFC had invested 15 percent of its commitments in FCS countries, its net income would decrease by about $90 million annually, and if it invested 20 percent of its commitments in FCS countries, the corresponding effect on its net income would be a decrease of about $140 million annually. This represents a decrease of about 35 percent and 55 percent, respectively. This scenario analysis indicates that expanding investments in FCS has implications for IFC’s financial results.

Source: International Finance Corporation and Independent Evaluation Group staff calculations.

MIGA needs to balance its mandate to remain financially sustainable and its commitment to scale up support to FCS. MIGA’s Convention stipulates that MIGA should fulfill its mandate of promoting the flow of FDIs for development purposes while remaining financially sustainable without recourse to callable capital. To this end, it has put in place various risk management tools and systems centered on an economic capital model. Insuring projects in FCS typically involves a higher charge on MIGA’s economic capital, thus contributing to a faster consumption of economic capital compared with projects in less risky country contexts.

Some financial risks for MIGA in FCS have been lower than the ex ante expectation of higher country and project risks. MIGA paid out several claims under its war and civil disturbance coverage in FCS. Claim payments have been relatively small compared with MIGA’s portfolio and with losses experienced by other political risk insurers. During FY10–20, five of the seven claims that MIGA paid were in countries classified as FCS, and two of these payments were on behalf of trust funds. MIGA’s claims ratio (0.07 percent of outstanding exposure) during FY15–20 is much lower than for Berne Union members overall (0.42 percent of exposure). The effect on MIGA’s administrative cost and balance sheet, therefore, appears to have been limited.

Preclaims (investment disputes that may lead to a claim) among MIGA projects are somewhat more frequent in FCS countries than in non-FCS countries, but the underlying reasons are unrelated to fragility or conflict. During FY10–20, 11.5 percent of FCS projects experienced preclaims compared with 7 percent of non-FCS projects. However, the underlying reasons for preclaims are like those in non-FCS countries and are not driven by fragility or conflict. These related to, for instance, arrears of the government or state-owned off-taker under the relevant project agreements (for example, concession or take-or-pay agreement), indicating that financial risks in FCS for MIGA are no different than non-FCS projects.

Upstream Engagements and Advisory Services

A key constraint to scaling up business in FCS is the small pipeline of bankable projects rather than the availability of finance (World Bank 2021b). To address this constraint, IFC has scaled up its investments in upstream engagements and seeks to expand advisory services, especially to respond to environmental, social, and gender issues. The findings presented here refer to examples of upstream work identified in the evaluation’s case studies; they do not cover the engagements under the systematic upstream work formalized by IFC in FY20.

Upstream engagements by IFC or jointly with the World Bank paved the way for most of the reviewed IFC and MIGA projects in FCS. IFC created a new Global Upstream Unit in FY20 to systematize its approach across different industries. FCS and low-income countries are one focus area of IFC’s upstream work. In 10 of the 12 projects reviewed, IFC advisory services (including CASA and IFC SME Ventures, transaction advisory services, and capacity building) were essential in supporting the development of bankable projects and reducing the associated risks. In one case, IFC followed the client into a new country, and in another instance, IFC’s investment built on earlier IFC investments. In five cases, IFC’s projects leveraged previous Bank Group interventions, including sector work, technical assistance, or a specific investment project. MIGA collaborates closely with IFC and the World Bank to identify bankable opportunities in FCS. All the reviewed MIGA projects (four) were implemented jointly with IFC advisory or investment support.

These upstream investments for project development involve higher upstream costs to promote local economies in FCS. In most cases, a relatively large amount was spent on advisory services to develop a relatively small, bankable investment. Mali Shi, for instance, has a small IFC investment value of $2.3 million. Similarly, there are examples in Côte d’Ivoire of spending $2 million to $3 million on advisory services, but the investment value was small, at least initially. Cargill had initial support with a small investment in 2015 from IFC (approximately $4 million to $5 million) for truck leasing to cocoa farmers. Aside from financial returns, these investments are expected to yield greater economic and social benefits downstream in their impact on local livelihoods, thus having the potential to compensate for their higher upstream costs.

Sponsor commitment and capacity are the main factors influencing the development of bankable projects from the E&S standard requirements. IFC and MIGA assess these factors as part of the due diligence and project appraisal processes. IFC and MIGA apply the same E&S performance standards in FCS as in non-FCS countries. Many projects in FCS require expanded advisory services to address environmental, social, and gender issues and ensure their compliance with the Bank Group’s requirements. Examples from the reviewed sample include IFC projects in Côte d’Ivoire, the Democratic Republic of Congo, and Mali.

Some evidence indicates that E&S requirements may have narrowed the list of willing sponsors in FCS. The evaluation did not assess projects deemed ineligible because of E&S issues and risks, but IFC requirements appear to have discouraged some investors. In the Solomon Islands, indications are that E&S challenges may have contributed to the SolTuna project’s new owner’s prepayment of IFC’s loan. An earlier gold mine project also repaid IFC’s loan within one year, reportedly because of E&S issues. In Kosovo, interviews suggest that IFC’s stringent requirements, including those related to E&S, may have made otherwise attractive projects difficult to finance.

In the absence of international investors, upstream engagement and advisory services can be instrumental in identifying eligible local sponsors and building client capacity and the quality of their E&S systems to prepare bankable projects in FCS. This involves a relatively large up-front cost for developing relatively small investments in many cases. These upstream costs may be more viable if local sponsors have the potential for longer-term and repeat projects, suggesting that replicability and potential for scaling up would be useful criteria to consider. A second concern is that the E&S issues encountered in FCS and the applicable compliance standards are like those in non-FCS countries. This narrows the list of eligible projects and committed sponsors in FCS, which often require greater support. Although the evaluation found little information on projects rejected because of E&S issues, the stringent requirements may have contributed to a few early repayments. Higher costs and greater needs for client capacity building imply that IFC and MIGA need to rely on special financing instruments to support these upstream services.

Adaptation of Instruments to FCS Contexts

IFC and MIGA have adapted their approaches and financing instruments to enhance their support to FCS (see chapter 2). The instrument mix includes blended finance instruments to lower the financial costs to IFC and MIGA and to sponsors to promote private sector investment in IDA and FCS countries. The set of instruments adapted to FCS includes most prominently IDA’s PSW, IFC’s CASA initiative, the FCS and low-income country Risk Envelope, and MIGA’s CAFEF and SIP. Appendix E provides background on these instruments.

IEG’s analysis finds that each of these approaches has helped, but there is insufficient evidence on their overall impact on scaling up bankable projects. Both IFC and MIGA have adapted some of their approaches and instruments to facilitate deal flow in FCS, but these instruments (PSW, other blended finance, CAFEF, and SIP) are mainly intended to address financial risks but not nonfinancial risks and constraints limiting the supply of bankable projects in high-risk markets. IFC and MIGA may need to consider expanding the use of those instruments if they are to have a meaningful impact on scaling up in FCS.

The CASA program has potential to help increase IFC’s project pipeline in FCS, but it needs more strategic engagements with clients and stronger integration with IFC operational departments. CASA has been a platform for IFC to expand its footprint and services in FCS, primarily through staffing in the field and a flexible management approach providing proactive support to the investment pipeline. CASA has also supported innovations allowing IFC to enter new areas such as forced displacement, as well as an adapted approach in several countries (such as through the development of a conflict lens). IEG did not have sufficient evidence to assess CASA’s impact on increasing IFC’s project pipeline in FCS. IEG concluded that CASA could have engaged more strategically in selecting sectors or areas for engagement. It did play a catalytic role in providing funding to advisory services projects (which often was the basis for attracting other or donor funding). The review also suggested that CASA should engage beyond the subset of African FCS countries that were already attracting investment flows. Finally, CASA lacks “institutionalization” within IFC—and a link to operational and industry departments that could take project proposals forward.

Internal and External Collaboration

The experience of Bank Group–wide collaboration suggests that it can help address the multiple needs of countries emerging from protracted conflicts, reduce high business risk (including weaknesses in the business environment), and facilitate investments. Almost all the reviewed projects in FCS involved some form of Bank Group cross-collaboration to create or strengthen the enabling environment for private investments. Strengthened coordination can generate synergies, especially at the upstream planning phase. Partnerships with DFIs help mobilize cofinancing for FCS projects, although they are less focused on upstream project development and preparation—the main constraint to business development and scaling up in FCS.

Joint implementation plans have facilitated institutional collaboration among Bank Group institutions in several FCS, culminating in bankable projects, but this instrument has been discontinued. In Myanmar, for example, the power sector joint implementation plan facilitated dialogue and decisions that enabled the three Bank Group institutions to cooperate. The World Bank provided technical assistance for policy reform, IFC supported the first competitive IPP in Myanmar, IFC and MIGA cofinanced the private generation project, and the World Bank and IFC supported grid and off-grid electrification. The Bank Group also achieved synergies in the country’s financial sector. IFC took the lead in developing the microfinance sector, the World Bank supported regulatory reform and sector liberalization, and IFC provided investment and advisory services to commercial banks. The joint implementation plans were an effective tool to focus on specific actions for the institutions involved, moving beyond diagnostic and strategy work.

Partnerships with DFIs played an important role in contributing finance and other resources for FCS projects, although they were less focused on upstream project development and preparation. More than half of the sample review projects (7 of 12) have been supported by collaboration between IFC or MIGA and DFIs. In Côte d’Ivoire, for example, IFC mobilized about $215 million in debt from other DFIs for the Azito III project, including from five European DFIs and a regional development bank. In the Solomon Islands, IFC worked with the Pacific Partnership and coordinated among at least five other donors to cofinance the Tina River Hydropower Development Project and provide expertise and E&S work. In Myanmar, IFC and the World Bank coordinated with several development partners (including the Asian Development Bank, Japan International Cooperation Agency, and UK Department for International Development) to provide planning, regulatory, and financial advice and financing for distribution and generation of rural energy.

DFIs view IFC as a potential leader in FCS, given its large size, substantial expertise, presence in the field, and more developed instruments for FCS engagement (especially blended finance and upstream work). Most DFIs acknowledge that it is extremely difficult to operate in FCS environments because of both their higher risk and each DFI’s own stringent and varied requirements that are the same for FCS and non-FCS. They value IFC’s leader-ship and have recently supported the development of the country-level pilots to test approaches to DFI collaboration to address these challenges, although this has not yet met expectations of identifying more investment opportunities in FCS countries. This is partly because of inconsistencies across DFIs in applying requirements (such as E&S).

Despite recent collaboration efforts, DFIs’ engagement in FCS remains fragmented and may lead to competition for a few bankable projects. In some countries, competition from other DFIs (including their sometimes more favorable pricing) has restricted IFC’s ability to finance projects it helped identify and prepare. DFIs also tend to engage in the larger and more stable FCS countries and stay away from less-developed private sectors with un-sophisticated local companies.

Staffing and Institutional Incentives

Weak incentives are a constraint to expanding IFC’s footprint and increasing the volume of its investments in FCS countries. As part of its support for the World Bank Group’s FY20 FCV strategy, IFC has committed to increase the number of skilled staff working in FCS or working on FCS from nearby hubs, supporting them with specialized training and greater recognition of work in FCS. However, staff remain concerned about weak incentives in FCS. Although staff are recognized and rewarded for doing deals in FCS, it is hard to recruit investment officers in FCS because deals are typically small, uncertain, and more costly and require more time to close compared with deals in non-FCS countries, giving rise to staff concerns about risks to their careers.

IFC staffing in FCS almost doubled from FY06 to FY13 but has stagnated since then and consists largely of locally recruited staff. IFC presence doubled from 64 staff based in FCS in FY06 to 124 by FY13, and the number of country offices in FCS increased from 8 in FY06 to 20 in FY13. The primary driver of IFC staffing in FCS since FY13 has been the changing composition of the countries on the FCS list. Over this period, the aggregate number of IFC staff posted within FCS countries kept declining, reaching a low of 89 in FY19.5 IFC country presence in FCS depended heavily on locally recruited staff, who were also less experienced on average than IFC staff posted elsewhere based on their years of service.6

IFC has relied on a mix of country presence and a hub-and-spoke model for work in FCS, with considerable support provided by staff in subregional hubs or neighboring countries. IFC tracks data on staff working in FCS, but not support from staff working on FCS from hubs or neighboring countries. The World Bank monitors the “face time” of staff based in different locations, but IFC does not have a human resources management system in place to monitor work on FCS by staff in hubs or neighboring countries. Interviews with IFC staff and managers revealed the importance of mentoring and support provided to staff in FCS from nearby hubs and neighboring countries. In the East Asia and Pacific region, for example, in addition to one IFC staff member in the Solomon Islands, IFC enhanced its capacity to support Pacific island states by posting three investment officers in the Sydney office, which is much closer to those countries. This increased IFC’s efficiency compared with support previously provided from Hong Kong SAR, China, as well as Singapore. Elsewhere, Kenya, Senegal, and South Africa are proving to be useful IFC hubs covering FCS countries in Africa.

Staff based in hubs (or neighboring countries) play a much greater role in leading investment and advisory services projects than staff located in FCS. Staff located in the FCS country at the time of commitment lead only 4 percent of IFC investment projects. The share of advisory services projects managed by task leaders located in FCS is much greater than investment projects. Even so, staff in FCS manage only one in five advisory services projects (22 percent by number and 29 percent by IFC-managed funds). For investment projects, IFC seems to rely almost entirely on the hub-and-spoke model, which allows senior staff to be based near the FCS countries they support while working on a mix of countries from a location that has better living conditions. However, the evaluation indicates the importance of having staff in the field in FCS countries because of their knowledge of the local business environment and ability to enhance IFC’s investment pipeline. IFC’s investment portfolio correlated strongly with having staff in the field.

IFC’s Corporate Award Program creates a positive incentive for staff working in or on FCS by providing greater staff recognition for their contributions to high-impact and multiyear projects in FCS countries. The share of teams receiving team awards for work in FCS increased from 23 percent in FY17 to 47 percent in FY19. In parallel, the share of staff receiving Corporate Top 30 Awards for work in or on FCS was 53 percent in FY18 and FY19. IFC also declared FCS experience to be a core competency tied to career development. However, IFC’s main Departmental Performance Awards Program rewards high performance and does not have a specific focus on FCS. In addition, it was not possible to assess how FCS work was affecting staff careers because IFC does not yet track or report on staff career progression.

  1. Country Private Sector Diagnostics have been completed for six of the countries currently classified as fragile and conflict-affected situations (FCS).
  2. “Comprehensive risk” refers to coverage of both commercial and noncommercial risks.
  3. The Debt Service Suspension Initiative (DSSI) was endorsed by the Group of Twenty finance ministers in April 2020 and became effective on May 1, 2020. DSSI borrowers commit to use freed-up resources from suspending debt service payment to increase social, health, or economic spending in response to the coronavirus (COVID-19) and the resulting economic crisis. Countries that sign up to the DSSI commit to disclose all public sector financial commitments (involving debt and debtlike instruments). They also commit to limit their nonconcessional borrowing to levels agreed to under International Monetary Fund programs and the World Bank’s nonconcessional borrowing policies. In return, the World Bank has committed, from April 2020 through June 2021, $36.3 billion in financing for countries participating in the DSSI, of which $11.8 billion was in the form of grants. According to a July 2021 update, the World Bank has already disbursed $20.9 billion—including $5.6 billion in grants—to more than 40 eligible countries. The total disbursement amount is roughly seven times the $3 billion in debt-service repayments received from DSSI countries.
  4. In all, 73 countries are eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors. The Group of Twenty has also called on private creditors to participate in the initiative on comparable terms. The suspension period, originally set to end on December 31, 2020, has been extended through December 2021.
  5. The total staff in FCS increased by 50 percent to 139 in fiscal year 2020, when Cameroon and Nigeria were added to the FCS list (accounting for 44 staff).
  6. In some specific programs, such as in the Conflict Affected States in Africa initiative, management is addressing the experience gaps by hiring local recruits who have both sector and education skills required to meet the challenges. However, this program relies on consultants rather than staff for a large share of its hires.