Hostilities between Morocco and Algeria have taken on a new dimension in recent months, especially over the Western Sahara question. Could the situation descend into a full-blown conflict? The Africa Report takes an in-depth look at the forces involved.
Our mission is to help small companies – Jean Philippe Prosper
The Africa Report: One of the recurring criticisms of the International Finance Corporation (IFC) is that it mostly finances Western multinationals rather than focusing on its development mandate.
Jean Philippe Prosper: First, note that the IFC is part of the World Bank Group and our mission is to help the poor and small companies. However, the big question is: ‘How do you do it?’ And what we want to make sure of at the end of day is that whatever we do will help those companies.
Of the $5bn we do in Africa, $2.5bn is through financial institutions and goes to SMEs
There are two main reasons why we finance a large company. First, even if it’s a large company, they need funding and we usually help mobilise additional funding for them which they would sometimes not have access to. For example, take the Azito project [in the Nigerian power sector]. We recently put in about $470m: $125m from IFC and we mobilised $345m from others. Others joined because we did all of the studies and all of the analysis, and that’s how they were able to come into the project. Often these projects last 15-20 years, so we give you the maturity needed for those projects to happen.
In many of them, it would not have happened without the IFC. But let’s assume it could have happened because it’s a large company. I’ll take Newmont [Mining]’s Ahafo operation in Ghana. Newmont is a big multinational company. Remember, Newmont didn’t come to the IFC just to please us – we are not cheap.
We are usually more expensive than the commercial banks. So, at the end of the day, why would they want to come since, with their big name, they could in theory have cheaper money? Very often, they know that it’s very important for them to get their licence to operate and, in the case of Newmont, what was important for us is the community development programme and the SMEs [small and medium-sized enterprises] in that area.
In this particular case, we trained the SMEs in Ahafo area, and we built a community development programme to help provide sources of income for the people in that community. We also put in place the proper environmental and safety structures for Newmont.
But that’s just a tiny fraction, as most of the first- and second-tier suppliers to extractive industries are themselves Western companies.
It has to start from somewhere. In some countries, you have a bigger impact because the value chain is more developed than in others. We reach small companies by working with big companies because small companies don’t have access to international markets due to their size. They need someone to buy their products if they want to survive, so they sell to the big companies. That’s the beauty of having big companies.
I can go on to talk about why I think it’s important to also have large African companies, which we are also trying to push […] In so doing, we make sure we go down the value chain and make sure we integrate some of the small and local companies. However, the biggest way to do that is through financial intermediaries. For example, in Africa about 50% or more of our business is done with financial institutions. Of the $5bn a year we do in Africa, $2.5bn is done through financial institutions, which goes to SMEs. The problem is that nobody sees the IFC’s name.
How do you help a small African company break through into supply chains for these bigger companies?
In Ethiopia, we have used TechnoServe as a partner to help some of the coffee farmers. We are providing technical assistance and funding through a local bank because we can’t administrate and give in the money like that. We have plenty of those structures, and I can give you several examples. What I’m trying to say is that the important thing, even when we finance a big company, is that we look at the value chain because we want to make sure that at the end of the day the SMEs will benefit from it.
How does your trial of asset-backed lending in Ghana work?
It’s a leasing programme. In every single country where you have SME development, this has been at the frontier. We know SMEs don’t all have the money to buy equipment, otherwise they wouldn’t be SMEs. So, for example, an SME puts in 20% of the money and the financial institution puts in the rest to buy the equipment. [The bank] owns the equipment and leases it to the SMEs. By so doing, you have what you need to be able to produce your goods without having to put in 100% […]
Eventually, after that, the financial institution can recover the equipment and lease it to someone else or the SME can buy it at the end of the leasing period. However, one of the issues is proper legislation and a regulatory framework, which we are trying to put in place. There’s also the lack of a proper justice system and enforcement. ●