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FEATURE STORY

World Bank Group, Private Sector Can ‘Advance a Common Good’

November 22, 2013

U.S. Chamber of Commerce CEO Tom Donahue, Multilateral Investment Guarantee Agency Executive Vice President Keiko Honda, World Bank Group President Jim Yong Kim, and International Finance Corporation Executive Vice President and CEO Jin-Yong Cai.

STORY HIGHLIGHTS
  • The World Bank Group is reaching out to the private sector as part of an effort to achieve its goals of ending poverty and boosting shared prosperity.
  • Official development assistance alone can't close big infrastructure gaps in poor and middle-income countries, estimated to cost an extra $1 trillion a year through 2020.
  • The Bank Group can work with public and private partners to mitigate risk and “advance a common good together.”

Just a few years ago, Myanmar was isolated, politically and economically, from the rest of the world. Now, it is opening up and growing strongly, but it faces challenges, including access to electricity – more than 70% of the population has no access.

“Myanmar’s potential for growth is huge,” World Bank Group President Jim Yong Kim said last week at an event at the United States Chamber of Commerce to interest the business community in the Bank Group’s work. But Myanmar needs to expand access to energy to lock in a “democracy dividend” so the country can continue to grow, Kim said.

Kim was speaking to companies whose resources and know-how could help countries like Myanmar. In the post-financial crisis world, private sector investment in international development has been on the wane, and access to finance has become difficult, especially for initiatives in countries perceived as risky.

Closing big infrastructure gaps in poor and middle-income countries will cost an extra $1 trillion a year through 2020, according to Bank Group estimates. Official development assistance (ODA) from organizations like the Bank Group amounts to only about $125 billion a year.

“There is no way ODA is going to be anywhere near adequate,” said Kim. “If you have high aspirations for poor people in the world, you have no choice but to embrace the private sector.”

To that end, the World Bank Group is reaching out to the private sector as part of an effort to achieve two goals endorsed by the Bank’s shareholders this year: End extreme poverty by 2030, and share prosperity by boosting incomes of the bottom 40% in every developing country.

Kim took these messages to the Chamber of Commerce, where CEO Tom Donahue said the Bank and the business community could “advance a common good together.”

“For us, it’s not just an opportunity to develop new markets for our products and services, but to ensure that millions of people are lifted out of poverty, can live up to their full potential, and contribute to global growth, which we badly need,” said Donahue.

Some 1.2 billion people in the world don’t have electricity, at least 780 million are without clean water, and 2.5 billion don’t have basic sanitation. It’s a situation that costs thousands of children’s lives every day, and billions of dollars in economic losses every year. 

Kim was joined at the U.S. Chamber by IFC Executive Vice President and CEO Jin-Yong Cai, of the Bank Group’s private sector arm, and Keiko Honda, executive vice president of the Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance and credit enhancement products.

Under a new organizational strategy, the three Bank Group heads will work more closely together to combine grants and concessional finance, private sector business investment, and investment guarantees to leverage financing, attract investment, spur growth and cut poverty in developing countries.

Open Quotes

For us, it’s not just an opportunity to develop new markets for our products and services, but to ensure that millions of people are lifted out of poverty, can live up to their full potential, and contribute to global growth, which we badly need. Close Quotes

Tom Donahue
CEO, U.S. Chamber of Commerce

In Myanmar, for instance, the Bank Group is financing a project to literally turn the lights on.

An interest-free $140 million loan from IDA, the Bank’s fund for the poorest countries, is supporting construction of a modern, high-efficiency electricity power plant that will produce 250% more electricity with the same amount of gas. IFC, which concentrates nearly half of its investments in the poorest countries, is considering investments in new private-public power projects aimed at increasing additional electric power capacity to around 300MW over the next 12 months. And last month, at the World Bank-IMF Annual Meetings, Myanmar said it would join MIGA so foreign direct investment into Myanmar will be eligible for the agency’s political risk insurance.

The electricity project is part of larger effort to support reforms, including transparency and accountability in the extractive industries sector, along with community-driven development empowering people in Myanmar’s rural areas to build small infrastructure projects where they’re needed most.

IFC has also invested $2 million in ACLEDA Bank PLC to help set up a microfinance institution to provide loans to more than 200,000 people – mostly micro and small businesses run by women. It plans more investments to support agriculture, trade, and telecom, said IFC’s Cai. “Once you create the basics for the economy, the entrepreneurship of the Myanmar people will take over,” he said.

Responding to audience questions about IFC’s support to the private sector in emerging markets, Cai said, “It’s not about how much money we put in. It’s about being a trusted adviser to business. We want to take the same risks as you do – we are there together with you.”

While risk is a factor for investors in developing countries, there is also great potential, said Kim. More than half of global growth since 2008 has come from the developing world. A growing “virtual middle class” empowered by mobile phones is gaining knowledge and seeking better living conditions. Companies that choose to work in countries considered risky today may find later they “have a huge advantage” as these countries grow, said Kim.

Speaking to the executives attending the event, Honda added, “Risk-adjusted returns in the developing world are high, but you may still be concerned. We are here to help you. Although a lot of risks are ‘perceived risks,’ we can leverage the World Bank network to help support clients in solving problems when they do occur so they can continue their investments.”

The Bank Group’s long history in global development positions it as a coordinator and problem-solver, able to work with governments and the private sector to finance needed infrastructure.

In Kenya, for instance, where only 25% of the population has access to electricity, the Bank Group helped the government secure financing to replace expensive leased diesel-fired power plants – a key step in the country’s transition to low-carbon energy. A combination of IDA partial risk guarantees, long-term financing from IFC, and political risk insurance from MIGA helped to mobilize $623 million in energy sector investment to finance four new, more efficient power plants with an expected generation capacity of 286MW.

Similarly, in Cote D’Ivoire, the Bank Group used a partial risk guarantee of $60 million from IDA together with MIGA guarantees of over $500 million to enable $1 billion in investment from the private sector to expand the power grid by 300MW and secure a 12-year supply of natural gas for the country’s domestic power plants.

Under the Bank Group’s new strategy, such efforts will become more common, said Kim.

“We’re trying to move to doing these major, important infrastructure projects that use the latest technology. The greatest innovation is working across the public and private sectors and doing things that people think are not possible, but are possible with us because we have so many ways of either mitigating risk or making the deal go through.”