Speeches & Transcripts

Speech by World Bank Managing Director Joaquim Levy at the 2016 Development Finance Forum

May 18, 2016

Managing Director and Chief Financial Officer Joaquim Levy 2016 Development Finance Forum Dublin, Ireland

As Prepared for Delivery

Thank you so much Minister Noonan for the warm welcome to your lovely country and to this Development Finance Forum.

As I look around this room, I am struck by the number and diversity of participants that we have here today from around the globe. Thank you so much for sharing your experience and expertise with us. We are here to listen, learn and act from your work.

As many of you know, the World Bank Group has twin goals – to eradicate extreme poverty and boost shared prosperity.  These are ambitious goals, but they are achievable. It will, of course, take partnership with all stakeholders, particularly in fragile states. And among these partners and stakeholders I would like to mention in particular the private sector.

The private sector is an indispensable force for sustainable development and nowhere is that more important than in countries emerging from crises. A dynamic private sector sparks innovation, creates jobs, speeds up economic recovery and lays the foundation for stability. In Brazil we call the private sector the “free initiative,” for good reason.

We know there are major hurdles to investment. In countries experiencing conflict and instability, investors may perceive doing business as too risky and with too many obstacles.

But there are also many opportunities there.

We probably can borrow from the old writer who understood so well the plea of the poor and say that perhaps this is the worst of times, and the best of times.  

After many years of exceptional growth, when so many people were lifted out of poverty, today many ask whether it will be possible for economic growth to come back. And while no answer to this question arises, we keep watching savings piling up and being underemployed, leading to ever lower interest rates that worry many elder savers.  It is clear that there is a mismatch of capital and investment opportunities.

Of course we are all familiar with explanations for the lack of investment:

•  A lack of viable funding models
•  Inadequate risk adjusted returns
•  Unfavorable regulatory and tax policy
•  High development and transaction costs
•  And a lack of “bankable” project pipelines

What do these symptoms mean, and how should we start to treat them?

Over the next two days we will be exploring, together, these issues and also delve in the opportunities for private investment in fragile markets.  These opportunities often lie in areas such as agriculture, energy, transportation and urban infrastructure, offering interesting returns and the potential to mobilize significant resources.


" The private sector is an indispensable force for sustainable development and nowhere is that more important than in countries emerging from crises. A dynamic private sector sparks innovation, creates jobs, speeds up economic recovery and lays the foundation for stability. "

Joaquim Levy

Managing Director and World Bank Group Chief Financial Officer

This conference, envisaged in Addis, is very timely. Because we must act now, since an estimated 1.2 billion people are living in areas affected by conflict and fragility today.  They account for almost one in every five people in the world. And these are not abstract numbers – we are talking about real people, with real problems that we, together, can address.

We all know that fragile and conflict-affected states, or FCS, need investment to create jobs, spur economic growth, generate tax revenues, bolster infrastructure and create a sense of hope for their people. A society with an economic stake in peace is less likely to return to conflict.

The World Bank Group is helping fragile states move away from the margins by improving their investment climates, increasing access to finance, including for small businesses, and mobilizing domestic and international investment.

IFC, our private sector arm, invested $2.5 billion over the past three years in fragile markets in projects generating power, reviving telecommunications networks, increasing food security, helping entrepreneurs’ access finance and creating employment opportunities for women and youth.  

This type of investment is achieving real results across the globe. Take for example, the Azito power plant in Côte d’Ivoire. IFC invested $125 million and arranged a $345-million package funded by the five European development finance institutions and the West African Development Bank to increase the efficiency of an existing plan by 50%. There, the World Bank helped the government put in place a better regulatory framework, while MIGA provided political risk insurance, allowing additional 139 MW of power using the same amount of natural gas.

In Myanmar, a World Bank Group strategy for the electricity sector helped the Government to improve the regulatory environment and structure an independent power project transaction for a 225 MW gas-fired power plant. The bid was awarded to Sembcorp Utilities of Singapore for a total value of USD 310 million, of which USD135 million was from commercial banks. The joint work of IDA, IFC and MIGA, with the private sector and Asian Development Bank, resulted in the first bid out IPP for the country, yielding new energy at half the price for the benefit of more than 1.5 million people, all in less than two years.

This shows some of the new dimensions of IDA’s PSD—Private Sector Development. IDA has invested more than USD 70 billion in that, and our challenge is to scale up these examples.  
 
For this purpose, these experiences have to be refined, repeated and leveraged, using new instruments, developed with a growing number of partners, including our peers among Multilateral and National Development Banks, development and aid agencies, the private sector, including financial institutions, non-governmental organizations and many other stakeholders. We come with humility to see how to scale up these actions in partnership with you.

In this regard, where so much more needs to be done, no doubt “finance” will be essential to mobilize the resources needed to fill a gap in infrastructure investment around the globe estimated by some in the order of USD 2 trillion a year, as well as to channel resources to local enterprises.

With respect to infrastructure, the World Bank Group is working with many partners do create real value chains in this space. For this purpose, we think it useful to focus on three segments of these chains.

Firstly, we are focusing on the asset side of infrastructure, what I like to call the “downstream” work. This includes addressing:

•  Business environment through a regulatory sectoral framework, a core activity of our Global Practices and advisory services
•  Improvements in procurement through our Governance and Institutional areas
•  The volume and quality of project preparation, with facilities such as the GIF in Singapore
•  The bankability and affordability of projects including recovery costs and PPPs

Our midstream work focus on the instruments to finance infrastructure and manage risk.  This work includes:

•  Simplifying and standardizing contracts and financial structures
•  Establishing for the best tools for de-risking, including by refining and enhancing WBG products such as guarantees for different types of risks offered by IBRD, IDA, IFC and MIGA
•  Developing structures that help create brown-field like income streams aimed at low-risk investors, including managed savings belonging to an ageing population in developed countries, allowing the allocation of construction risk to best suited investors
•  Setting goals for mobilization volumes and strengthening the cooperation with our partners such as with our fellow MDBs through the Infrastructure Forum

Finally, we need to focus upstream on investors by:
 
•  Developing domestic markets, including, e.g., by creating an adequate investment framework for local pension funds
•  Fostering the dialogue with insurance companies and institutional investors to understand their regulatory environment, their investment guidelines and fiduciary responsibilities and possible undue constraints on their ability to take advantage of different types of risk in a world of low interest rates and deflationary pressures.
•  Developing references to investors, such as an infrastructure index in the fixed income space, to create an environment favorable to the development of project bonds as an asset class.  Such an index would help asset managers around the world to benchmark and hedge their infrastructure portfolios, creating new opportunities to develop investment strategies around securities in this space and obtain a quantum increase in their allocation to infrastructure.
 
In addition to this, we continue to explore the possibilities of IDA—the World Bank’s fund for the poorest, MIGA and IFC, together with national agencies to create new sources of capital and manage risks related to small and medium enterprises in FCS. These are key sources of employment and stability.

All this work, notably in infrastructure, reinforces our strategy to help fulfill the financial commitments made by developed countries in COP21. It is also a key part of a global strategy to address the very real problem of refugees and displaced populations, complementing in a very humble way the extraordinary humanitarian efforts conducted by so many governmental and non-governmental organizations and institutions on behalf of these people.

Thank you for coming, and let’s find ways to take advantage of the exciting frontier to investment provided by fragile markets, with all its potential and possible ways to overcome the inevitable risks.

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