Speeches & Transcripts

IFC’s 13th Annual Global Private Equity Conference: The New Investment Climate in Emerging Markets

May 10, 2011

Robert B. Zoellick, President, World Bank Group IFC’s 13th Annual Global Private Equity Conference: The New Investment Climate in Emerging Markets

As Prepared for Delivery


  • It’s a great pleasure to join you today for IFC’s 13th Annual Global Private Equity Conference.  Thank you for joining us, in what I understand are record numbers.
  • When the title for this year’s conference – The New Investment Climate in Emerging Markets – was first announced, it was before the tumultuous events of the last few months:  political changes in the Middle East and North Africa; the earthquake and tsunami in Japan; high volatility and levels of fuel and food prices. 
  • Although issues such as these call for governmental actions, I believe the private sector also will have an important role to play in helping economies adjust to these and other challenges. 
  • Private equity, in particular, will be critical in mobilizing much needed capital, creating the partnerships and connecting the expertise needed to drive growth and generate jobs.  In combination, investments can build markets that reach beyond individual businesses. 
  • That’s why funds have become a strategic focus for IFC.
  • IFC now has an active portfolio of over $3 billion invested across 180 funds in emerging markets. We calculate that fund managers supported by IFC represent about 10% of total emerging market private equity funds, making us the largest investor in this space.
  • We estimate that IFC’s investments in emerging markets’ private equity alone have created about 300,000 new jobs over the last ten years, many of which employed women.  64% of the companies we supported were small and medium-sized enterprises.
  • More than 50% of IFC’s investments are in the poorest countries, where we are often the first private equity investor.  This focus helps us reach smaller companies and frontier countries such as Sierra Leone and Liberia – countries underserved by the existing financial systems and where impact can be greater.
  • These numbers actually translate into narratives about helping companies to increase sales, improve governance, and generate sustainable jobs. 
  • In 2007, Mr. Staton Woods engineered the formation of Arcos Dorados, by partnering with three equity firms, including two IFC-supported funds.  The consortium bought over 1500 McDonalds restaurants across Latin America.  Today, Arcos Dorados is the largest McDonalds franchisee in the world, operating in 19 countries and territories, and is listed on the New York Stock Exchange.  
  • So I’d like to offer a special thanks to IFC’s Private Equity team, led by David Wilton and his colleagues, for organizing this year’s Conference.
  • IFC’s partnership with the Emerging Markets Private Equity Association, or EMPEA, led by Sarah Alexander, is now in its fifth year.  EMPEA started in the IFC Private Equity Funds Department in 2004, and it has since gained momentum while maintaining a strong partnership with IFC.  I want to congratulate Sarah and her team at EMPEA for helping to make this conference one of the leading forums for private equity today.  
  • I also want to thank an impressive set of participants: sponsors; panelists; speakers, such as Sebastian Mallaby, who you just heard; and all of you. 
  • And of course, I’d like to thank Lars Thunell.  His stewardship of IFC has been impressive, and I want thank him for his leadership and partnership.
  • Lars continues to attract and build a fine team at IFC.  Whenever we meet to go over one of IFC’s initiatives, I’m always struck by the motivation, creativity and attention to delivery of the IFC teams.
  • Just last week I was with the IFC staff in Morocco and Tunisia, where our intrepid team is planting seeds of investment in the Arab Spring, so that fresh openings can lead to independent private sectors, entrepreneurial opportunities, new sources of finance, and jobs.

Spring Meetings and Global Economy

  • Last month, our Spring Meetings of the World Bank Group and IMF shareholders highlighted some of the most pressing issues facing the world today, including those historic changes in the Middle East and North Africa; food security; the recoveries of fragile states, often coming out of conflict; and the benefits of greater transparency and openness, including across our own operations, so we can learn more from the people we are seeking to assist.
  • Although the acute phase of the financial crisis is past, its reverberations still send shock waves through the world economy.
  • We have had a multi-speed recovery, driven by emerging economies.  Much of the developed world is still struggling to create jobs and set a clear course on spending and sovereign debt.
  • Developing countries are growing about twice as fast as the high-income countries, and that growth is increasingly based on domestic demand.  Last year, exports by developing countries grew about 20 percent, and their imports grew even faster – by about 22 percent.
  • In some emerging markets, the greater risk now is of overheating and possible bubbles for some assets.
  • Price pressures for food and energy are stirring new challenges, while putting vulnerable populations at risk.
  • The realities are stark:  1.2 billion poor people.  44 million new poor because of higher food prices.  1 billion people in the world go to bed hungry every night.  We can and must do more to help these people meet basic needs, while offering them opportunities to build a better future.
  • Emerging markets will be a key component of future growth.  There are whole new avenues for South-South investment, innovation, marketing, and demand. 
  • Of course, each market faces different challenges and opportunities, including for private equity.
  • Some have supply-side bottlenecks that could be overcome with investment.
  • Some have weaknesses at stages in product or service value chains, which if strengthened, could unleash more productivity and growth.
  • It’s clear, for example, in some economies, that improvement in bringing farm products to market, and in secure storage, could have an effect equivalent to doubling production. 
  • Trade is critical to the economic recovery and future growth.
  • IFC’s Global Trade Finance Program was up-and-running before the global crisis.  This program supports trade with emerging markets worldwide by mitigating risk and extending banks’ capacities to offer trade finance to businesses.  
  • We expanded the program in response to the crisis, and today more than 200 issuing banks in 84 emerging markets are involved.  In the first half of fiscal year 2011 alone, the Global Trade Finance Program issued $2.1 billion in guarantees, a 34 percent increase over the same period last year. 
  • We recently topped $10 billion in guarantees.  This milestone was marked by a deal for a south-south shipment of steel from Malaysia to Vietnam.  That’s not surprising, because the trends in trade flows mirror those of the global economy.  In fact, over 40 percent of the guarantees issued by the program have been for south-south trade.
  • As the crisis unfolded and trade plummeted, we realized that guarantees were not enough.  So we established the Global Trade Liquidity Program, announced at the G20 Summit in London in April, 2009.  Our Liquidity Program has now supported more than $12 billion worth of trade in developing countries.  We estimate that 80 percent of this financing supported small and medium sized enterprises, and 25 percent was for trade with companies in Sub-Saharan Africa. 
  • New risk requirements may constrain banks’ abilities to finance trade, even in the recovery.  Therefore, IFC, other international finance institutions, and private equity will have critical roles to play in strengthening financial intermediaries, and widening their business services, whether for trade, agriculture, energy efficiency, or support for small and medium-sized enterprises.


  • Small and medium-sized enterprises are crucial engines of job creation and economic growth.  They provide more than half of all jobs in developed and developing countries. 
  • The most obvious constraint on SME growth is a lack of access to finance, which has worsened as a result of the financial crisis.  The World Bank Group estimates that the credit gap for formal and informal micro, small, and medium sized enterprises is over $2 trillion – equivalent to approximately 14 percent of the total GDP of all developing countries.
  • So there is both a need and an opportunity for the involvement of IFC and private equity to fill this gap.
  • In 2010, IFC clients helped fill that gap by making 1.5 million SME loans worth just over $100 billion.  We estimate that more than half of IFC’s private equity investments went to SMEs with 300 or fewer employees.
  • But the need for financing goes beyond credit, so IFC has developed innovative products and financing instruments such as supplier financing, leasing and receivables financing, and equity investments.
  • IFC is also seeking to build up the financial architecture in countries, such as developing credit bureaus and payment systems that enable businesses to establish credit and help banks to extend financing in a sustainable way.

Help for the Poorest

  • We will also focus on the private sector’s help for the very poorest.
  • The World Bank recently launched our 2010 World Development Report, on the subject of Conflict, Development, and Security.  
  • These fragile – often post-conflict – states are home to the world’s poorest.  Paul Collier highlighted how these unfortunate countries are falling further behind in his 2007 book, the Bottom Billion.  Today, it is more on the order of 1.5 billion.  
  • Not one of these countries has yet achieved even a single Millennium Development Goal.  They drag down neighbors with violence that overflows borders.
  • Our Report looks across disciplines and experiences drawn from around the world to offer ideas and practical recommendations on how these countries can move beyond conflict and fragility.  One of the Report’s conclusions is that access to capital and finance is vital, and private sector development is a key factor in service delivery and job creation to show early results as well as longer-term growth.
  • International partners need to provide more – and more integrated – support in these countries.  I certainly realize that these places are not your normal investment targets, so I am proud that IFC has demonstrated leadership here as well.  We want to foster the conditions for the private sector to be part of the solution.
  • Many high-potential frontier market SMEs need the risk capital and strategic advice that private equity provides.  But of course most fund managers are not ready to play this role in the poorest countries.
  • It was with this in mind that the IFC conceived of the SME Ventures Program in 2007 to target SMEs in the poorest high-risk countries.
  • SME Venture Funds are now active in Bangladesh, Bhutan, the Central African Republic, the Democratic Republic of Congo, Liberia, Nepal, and Sierra Leone – all countries where IFC works with world-class fund managers to fill the equity gap.
  • One of the first investments was in SEAF Bangladesh Ventures, a fund that targets risk capital investments between $100,000 and $500,000 in fast growing, early stage SMEs. 
  • Since the Fund’s launch last November, it has invested in a Bangladeshi software development company that serves financial institutions and telecom operators in Bangladesh, Nepal, Bhutan, and Malaysia.  IFC has also approved the fund’s investment in a local company that manufactures highly energy-efficient solar home systems that can power off-grid rural households for a one-time acquisition cost of around $200, using its proprietary micro-inverter technology. 
  • These companies provide jobs, catalyze entrepreneurship, and improve the quality of life on the ground.  When they move into the formal sector, they pay taxes, hire more people, and are able to grow even more.
  • SEAF, or Small Enterprise Assistance Funds, have invested in more than 350 SMEs over 21 years.  As a result, these SMEs have enjoyed average annual employment increases of 25%, 77% of which has been for low-skilled or semi-skilled workers. 
  • We’ve also seen SMEs contributing to the development of skilled workers. Productivity improves with employee training, with companies’ annual average revenue growth rates reaching 33%, and wage growth at 19%.
  • These examples also emphasize IFC’s development mission.  We want to “crowd in” private investment, and to develop and deepen markets.
  • If we can show the way in frontier markets, some of you may recognize that risks are lower than perceived – and opportunities greater – so you can join with or follow us.  
  • In IFC’s experience, the fund manager’s skill set is the single most important factor in fund quality.  With this in mind, a crucial part of the SME Ventures program is also training and business support for the fund managers and SMEs.
  • We chose fund managers in the program through a competitive process that identified more than 300 organizations with the best mix of expertise in both SME finance and the unique needs in these higher risk markets.
  • IFC’s Dakar office took the lead in hosting the first training session for about 20 local fund managers at the end of 2010.  Earlier this year, IFC held a second successful training program in Kathmandu for funds in Asia.  We look forward to more such sessions around the world.  And we welcome learning from you about how we can offer more support.   

Food security

  • This year, I have been urging the G20 – under France’s chair and President Sarkozy’s leadership – to put food first.  
  • Around the world, we can help support smallholder farmers with seeds; fertilizer and other inputs; irrigation and other basic infrastructure; and better weather forecasting.  We can assist in getting produce to markets with less wastage, and in meeting standards for export.
  • There are a host of opportunities that are ripe for private equity, including through investments that improve the supply chain, logistics, and marketing infrastructure.  This is a growth sector.
  • Rwanda’s Agricultural Minister recently summed up her own country’s experiences for me in a way that highlights the possibilities.  Three years ago, the Rwandan government partnered with the Bank Group to help get key inputs – fertilizer and seed.  After sustaining the harvest, the Rwandans started to invest in irrigation and terracing to protect the soil and improve lands.  Today, production has risen by 44 percent; potato yields have increased from 5 to 15 metric tons per hectare – in some areas, up to 24 metric tons.  Rwanda estimates that smallholder incomes derived from crops have tripled.  So in 2011, because of this larger production, Rwanda is now looking for investors in storage facilities so farmers can cut waste, and sell into market demand. 
  • In Nigeria, the Governor of the Central Bank estimates that 70% of the tomatoes grown either rot or are destroyed before they reach the market.  There is clearly a big opportunity to share gains from investments in infrastructure, such as roads and storage facilities.
  • IFC recently took a $1.25 million equity stake in Esoko Networks, an IT company based in Ghana, to meet a financing gap when no local venture capital was available.  Esoko sells information on the latest food prices to small-scale farmers’ co-ops and businesses.  Knowing the prices in more markets has enabled small farmers to negotiate prices, plan more effectively, and invest more in their production, boosting output.
  • While the concept of providing this kind of information is not new, Esoko is the first private business to tap into this base-of-the pyramid market.  Esoko is now looking to offer technology solutions to large projects, and to expand across Africa through franchising.

Private Equity in Africa and Latin America

  • IFC's equity returns over the last 10 years in low-income countries, compared with IFC as a whole, provide a compelling case for investment.
  • Africa was IFC's top performing region over the last 10 years in terms of returns on IFC's own equity investments – 31% in Africa compared to 25% globally.
  • Africa is also the region where IFC’s investments in private equity funds have grown the most.  In the year that ended June 2010, IFC committed new investments in 12 funds in Africa; so far in 2011, we’ve invested ­­­$85 million in four more.  IFC now has more private equity partners in Sub-Saharan Africa – a total of 37 partners – than anywhere else.
  • Frontier markets in Latin America also offer great potential for private equity.  Colombia, for example, has enjoyed annual GDP growth of about 4 to 5 percent on average for the last few years.  Colombia recently signed a trade agreement with the EU, and the U.S. Congress expects to pass its Free Trade Agreement with Colombia this year.
  • Many of the regional private equity players – including DLJ, Southern Cross Group, Linzor Capita, and Advent – are allocating funds to Colombia, and several local and international private equity investors are considering investing in infrastructure.
  • Chile, too, is growing and attracting substantial private equity capital to sectors such as education, health, and infrastructure – all of which can also have a significant development impact.
  • Given IFC’s strong returns and experience in both Africa and Latin America, IFC’s Asset Management Company, or AMC, last year launched its $1 billion ALAC Fund to invest in these two dynamic regions.
  • The AMC seeks to complement, not compete with, IFC-supported fund managers in the private equity marketplace.  We think the investments will expand growth, which should create more opportunities.
  • Specifically, the AMC considers investments in spaces where IFC-supported private equity fund managers are not active either because of the size of the investment or the riskiness of the sector.  In addition, the AMC cannot have control or substantial influence over the investee companies.  IFC-supported funds, on the other hand, negotiate substantial influence over their investments.
  • The AMC offers investors a different value proposition and portfolio diversification.  It has already successfully attracted around $2.9 billion from investors such as sovereign wealth funds, and larger pension funds that had little exposure to Emerging Markets.
  • As the AMC makes profitable returns for its institutional investors, these investors are likely to feel more comfortable investing in smaller private equity funds and frontier markets. 
  • When I asked one pension fund manager what attracted him to the new ALAC Fund, he told me: We now know developed markets are risky too.  We see growth potential in these markets.  But we don’t know where to invest.  IFC does.  And we expect to learn through this start.
  • Africa, Latin America, and even Asia are only part of the emerging markets landscape.

The Middle East and Need for Transparency

  • The future of the economies of the Middle East and North Africa depends on both good policy and supportive financing.
  • The Middle East, like other emerging markets, needs investments that create jobs, including for women and young people.  The many young people who took to the streets were sparked by many frustrations: sclerotic political systems; lack of dignity and respect; nepotism and corruption; but also frustration at the lack of economic opportunities.
  • Our strategy includes assisting short-term job creation, connected to long-term job investment; trade to improve exports and strengthen investment; better services and targeted safety nets for people who have been pushed to the margins; and measures to reinforce the private sector.
  • We will also be urging reforming governments to focus on transparency, accountability, and governance, which has been lacking in the region. 
  • These markets could offer opportunities for export to the EU.  Asian and other firms are investing in production platforms for that reason.
  • I also saw in Morocco and Tunisia a growing IT and service sector, again connected to the EU.
  • Morocco is also becoming a hub for business and investment in Sub-Saharan Africa.
  • There could be a special opportunity for private sector involvement in service delivery for the local market.
  • Post-secondary education, for example, is still largely provided by the public sector.  A recent study commissioned by IFC and the Islamic Development Bank found that only 15 to 20 percent of post-secondary students in the Arab region are enrolled in private institutions.  This is contrast to 65 to 75 percent of students in Brazil and Malaysia.
  • We will focus on investments that can benefit the wider community, not just replace one privileged elite with another.
  • The World Bank Group itself has a responsibility to boost transparency and accountability, and an open search to find development solutions.
  • Our new Access to Information policy, drawn from Freedom of Information laws in India and the United States, makes the World Bank Group a global leader among multilateral institutions on disclosure.  We have been recognized as a Global Transparency Leader and scored the highest ratings on aid transparency among 30 leading multilateral and bilateral aid agencies.
  • And our Open Data Initiative gives access – free of charge – to more than 7,000 development indicators, so that researchers, practitioners, and civil society can check our numbers, share our knowledge, and put that knowledge to use.
  • Some of our data may be of interest to investors too.
  • Just as civil society expects higher standards of transparency from the World Bank Group, the publics will demand the same from their governments as well as from the investment community.
  • This demand for transparency will be a major part of the new investment climate in emerging markets.  As I mentioned last year, higher standards of transparency and integrity will increase overall investor confidence, too. 
  • As such, it’s also time to shed light on what is perceived by some to be the shadowy world of private equity, especially as its role in providing much needed finance in emerging markets grows.
  • We – and you – need to get ahead of this issue.
  • IFC is already taking steps.  Our revised Sustainability Framework will bring about greater transparency on project performance and development impact, and demand stricter environmental and social standards.
  • For private equity projects, IFC will disclose information about high-risk sub-projects.  Our corporate governance standards will also require independent members to serve on advisory boards.
  • IFC is working with Cambridge Associates and other fund managers to gather and publish quarterly information on private equity funds performance.  This research will create the first emerging market benchmark for investors to measure fund managers’ performance. 
  • And IFC is working with other development finance institutions on cross departmental and integrity issues, developing minimum standards for terms and conditions, and standardized legal agreements for investments. 
  • We will share our information – so if one development finance institution does not invest for integrity reasons, no others will either.
  • Private equity firms in emerging markets should demand similar transparency from their partners.  Don’t taint the great prospects of this sector.


  • We know the positive impact private equity can have – it’s time we let the world know that private equity can also be a driver of change, growth and opportunity in developing countries.
  • The world needs jobs -- and private equity can help provide them.
  • The world needs investments in stability -- and through innovative partnerships private equity can venture to the poorer, high-risk countries where investment hasn't ventured before.
  • The world needs food security -- and by working all along the value chain, private equity can help put food on the table for the 1 billion who go hungry every day.
  • The opportunities are enormous. All they need is the vision, the commitment and the creativity to seize them. We believe we have all three. And as we choose the road less traveled, we look forward to traveling with you.

Thank you.