Infrastructure is the key to development and improved quality of life in Egypt and Africa as a whole, according to Lars Thunell, CEO and executive vice president of the International Finance Corporation (IFC).
The IFC, self-described as “the largest global development institution focused on the private sector” and known externally as the private financing arm of the World Bank, invested $14.5 billion in fiscal year 2009, providing capital to developing countries during the global economic crisis.
The IFC describes its strategy for the MENA region as “increasing access to finance for the underserved, especially micro, small and medium enterprises, and home-loan and student borrowers … investing in infrastructure development and creating employment opportunities through investments in general manufacturing, health, education and agribusiness.”
The IFC recently hosted a Cairo seminar in partnership with the Infrastructure Consortium for Africa, the Islamic Development Bank, and DevCo, a multi-donor program affiliated with the Private Infrastructure Development Group.
Speaking with Daily News Egypt, Thunell specified that public-private partnerships, (PPP’s) represent the best solution for cash-poor governments urgently in need of infrastructural development.
“They [PPPs] are the necessary way forward. Not all projects have to be PPPs but a significant portion [must be], if any of these countries are to have a competitive advantage,” he said.
Thunell mentioned studies conducted by the World Bank highlighting the debilitating dearth of basic infrastructure endemic to the African continent.
“Infrastructural development is one of the keys to [overall] development. The World Bank [conducted a] study showing that Africa could reach a manufacturing productivity comparable to Europe, but currently the cost of transportation and logistics is very high; the cost [to ship] a ton [of goods] out of a landlocked country like Uganda or Rwanda is $2,900, whereas for Europe it’s closer to $1,200.”
Thunell acknowledged that distorted shipping costs are not exclusive to Africa, pointing out that, “It’s cheaper to transport goods like refrigerators from China to the US than from Central America to the US.”
While he stressed the importance of transportation infrastructure — citing the statistic that 40 percent of food produced in Africa is destroyed during shipment due to a lack of refrigerated railway cars — Thunell recognized numerous other sectors in need of investment.
“Power is mandatory. Without power, we know that many countries in Africa and other parts of the world have brownouts, which significantly reduce productivity and opportunities.”
For Thunell, even a conversation centered on Africa draws on parallels in other parts of the world struggling to cope with resources insufficient to meet rising demand: “Often [people] counter [faulty electricity services] by having additional power sources; in Pakistan every building has a reserve power station or generator, which adds to the overall cost.”
However, by holding the seminar the IFC intended to demonstrate concrete reasons for optimism. Thunell enthused over a meeting with Egyptian Finance Minister Youssef Boutros-Ghali.
“[Ghali] explained that after roads were built here in Egypt it was fantastic to see how the whole society bloomed. SMEs as well as bigger manufacturing plants started to flourish because you could suddenly transport goods to other parts of the country.
“In Egypt, but even more important in Africa, [producers] need [access to] bigger markets… [To achieve this] the need for infrastructure is $93 billion a year.”
On to financing
The question then becomes how to finance that. “With the budgetary situation for most governments around the world, they can’t meet the gap unless they can mobilize private capital,” he said.
Hand in hand with infrastructural advances, Thunell admitted the need for employment opportunities.
“The other component is the entrepreneurs and SMEs, especially for a country like Egypt, and many other countries with high population growth; in Egypt 50 percent [of the population] is younger than 24 years old. They need jobs, they would like to work, and the major creator of jobs in any society are SMEs.”
He explained the IFC’s commitment to working with local banks to support SME’s, citing a recent agreement with the Bank of Alexandria to use and distribute the internet-based SME toolkit designed by the IFC to assist in management and financing practices.
Partnership with Bank of Alexandria comes after the IFC invested $200 million in the bank, representing a 9.75 percent stake and IFC’s largest equity investment in Egypt and the second largest globally.
The objective, according to the IFC, is “to help the bank focus on expanding financing activities for micro, small and medium enterprises and homebuyers.”
Of the agreement, Mahmoud Abdel Latif, chairman of the Bank of Alexandria, said, “This agreement with IFC will also help us reach our goal of increasing financing opportunities for small- and medium-sized businesses and supports our corporate social responsibilities activities in order to help them grow and develop the Egyptian economy.”
The IFC’s clout has also facilitated a reform process in which Egyptian businesspeople can more easily register new enterprises, as well as move them from the informal sector to the formal sector.
Focus on farmers
Thunell added that while the IFC’s activities currently center on supporting PPPs and SMEs, they by no means represent the corporation’s exclusive areas of interest.
Agriculture, in particular, Thunell considers of primary importance. He acknowledged allegations that governments and corporations in Asia and the Gulf are engaged in a “land grab” in Africa, buying up agricultural land in order to ensure supplies of food products if and when food crises, such as that which occurred in 2008, drive up prices.
Thunell stated the IFC’s precautions to prevent predatory land acquisition: “In terms of a so-called ‘land grab,’ we [the IFC] have to be very careful; when we involve ourselves in an [agricultural] project, we verify who was using the land, that they were compensated and now have new opportunities, otherwise we would not engage in a project.”
While recognizing the rights of small farmers, he called attention to the need for greater food production. “[Agriculture] can’t all be done by small farmers…[but] there need to be protocols for industrial farms for how [cultivation] should be done, and under what conditions…we need to produce more food.”
Thunell also mentioned education and vocational training as an area of importance to the IFC.
Daily News Egypt asked him to comment on whether renewed investments in Africa from China and other Asian countries represent, in his opinion, a new stage in African history that would lead to sustainable development and improved quality of life. He responded equivocally, naming a few positive changes, such as the decreasing instances of violent conflict and the number of African nationals returning from abroad.
“Many [Africans] trained and worked for companies outside and are now coming back because there’s hope and room and space and opportunity for them. There are reasons for hope but still issues — corruption, lack of infrastructure… Is this a new leaf for Africa? Maybe.”
According to their press center, the IFC recently helped complete the first public-private partnership transaction in Egypt, a wastewater plant near Cairo. Elsewhere in the Middle East, specifically Jordan, Saudi Arabia, and Tunisia, the IFC has helped build the transportation sector by helping structure public-private partnerships to improve and build airports.