Fact Sheet: IFC and Emerging Markets at a Glance

Contact:

In Washington Corrie Shanahan Phone: + (202) 473-2258 Cell phone: + (202) 294-4697 E-mail: cshanahan@ifc.org

In Washington Joseph O'Keefe Phone: + (202) 458-4032 Cell phone: + (202) 413-5109 E-mail: jokeefe@ifc.org

• The GDP of emerging market countries as a group has been growing at roughly double the rate of advanced economies in recent years. Aggregate GDP of the developing countries grew 6.6 percent in 2004, while the GDP of high-income nations grew at 3.1 percent. Source: World Bank’s Global Development Finance 2005, pp. 33-34.  
   
  
• The expansion among high-income countries is projected to be stable during 2006, at about 2.5 percent, before picking up a bit in 2007. Growth in developing economies is projected to be 5.9 percent for 2005 and to remain above 5.5 percent for 2006 and 2007. Source: World Bank’s Global Economic Prospects 2006, p. 1. 
   
  
• Poverty levels are still high but slowly decreasing for the emerging market countries as a whole. From 1990 to 2002, the percentage of people in the developing world living on less than $1 per day dropped from 27.9 percent to 21.1 percent. The percentage of population in the developing world living on less than $2 per day dropped from 60.8 percent to 49.9 percent. Source: World Bank’s Global Economic Prospects 2006, p. 9.  
   
  
• IFC regularly invests in major projects that become cornerstones of job creation and macroeconomic growth in the developing countries. In Africa, for example, IFC provided financing to the Mozal aluminum smelter in Mozambique, which alone represents some 3 percent of national GDP, supports more than 1,100 jobs, and doubled Mozambique’s exports, providing in excess of $811 million in foreign exchange earnings.
  
  

• For every $1 dollar in official development aid to the governments of developing countries, some $4 in cross-border private investment now takes place. Net foreign assistance from official sources (aid, debt, and grants) is an estimated $70 billion, while private flows (debt and equity) are roughly $300 billion. Source: Global Development Finance 2005, p. 14. 
   
  
• Overall private capital flows to emerging markets, as a percentage of their GDP, are now more than four times net official aid flows. Source: Global Development Finance 2005, p. 14.
   
   
• Commercial bank net lending into the emerging markets has been projected to reach a nine-year high of $63 billion by the end of 2005. Emerging Europe is likely to be the major recipient of commercial bank funding as companies continue to rely on debt financing. In 2006, positive net lending to Latin America is projected to take place for the first time since 2000. Source: “Capital Flows to Emerging Market Economies, September 24, 2005,” Institute of International Finance.
   
  
• Today IFC is the largest multilateral provider of financing – loans, equity, risk management, and structured finance products – in the developing world. Since 1999, IFC’s committed portfolio of emerging market investments has grown from $12.9 billion to $19.3 billion. 

• Over the past decade, emerging market bond markets have deepened markedly. The issuance of international securities by emerging market sovereigns and corporates has increased from a level of $325 million in 1995 to roughly $700 million in 2003. Meanwhile, the level of domestic bond issuance by emerging markets issuers over the same period has increased from $1 trillion to $2.4 trillion. Source: Fitch Ratings.
    
  
• The level of foreign investment in emerging market local currency bonds has risen dramatically in recent years. In surveys of investors carried out by the Emerging Markets Traders Association, the volume of trade in secondary markets in local currency bonds, as a percentage of total trade volume, has risen from 25 percent in 1997 to 45 percent in 2004. Source: Global Financial Stability Report, September 2005, International Monetary Fund. 
   
  
• Since 2002, due to rising liquidity, low inflation, and increases in saving rates, spreads on emerging market bonds have been cut by more than half, from more than 800 basis points to less than 400 basis points. Source: World Bank’s Global Economic Prospects 2006, pp. 11, 12; Datastream; EMBI.
   
  
• Emerging market debt trading volumes exceeded $1.3 trillion for the third quarter of 2005, approaching the peak of $1.62 trillion that was seen in 1997. Source: Emerging Markets Traders Association. 
   
  
• IFC has taken a leadership role in deepening domestic capital markets in the developing world. To date, IFC has disbursed over $1 billion equivalent in local currency transactions through 39 loans and hedges in 10 currencies. In FY05, IFC committed its first local currency loans in Indonesian rupiah, Philippine pesos, and Turkish lira. Last year, for example, IFC was the first multilateral to issue a so-called “panda” bond in China, a 1.13 billion renminbi-denominated bond ($140 million dollar) issue in the Chinese nongovernment domestic market. The issuance marked the first opening of the Chinese renminbi bond market to international financial institutions.
   
  
• IFC is at the forefront of domestic capital market development. Through its participation in the structuring and credit enhancement of transactions, IFC has helped introduce new asset classes. Transactions have not only enabled IFC’s clients to secure attractive long-term local currency financing but have also been catalysts for expansion of numerous domestic markets. To date, IFC has completed 28 domestic market structured transactions for an exposure of $406 million equivalent and has assisted in mobilizing over $2 billion equivalent. 

After falling to a seven-year low of $96 billion in 2003, foreign direct investment in the emerging markets is projected to post its second strong consecutive year of growth by the end of 2005, reaching $149 billion—the highest level since 1999. This level is projected to remain nearly unchanged during 2006, at $146 billion. Source: “Capital Flows to Emerging Market Economies, September 24, 2005,” Institute of International Finance. 
 

• Inflows of foreign direct investment into the emerging markets have grown by an average of 23 percent per year during 1990-2000. Flows slumped between 2000 and 2002 and have recovered since. Source: “Recent FDI Trends in Emerging Market Economies,” Standard & Poor’s, November 10, 2005. 
   
  
• Reported FDI outflows from developing countries have surged dramatically, reaching an estimated $40 billion in 2004 (from only $3 billion in 1991) and becoming an important source of capital investment in the global economy. The bulk of these FDI outflows originated in countries that have been major recipients of inflows in recent years. Source: Global Development Finance 2005, p. 2. 
   
  
• In a recent A.T. Kearney survey of global executives regarding their most-preferred destinations for foreign direct investment, two emerging market nations, China and India, ranked higher than the United States. Source: A.T. Kearney FDI Confidence Index. 
   
  
• Recent research shows that in recent years “south-to-south” foreign direct investment – investment from a company in one developing country into another - has been growing five times faster than “north-to-south” investment from advanced economies into the developing world. According to rough estimates, south-to-south flows increased from $15 billion per year in 1995 to $46 billion in 2003, the most recent year for which figures are available. Source: “Southern Multinationals: A Growing Phenomenon,” by Joseph Battat and Dilek Akyut, by IFC. 
   
  
• IFC has made “south-to-south” foreign direct investments a strategic priority, in light of the strong developmental benefits for both host and investee countries. For example, IFC helped the cellular telecommunications company MTN Group of South Africa expand into Nigeria via $100 million in financing. The financing has been used to expand and improve MTN’s network in Nigeria, allowing it to reach smaller communities and boost service quality. The company provides coverage to more than 1 million subscribers across 56 cities and more than 1,000 villages and communities.  

• The market capitalization of emerging market countries has more than doubled over the past decade, growing from less than $2 trillion in 1995; it is set to exceed $5 trillion in 2006. As a percentage of world market capitalization, emerging markets are now more than 12 percent and steadily growing. Source: Standard & Poor’s Global Stock Markets Factbook 2005. 
   
  
• Emerging market equity funds absorbed $20.3 billion of net inflows in 2005, five times more than last year and beating the previous record of $14.4 billion of inflows from 2003. Source: Emerging Portfolio Fund Research. 
   
  
• Of the 26 markets in the MSCI Emerging Markets Index, at least 10 climbed to record levels during 2005. Source: MSCI Emerging Markets Index. 
   
  
• Net equity flows (foreign direct investment and portfolio flows) to the emerging markets have grown to roughly $200 billion per year, providing an important source of capital for development. Source: Global Development Finance 2005, p. 14. 
   
  
• The share of foreign direct investment and portfolio equity in the finance mix of many developing countries has grown in recent years—a trend that enhances stability. Equity flows accounted for 80 percent of total external financing to developing nations during 1999–2003, compared with just 60 percent during 1993–1998. Source: Global Development Finance 2005, pp. 6-7. 
   
  
• IFC played a pioneering role in the creation of country funds for listed equities in the emerging markets in the early 1980s, coining the term “emerging markets” in the process. Since then, IFC funds have invested in more than 1,100 emerging market companies, 48 percent of which were small and medium enterprises at the time of investment. IFC’s current portfolio of emerging market funds is roughly $1 billion. 
   
  
• Through the early 1970s and 1980s, IFC worked with countries such as Brazil, Chile, Ghana, Hungary, Korea, Thailand, Turkey, Vietnam, and Zambia to found or reform their stock markets. 
   
  
• More recently, IFC has worked in several countries on stock market initiatives and reforms, providing technical and promotional support for the launch of Bovespa’s Novo Mercado and advising governments in Brazil, Chile, and Colombia on corporate governance reforms. In December 2005, for example, IFC helped launch the first stock index of environmentally responsible companies in Latin America. 

• Over the past decade, institutional investors—pension funds, foundations, and endowments—have increased their emerging market allocations from 9.67 percent of their total assets under management to more than 16 percent, representing more than $1 trillion in investment. Source: Intersec, Research Unit of State Street Corp.  

• The Institute of International Finance issues reports three times a year on the status of emerging market capital flows and market developments. 
  
  
• Standard & Poor’s provides current data on the performance of emerging markets stocks in its monthly Emerging Stock Markets Review. 
  
  
• EMTA (the trade association for the emerging markets) issues quarterly reports on trading volumes and trends in the emerging market debt markets.
  
  
•  EmergingPortfolio.Com issues weekly and monthly reports providing data and trends on equity and bond funds.