IFC Linkages Help Smaller Businesses and Local Communities

IFC's work with business linkages is helping create opportunities for smaller businesses and local communities, as well as the larger firms in which we invest. IFC also shares knowledge and experiences with key global players to address challenges and identify opportunities for linkages in developing countries.

For example, IFC has partnered with firms in extractive industries to establish linkage programs around the world—from BP in Azerbaijan and Georgia, to ExxonMobil in Chad, Cairn in India, and Newmont in Peru and Ghana.

About Business Linkages

Linkage programs are designed around selected IFC investments to increase the participation of local firms in the project and bring additional benefits to surrounding communities. At the same time, these programs may reduce costs to investors and enhance their ability to be responsible corporate citizens. IFC linkage programs achieve these objectives by:

• Improving local SMEs' technical and business skills, helping them generate sustainable new sources of income
• Facilitating access to finance for local suppliers
• Strengthening local supply and distribution networks
• Supporting community development projects with health, education, and infrastructure programs

Typically two- to three-year engagements, linkage programs allow IFC to increase value-added services to clients in improving their businesses, and they increase the development impact of our investments.

Key Results of Selected IFC Linkage Programs

As of December 2006: 1,294 new small business contracts awarded, with total value of $984 million 169 small businesses received financing totaling $23 million 545 small businesses received in-depth consulting 7,032 individuals from 2,662 small businesses received training

Supporting Small and Medium Enterprises

IFC developed a linkage program to support Newmont Mining's Minera Yanacocha in Peru, the largest gold mine in South America, with about 8,000 workers.

The program works to build the capacity of local small and medium enterprises in the construction and transportation sectors, helping them win contracts with the mine and other large regional companies. It also works with smaller businesses in sectors beyond the supply chain, such as agribusiness, to develop a diversified and sustainable economy outside the mining sector.

The program complements IFC's other SME development efforts in the region. For instance, in conjunction with the local government, IFC developed an administrative simplification project that drastically reduced the number of steps needed to register a small business – from 75 to two. This created a sharp increase in registrations of small businesses and bringing these firms into the formal sector for the first time.

IFC is also providing assistance to help build the institutional capacity of the Asociación Los Andes de Cajamarca, Yanacocha's corporate foundation, so that it can manage regional SME development efforts over the long term, including after IFC exits the investment.

Yanacocha: Diversification & Economic Development

As of May 2006: Benefits for local small businesses include contracts worth $6.8 million with large firms, as well as over $15 million in increased revenues Accounting, marketing, and training for some 300 enterprises Support to Yanacocha on creating a community foundation Transfer of the project's lessons of experience to expand the local impact of a new gold mine in Ghana

Building Local Communities

Linkage programs are often an important feature for IFC's large investment projects in emerging markets, and they can have a profoundly positive development impact in impoverished regions.

In June 2007, IFC signed a cooperation agreement with Cairn India to promote economic and social development of local communities in the Barmer district of Rajasthan, one of India's most economically challenged states. The program will establish an Enterprise Center, a rural dairy development project, and a child and maternal health initiative, benefiting more than 24,000 people.

This linkage program is a result of larger IFC investment projects with Cairn. It follows a $150 million, nine-year IFC loan to Cairn in 2006, in partnership with 10 international commercial banks, to help develop the company's oil and gas discoveries in Rajasthan. Early this year, IFC invested an additional $21 million in equity in Cairn India.

The new program will cost about $3.5 million, with 70 percent contributed by Cairn. As a central component, the Enterprise Center will provide information and expertise on business practices to local small and medium enterprises, helping them become suppliers and service providers to the oil and gas operation and other ventures in the region.

A dairy development program will help generate income for rural milk producers, advise farmers on animal husbandry, and link them to financial institutions and insurance services. The child and maternal health initiative will include workshops, health camps, and awareness campaigns on the prevention of HIV/AIDS.

Sharing Knowledge, Identifying Opportunities

IFC, in partnership with Harvard's Corporate Social Responsibility Initiative and the International Business Leaders Forum, recently held a roundtable for practitioners from the corporate world to share knowledge and experiences related to business linkages. Key themes included sales, procurement, distribution relationships, and supplier development efforts between large companies and small and medium enterprises in the developing world.

Among the participants were key global players, including ABN Amro, Anglo Zimele, BP, Cairn Energy, ExxonMobil, General Motors, Nestle, Newmont Mining, Orient Express Hotels, Pan American Energy, Rio Tinto, and SAB Miller.

Three companies with whom IFC has linkages programs—BP, ExxonMobil, and Newmont Mining—spoke about the positive impact on the local economy through their partnerships with IFC. In the past three years, these three companies combined have awarded over $235 million in local contracts, and they continue to grow local procurement steadily.

Representing several sectors, the roundtable participants shared a common goal: to create economic value for the communities in which they operate, while positively benefiting their company's bottom line.

The roundtable attendees requested a follow-up business linkages event that is planned for October 2007 in South Africa.

For more information contact:

Robin Weisman
SME Linkages
Phone: (202) 473-0174
E-mail: rweisman@ifc.org

Hannfried von Hindenburg
Communications Officer
Phone: (202) 458-5613
E-mail: hvonhindenburg@ifc.org