By Jamie Fergusson
Development banks are at their most impactful when they solve problems and unlock private sector opportunity to create quality jobs and growth. But this requires more than a balance sheet and an appetite for risk. It requires vision for opportunities that don’t yet exist, convening power, interdisciplinary expertise across sectors and countries, good policy interventions, a whole lot of perseverance, and a willingness to fail.
The challenge of mixing this perfect cocktail is what attracted me to a new role at IFC, leading what we call our “Upstream” business. It involves product, market and regulatory innovations, and interventions that can unlock investment within a three- to five-year timeframe. Our shareholders are backing us to bet big on this approach: We are hiring dedicated staff in every region and sector we work in, designing new systems and incentives, and rapidly building a pipeline of promising interventions.
COVID-19 brings challenges and opportunities. Much of IFC is now in fire-fighting mode to sustain companies and to preserve as many jobs as possible. The pandemic has also created urgency for new discussions with governments about how we can help them attract private investment for a rapid and more sustainable recovery.
It is tempting to tell the story of this Upstream business by pointing to the successful long-term interventions from past years that have already created markets. But that wouldn’t reflect the operational reality for my colleagues, who are testing new ideas, pushing on with projects they believe in but are proving a slog, and dropping those that are not working. Here is a sample of four intriguing early stage ideas that my colleagues are currently brainstorming:
- There is an urgent need to strengthen the Caribbean’s ability to cope with and recover from hurricanes. One of our teams is asking itself how we can catalyze a market for homes and buildings that can withstand them. The challenges are many: Banks, builders, and homeowners lack the knowledge to determine what qualifies as resilient; there is no region-wide standard building codes; and mortgage and construction loan services are limited and expensive. In response, the team is learning the market gaps and market size and will test a hypothesis that a climate resilience classification tool for buildings could be adopted by market participants if combined with tailored financing and advice on targeted construction and mortgage financing.
- In Africa, as elsewhere, governments are struggling to respond to the COVID-19 crisis. We’re partnering with a South African company to develop and scale an innovative business model that would increase COVID-19 testing and treatment capacity across Africa. The plan involves creating and deploying modular testing units, piloting the concept in several African countries and, in parallel, working with governments to structure commercially sustainable public-private partnership models for scaling it up. Pulling this off at scale and at speed is an enormous challenge but the potential benefits could be enormous.
- In Ukraine, 71 percent of the land is used for agriculture. While land ownership was successfully privatized after the fall of the Soviet Union, it remains broken into 7 million tiny land parcels that cannot be sold or used as security to borrow. This has resulted in decades of inadequate investment. Our teams are working with the Ukraine government on land market reforms, with banks and farm equipment suppliers on lending products that could be unlocked if security could be taken on land, and on larger investments in irrigation and value-added food processing. Success could trigger massive investment, create many jobs, and turn Ukraine into the breadbasket that it once was.
- Today, only 9 percent of plastics globally are recycled, creating a marine plastics crisis. Much of the plastics are carried by waterways to the sea, particularly in Asia. Mismanaged plastic waste is more than an eyesore -- it carries an estimated $75 billion annual environmental cost. Starting with Asia, IFC teams are exploring a systematic approach to work with governments, plastics manufacturers, food and consumer goods companies, waste management companies and capital markets to reduce single use plastics; improve solid waste management practices including the collection and recycling of plastics; and develop innovative financial products such as blue bonds. If these interventions can be coordinated with willing governments, they could create private sector opportunities and make a real dent in an otherwise intractable problem.
I don’t know how many of these or the scores of other IFC Upstream initiatives will be successful. Some will be dropped at the idea stage, some will be pursued for several years and may generate material investment, and a special few will be game changers that open whole new markets. Overall, though, I have confidence that the portfolio of effort will create new markets that lead to jobs, growth, opportunity, and stability in developing countries that have been rocked by the financial and health effects of the global pandemic. The approach could also change the face of development banking. That’s extraordinarily exciting.
Jamie Fergusson is the Global Upstream Director at IFC. He can be reached at jfergusson@ifc.org
Published in June 2020