Each year, more than $1.5 trillion moves across International borders — as foreign direct investment that helps businesses and economies innovate and grow. Most of it goes to just 10 countries. Barely 1 percent trickles into areas with the greatest need for investment: countries affected by conflict and instability.
A key reason is risk — or investors’ perceptions of it. In choosing where to put their money, investors make complex judgments about an array of risks and uncertainties— financial, regulatory, legal, and political, among others. These tend to be greatest in the smallest, poorest, and most fragile economies. Reducing these risks — or enabling investors to share them more widely — can unlock significant private capital.
IFC and the World Bank Group have introduced several innovations to do exactly that. In FY18, we teamed up with the World Bank’s International Development Association to create the $2.5 billion IDA18 IFC-MIGA Private Sector Window, a facility to accelerate private sector investment in IDA countries — with a special emphasis on fragile and conflict-affected areas. The facility enables IFC and other investors in these countries to share investment risks with development institutions.
We used the window for the first time to unlock $500 million for housing finance in West Africa, where fewer than 7 percent of households can afford to buy their own home. Using the window, IFC bought $9 million in long-term local-currency bonds issued by Caisse Régionale de Refinancement Hypothécaire de l’UEMOA, a leading mortgage-refinancing company. Our investment will enable the company to expand its portfolio of housing loans by $500 million while deepening the local bond market.
In the riskiest markets, IFC also works with a variety of development partners (see page 98 of the 2018 Annual Report PDF) to help private investors transfer some of their risks. We do so, in part, through blended finance (see page 79 of the 2018 Annual Report PDF) — which involves using concessional donor funds to mitigate specific investment risks. In FY18, IFC used $218 million of donor funds to catalyze $1.5 billion in private investment.
IFC also plays a prominent role in facilitating public-private partnerships (PPPs). Since 2004, IFC-structured PPPs have facilitated at least $27.5 billion in private investment.
FY18 marked a milestone for an IFC-led PPP project in Brazil that is modernizing infrastructure in the state of São Paulo: concessions for three of four roads in a 1,500-kilometer project were auctioned, setting records for concession fees to the government and establishing the foundation for about $4 billion in new investment to complete the project. Our innovative work prompted the national government to ask IFC to structure similar PPPs at the national level.