Deepening IFAD`s engagement with the private sector

Deepening IFAD’s Engagement
with the Private Sector
Executive Board Informal Seminar
13 September 2011
• Why a new strategy?
• The process for a new strategy
• Changing global and rural landscapes
• What has IFAD done so far?
• IOE recommendations and management response
• The new strategy
• Next steps
Why a new strategy ?
• Existing strategy: 20052010
• IOE evaluation (May 2011)
recommends new strategy
• EB endorses IOE
• Changing global and
rural landscapes
The process for a new strategy
• Internal Policy Reference
• Internal stock-taking
• IOE evaluation findings
and lessons learned
• Consultations with various
• Consistency with existing
IFAD policies/strategies
Changing global and rural landscapes
• The private sector is the engine
of growth in most economies
• Higher food prices have
attracted more private
investment in agriculture
• Increasing interest by the
private sector to incorporate the
poor into their supply chains
• PPPs have been proliferating –
especially along value chains,
with a variety of
Spectrum of actors in rural areas:
A heterogeneity of actors
What has IFAD done so far ?
• An increasing role as a
facilitator (honest broker)
in value chains
• Establishing PPPs at
project and programme level
• Supporting the emergence
of a private rural financial
• Supporting an appropriate
business environment
Increasing role as facilitator in value chains
• Since 1999, 78 projects with
value-chain components
- 68 projects in 2004-2009
• Projects with value-chain
components increased from
3.3% to 45.5% between
1999 and 2009
• Farmers’ organizations play
a key role in empowering
farmers and getting higher
prices and income
Integrating small farmers into value chains:
Sri Lanka National Agribusiness Development Prog.
• The project finances
development of inclusive value
chains in partnership with the
private sector and CBOs
• Approach is to encourage
the private companies/CBOs
to work in partnership with
small producers
• US$24 million allocated for longterm debt and equity financing
• First RFPs issued in March 2011
resulted in US$60 million in
requests from 30 proposals
Establishing PPPs: Vegetable Oil Development
Project in Uganda
• The PPP leveraged US$120
million from a private company
to produce vegetable oil
• Created a factory, plantation
jobs, and livelihoods for about
3,000 smallholder producers
• Among the key success factors
of this PPP are transparent land
purchases, respect for the
environment, and a fair and just
pricing formula
Rural Financial Sector: The Fund for Rural
Economic Development in Armenia (FREDA)
• Part of an IFAD loan to
Armenia (US$ 6 million) was
used to establish an equity
fund (FREDA)
• FREDA’s objective is to
invest in private agroprocessing enterprises that
have development impact
• 8 investments have been
made or are about to be
Limitations and constraints of IFAD’s
current approach*
• Not all governments are willing to pass on IFAD loan funds to
private businesses
• Private businesses are sometimes reluctant
to get involved
• Government systems can be ineffective
• IFAD might have limited freedom of choice in selection of private
sector partners
• IFAD project cycle and timeframe reduces flexibility
• Although IFAD is working with institutions that directly support
the private sector, there is a large firm bias in this work
* Based on IOE evaluation of 2005 Private Sector Strategy (May 2011)
IOE recommendations and management response
The way forward:
• Clearer & more focused definition of the private sector
• Strengthening existing instruments
• COSOPs as a platform for more systematic engagement
• Pursue partnerships more actively
• Create a separate private-sector financing facility
• Strengthen capacity of IFAD staff
What will the new strategy focus on?
The new strategy
Increase use of project loans and grants
• Replicate successful project
experiences with PPPs
• Partner along value chains
• Continue supporting private
rural financial sector
• Increase use of grants and
supplementary funds
directed at private-sector
development and PPPs
(e.g. AECF and AAF)
Use COSOPs more systematically
• Use COSOPs more
systematically as:
- the main tool to consult with
private sector stakeholders
- platform for policy dialogue
on supportive business
- building partnerships on
rural private-sector
- identify needs and gaps for
rural private-sector
Support a better rural business environment
• Through our projects and
COSOPs, support a better policy
environment for rural businesses
to thrive:
- registration, licensing, certification,
contract enforcement, property
rights, etc.
• Partner with other IFIs and
UN agencies
- promote responsible agricultural
investments as well as sustainable
environmental and social policies –
in line with IFAD policies
- Contribute to “Doing Business
Report” agri-business indicators
(with WB, IFC, UNIDO)
Pursue partnerships more actively
• Develop and strengthen
partnerships with:
- domestic and international private
- other IFIs and MDBs
- UN organizations
- NGOs, CSO, networks
• Partnerships should be driven by:
- common purpose
- complementarity of competencies
- increasing knowledge, resources,
market access to our target groups
- improving sustainability of
Important to assess reputational risk
and conduct careful due diligence
procedure when partnering with private
sector companies
Develop new instruments for promoting
rural private-sector development
IOE Recommendation:
Establish a new private-sector
financing facility
• Rural businesses (mostly
SMEs) have difficulty obtaining
financing, technology, and
technical assistance for their
businesses to grow
• Most donors and private equity
funds focus on the large
business sector
• There is a niche for
IFAD to fill this gap
Supporting rural businesses reduces poverty1
1 Taken from Technoserve Presentation
Example: Technoserve results in 2009
Next steps (1)
Explore the feasibility for a separate
Private-Sector Financing Facility
Some preliminary facts:
• Facility would focus on rural SMEs
• There is expressed demand for
finance and technical assistance by
rural SMEs
• Facility would not be funded through
IFAD replenishment resources
• Facility would aim to fill a gap in
supporting rural businesses, which
other IFIs and private investment
funds have not been able to fill so far
Next steps (2)
The feasibility study would:
- describe this gap more fully
- assess the risks, challenges,
opportunities, potential
sources of funds, and types of
instruments that this facility
could offer, in line with IFAD’s
mandate and target clients
- review IFAD’s organizational
structure and HR needs
- propose various
options/models for the facility
Setting targets and monitoring the strategy
• The strategy will be monitored
through the annual Report on
IFAD’s Development
Effectiveness (RIDE)
• Work with DCED and the
Global Impact Investing
Network (GIIN) to develop
appropriate results and impact
measurement standards
• Once approved, IFAD will
determine training and
capacity needs of staff,
commensurate with the new
strategy’s main activities