Deepening IFAD’s Engagement with the Private Sector

1. Deepening IFAD’s Engagement with the Private Sector Executive Board Informal Seminar 13 September 2011

2. Outline • 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

3. Why a new strategy ? • Existing strategy: 2005-2010 • IOE evaluation (May 2011) recommends new strategy • EB endorses IOE recommendation • Changing global and rural landscapes

4. The process for a new strategy • Internal Policy Reference Group • Internal stock-taking • IOE evaluation findings and lessons learned • Consultations with various stakeholders • Consistency with existing IFAD policies/strategies

5. 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 models/schemes

6. Spectrum of actors in rural areas: A heterogeneity of actors

7. 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 sector • Supporting an appropriate business environment

8. 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

9. 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 long-term debt and equity financing • First RFPs issued in March 2011 resulted in US$60 million in requests from 30 proposals

10. Establishing PPPs: Vegetable Oil Development Project in Uganda • The PPP leveraged US$120 million from a private company to produce vegetable oil domestically • 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

11. 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 agro-processing enterprises that have development impact • 8 investments have been made or are about to be completed

12. 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)

13. 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

14. What will the new strategy focus on?

15. The new strategy

16. 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)

17. 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 environment • building partnerships on rural private-sector development • identify needs and gaps for rural private-sector development

18. 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)

19. Pursue partnerships more actively • Develop and strengthen partnerships with: • domestic and international private sector • 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 interventions Important to assess reputational risk and conduct careful due diligence procedure when partnering with private sector companies

20. Develop new instruments for promoting rural private-sector development IOE Recommendation: Establish a new private-sector financing facility Rationale: • 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

21. Supporting rural businesses reduces poverty1 1 Taken from Technoserve Presentation

22. Example: Technoserve results in 2009

23. 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

24. 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

25. 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