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

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Deepening IFAD’s Engagement with the Private Sector

Executive Board Informal Seminar

13 September 2011


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


Why a new strategy ?

  • Existing strategy: 2005-2010

  • IOE evaluation (May 2011) recommends new strategy

  • EB endorses IOE recommendation

  • Changing global and rural landscapes


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


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


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 sector

  • 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 long-term 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 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


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


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 environment

    • building partnerships on rural private-sector development

    • identify needs and gaps for rural private-sector development


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 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


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


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


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