Makhtar Diop is the first African to head the International Finance Corporation (IFC), a major financial institution and member of the World Bank Group. Mindful of the environmental and social challenges, he has set his sights on restoring high growth rates through private investment. The digital sector, agriculture, housing, health, education … the list goes on. Interview with Hichem Ben Yaïche and Nicolas Bouchet
You assumed your position in March 2021; what was it like getting started in your new post?
We have just lived through nine very interesting months! We have been very busy, my team and I, working to provide responses to the Covid-19 crisis and helping businesses in developing economies by working with new teams at IFC and getting accustomed to new environments and new products.
And all this had to be done at record speed, because we needed to respond to the immediate challenges. We managed to pull off some good results this fiscal year. IFC delivered a total of $31.5 billion in loans in fiscal year 2021. This is worth noting, because we were able to achieve this level of performance at a time when businesses were experiencing difficulties. Their business activities were curtailed, but we were able to find appropriate solutions to help them cope with the shock, especially in emerging and fragile countries. We made $12 billion in total commitments in fragile countries, where businesses were even more negatively affected.
How did we do it? By working a lot on programs in Africa, where IFC delivered $6.5 billion in loans—a new record. The institution developed a number of new initiatives that were presented at the Financing African Economies Summit, held in Paris in May. We got heavily involved in the production of vaccines, which is such a critical issue. We work extensively with various actors, including the African Vaccine Acquisition Trust (AVAT), WTO, and WHO. We do our best to finance vaccination efforts in Africa, including through the provision of a €600 million financing package for Aspen, the South African laboratory that produces vaccines, in cooperation with the Institut Pasteur de Dakar and a number of Rwandan companies. Through these actions, we have helped establish an ecosystem for the production of vaccines in Africa.
You have a roadmap, a vision, and a five-year strategy. Your plan is to allocate an envelope of $30 billion, which may be seen as rather small, given the needs in so many countries. How will you allocate these budgetary resources to contribute to post-Covid growth?
To be specific, our aim is to increase investment in the digital sector. We have invested a record amount, with our digital infrastructure portfolio increasing from $100 million to $1 billion in one year. We recently partnered with Liquid Intelligent Technologies in a $250 million investment. The aim of this African company is to bridge the digital divide that exists between Africa and the rest of the world. This initiative will play a major role in helping businesses grow, as it will boost international trade, enhance trade financing, and get companies more involved in international transactions. And above all, it will help AfCFTA to come into its own.
Is that not the case at present?
As long as Africa lacks the financial instruments to support the establishment and strengthening of value chains on the continent, a free trade area will not have an immediate impact on African companies or households.
We need to increase mobilization if we are to achieve our goals. Today, of all international financial institutions, IFC has the highest rate of mobilization. For every $1 we invest, we manage to mobilize 92 cents from other investors, using different instruments. Our aim is to achieve even greater mobilization in the future and to substantially increase our funds in this area to enable us to provide more financial resources to developing countries.
To achieve this goal, we will have to continue working with capital markets and institutional investors, while using our resources to de-risk investing in Africa. We are currently rolling out these instruments and we will continue to develop them going forward.
Of course, we cannot do all this without considering climate change, which is always at the heart of our concerns. We announced two new initiatives at COP26 in Glasgow. The first is known as the BEST Sustainable Bond. It was established with Amundi, and is designed to enhance the development of a sustainable bond market in emerging countries. The second initiative is called MCCP One Planet. This $3 billion platform is the first instrument created to allow institutional investors to directly provide capital to finance lending that is fully aligned with the objectives of the Paris Agreement, in emerging countries.
The aim of this initiative is to finance all possible activities that will help achieve 100 percent alignment with the objectives of the Paris Agreement by 2025. The “BEST Bond” is a way of reminding everyone that we cannot act without considering the social impact of investments or without focusing on a more wide-ranging approach to sustainability that is not limited to the concept of risk reduction.
You also provide risk capital; you also have the option to support businesses through technical assistance and the work of your teams, so not only through capital investment. Do you think you could take on more risks to stimulate performance and do more to reach out to those that need your support?
Most definitely. You have hit on one of the most critical elements of our strategy, namely equity investments in companies. In addition to the financial resources that we provide to companies, we help them fine tune their strategy, strengthen governance, and improve their overall management. We back loans granted to private companies. Our equity investments are being increasingly aligned with our lending window. This allows us to enhance our development impact on companies.
Can you give us an example?
I could mention the investment made with Liquid Intelligent Technologies in the digital sector. We made an equity investment that was designed to increase high-speed internet access and we assist others to invest in infrastructure and to build low-energy consumption data centers in Africa. This commitment will ultimately help reduce the cost of internet access and lower the cost of data. We are also doing a lot of work with Fintech companies. We recently made an equity investment in Wave, a major mobile money company, and our work with them is ongoing. Companies such as these will help reduce transfer fees and lower payment costs in Africa.
How much time do you normally take to respond to a client demand?
It all depends on the type of demand or product. For short-term financing, we don’t have to delve into all the issues and, as a result, the process can go very quickly. We just need to consider the rate of return of this investment and the nature of the risk. By contrast, the process for infrastructure projects takes a little longer, as environmental and social safeguard issues have to be studied and assessed. We verify that projects will not impede a country’s social and environmental development and that a minimum set of environmental protection criteria are observed.
We recently conducted a review, with significant NGO support, of all the policies and criteria applicable to our project safeguards. This is critical because this new performance matrix will help us take greater account of the social and environmental aspects of our projects and adhere more closely to our program targets. In the final analysis, this will help us transform the overall situation and business environment in the countries where we operate.
You have spoken about your commitment to digital development. In terms of connectivity, the situation is improving but Africa still lags behind. How will you tailor your digital strategy, given this situation?
The secret is always to have more competition and more players involved in the sector. We have increased our investment in digital technology tenfold in one year and we intend to sustain this trend. IFC encourages new actors to enter these markets. Everyone stands to benefit from this because the market is huge and the needs are immense. The competitive environment that this will foster will expand steadily and have a positive effect on innovation and costs. It will facilitate and increase digital access for the general public.
Your question raises another issue, namely the cost of telephone handsets, which can at times hinder access to the digital economy. We know that in most developing countries, people use their mobile telephones to gain access to high-speed internet. This is why making such devices widely available at a minimal cost is such a critical factor in the drive to increase digital access.
Finally, I must mention what we refer to as our “prototypical cases.” We have an increasing number of such cases in the health sector, such as investments in telemedicine in Kenya, for example. By developing an ecosystem that supports the development of vaccines and basic medicines, we are creating an attractive environment where all these technologies can be used to serve the public. It goes without saying that education is yet another sector for which we have developed a host of innovative products, using digital platforms to make them more accessible.
Agriculture is another major challenge. What steps are you taking to drive agribusiness and the processing of raw materials?
Over and above the obvious human dimension, feeding a population is also a major macroeconomic challenge. Malnourished children are less productive than properly nourished children who have access to education.
So, what constraints do we face? We have worked very hard on the issue of financial intermediation in agriculture. We have found that, very often, farmers have access only to short-term resources. Yet, returns on investment in the agricultural sector are generated over the long term. If we are to support mechanization and agricultural modernization, we will have to tailor different tools and physical investments to the particular needs of small farmers. This will require us to find long-term financing instruments. Short-term instruments are too onerous and too difficult for farmers. We are working with financial institutions in this area to start moving in this direction.
We also propose to provide long-term resources to specialized banks. We want to use long-term resources deposited in pension funds as intermediary financing for productive activities, such as infrastructure and agricultural development. This is an important field that my teams and I have been focusing on, and we see it as a priority.
I hope that I will soon be in a position to provide more details about what we are doing to facilitate financial intermediation in the agricultural and social housing sectors. This initiative should attract long-term resources and, in the process, help reduce the budget deficit.
When we talk about agriculture, we have to consider the land issue. The entire regulatory framework on land access may have to be reviewed. We are focusing on this issue, in collaboration with the World Bank. We also want to make sure that all new investments in agriculture are climate smart, meaning that they use the fewest resources, especially as we know that some of our countries’ resources are becoming increasingly scarce as a result of climate change.
With the debt issue taking a turn for the worse as a result of the health crisis, do you plan to modify your policies to adapt to the new scenario?
I rather think that it is the countries themselves that have adapted to the changing situation! With the increase in debt over the past few decades, governments have had to cope with a reduction in their fiscal space. We will have to look increasingly to the private sector if we are to maintain the required level and pace of investment, achieve the desired growth rates, and reduce poverty. This is what we are seeing at the moment, and our role is to help attract private investment. We either intervene directly or mobilize capital in countries. The objective is to bridge the development gap facing the least developed economies as a result of their debt burdens.
Private and public investments should definitely complement each other. As growth rates slow and debt burdens rise, fewer resources are available for countries to invest in infrastructure. This means that their capacity to invest is reduced at a time when they should really be stimulating the recovery of their economies.
Turning to the health sector, the health crisis has revealed the need for Africa to develop health industries and a homegrown strategy in this area. Is any progress being made?
Yes. When we took up the challenge of helping to promote the production of vaccines in Africa, many people were skeptical and asked us: “Is this really feasible? ” But we were confident that it was in fact feasible. We have managed to mobilize other people to support this undertaking. For the €600 million loan to Aspen, we provided a total of €250 million. We then mobilized other development partners, such as Proparco, DEG in Germany, and DFC in the United States, all of which contributed to the program.
We are at an advanced stage in our discussions with the Institut Pasteur de Dakar to upgrade its vaccine manufacturing facility and to expand into other vaccines, such as that recently discovered for the prevention of malaria. We are also making tremendous progress in this area with Rwanda. I think we will go this route with Kenya also. As you may be aware, President Kenyatta has announced that his country also wants to start manufacturing vaccines.
We do not believe, however, that our commitment to the health sector should be confined to vaccines. A number of chronic diseases are endemic in Africa, the medicines for which are, for the most part, produced abroad. So, we see the potential for further development here. Diabetes and hypertension are rife in Africa and are particularly prevalent among people living in the continent’s urban areas. We need to develop an ecosystem to produce these medicines at low cost and to make them widely available to the people of Africa.
What role do you see IFC playing to promote a shared approach with your partners to create a multiplier effect?
What happened at COP26 in Glasgow is a good example. I was at COP21 in Paris and I can see the difference between the two Conferences. In Paris, discussions focused on the public sector as the big solution to climate change, with the active involvement of NGOs. In Glasgow, there was far more emphasis on the private sector.
We are moving increasingly in the direction of blended finance, where we use funds in the form of grants to derisk investments and trigger greater leveraging effects than would normally ensue from simply delivering a grant. This has certainly helped generate complementarity. Furthermore, I believe that the Energy Alliance launched with the Rockefeller Foundation is a good example of what we are doing together, and shows how development finance institutions such as ours are working together with foundations and capital markets.
I can see that you are an educator at heart. As you go about your work, how do you divide your time between the field and your office in Washington?
Over the past five years, IFC’s presence in the field has increased tremendously. We operate in almost 40 African countries. We realize that you really can’t make effective change without an active presence on the ground. We operate with a high level of decentralization, with the majority of our staff working in the field.
Unfortunately, our capacity to travel was restricted by the health situation, but we are flying again and have resumed our country visits. We meet clients, listen to their experience, and take note of their needs. But above all, we provide them with solutions based on the international experience that we have accumulated over the years.