IFC global industries director Alzbeta Klein talks to Agri Investor about the IFC’s global reach, its Africa strategy, and how it manages risk in emerging economies.
How do you look at agribusiness as part of your portfolio?
We look at agribusiness as a whole supply chain, from the farm to the factory to the fork. IFC’s goals for the sector reflect this holistic view: less waste, better quality food and local sourcing. We have about 130 companies in our [agri] portfolio, with some priority countries.
When we look at the goal of feeding the world, there are actually very few countries that can contribute significantly: Canada and the US; Argentina and Brazil; Ukraine and Russia, which has sanctions right now, and then there is Australia. You need to work in these countries if you want to scale up food production, especially grains and oilseeds, which are the base for many other products.
Why are you investing in Ukraine at the moment?
When other investors are too risk averse to invest, we try to be there to the extent that we are needed. In Ukraine, in the last couple of years it has been really difficult for agri producers to get access to finance. We have about fifteen agri producers in our portfolio in Ukraine, so this is a fairly important market for us.
Can you tell us about your strategy for African agribusiness?
Africa is the frontier for us. We really want to contribute to the development of the continent, by feeding the population, but also creating businesses and promoting rural employment.
If you look at the Cote d’Ivoire, it supplies 60-70 percent of the world’s cocoa; this industry holds great potential for creating more employment. We have worked with global [cocoa and processing] players Cargill and Barry Callebaut … to set up a financing structure to help farmers gain access to finance. We teamed up with these clients, co-ops, and a local bank and set up a risk-sharing agreement between the parties.
I believe that intervention at the farmer level is first of all, going to make financial sense, but it is also going to create development impact. We would also like to see as much processing in Africa as possible because it creates jobs. And we would like to work with clients who are able to process cocoa on location, say, in Cote d’Ivoire. The key is integrating the farmers that produce key commodities into the global supply chain, because we are financing agribusiness.
We are not a charity; we are trying to prove that in emerging markets, you can actually invest profitably in sustainable businesses and improve living standards for poor people.
How do you partner up with other institutions and differentiate yourself from them?
We are always striving to co-ordinate our work, because the World Bank prepares the business environment in the country so that private investors can come in sustainably. When it comes to EBRD, Asian Development Bank, the African Development Bank – these are by and large our partners. There is not enough money amongst all of us to solve all of the issues in emerging markets. We are not competing with these development banks; we are complementing them.
IFC brings something unique to the table, which is its global footprint. For example, when we sit down with a client in South Africa who is producing pork, we can tell them we have 15 other pork-producing clients in emerging markets they can learn from.
How do you manage risk when it comes to agribusiness in the most difficult economies?
For us to invest, projects have to have a good credit case [and] have impact. When we looked at Africa and some poorer countries like Haiti, we saw a lot of credit risk, especially for smaller companies, which did not meet our credit standards. We care about that a lot because the whole point of the IFC is to show that you can be developmental and profitable in emerging markets.
But we also saw that if you brought in some concessional funding to alleviate some of the risks – maybe mezzanine financing, maybe risk sharing, and there are many instruments out there – we could actually do more and work with companies that we normally couldn’t finance. We find that this blended way of investing helps us reach a market segment that we normally couldn’t, thus allowing us to have more impact. This is an approach we have been refining for the last five years.