Only a few people are taking advantage of IFC funding here, or they are about to. But what is in store is hundreds of millions of dollars awaiting many more companies to tap into, says Adamou Labara, IFC Ethiopia Resident Representative. He spoke to The Reporter’s Hayal Alemayehu about IFC funding opportunities to businesses, investors and SMEs.

Could you tell me the main objective of IFC particularly here in Ethiopia?

Our major objective is private sector development. To that end we have developed a strategy based on three pillars. The first pillar is investment climate or business environment or improvement. Towards this end we usually work with government or public institutions. One achievement we already have here with regard to this is the Public Private Dialogue Forum where we have the [national] Chamber of Commerce and the government [as the main stakeholders]. We are supporting the Forum both financially and with expertise.  In addition to this we have had a series of discussions with the government in some specific areas in terms of investment climate and in the coming weeks or month we will have a public kind of disclosure in the specific areas where we will sign a cooperation agreement or a memorandum of understanding with the government in the areas where we will be proving support. The ultimate objective here is to make the business environment more conducive to the development of the private sector. The second pillar is what we have been doing for ages: direct investment [to the private sector]. Today we have a portfolio of almost USD 85 million, which is quite small compared to the size of the economy here and the potential we have.  Given the business and investment potential here, we can finance ten times the current portfolio. We really want to reach out to many private companies for which we can provide finance. The portfolio currently is in mining, which is in cement and gold and in agri-business, which is in coffee. We also have a small investment in a leasing company, Access Leasing, with which we are partners. The third pillar is small and medium enterprises (SMS). SMS is a very important area both for us and the government’s growth and transformation plan (GTP). SMS usually has several issues. The first one is access to finance; the second one is access to training or to skills while the third one is access to technology.

Do you have priority sector areas to provide the financing for?

The specific sectors we are targeting are agree-businesses, hotel and tourism, export-oriented companies (because we have for the time being restriction to finance domestic-oriented businesses).

Is it, by the way, a guarantee for bank lending or loans that you are actually providing?

[It depends]. We could provide loans, a long-term funding, at least for a five-year maturity. We could be shareholders as well, in which case the financing will be equity. And we can provide a guarantee. When there is a local entity ready to lend, then we could provide guarantee to that entity. Those are the three main financial products that we have. So when we provide those three products, we look at the company’s size for which we provide the financing and examine its value chain, because if finance a company in isolation without a look at it, you may end up in financing a project that will never deliver. So we look at the companies and provide what we call advisory services or technical assistance to really develop their supply chains.

So what are the major criteria prospective beneficiary companies need to fulfill to get your financing services?

First and foremost it has to be a private sector project, meaning more that 51 percent of the company must be owned by private ownership. The company should be commercial-oriented. The would-be beneficiary company has to prepare a business plan. The project should be environmentally sound, and we could help it to be so. The social side of it is also considered where you might displace people or the like that could easily disqualify the company from securing the service we render. [Simply put] when are investing in a given project, we make sure that international standards are applied. We make sure those standards we see in Europe, in Latin America and all other projects we finance are the same. It will also cover the protection of employees and communities and quality of the products. We ensure that these standards are met when we put our name behind those projects we finance.

Well, all the same, despite you having providing service here in Ethiopia for over two years, there seem to be fewer beneficiaries to date from IFC. How do you compare the beneficiary turnover and the loan portfolio here with other neighboring countries?

I think you have a lot of opportunities in the private sector. There is a very vibrant private sector, I would say. I think they don’t know as well and so we don’t see a lot of companies coming to as yet. We have also heard that some are being a little bit intimidated when they hear that the IFC is a World Bank or so. But we are really open. So those with projects could come to us and we will discuss those projects that we could finance and provide the service and those that we cannot, we could redirect them to other institutions. Compared with other countries, the beneficiaries’ turnout is still very low. Our portfolio of USD 85 million today is a stark evidence of that.

Is it the awareness problem or what?

I think it has got to do with awareness.

But some of those in the know say that accessing finance from IFC is way bureaucratic and there are elements of communication gaps when it comes to the working language of IFC and companies seeking its finance here. As such, some take it that it is almost impossible to make it and simply opt to forget the service. What is your take on that?

That is a perception. When we say we are partners—we usually call who come to us not clients but partners—and we invest in a project, as I said for at least a five-year maturity loans, in order to make assessment for a five-year commitment, you may need sometime to really understand the business and the sponsor [interested banks to provide loan against a guarantee]. You need to take some time and you need a feasibility study. And those requirements are the ones that are maybe giving the impression that we are too demanding. But we are not there for a six-month or one-year lending but for at least a five-year financing scheme. In some projects we can even provide a ten-year financing. As for the communication gap, that is why we are working with local private banks that are dealing with the SMEs. And when you have a kind of an institution like IFC working in several countries, there is a temptation to streamline and have almost the same [working] language throughout those countries so that when we go to our board or our management with an item or an issue, we should speak a common language and that language is not always easily communicable.

Those companies which know about the service you provide talk of bureaucratic process at IFC as I mentioned. What about the IFC’s observation of what companies here lacked most to have access to your service or their weakness for the same cause?

I think the main weakness is lack of [feasible] business plan. Sometimes they have good business ideas and sometimes they even may secure the funding. But how to translate that into a business proposal is a [big-time] problem. Those companies that managed to overcome that problem, they could have a very interesting discussion with us. And we could even help approve the funding to them. These companies may have in mind that they can service the loans they take. But they need to articulate that in their business plan.

As your very objective is about assisting the private sector both financially and with expertise, do you provide such technical support that might help companies which have the right business plan, if not perfectly articulated in the business plan, get funding?

We are making assessments to do so. And we could package that by sector. Then you put aside funding, if you are able to identify a specific sub-sector. But in order to do that, you should look at the SMEs--and this is usually about the SMS as the big projects know how to do their feasibility study. For the SMEs, we need financial intermediaries, meaning commercial banks to provide lending [against guarantees or risk-sharing agreemnts]. One sub-sector of the SMEs we as well as the government are willing to facilitate funding is the renewable energy sub-sector, such as ventures in manufacturing improved stoves or solar light and heat and the likes.

I have learnt that the majority of those companies you provided funding here including Allan Potash are foreign companies. Does that mean that you provide funding for foreign companies as well?

Yes we do. The moment the company is registered here we provide funding to it, if the investment happens here.

You told me that the USD 85 million funding IFC has provided here so far so small compared to the potential of the economy. But up to how much funding could IFC provide, say in one year here?

We can provide up to USD one, two, three or four million. It is actually demand-driven. If there is a lot of demand, we can respond [accordingly]. The only limitation we [might have in the future] is when we reach a threshold of USD one billion where we might have priority areas or sub-sectors or specific sector or so. For the time being we do not have any limitation. But with all those standards we consider, it is difficult to see that we reach USD one billion portfolio or so. One example is that in 2003 we provided only USD 200 million a year for the entire sub-Saharan Africa region. Last year that figure actually boosted to USD 2.2 billion.

What about the demand trend for your products here?

The trend shows a growing demand. We hope to provide funding equal to the amount we have done over the last two and half year, USD 85 million, just this year. More and more people are calling and coming now. And we are targeting several associations, and the moment we start providing funding to one company under the association, the company will be able to spread the word and what is all about it including the commitments.

So what percent of the cost of a given project do you provide funding for?

We are, by the way, providing 30 to 35 percent of the total cost of the project. We expect about 30 percent of the project to come from own financing. We will bring in other financial entities to fill the 30 or 35 percent gap as it is our policy to do so.

How many weeks or months would it, on average, take you to facilitate direct funding for project of interest?

When a certain company approach us we kind of discuss the outline of the project. If it is within our sector of focus, then we will ask for a feasibility study. Once we have that feasibility study, we could spend like a weak on it to see if it is a project we really want to finance. Then we communicate with the owner of the project and we sign a mandate letter, and that letter states what we will be doing and when the owner will expect the funding. It is an agreement and if the owner is not comfortable and says he or she wants earlier, then we try to accommodate that. The average time between signing the mandate letter and the disbursal is four month. When it comes to security to provide the fund, we usually limit ourselves to the project and do not go for one’s home or so as collateral, which many people do not know.