By Philippe Le Houérou, Chief Executive Officer of IFC, a member of the World Bank Group and co-host of THE AFRICA CEO FORUM 2018. Since joining IFC in March 2016, Mr. Le Houérou has led the organization’s efforts to create new markets in developing countries. Prior to his arrival at IFC, Mr. Le Houérou was Vice President for Policy & Partnerships at the European Bank for Reconstruction and Development and held number of key positions at the World Bank. He holds an MBA from Columbia University and a Ph.D in Economics from the Institut d’Etudes Politiques de Paris.
Sub-Saharan Africa made significant development gains over the last two decades. A period of unprecedented economic growth helped reduce extreme poverty – the population share of those living on less than $1.90/day – from 60 to 40 percent. Under-five mortality has halved and millions of children are going to school in ever greater numbers. The incidence of preventable diseases such as AIDS, malaria, and tuberculosis is falling. The share of those with access to clean water and better sanitation has risen.
However, Sub-Saharan Africa still counts 390 million extremely poor people—more than all other regions combined. The remaining poverty will need to be tackled in a challenging environment of intense demographic change, rapid urbanization and the ongoing effects of climate change. Meanwhile, trends in globalization and technology are eroding manufacturing-for-exports as a viable development strategy, reducing opportunity for industrial late-comers.
The development challenge ahead of us requires a massive scale-up in investment and the roll-out of new solutions. Foundational investments in infrastructure, health and education are critical for the region to exploit opportunities across sectors. While no panacea, technology-based solutions—such as remote health care, computer-assisted teaching, off-grid solar and nanotech-based desalination—provide new opportunities for leapfrogging.
Africa’s constraints are the investment opportunities of tomorrow. As the main driver of investment and innovation, the private sector needs to play a much greater role. Responsible for over 90 percent of job creation worldwide, a thriving private sector will be essential to create enough jobs to absorb the 1.7 million monthly increase in Sub-Saharan Africa’s working-age population.
The International Finance Corporation (IFC) is positioned to do its part. As the largest global development finance institution focused on the private sector, we have six decades of experience in delivering private development solutions and mobilizing private capital.
Our footprint in Africa has grown significantly, with 21 offices in the region now. Our long-term financing rose rapidly from $167 million in 2003 to $3.5 billion last year—a 20-fold increase in less than 15 years. However, over the last few years, our commitments to investable projects have started to plateau. The question therefore is how we go to the next level.
With Africa in mind, we developed a new strategy to push our organization to the frontier markets. The cornerstone of this new strategy – IFC 3.0 – is to systematically create new markets, country by country and sector by sector, by tackling market and regulatory imperfections and by collaborating upstream on the policy side.
We must move from responding to demand for private sector investment financing to working proactively. To this effect, we initiated country-level private sector diagnostics to systematically look for and act upon opportunities to create markets and maximize finance for development. We developed new frameworks to focus incentives on the delivery of economic impact. We established a Creating Markets Advisory Window to leverage the policy work of our World Bank colleagues and deliver upstream advisory services for project preparation in the poorest and most fragile countries.
For the necessary capital to be mobilized, we need to reduce risks—both real and perceived. Smaller markets, security concerns, and political, institutional and operational uncertainties dampen investor appetite. To tackle these concerns, we developed a new de-risking tool, an IDA-financed $2 billion Private Sector Window with focus on fragile and conflict-affected countries, to address high-risk projects and broaden access to local-currency loans.
The more we scale up in fragile and conflict-affected countries, the greater our need for additional capital. We are now negotiating a capital increase with our shareholders. With our new strategy and additional capital, together we can create markets and jobs and make progress in meeting the development challenges facing Africa.