IEG 45007 Independent Evaluation Group INDEPENDENT EVALUATION IFC'S OF DEVELOPMENT RESULTS 2008 IFC's Additionality in Supporting Private Sector Development I N D E P E N D E N T E V A L U A T I O N G R O U P Independent Evaluation of IFC's Development Results 2008 IFC's Additionality in Supporting Private Sector Development 2008 http://www.ifc.org/ieg Washington, D.C. 2008 © International Finance Corporation (IFC) 2121 Pennsylvania Avenue NW Washington, D.C. 20433, USA Telephone: 202-473-1000 Internet: http://www.ifc.org All rights reserved This volume, except for the "IFC Management Response to IEG-IFC" and "Chairperson's Summary" is a product of the In- dependent Evaluation Group (IEG) and the findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of IFC Management, the Executive Directors of the World Bank Group, or the governments they represent. 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For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; facsimile: 978-750- 4470; Internet: http://www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; facsimile: 202-522-2422; e-mail: pubrights@worldbank.org. Photo: South African workers handle grapes that will be used in wine production. Photograph courtesy of Karsten Farms and IFC. ISBN: 978-0-8213-7593-8 e-ISBN: 978-0-8213-7594-5 DOI: 10.1596/978-0-8213-7593-8 Library of Congress Cataloging-in-Publication Data have been applied for. World Bank InfoShop Independent Evaluation Group­IFC E-mail: pic@worldbank.org E-mail: AskIEG@ifc.org Telephone: 202-458-4500 Telephone: 202-458-2299 Facsimile: 202-522-1500 Facsimile: 202-974-4302 Printed on Recycled Paper Contents vii Abbreviations ix Definitions of Evaluation Terms xi Acknowledgments xiii Foreword xv Avant-propos xvii Prólogo xix Executive Summary xxv Résumé analytique xxxi Resumen ejecutivo xxxvii IFC Management Response to IEG-IFC xli Chairperson's Summary: Committee on Development Effectiveness (CODE) 1 1 Development Results of IFC-Supported Projects 2 Results of IFC's Investment Operations 10 Results Drivers and Future Prospects 14 Emerging Results of IFC Advisory Service Operations 21 2 IFC Additionality 22 Concept of Additionality 23 Strategic Consideration of Additionality 25 Measuring Additionality 28 Additionality Identified in IFC Operations 36 Drivers and Inhibitors of Additionality 37 Additionality and Development Impact 40 Areas for Improvement and Further Analysis 43 3 Recommendations 43 Work Quality and Portfolio Risk Management 43 IFC's Environmental and Social Performance in Africa 44 Measuring Advisory Services Performance 44 Strategic Consideration, Operationalization, and Tracking of the Institution's Additionality 44 Additionality in Lagging Regions, Sectors, and Client Groups iii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 47 Appendixes 49 A: Sample Representativeness 53 B: Summary of Evaluation Methodology 57 C: Further Examples of High and Low Development Outcome Ratings 59 D: Further Details on Results Characteristics and Drivers 65 E: Examples of High and Low IFC Role and Contribution 67 F: IFC Investments in Crisis Countries 69 Endnotes 75 References Boxes 2 1.1 Evaluation System for IFC Investment Operations 3 1.2 Examples of Projects with High and Low Development Outcome Ratings 7 1.3 IFC Investment Outcome Rating 12 1.4 IFC Work Quality Rating 17 1.5 Evaluation System for Advisory Services Operations 18 1.6 Development Effectiveness Rating 20 1.7 Examples of Successful and Unsuccessful Advisory Services Operations 25 2.1 Definitions of Additionality among Other Multilateral Development Institutions 26 2.2 Evaluation of IFC's Role and Contribution in a Project 27 2.3 Good Practice Standards for MDB Additionality Rating in Private Sector Operations 32 2.4 Examples of Additionality Identified in Evaluated Investment Operations 32 2.5 Role and Contribution Ratings, 1996­2007 33 2.6 Examples of "Missing" Additionality in Evaluated Investment Operations Figures 4 1.1 IFC Investment Operations, by Region, 2002­07 4 1.2 IFC Investment Operations, by Sector, 2002­07 5 1.3 Project Development Results, 1996­2007 (three-year rolling average) 6 1.4 Project Development Results, 1996­2007 (year-on-year average) 6 1.5 IFC Investment Return, by Instrument (three-year rolling average) 7 1.6 Project Development Results, by Subindicator (three-year rolling average) 8 1.7 IFC Did Not Generally Support Projects Where There Was a Tradeoff between Project Development Results and IFC Profitability 8 1.8 Project Development Results, by Investment Size 9 1.9 Average IFC Project Size, by Region 9 1.10 Project Development Results, by Region, 2003­07 10 1.11 Environmental and Social Effects Performance, by Region, 2005­07 10 1.12 Project Development Results, by Sector, 2005­07 11 1.13 Project Development Results, by Instrument, 1996­2007 (three-year rolling average) 13 1.14 Conducive Business Environments in Most Regions, Africa Still High Risk 13 1.15 Robust Private Investment in Most Regions, Lagging in Africa 14 1.16 Changes in Country Business-Climate Risk 16 1.17 Sector Choices 16 1.18 Sponsor Quality and Specific Project Characteristics 18 1.19 IFC Work Quality iv C O N T E N T S 19 1.20 Advisory Services Results, by Business Line 19 1.21 Advisory Services Results, by Region 30 2.1 IFC's Identified Additionality Has Been Mostly Financial in Nature 31 2.2 Most Commonly Identified Additionalities Have Been Financial Terms and Funds Mobilization 31 2.3 Over Time, Institutional Additionality Seems To Have Increased in Prevalence 32 2.4 Recent Board Submissions Anticipate Further Bundling of Additionality 33 2.5 Quality of IFC's Role and Contribution Lagged in Asia and Africa 34 2.6 Role and Contribution Varied Substantially by Sector 34 2.7 Similar Types of Additionality Identified in Repeat and Nonrepeat Projects 35 2.8 More Repeat Projects Rated "Excellent" for Role and Contribution 37 2.9 Additionality and Project Development Results Seem to Go Hand-in-Hand 37 2.10 No Apparent Tradeoff between Additionality and Profitability 38 2.11 Better Development Results Apparent Where Different Additionalities Were Combined 38 2.12 Project Business Success Seems to Be Stronger Where Additionalities Were Combined Tables 12 1.1 Market Conditions Contributed to Better Project Results 14 1.2 Strong Supervision and Administration Quality Can Mitigate High Intrinsic Risk 14 1.3 Work Quality and Development Outcomes, by Region 15 1.4 Patterns in Key Results Drivers 28 2.1 Different Types of Potential Additionality 29 2.2 Identifying and Judging Additionality Quality 30 2.3 Similarities and Differences between Additionality Metrics 36 2.4 Role and Contribution Generally Reflects Appraisal and Supervision Quality 39 2.5 Operational and Institutional Additionality Particularly Important with Weak Sponsors 40 2.6 Areas for Improvement in Realizing IFC's Additionality v ABBREVIATIONS CAS Country assistance strategy ECA Europe and Central Asia IDA International Development Association IEDR Independent Evaluation of IFC's Development Results IEG Independent Evaluation Group IFC International Finance Corporation LAC Latin America and the Caribbean MDB Multilateral development bank MENA Middle East and North Africa PCR Project completion report XPSR Expanded Project Supervision Report vii DEFINITIONS OF EVALUATION TERMS Investment operations Project development A bottom-line assessment of the project's results across development outcome: dimensions, relative to what would have occurred without the project. IFC investment return: The gross-profit contribution quality of an IFC loan and/or equity investment. IFC work quality: The overall quality of IFC's due diligence and value added at each stage of the operation. Additionality: The unique inputs and services that a development institution provides in addition to those delivered by market or nonmarket institutions. Role and contribution: The extent to which IFC played a catalytic role in an investment and made a special contribution. Company: The entity implementing the project and, generally, IFC's investment counterparty; for financial markets operations, it refers to the financial intermediary (or fund manager) as distinct from its portfolio of IFC-financed subproject companies. Investment: IFC's financing instrument(s) in the evaluated operation: loan, guarantee, equity, underwriting commitment, etc. Operation: IFC's objectives, activities, and results in making and administering its investment. Project: The company objectives, capital investments, funding program, and related business activities being partially financed by IFC's investment selected for evaluation. Example: "Through this operation IFC provided $55 million for the company's $100 million cement manufacturing expansion project in the form of a $20 million A-loan, a $30 million B-loan from commercial banks, and a $5 million equity investment." Advisory service operations Outputs of advisory Outputs refer to the delivery of products, capital goods, and services. services operations: Outcomes of advisory Outcomes refer to the short- and medium-term effects of the services operations: intervention. Impacts of advisory Impacts refer to the longer-term effects of the intervention. services operations: ix INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Example: "An advisory services operation recommended that the country amend the leasing law to incorporate best practice in similar markets in the region. Outcome--the country amended the leasing law in accordance with the recommendation. Impact--the leasing industry became attractive to potential sponsors as evidenced by new companies that were established following the amendment of the leasing law." x Acknowledgments This report was prepared by a team led by Dan IEG-IFC, and Amitava Banerjee, Manager, IEG- Crabtree, drawing upon research and contribu- IFC; and under the overall leadership of Marvin tions from Nicholas Burke, Jouni Eerikainen, Hi- Taylor-Dormond, Director, IEG-IFC. royuki Hatashima, Maria Elena Pinglo, Cherian Samuel, Victoria Viray-Mendoza, and Izlem Yenice. The report benefited substantially from the con- Yvette Jarencio, Marylou Kam-Cheong, and Rose- structive advice and feedback from many staff at marie Pena provided general administrative sup- the IFC, and also from a number of Independ- port to the study team. Helen Chin edited the ent Evaluation Group (IEG) colleagues in IFC, the report; and Sid Edelmann and Sona Panajyan World Bank, and MIGA. Peer review was pro- managed its production and dissemination. vided by Nils Fostvedt (IEG-World Bank) and Theodore Moran (Georgetown University). The evaluation was produced under the guid- ance of Stoyan Tenev, Head of Macro Evaluation, xi INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Director-General, Evaluation, World Bank Group Vinod Thomas Director, IEG-IFC Marvin Taylor-Dormond Manager, IEG-IFC Amitava Banerjee Head of Macro Evaluation Stoyan Tenev Head of Micro Evaluation Nicholas Burke Task Manager Dan Crabtree Study Team Evaluation Officer Cherian Samuel Evaluation Officer Hiroyuki Hatashima Evaluation Analyst Maria Elena Pinglo Evaluation Analyst Victoria Viray-Mendoza Evaluation Analyst Izlem Yenice Program Assistant Marylou Kam-Cheong Program Assistant Rosemarie Pena xii Foreword T his year's Independent Evaluation of IFC's Development Results (IEDR) reviews the findings related to 174 IFC-supported investment operations that reached early operating maturity during 2005­07. It also includes preliminary results for IFC's advisory services, based on a pilot review of 293 operations completed during 2004­06. As a second theme, the report provides a first look by IEG at IFC's additionality (or unique contribution) in its investment and advisory services operations. First, the IEDR finds that during 2005­07, 63 per- form of loan tenor or other features--appears to cent of evaluated investment operations, by num- be present in 85 percent of cases, and at least one ber (75 percent by dollar volume), achieved results form of operational or institutional additionality that, on balance, met or exceeded specified mar- is present in about a third. However, in nearly a ket, financial, economic, environmental, and so- fifth of the cases, IFC's role and contribution-- cial performance benchmarks and standards. The an overall dimension of additionality--was judged drivers for project performance include the coun- to be less than satisfactory, meaning it fell short try's business climate, sector choices, quality of in a material area, or IFC was deemed not to the sponsor, specific project risks, and IFC's own be additional or to have delivered its expected work quality--which together explain the supe- contribution. rior results in the Europe & Central Asia and the Latin America & Caribbean Regions, compared Taken together, these findings highlight the with the much weaker results in the Africa, Asia, unique role that IFC can potentially play. In the and Middle East & North Africa Regions. countries where IFC is involved, it can increas- ingly seek to carry out a special function in the Second, the evaluation shows that pursuing de- form of the priority it gives to furthering devel- velopment effectiveness need not come at the opment effectiveness through the private sector, expense of IFC profitability on its investments. while simultaneously ensuring sound financial re- Nearly 60 percent of projects combined high turns to its investments. development outcomes with acceptable financial returns for IFC investments while, at the same Finally, the report highlights the challenges in im- time, some 25 percent of projects achieved low proving development effectiveness as IFC rapidly development ratings along with a less than ac- expands support in regions with relatively weak ceptable IFC financial return. institutions, poor business climate, and fragile en- vironments. The tasks ahead for IFC are to ensure Third, in a first look by IEG at IFC's additionality, strong portfolio risk management while its op- the report finds that financial additionality--in the erations grow rapidly, to improve environmental xiii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 and social supervision in Africa, and to continue to development effectiveness. IFC therefore efforts for improving reporting on the quality of needs to increasingly stress the strategic thrust, advisory services performance. In all of these re- operationalization, and tracking of the institu- spects, additionality would seem to be closely tied tion's unique role and contribution. Vinod Thomas Director-General Evaluation xiv Avant-propos L a présente édition du rapport intitulé « Évaluation indépendante des résultats obtenus par l'IFC dans le domaine du développement (IEDR) » examine les conclusions tirées de 174 projets d'investissement financés par la Société financière internationale (IFC), lesquels ont atteint leur régime de croisière durant la période 2005­07. Le rapport comprend également des résultats préliminaires relatifs aux services-conseil de l'IFC ; ces résultats découlent de l'examen de 293 projets clôturés durant la période 2004­06. Comme second thème du rapport, le principe Deuxièmement, l'évaluation montre que la de l'« additionnalité » (autrement dit la con- recherche de l'efficacité du développement n'est tribution que seule l'IFC est en mesure de faire pas nécessairement condamnée à se faire au valoir) des projets de l'IFC est examiné pour détriment de la rentabilité des investissements la première fois par le Groupe indépendant réalisés par l'IFC. Près de 60 % des projets donnent d'évaluation (IEG). à constater à la fois de bons résultats au plan du développement et des rendements financiers Premièrement, le rapport IEDR donne à acceptables en contrepartie des investissements constater que durant la période 2005­07, 63 % réalisés par l'IFC. Parallèlement, quelque 25 % des projets d'investissement évalués, en nombre de projets ayant obtenu des notes inférieures au notamment (soit 75 % en dollars), ont permis regard de l'impact sur le développement affichent d'obtenir des résultats qui, en définitive, ont aussi un taux de rentabilité financière inférieur au atteint ou dépassé les valeurs de référence et niveau acceptable. normes de performance spécifiées en rapport avec les aspects financier, économique, Troisièmement, grâce à ce qui aura été pour l'IEG environnemental et social, et relatifs au marché. un premier examen de l'additionnalité de l'IFC, le Au nombre des facteurs à la base des résultats rapport ainsi établi permet de constater que obtenus par les projets figurent le cadre l'aspect financier de l'additionnalité--que ce soit économique national, les secteurs choisis, la sous forme d'échéance de prêt ou par d'autres qualité des promoteurs, les risques encourus moyens--semble présent dans 85 % des cas, et une par le projet et la qualité de l'intervention de forme au moins d'additionnalité opérationnelle l'IFC, toutes choses qui expliquent la qualité ou institutionnelle est présente dans environ un supérieure des résultats obtenus dans les régions tiers des cas. Néanmoins, dans près d'un cinquième Europe et Asie centrale et Amérique latine et des cas, l'aspect rôle et contribution de l'IFC-- Caraïbes, contre celle bien inférieure des régions dimension à caractère général de l'additionnalité-- Afrique, Asie et Moyen-Orient et Afrique du Nord. a été jugé insatisfaisant, ce qui signifie que l'institution a soit accusé des insuffisances dans un xv INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 domaine essentiel soit été jugée en position l'institution étend rapidement son appui à des relativement moins favorable pour apporter une régions dotées d'institutions relativement faibles, additionnalité ou faire l'apport escompté. d'un cadre économique peu favorable et d'environnements fragiles. À l'avenir, l'IFC devra De façon générale, ces constatations mettent en assurer une bonne gestion des risques encourus exergue le rôle tout particulier que l'IFC peut par le portefeuille, parallèlement à l'expansion jouer. L'institution peut, dans les pays où elle rapide de ses activités, afin d'améliorer la intervient, chercher davantage à assumer une supervision environnementale et sociale en fonction spéciale à travers la priorité qu'elle Afrique, et pour poursuivre les efforts visant à accordera à la quête de l'efficacité du mieux rendre compte de la qualité des résultats développement, ce en appuyant le secteur privé obtenus par les services-conseil. Sur tous ces tout en s'assurant un bon retour sur les plans, l'additionnalité paraît étroitement liée à investissements qu'elle aura réalisés. l'efficacité du développement. Il s'ensuit que l'IFC se doit d'insister sur l'orientation stratégique, Enfin, le rapport souligne les difficultés que l'opérationnalisation et le suivi du rôle et de la rencontre l'IFC dans son effort d'améliorer contribution que seule elle peut faire valoir. l'efficacité du développement à mesure que Vinod Thomas Directeur général Évaluation xvi Prólogo L a Evaluación Independiente de los resultados de Desarrollo (IEDR por su sigla en inglés) de la Corporación Financiera Internacional (IFC por su sigla en inglés) realizada este año analiza las conclusiones vinculadas a 174 operaciones de inversiones que recibieron apoyo de la IFC y llegaron a su vencimiento operativo anticipado durante 2005­07. También incluye los resultados preliminares de desarrollo no tiene por qué darse a expensas de los servicios de asesoría de la IFC, basados en un la rentabilidad de las inversiones de la IFC. Casi análisis piloto de 293 operaciones que se llevaron el 60% de los proyectos combinó buenos a cabo durante 2004­06. En segundo lugar, el resultados de desarrollo con un rendimiento informe proporciona un primer análisis del financiero aceptable en las inversiones de la IFC Grupo de Evaluación Independiente (GEI) a la mientras que, simultáneamente, el 25% de los "adicionalidad" (o aporte único) de las proyectos obtuvo bajas calificaciones en términos operaciones de la IFC. de desarrollo junto con un rendimiento financiero inaceptable para la IFC. En primer lugar, la IEDR determinó que durante 2005­07, un 63% de las operaciones de inversión En tercer lugar, en el primer análisis que efectuó evaluadas, por cantidad (75% por volumen en el GEI (IEG por su sigla en inglés) respecto de la dólares) logró resultados que, en general adicionalidad de la IFC, el informe concluye que cumplieron o superaron los parámetros e la adicionalidad financiera --en forma de duración indicadores de referencia especificados en de los préstamos u otras características-- parece materia de mercados, finanzas, economía, medio estar presente en el 85% de los casos, y hay por ambiente y desempeño social. Los factores lo menos una forma de adicionalidad operativa o determinantes en cuanto al desempeño del institucional presente en aproximadamente un proyecto incluyen las condiciones del país en tercio de ellos. No obstante, en casi la quinta materia de negocios, las opciones del sector, la parte de los casos se estimó que la función y el idoneidad del patrocinador, los riesgos del aporte de la IFC --una dimensión general de la proyecto, y la calidad del trabajo de la propia IFC, adicionalidad-- eran menos que satisfactorios, los cuales en conjunto explican la superioridad ya sea porque ésta había tenido un desempeño de los resultados en las regiones de Europa y Asia insuficiente en un área importante, o porque no Central, y América Latina y el Caribe, comparadas se consideraba que la IFC fuera adicional o hubiera con resultados muy inferiores en África, Asia y en cumplido con el aporte esperado. las regiones de Medio Oriente y norte de África. Tomados en conjunto, estas conclusiones realzan En segundo lugar, la evaluación demuestra que la función única que puede desempeñar la IFC. la búsqueda de la eficacia en términos de En los países en que participa la IFC, puede xvii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 apuntar crecientemente a desempeñar una la IFC tiene por delante son garantizar una sólida función especial en cuanto a las prioridades que gestión del riesgo de carteras, al tiempo que sus asigna a la promoción de la eficacia en términos operaciones crecen rápidamente, con el fin de de desarrollo a través del sector privado, al mejorar la supervisión ambiental y social en África, tiempo que garantiza un rendimiento financiero y continuar los esfuerzos para mejorar la forma en sólido a sus inversiones. que se informa sobre la calidad de la prestación de los servicios de asesoría. En todos estos aspectos, Finalmente, el informe resalta los desafíos a la hora la adicionalidad parecería estar íntimamente ligada de mejorar la eficacia en términos de desarrollo, a a la eficacia en términos de desarrollo. En medida que la IFC rápidamente aumenta el apoyo consecuencia, la IFC necesita hacer mayor hincapié en aquellas regiones que poseen instituciones en la ofensiva estratégica, la operacionalización y relativamente débiles, un ambiente poco proclive el seguimiento de la singular función y aporte que a los negocios, y entornos frágiles. Las tareas que posee como institución. Vinod Thomas Director general de Evaluación xviii Executive Summary T he Independent Evaluation of IFC's Development Results (IEDR) is the annual flagship report of the Independent Evaluation Group (IEG).1 It reviews IFC's effectiveness in supporting private sector development and its contributions to economic growth and poverty reduction, as well as to environmentally and socially sustainable development. The main purpose of the IEDR is to provide an in- role and contribution--that IFC brings to its clients dependent assessment to the Executive Board, IFC through its investment and advisory services op- Management, and the wider development com- erations. IFC has been expanding its business munity about recent trends in IFC's perform- rapidly--the volume of new investment operations ance, and to stimulate debate and action on IFC has more than doubled and advisory services ex- strategy and operational processes going forward. penditures have quadrupled in the last five years.5 The report also serves as a source of knowledge A comprehensive review of the development re- and learning about private sector development, sults achieved in the field, and of IFC's contribu- in general, and about development impact, more tion to these results, is therefore timely. specifically. Development Results of This year's IEDR contains two main themes. The IFC-Supported Projects first is a review of the development results The results of investment operations reaching achieved by IFC-supported operations. On the in- early operating maturity during 2005­07 show vestment side, this means looking at how well op- an improvement over the past. From a randomly erations that reached early operating maturity2 selected, representative sample of 174 (out of during 2005­07 performed, in terms of their 332) operations, worth over $3.3 billion (ap- financial and economic results--relative to spe- proximately $13 billion when including funds cific market benchmarks--as well as their envi- from cofinanciers),6 63 percent (75 percent by vol- ronmental and social effects and contributions to ume) achieved results that, on balance, met or ex- private sector development beyond the project ceeded specified market, financial, economic, (such as through linkages and demonstration ef- environmental, and social performance bench- fects).3 For advisory services, the report presents marks and standards. In 2007, 71 percent of 65 some emerging results of 293 operations that evaluated operations met or exceeded develop- were closed during 2004­06 and which were eval- ment benchmarks and standards. uated on a pilot basis--as part of wider efforts under way to assess performance in this area.4 The evaluation also demonstrates that pursuing development effectiveness can go hand-in-hand The second theme of the report is a preliminary, with IFC profitability. In 85 percent of projects ex-post look at the "additionality"--or unique that IFC supported, high and low development re- xix INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 sults correlated with high and low IFC profitabil- ber of sectors in Asia, for example, the lagged ef- ity, respectively, thus suggesting that the two at- fects of the regional financial crisis in the late tributes can often move in the same direction. 1990s. A combination of sector and country Where there was a divergence between the two specifics help explain the relatively poor per- (in 15 percent of the cases), it usually reflected formance in MENA, where most general manu- IFC's choice of financing instrument (loan or eq- facturing and services projects achieved below- uity) and the associated investment risk. The benchmark results and security issues affected broad result from this positive association is en- business potential in several countries. couraging because it suggests that if IFC were to press for stronger development effectiveness, it Factors within IFC's control also played a critical would not necessarily compromise financial re- role in determining the results, especially the turns to its investments. management of sponsor and project risk. Projects in ECA and LAC were generally carried out with However, there were several shortcomings in im- higher quality sponsors and featured lower in- portant aspects of IFC's investment operations. trinsic project risks than those in other Regions. First, results continue to be much weaker in Weak sponsor quality and high intrinsic risk posed smaller projects (particularly those where IFC's substantial challenges to achieving successful investment is less than $5 million, which account project development outcomes, even though for 32 percent of the sample). Second, less than supporting clients to meet this challenge is cen- half of projects in the Africa, Asia, and Middle tral to IFC's role as a development institution. This East & North Africa (MENA) Regions met or ex- is all the more important in light of the IEG find- ceeded development benchmarks and standards, ing that IFC's supervision and administration thus widening the performance divide, identi- quality appears to have much greater influence on fied last year, between these Regions and the Eu- project results in situations where sponsors are rope & Central Asia (ECA) and Latin America & the weaker and project risk is higher. Generally, where Caribbean (LAC) Regions. This finding is especially IFC work quality was high, so were project de- important because IFC's operations are growing velopment results. The close relationship be- rapidly in the former Regions. Third, environ- tween work quality and development results mental and social effects ratings continued to be applies across sectors and regions, although the weak in Africa. By sector, performance was incidence of work quality was notably lower in Asia strongest in infrastructure and finance projects, and Africa than in other Regions. These findings and weakest in general manufacturing, services, imply a need for greater attention to sound work and information technology projects. quality in Asia and Africa, in particular, to en- hancing environmental and social performance in The projects IFC supports face inherent risks Africa, where sponsor commitment to sustain- and challenges that differ across countries, sectors, ability tends to be weakest and where IFC su- and instruments.7 The aggregated performance pervision quality has fallen short. assessments cited above are not contrasted with risk-adjusted expectations. However, this report While IFC has been expanding its advisory services does consider how risks vary by country, sector, operations in the last five years, it has also devoted and instrument, and how they affect develop- significant resources to the monitoring and self- ment results. Improved market conditions in evaluation of the results of these operations. A most regions contributed positively to the de- component of this monitoring and self-evaluation velopment performance of IFC-supported proj- was the introduction of a project completion re- ects. On the other hand, continued high-risk port (PCR) system for advisory services, which business environments constrained performance seeks to assess results across five dimensions: in many countries in Africa. Specific market con- strategic relevance, efficiency, outputs, outcomes, ditions appear to have adversely affected a num- and impacts. IFC has supplemented this system xx E X E C U T I V E S U M M A RY with a number of external reviews, and experi- IFC's corporate strategies generally discuss IFC's mental and quasi-experimental evaluations of unique role and contribution in terms of investing specific projects, to inform project design and in so-called frontier countries, sectors, products, effectiveness going forward. and markets and in supporting environmental and social sustainability. However, most region, IEG independently evaluated the results reported sector, and country strategies (the last is devel- by IFC in the first two PCR pilots, covering 293 ad- oped with the World Bank) contain limited explicit visory services operations that closed during discussion of IFC's unique role and contribution 2004­06. IEG's evaluations indicate that, in the 198 or comparative advantages, relative to other projects where development effectiveness was sources of finance and advice. There needs to be rated, 70 percent achieved satisfactory ratings. better articulation going forward. However, a high proportion of the evaluated proj- ects (one-third) did not report development ef- It is difficult to measure additionality precisely, but fectiveness ratings, which seriously weakened the proxies are available to conduct an initial assess- quality of inferences that could be drawn about ment of the presence and quality of additionality performance from these pilots. Moreover, the in IFC operations. The major source for these quality of documentation provided by IFC staff to proxies is the data collected through project eval- support their initial ratings continues to be weak uations on IFC's role and contribution, which ex- in many cases, suggesting that further work is re- amines whether IFC made a special contribution quired to develop a higher standard in reporting to a project and was catalytic in helping private in- development effectiveness in advisory services vestors to make good investments. IEG used the operations. data to conduct an ex-post analysis in two phases: (i) identification of specific forms of additionality IFC Additionality and (ii) evaluation of their quality overall, based As part of the World Bank Group, IFC is expected on the ratings accorded to individual projects' to do more than just provide financing to its role and contribution. clients. The institution should be a catalyst in pri- vate sector growth for equitable and sustainable IEG reviewed 692 desk-based, project self- development. Accordingly, IFC should comple- evaluations and coded the projects in terms of ment, but not replace, existing sources of private the presence or absence of three types of addi- capital in developing countries. The need for IFC tionality, defined according to the areas in which to play a special catalytic role arises due to seri- IFC might uniquely address market failures and ous market and institutional failures and imper- imperfections: (i) financial (more appropriate fections that hold back private investment in most terms than are available elsewhere, funds mobi- developing countries. Such imperfections vary lization, and market risk comfort); (ii) opera- according to market and institutional factors in tional (specialized advice to compensate for countries. Additionality refers to the unique knowledge and skills gaps among clients); and inputs--financial and nonfinancial--that a de- (iii) institutional (improved standards of cor- velopment institution, such as the IFC, provides porate governance, environmental and social sus- to developing countries. IFC additionality is ex- tainability, and regulation, and better public/private pected to lead to beneficial development impacts risk allocation).8 Using a highly inclusive definition in the field and improved results. Given this of additionality, this review found that at least connection, it would seem that the greatest ad- one form of financial additionality was apparent ditionality for IFC would potentially be in areas in 85 percent of evaluated investment operations, where the prospects for development impact-- and at least one form of operational or institutional economic growth, poverty reduction, environ- additionality was identifiable in about one-third mental and social sustainability--through support of the cases. Over time, institutional additional- to private sector development are best. ity appears to have risen in importance while the xxi INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 other types of additionality seem to have re- is required to arrive at a conclusive assessment. mained fairly constant. IFC's relatively short experience in the social sectors (a dedicated Health and Education De- The need for IFC to provide financial additional- partment was only established in 2002) may ex- ity is perhaps most acute during times of crisis. IEG plain the relatively poor quality of IFC's role and finds that IFC appears to have been a counter- contribution in these sectors. However, this cyclical investor in response to most of the major would need to be confirmed with more in-depth financial crises that occurred in developing coun- analysis. tries in recent years. Augmenting IFC's counter- cyclical function will be of particular relevance in Better project development results were achieved the event that the anticipated global economic where the quality of IFC's evaluated role and con- slowdown adversely affects the private sector in tribution was stronger and when different types developing countries. of additionality were simultaneously present. On its own, financial additionality appears to have Concerning the quality of IFC's overall addition- more traction on development results than other ality (based on ex-post assessments of role and types of additionality. Evaluation also shows no ap- contribution), the ratings of this component in in- parent tradeoff between different types of addi- dividual operations has been satisfactory in most tionality and IFC's own profitability, meaning that cases, meaning IFC's delivered contribution was where the quality of IFC's role and contribution in line with IFC's operating principles of making was stronger, so were economic and financial re- a special contribution and being catalytic. Relative turns to IFC investments. These findings stress the successes for IFC include the institution's strong importance of IFC making full use of the com- quality of role and contribution in the ECA and parative advantages it possesses, relative to other LAC Regions; in the extractive, food and agribusi- financial organizations in supporting the private ness, and infrastructure sectors; and in capacity sector in developing countries--in ways that building through long-term engagement with foster economic growth, poverty reduction and clients. However, IFC's contribution was judged environmentally and socially sustainable devel- to be less than satisfactory (meaning IFC's addi- opment to full effect--because doing so can have tionality fell short in a material area or IFC was mutually reinforcing development and financial deemed not to be plausibly additional) in nearly benefits. 30 percent of projects in Asia and Africa, and in similar proportions in the financial and health Recommendations and education sectors in all Regions. To enhance its development effectiveness IFC should: Overoptimism about what IFC could deliver, lack of client commitment to changes that IFC sought · Pay strong attention to work quality and port- to bring about (particularly where the project folio risk management as it continues to grow was not a commercial success), and shifts in ex- and decentralize its operations, particularly in ternal conditions all appear to have played a part newer markets and in view of a possible down- in cases with less-than-satisfactory IFC role and turn in global economic growth. contribution. Variations in IFC's role and contri- · Ensure that it addresses continued environ- bution by region and sector are, however, difficult mental and social performance shortcomings to explain with precision. Econometric analysis in- in Africa, particularly as they relate to IFC su- dicates that when controlling for project size, pervision quality and client commitment to sponsor quality, intrinsic project risk, and business sustainability issues. climate risk, IFC role and contribution in Africa is · Continue, with input from IEG, to strengthen still weaker than in other Regions. Special factors the steps it is taking to improve the data on the may explain some of this variation, but further performance of advisory services operations, investigation--including field-based assessment-- including efforts to improve understanding xxii E X E C U T I V E S U M M A RY among staff about results measurement, quality these efforts by advancing its metrics for esti- assurance by managers, as well as performance mating and tracking additionality through the monitoring beyond project closing. project lifecycle, taking account of the analyt- · Clearly map out its additionality in its strategies ical framework outlined in this report. (including those developed with the World · Carry out further analysis of IFC's additional- Bank) and develop guidelines and incentives ity in lagging regions, sectors, and client groups to help operational staff better identify and to identify what specific steps are required to deliver additionality. IFC could complement enhance performance. xxiii Résumé analytique L 'Évaluation indépendante des résultats obtenus par l'IFC dans le domaine du développement (IEDR) est le rapport annuel phare du Groupe indépendant d'évaluation (IEG)1. Il examine l'efficacité de la Société financière internationale (IFC) dans l'appui que l'institution apporte au développement du secteur privé, sa contribution à la croissance économique et à la réduction de la pauvreté, ainsi qu'au développement durable sur le plan écologique et social. Le principal objectif visé à travers ce rapport est contribuant à l'essor du secteur privé au-delà du de mettre à la disposition des Administrateurs, contexte du projet (par exemple, à travers des de la direction de l'IFC et de la communauté du liens et des effets de démonstration)3. Au titre développement en général, une évaluation des services-conseil, le rapport fait état de indépendante de l'évolution récente des résultats quelques résultats préliminaires de 293 projets de l'IFC, et de stimuler la réflexion et l'action sur clôturés durant la période 2004­06 et pour la stratégie et les procédures opérationnelles lesquels une évaluation pilote a été menée, dans futures de l'IFC. Le rapport sert aussi de source le contexte d'actions d'envergure en cours pour de connaissances et d'enrichissement du savoir mesurer la performance dans ce domaine4. sur le développement du secteur privé en général, et sur l'impact dans le domaine du Le second thème du rapport est un examen développement en particulier. préliminaire ex-post du principe de l'« additionnalité » --autrement dit, le rôle et la Deux thèmes principaux se dégagent du rapport contribution que seule l'IFC peut faire valoir-- de cette année. Le premier a trait aux résultats que l'institution apporte à ses clients à travers ses obtenus dans le domaine du développement projets d'investissement et de prestation de par les projets bénéficiant du financement de services-conseil. L'IFC n'a cessé d'élargir l'IFC. Sur le plan de l'investissement, cela revient rapidement son champ d'activité, multipliant à examiner dans quelle mesure les projets ayant par plus de deux le volume de nouveaux projets atteint leur régime de croisière2 durant la période d'investissement et par quatre les dépenses liées 2005­07 ont pu remplir les objectifs qui leurs aux services-conseil au cours des cinq dernières étaient assignés, en termes de résultats financiers années5. Il en découle que la conduite d'un et économiques--notamment par rapport à des examen exhaustif des résultats dans le domaine références spécifiques du marché--et aussi dans du développement obtenus sur le terrain et de quelle mesure ils ont permis d'obtenir les impacts la contribution de l'IFC à ces résultats arrive à environnementaux et sociaux voulus tout en point nommé. xxv INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Les projets d'investissement de l'IFC : étudié). Deuxièmement, moins de la moitié des résultats en matière de développement projets exécutés dans les régions Afrique, Asie et Comparé au passé, on observe une amélioration Moyen-Orient et Afrique du Nord (MENA) ont des résultats obtenus par les projets obtenu des résultats supérieurs ou égaux aux d'investissement ayant atteint leur régime de valeurs de référence et normes de performance croisière durant la période 2005­07. Sur un liées au développement, ce qui a contribué à échantillon aléatoire représentatif comptant 174 creuser l'écart entre les résultats, ainsi qu'observé (sur 332) projets correspondant au montant de l'année dernière, notamment lorsqu'on compare plus de 3,3 milliards de dollars (soit environ ces régions respectivement avec l'Europe et 13 milliards de dollars en comptant les fonds l'Asie centrale (ECA) d'une part et l'Amérique issus du cofinancement)6, 63 % (soit 75 % en latine et les Caraïbes (LAC) d'autre part. Cette volume) des projets ont permis d'obtenir des constatation est particulièrement importante résultats qui, en définitive, ont atteint ou dépassé dans la mesure où les projets de l'IFC connaissent les valeurs de référence et normes de une croissance plus rapide dans le premier performance spécifiées en rapport avec les groupe de régions. Troisièmement, l'Afrique aspects financier, économique, environnemental continue de recevoir de faibles notes au titre et social, et relatifs au marché. En 2007, 71 % des des effets environnementaux et sociaux. Du 65 projets évalués avaient atteint ou dépassé les point de vue sectoriel, les résultats ont été valeurs de référence et normes de performance meilleurs dans les projets d'infrastructure et liées au développement. ceux en rapport avec le secteur financier, les projets concernant le secteur manufacturier, les Cette évaluation indique également qu'il n'existe services et les technologies de l'information pas d'incompatibilité entre la recherche de ayant affiché les résultats les plus défavorables. l'efficacité du développement et la rentabilité des projets de l'IFC. Dans 85 % des projets Les projets financés par l'IFC se heurtent à des appuyés par l'IFC, on note une corrélation risques et difficultés propres qui diffèrent d'un directe entre les résultats supérieurs ou inférieurs pays à un autre, d'un secteur à un autre et d'un en matière de développement et une rentabilité instrument à un autre7. Les résultats cités ci- supérieure ou inférieure des projets de l'IFC, dessus ne sont pas comparés à des données respectivement. Cela donne à penser que ces pondérées en fonction des risques. Le rapport deux objectifs ne s'excluent pas mutuellement examine toutefois la variation des risques par ; les cas de divergence entre les deux (dans 15 pays, secteur ou instrument ; il étudie en outre % des cas) reflètent généralement le choix de quelle manière ils affectent les résultats en d'instrument de financement opéré par l'IFC et matière de développement. L'amélioration des le risque d'investissement qui l'accompagne. Le conditions du marché dans la majorité des résultat global qui résulte de cette corrélation régions a eu un impact positif sur les résultats positive est encourageant dans la mesure où il obtenus au plan du développement par les indique que si l'IFC venait à rechercher une plus d'investissement de l'IFC. En revanche, la grande efficacité du développement, elle ne persistance de risques élevés dans compromettrait pas pour autant la rentabilité l'environnement des entreprises a contribué à de ses investissements. limiter la performance dans de nombreux pays en Afrique. Des conditions particulières du Plusieurs insuffisances ont toutefois émaillé des marché semblent avoir eu un effet négatif sur un aspects importants des projets d'investissement certain nombre de secteurs en Asie ; par de l'IFC. Premièrement, les résultats continuent exemple, les effets décalés de la crise financière d'être beaucoup moins bons dans les projets régionale de la fin des années 90. Un ensemble de taille plus modeste (en particulier ceux dans d'entraves propres aux secteurs et aux pays lesquels l'investissement de l'IFC est inférieur à permettent d'expliquer les résultats relativement cinq millions de dollars, soit 32 % de l'échantillon médiocres obtenus au Moyen-Orient et en xxvi R É S U M É A N A LY T I Q U E Afrique du Nord, une région dans laquelle la terme s'avère plus faible et la qualité de la majorité des projets du secteur manufacturier et supervision de l'IFC n'a pas répondu aux attentes. des services ont enregistré des résultats inférieurs aux références et les questions de sécurité ont S'il est vrai que l'IFC a continué d'élargir ses eu une incidence sur les opportunités activités de services-conseil au cours des cinq économiques dans de multiples pays. dernières années, l'institution n'a pas non plus manqué de consacrer des ressources Les facteurs qui dépendaient de l'IFC ont aussi conséquentes au suivi et à l'autoévaluation des joué un rôle essentiel dans les résultats, en résultats de ses projets. La formule d'un rapport particulier la gestion des risques liés au d'achèvement de projet introduite dans le promoteur du projet et au projet lui-même. En domaine des services-conseil fait partie règle générale, les projets des régions ECA et LAC intégrante de ce système de suivi et ont été exécutés par des promoteurs mieux d'autoévaluation. Le rapport d'achèvement de pourvus en moyens et ont comporté moins de projet à pour objectif d'évaluer les résultats risques liés à la valeur intrinsèque du projet obtenus dans cinq domaines différents : la concerné que les projets des autres régions. La pertinence stratégique, l'efficacité, les produits, qualité inférieure des moyens dont dispose le les réalisations et les impacts. L'IFC a complété promoteur et le risque élevé dû à la nature du ce système avec un certain nombre d'examens projet sont des facteurs qui ont considérablement externes, et l'évaluation de projets spécifiques empêché les projets de produire des résultats menée à titre expérimental ou quasi bénéfiques au développement, même si, en tant expérimental, le tout à l'effet d'enrichir la qu'institution de développement, l'IFC a pour conception et accroître l'efficacité des projets à mission essentielle d'aider ses clients à résoudre l'avenir. les difficultés de ce type. Cela s'avère particulièrement important à la lumière des L'IEG a entrepris une évaluation indépendante constatations faites par l'IEG indiquant que la des résultats signalés par l'IFC dans les deux qualité de la supervision et de l'administration premiers rapports d'achèvement de projet assurées par l'IFC semble avoir une bien plus réalisés à titre d'essai, couvrant 293 projets de grande influence sur les résultats des projets services-conseil clôturés durant la période dans les situations où les promoteurs de projets 2004­06. Il ressort des évaluations de l'IEG que sont moins bien pourvus en moyens, mais les 70 % des 198 projets dans lesquels une note a été risques liés au projet sont plus grands. De attribuée à l'efficacité du développement ont manière générale, lorsque la qualité de été jugés satisfaisants. Cependant, une l'intervention de l'IFC a été supérieure, les proportion élevée des projets évalués (un tiers) résultats du projet au plan du développement n'a pas reçu de note sur l'efficacité du l'ont aussi été. Cette relation étroite entre la développement, ce qui a fortement réduit la qualité des interventions et les résultats en qualité des inférences qui pouvaient être faites matière de développement s'applique à tous les sur la performance en se basant sur les secteurs et à toutes les régions, bien qu'en Asie évaluations pilotes. De plus, la qualité de la et en Afrique, l'incidence de la qualité des documentation fournie par les agents de l'IFC interventions s'est avérée nettement plus faible pour étayer leurs notations initiales continue que dans d'autres régions. Ces conclusions de présenter des insuffisances à plusieurs égards, impliquent qu'il est absolument indispensable de ce qui prête à penser que des efforts prêter plus d'attention à la qualité des supplémentaires sont nécessaires pour fixer des interventions en Asie et en Afrique, notamment, normes plus strictes d'établissement de rapports afin d'améliorer les résultats environnementaux sur l'efficacité du développement dans les projets et sociaux en Afrique, région dans laquelle de services-conseil. l'engagement des promoteurs de projets à long xxvii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 La valeur ajoutée de l'IFC équivalent de l'IFC ou de ses avantages En tant qu'institution membre du Groupe de la comparatifs, comparativement à d'autres sources Banque mondiale, l'IFC est censée faire mieux de financement et de conseil. Une meilleure que se limiter à accorder des financements à ses formulation de cette question s'impose à l'avenir. clients. L'institution doit jouer un rôle catalyseur dans la croissance du secteur privé, condition Il est certes difficile de mesurer l'additionnalité essentielle d'un développement juste et durable. avec précision, mais il existe des mesures Il s'en suit que l'IFC doit compléter les sources approximatives permettant de réaliser une existantes de capitaux privés dans les pays en évaluation initiale de la présence et de la qualité développement et ne pas se substituer à elles. La de ce principe dans les projets de l'IFC. La nécessité pour l'IFC de jouer un rôle spécial de meilleure source à cet égard est constituée des catalyseur tient des graves défaillances du marché données collectées au moyen des évaluations de et des institutions et autres imperfections qui projets sur le rôle et la contribution de l'IFC, freinent l'investissement privé dans la majorité des l'objectif desquelles est de déterminer dans quelle pays en développement. Ces imperfections mesure l'IFC a apporté une contribution spéciale varient suivant les déterminants du marché et les à un projet donné et a joué un rôle de catalyseur facteurs institutionnels en jeu dans les pays. Le en aidant les investisseurs privés à réaliser de principe de l'« additionnalité » désigne les bons investissements. L'IEG s'est servi de ces contributions spéciales--qu'elles soient données pour mener une analyse ex-post en financières ou non financières--qu'une deux étapes : institution de développement de l'envergure de i) l'identification de formes spécifiques l'IFC apporte aux pays en développement. L'« d'additionnalité et ii) l'évaluation de leur qualité additionnalité » de l'IFC devrait avoir des d'ensemble, notamment en se fondant sur les retombées positives sur le développement, notes attribuées aux projets pris individuellement n o t a m m e n t en fonction de leur rôle et de leur contribution. « sur le terrain », et contribuer à améliorer les résultats découlant des interventions L'IEG a examiné sur dossier 692 autoévaluations qu'entreprend l'institution. Cela étant, la plus de projets et codifié les projets suivant les critères grande valeur ajoutée de l'IFC résiderait de présence ou d'absence de trois catégories probablement dans les domaines où les chances d'additionnalité définies en fonction des sont les plus grandes d'exercer une influence domaines dans lesquels l'IFC pourrait s'avérer sur le développement à travers l'appui à la l'institution la mieux placée pour s'attaquer aux promotion du secteur privé, à savoir, la croissance défaillances et imperfections du marché : i) aspect économique, la réduction de la pauvreté et la financier de l'additionnalité (de meilleures viabilité environnementale et sociale. conditions que celles offertes par d'autres sources de financement, mobilisation de fonds et Les stratégies institutionnelles de l'IFC traitent contribution à atténuer les risques du marché) ; généralement du rôle spécial et de la ii) aspect opérationnel de l'additionnalité contribution sans pareil de l'institution dans les (conseil spécialisé pour aider à combler les écarts investissements réalisés dans les pays pionniers, qui existent entre les clients au niveau des les secteurs aux avant-postes, les produits connaissances et des compétences) et iii) aspect novateurs et les marchés inexploités, et dans institutionnel de l'additionnalité (amélioration l'appui à la viabilité environnementale et sociale. des normes de gouvernement d'entreprise, Et pourtant, la plupart des stratégies régionales, viabilité environnementale et sociale, sectorielles et nationales (les dernières étant réglementation et meilleure répartition des élaborées avec le concours de la Banque risques entre le public et le privé8). S'appuyant mondiale) traitent très peu de manière explicite sur une définition très large de l'additionnalité, du rôle spécial et de la contribution sans l'examen donne à constater qu'au moins une xxviii R É S U M É A N A LY T I Q U E forme d'additionnalité financière était présente près de dans 85 % des projets d'investissement évalués, 30 % des projets financés en Asie et en Afrique, et qu'au moins une forme d'additionnalité ainsi que, dans des proportions comparables, opérationnelle ou institutionnelle a été identifiée dans les autres régions, notamment dans les dans environ un tiers des cas. Au fil du temps, secteurs financier, de la santé et de l'éducation. l'additionnalité institutionnelle semble avoir gagné en importance tandis que les autres L'excès d'optimisme à l'égard de ce que peut catégories d'additionnalité semblent être restées apporter l'IFC comme contribution, l'absence relativement constantes. d'engagement des clients en faveur des changements préconisés par l'IFC (en particulier La nécessité pour l'IFC de faire valoir sa valeur lorsque le projet concerné n'a pas été un succès ajoutée en termes d'additionnalité financière commercial) et l'évolution des conditions est peut-être plus perceptible au cours des extérieures sont autant de facteurs qui semblent périodes de crise. L'IEG aboutit à la conclusion avoir eu leur part d'influence sur la mention que dans sa réponse à la majorité des crises insuffisante attribuée au rôle et à la contribution financières survenues dans les pays en de l'IFC dans certains cas. Il s'avère relativement développement durant les dernières années, difficile cependant d'expliquer avec précision les l'IFC semble avoir réalisé ses investissements à différences observées entre les régions et entre contre-courant de la conjoncture. Il sera les secteurs en ce qui concerne le rôle et la particulièrement pertinent d'intensifier le rôle contribution de l'IFC. L'analyse économétrique d'intervention à contre-courant de l'IFC au cas indique que même en neutralisant les effets de où le ralentissement économique mondial prédit la taille du projet, de la qualité du promoteur, des venait à avoir des effets nuisibles sur le secteur risques inhérents au projet et des risques liés à privé des pays en développement. l'environnement économique, le rôle et la contribution de l'IFC en Afrique restent limités, S'agissant de la qualité de l'additionnalité de en comparaison à d'autres régions. En supposant l'IFC en général (sur la base des évaluations ex- que des facteurs particuliers peuvent aider à post faites de son rôle et de sa contribution), les expliquer cette différence, des analyses plus notes attribuées à cette composante dans les poussées--y compris des évaluations sur le projets individuels ont été satisfaisantes dans la terrain--s'imposent pour tirer des conclusions majorité des cas. C'est le signe que les apports définitives. L'expérience relativement brève de de l'IFC étaient en droite ligne des principes de l'IFC dans les secteurs sociaux (c'est seulement fonctionnement de l'institution, à savoir, apporter en 2002 qu'a été créé un département chargé une contribution spéciale et jouer un rôle de spécialement de l'éducation et de la santé) peut catalyseur. Le rôle remarquable joué par l'IFC et expliquer la qualité relativement inférieure du rôle sa contribution notable dans les régions ECA et et de la contribution de l'IFC dans ces secteurs. LAC constituent des succès pour l'institution, Il faut cependant entreprendre une étude plus notamment dans les industries extractives, les approfondie pour confirmer cette conclusion. secteurs des produits alimentaires et de l'agro- industrie, les industries manufacturières, ainsi Lorsque la qualité du rôle et de la contribution que dans le domaine du renforcement des de l'IFC, ainsi que déterminée après évaluation, capacités à travers un engagement à long terme a été jugée plus élevée et que différentes avec les clients. Toutefois, la contribution de catégories d'additionnalité ont agi simultanément, l'IFC a été jugée insatisfaisante (autrement dit, de meilleurs résultats ont pu être obtenus en soit l'additionnalité de l'IFC s'est avérée matière de développement. L'additionnalité insuffisante dans un domaine essentiel soit l'IFC financière semble avoir à elle seule une influence a été jugée en moins bonne posture pour plus grande sur les résultats en matière de apporter une additionnalité éventuelle) dans développement que les autres catégories xxix INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 d'additionnalité. L'évaluation montre aussi qu'il les secteurs environnementaux et sociaux, n'existe pas de corrélation négative entre les notamment par rapport à la qualité de la différentes catégories d'additionnalité et la supervision de l'IFC et à l'engagement des rentabilité des investissements de l'IFC ; en clients à l'égard des questions liées à la d'autres termes, la qualité supérieure du rôle et viabilité. de la contribution de l'IFC s'est accompagnée de · Poursuivre, avec le concours de l'IEG, les rendements économiques et financiers élevés mesures de renforcement prises par l'IFC pour l'institution, et vice versa. Ces observations pour améliorer la qualité des données relatives soulignent qu'il est important pour l'IFC de faire à la performance des projets de services- très attention aux avantages comparatifs que conseil, notamment les actions visant à possède l'institution, comparé à d'autres améliorer la compréhension que les agents de institutions financières qui appuient elles aussi le l'institution ont de l'évaluation des résultats, secteur privé des pays en développement--de l'assurance de la qualité par les responsables manière à susciter pleinement la croissance de projets, ainsi que le suivi des résultats au- économique, la réduction de la pauvreté et un delà de la clôture des projets. développement durable sur le plan écologique et · Inscrire clairement le principe de social--car procéder de la sorte peut entraîner l'additionnalité dans ses stratégies (y compris des retombées mutuellement bénéfiques pour le celles élaborer conjointement avec la Banque développement et pour le secteur financier. mondiale) et formuler des directives et mettre au point des incitations pour aider les agents Recommandations chargés des opérations à mieux identifier et à mieux faire valoir l'additionnalité. L'IFC Pour renforcer son action en faveur de l'efficacité pourrait compléter ces efforts en améliorant du développement, l'IFC doit : les méthodes d'évaluation lui permettant de formuler des estimations au sujet de · Prêter une attention accrue à la qualité des l'additionnalité et d'en assurer le suivi tout au interventions et à la gestion des risques long du cycle de projet, s'appuyant sur le encourus par le portefeuille, à mesure que cadre analytique présenté dans ce rapport. l'institution élargit son champ d'action et · Entreprendre une analyse approfondie de décentralise ses activités, notamment dans l'additionnalité de l'IFC dans les régions, les des marchés plus récents et eu égard au secteurs et les groupes de client à la traîne, ralentissement possible de la croissance dans le but d'identifier les mesures nécessaires économique mondiale. pour améliorer la performance. · Veiller à s'attaquer aux mauvais résultats continuellement enregistrés en Afrique dans xxx Resumen ejecutivo L a Evaluación Independiente de los Resultados de Desarrollo (IEDR por su sigla en inglés) de la Corporación Financiera Internacional (IFC por su sigla en inglés) es el informe anual característico del Grupo de Evaluación Independiente (GEI)1. Este informe analiza la eficacia de la IFC a la hora de apoyar el desarrollo del sector privado, y sus aportes al crecimiento económico y la reducción de la pobreza, así como a un desarrollo sostenible desde el punto de vista ambiental y social. El principal objetivo de la IEDR es proporcionar asesoría, el informe presenta los resultados una evaluación independiente al Directorio, la emergentes de 293 operaciones que se cerraron Gerencia de la IFC, y a la gran comunidad de durante 2004­06 y que se evaluaron en forma desarrollo acerca de las tendencias recientes en piloto, como parte de esfuerzos mayores que se el desempeño de la IFC, y estimular el debate y están realizando para evaluar el desempeño en la acción sobre las estrategias y procesos esta área4. operativos de la IFC a futuro. El informe también actúa como fuente de conocimiento y El segundo tema del informe es una mirada aprendizaje sobre el desarrollo del sector privado preliminar y ex post a la "adicionalidad", es decir, en general, y acerca del impacto sobre el la función y aportes únicos, que la IFC les desarrollo, más específicamente. proporciona a sus clientes a través de operaciones de servicios de inversión y asesoría. La IEDR de este año posee dos temas principales. La IFC ha ampliado su actividad rápidamente; el El primero es un análisis de los resultados en volumen de las nuevas operaciones de inversión términos de desarrollo que lograron las se ha más que duplicado y los gastos en servicios operaciones que recibieron el apoyo de la IFC. de asesoría se cuadruplicaron en los últimos En el área de inversiones, esto significa cinco años5. En consecuencia, es oportuno determinar cómo fue el desempeño de las realizar un análisis integral de los resultados de operaciones que llegaron a su vencimiento desarrollo que se obtuvieron en el campo, y de operativo anticipado2 durante 2005­07, en los aportes de la IFC a dichos resultados. cuanto a sus resultados financieros y económicos con respecto a indicadores de referencia de Resultados de desarrollo en los mercado específicos, así como sus efectos proyectos con apoyo de la IFC ambientales y sociales, y sus aportes al desarrollo Los resultados de las operaciones de inversión del sector privado más allá del proyecto (como que llegaron a su vencimiento operativo por ejemplo, mediante enlaces y efectos anticipado durante 2005­07 exhiben mejoras demostrativos)3. En el caso de los servicios de con respecto al pasado. De una muestra xxxi INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 representativa y seleccionada al azar de 174 porque las operaciones de la IFC tienen su mayor operaciones (en un total de 332) por un valor de crecimiento en las regiones anteriormente US$3.300 millones (aproximadamente US$13.000 mencionadas. Tercero, las calificaciones de los millones si se incluyen los fondos de los efectos ambientales y sociales continúan siendo cofinanciadores)6, el 63% (75% por volumen), bajas en África. En un enfoque por sector, el logró resultados que, en términos generales desempeño fue mayor en los proyectos de cumplieron o excedieron los parámetros e infraestructura y financiamiento, y menor en los indicadores de referencia especificados en proyectos de manufactura, servicios e materia de desempeño social, ambiental, informática, en general. económico, financiero y de mercado. En 2007, el 71% de las 65 operaciones evaluadas cumplió Los proyectos que apoya la IFC se enfrentan a o superó los parámetros e indicadores de riesgos y desafíos inherentes que varían a lo referencia para el desarrollo. largo de los diferentes países, sectores e instrumentos7. No se contrastaron las La evaluación también demuestra que la evaluaciones de desempeño acumulado búsqueda de la eficacia en términos de desarrollo anteriormente mencionadas con las expectativas bien puede ir de la mano de la rentabilidad de ajustadas al riesgo. Sin embargo, este informe la IFC. En el 85% de los proyectos que apoyó la toma en cuenta las variaciones de los riesgos IFC, los buenos y malos resultados de desarrollo por país, sector e instrumento, y la forma en mostraron una correlación con una rentabilidad que éstos repercuten en los resultados de alta y baja de la IFC, respectivamente, con lo desarrollo. La mejora en las condiciones de cual se sugiere que ambos atributos pueden a mercado en la mayoría de las regiones contribuyó menudo moverse en la misma dirección. En favorablemente al desempeño en términos de aquellos casos en que se registró una divergencia desarrollo de los proyectos que recibieron apoyo entre ambos (en el 15% de los casos), ge- de la IFC. Por otro lado, la permanencia de los neralmente fue el reflejo del instrumento de altos niveles de riesgo en el entorno de negocios financiación que escogió la IFC y el riesgo de limitó el desempeño en varios países de África. inversión asociado. El gran resultado de esta Al parecer, hay ciertas condiciones de mercado asociación positiva es alentador debido a que específicas que repercutieron negativamente en sugiere que, si la IFC presionara por una mayor una serie de sectores de Asia, como por ejemplo, eficacia en términos de desarrollo, ello no el efecto retardado de la crisis financiera regional necesariamente comprometería el rendimiento de fines de la década de 1990. La combinación financiero de sus inversiones. de elementos específicos de cada país y del sector ayuda a explicar el desempeño No obstante, hubo varias deficiencias en aspectos relativamente malo en los países de Medio importantes de las operaciones de inversión de Oriente y norte de África, donde la mayoría de la IFC. Primero, los resultados continúan siendo los proyectos generales de manufactura y mucho menores en los proyectos pequeños (en servicios obtuvo resultados por debajo de los especial, aquellos donde la inversión de la IFC indicadores de referencia, y los temas de es inferior a US$5 millones, que representan el seguridad afectaron el potencial de varios países 32% de la muestra). Segundo, menos de la mitad para atraer inversiones. de los proyectos en África, Asia, y las regiones de Medio Oriente y norte de África, cumplió o Hubo factores dentro del control de la IFC que superó los parámetros e indicadores de también desempeñaron una función clave a la referencias de desarrollo, con lo cual se amplió hora de determinar los resultados, especialmente la brecha de desempeño que se encontró el año la gestión del riesgo de los proyectos y los pasado entre estas regiones y las regiones de patrocinadores. Los proyectos en Europa y Asia Europa y Asia Central, y América Latina y el Central, así como en América Latina y el Caribe, Caribe. Este dato es de especial importancia se llevaron a cabo generalmente con xxxii R E S U M E N E J E C U T I V O patrocinadores de mayor calidad y con proyectos con el fin de informar sobre los avances en el cuyo riesgo intrínseco era menor que en las diseño del proyecto y la eficacia del mismo. demás regiones. La falta de idoneidad de los patrocinantes y el alto riesgo intrínseco El GEI evaluó en forma independiente los plantearon importantes desafíos para lograr resultados que transmitió la IFC en los dos pilotos resultados satisfactorios en materia de desarrollo, de los ITP, que abarcaron 23 operaciones de pese a que el apoyo a los clientes para que servicios de asesoría que se cerraron durante cumplan con este desafío es de esencial 2004­ 06. Las evaluaciones del GEI indican que, importancia para la función de la IFC como en los 198 proyectos en que se calificó la eficacia, institución de desarrollo. Todo esto cobra aún el 70% logró calificaciones satisfactorias. Sin mayor importancia a la luz de las conclusiones embargo, una gran proporción de los proyectos del GEI, en el sentido de que la calidad de la evaluados (un tercio) no informó acerca de sus supervisión y administración de la IFC parece calificaciones de eficacia en términos de repercutir mucho más en los resultados de los desarrollo, lo cual debilitó seriamente la calidad proyectos en las situaciones donde hay de las conclusiones que se podrían extraer acerca patrocinadores más débiles y el riesgo del del desempeño en estos pilotos. Asimismo, la proyecto es mayor. En general, en aquellos casos calidad de la documentación proporcionada por en que la calidad del trabajo de la IFC fue buena, el personal de la IFC para apoyar sus también lo fueron los resultados del proyecto en calificaciones iniciales continúa siendo mala en términos de desarrollo. La estrecha relación muchos casos, lo cual sugiere que se requiere entre la calidad del trabajo y los resultados de más trabajo para desarrollar un parámetro desarrollo se aplica a lo largo de sectores y superior cuando se trata de comunicar cuál fue regiones, pese a que la incidencia de la calidad la eficacia en términos de desarrollo en las del trabajo fue notoriamente menor en Asia y operaciones con servicios de asesoría. África que en otras regiones. Estos hallazgos implican la necesidad de prestar mayor atención La adicionalidad de la IFC para que la calidad del trabajo en Asia y África sea Como integrante del Grupo del Banco Mundial, buena, y en particular, de mejorar el se espera que la IFC vaya más allá de desempeño ambiental y social en África, simplemente proporcionar financiamiento a sus donde el compromiso de sostenibilidad clientes. La institución debería ser un agente del patrocinador tiende a ser más débil y catalizador en el crecimiento del sector privado donde la calidad de supervisión de la IFC para lograr un desarrollo equitativo y sostenible. fue insuficiente. En consecuencia, la IFC debería complementar --y no reemplazar-- las fuentes existentes de Si bien la IFC ha venido ampliando sus capital privado en los países en desarrollo. La operaciones de servicios de asesoría en los necesidad de que la IFC desempeñe una función últimos cinco años, también ha dedicado especial de agente catalizador surge debido a los importantes recursos al control y autoevaluación graves fracasos institucionales y de mercado, y de los resultados de estas operaciones. Un a las imperfecciones que frenan las inversiones componente de este control y autoevaluación fue privadas en la mayoría de los países en desa- la introducción de un sistema de informes de rrollo. Tales imperfecciones varían de acuerdo terminación del proyecto (ITP), que apunta a con los factores institucionales y de mercado de evaluar los resultados en cinco dimensiones: los países. La "adicionalidad" se refiere a los importancia estratégica, eficacia, resultantes, aportes únicos, tanto financieros como no resultados y repercusiones. La IFC ha financieros, que proporciona una institución complementado este sistema con una serie de de desarrollo como la IFC a los países en análisis externos, y evaluaciones experimentales desarrollo. Se espera que la "adicionalidad" de y cuasi experimentales de proyectos específicos, la IFC repercuta favorablemente en el desarrollo " e n xxxiii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 los hechos" y redunde en la mejoría de los única las fallas e imperfecciones del mercado: resultados de las intervenciones que realizan (i) financiera (los términos más adecuados de las instituciones. En virtud de esta conexión, los que figuran en otros lugares son movilización parecería que la mayor adicionalidad para la de fondos y comodidad del riesgo de mercado); IFC estaría potencialmente en aquellas áreas (ii) operativa (asesoramiento especializado para donde hay mejores perspectivas de repercutir compensar las brechas en materia de destrezas en el desarrollo: crecimiento económico, y conocimientos entre los clientes); y (iii) reducción de la pobreza, sostenibilidad institucional (mejoras en los parámetros de ambiental y social, a través del apoyo al gobernanza empresarial, sostenibilidad ambiental desarrollo del sector privado. y social, y reglamentación, y una mejor adjudicación del riesgo público/privado8. Las estrategias institucionales de la IFC Utilizando una definición de adicionalidad generalmente analizan los aportes y la función sumamente inclusiva, este análisis concluyó que únicos que ésta posee en cuanto a la inversión en el 85% de las operaciones de inversiones en los llamados sectores, productos, mercados evaluadas había al menos una forma de y países de innovación, y en el apoyo a la adicionalidad financiera, sostenibilidad ambiental y social. No obstante, la y se podía identificar al menos una forma de mayoría de las estrategias por región, sector y adicionalidad operativa o institucional en país (la última se desarrolla con el Banco aproximadamente un tercio de los casos. Con el Mundial) contienen un análisis explícito limitado tiempo, la adicionalidad institucional parece sobre la función y aportes únicos de la IFC, o sus haber cobrado mayor importancia, mientras que ventajes comparativas respecto de otras fuentes los demás tipos de adicionalidad parecen haberse de financiamiento y asesoría. Es necesario mantenido bastante constantes. implementar una mayor articulación. La necesidad de que la IFC proporcione Resulta difícil medir la adicionalidad en forma adicionalidad financiera probablemente se precisa, pero hay variables representativas agudiza más durante los tiempos de crisis. El disponibles para efectuar una evaluación inicial GEI considera que la IFC parece haber sido un de la presencia y la calidad de la adicionalidad de inversor anticíclico en respuesta a la mayoría de las operaciones de la IFC. La principal fuente las crisis financieras que se produjeron en los de estas variables representativas son los datos países en desarrollo en los últimos años. Será de recopilados a través de las evaluaciones de especial importancia aumentar la función proyectos sobre la función y los aportes de la IFC, anticíclica de la IFC en el caso de que la que analizan si la IFC realizó un aporte especial desaceleración económica mundial prevista a un proyecto y tuvo un efecto catalizador a la repercuta negativamente sobre el sector privado hora de contribuir a que los inversionistas en los países en desarrollo. privados realizaran buenas inversiones. El GEI utilizó los datos para efectuar un análisis ex post Con respecto a la calidad de la adicionalidad en dos fases: (i) identificación de formas general de la IFC (sobre la base de evaluaciones específicas de adicionalidad, y (ii) evaluación de ex post de su función y aporte), las calificaciones su calidad general, basándose en las calificaciones de este componente en las operaciones de acuerdo con la función y los aportes de los individuales fueron satisfactorias en la mayoría proyectos individuales. de los casos, lo cual significa que el aporte que efectuó la IFC estuvo alineado con los principios El GEI analizó 692 autoevaluaciones de proyectos operativos de la institución en términos de fuera del terreno, y codificó los proyectos en realizar un aporte especial y actuar como agente cuanto a la presencia o ausencia de tres tipos de catalizador. Entre los éxitos relativos de la IFC se adicionalidad, definida de acuerdo con las áreas incluye la calidad superior de su función y aporte en las cuales la IFC puede abordar en forma en las regiones de Europa y Asia Central, y xxxiv R E S U M E N E J E C U T I V O América Latina y el Caribe; en los sectores sí misma, la adicionalidad financiera parece tener extractivos, de alimentos y agronegocios, y de mayor influencia sobre los resultados de infraestructura; así como en la formación de desarrollo que en otros tipos de adicionalidad. capacidades a través de una participación a largo Asimismo, la evaluación no muestra ninguna plazo con los clientes. No obstante, se consideró contrapartida aparente entre los diferentes tipos que el aporte de la IFC fue insatisfactorio (lo cual de adicionalidad y la propia rentabilidad de la IFC, significa que la adicionalidad de la IFC fue lo cual significa que en aquellos lugares donde insuficiente en un área de importancia material, la calidad de la función y aporte de la IFC fue o que se consideró que la IFC no fue realmente superior, también lo fue el rendimiento adicional) en casi el 30% de los proyectos en Asia económico y financiero de las inversiones de la y en África, y en proporciones similares en los IFC, y viceversa. Estas conclusiones resaltan la sectores financiero, de salud y educación de importancia de que la IFC preste atención a las todas las regiones. ventajas comparativas que posee, con respecto a otras organizaciones financieras a la hora de El exceso de optimismo acerca de lo que podría brindar apoyo al sector privado en los países en lograr la IFC, la falta de compromiso de los desarrollo, en formas que fomenten el clientes ante los cambios que la IFC apuntó a crecimiento económico, la reducción de la generar (especialmente en los casos en que el pobreza y el desarrollo sostenible desde el punto proyecto no fue un éxito desde el punto de vista de vista ambiental y social a todos los efectos, ya comercial), y los cambios en las condiciones que de ser así, ello podría tener beneficios externas parecen haber desempeñado un papel financieros y de desarrollo que redundarían en en los casos donde la función y el aporte de la un fortalecimiento mutuo. IFC fueron insatisfactorios. Las variaciones en la función y aporte de la IFC por región y sector Recomendaciones son, sin embargo, difíciles de explicar con Para mejorar su eficacia en términos de precisión. El análisis econométrico indica que, desarrollo, la IFC debería incluso cuando se controla el tamaño del proyecto, idoneidad del patrocinador, riesgo · Prestar suma atención a la calidad del trabajo intrínseco del proyecto y riesgo del ambiente de y a la gestión del riesgo de cartera, a medida inversiones, la función y el aporte de la IFC en que continúa creciendo y descentralizando África continúan siendo inferiores que en otras sus operaciones, especialmente en los regiones. Hay factores especiales que podrían mercados más nuevos y con miras a una explicar parte de esta variación, pero se necesita posible desaceleración del crecimiento investigar más, e incluso realizar evaluaciones de económico mundial. campo, para llegar a una evaluación concluyente. · Cerciorarse de abordar las continuas La experiencia relativamente corta de la IFC en deficiencias de desempeño ambiental y social los sectores sociales (recién se estableció un en África, especialmente en lo relacionado Departamento dedicado de Salud y Educación con la calidad de la supervisión de la IFC y el en el año 2002) podría explicar la relativamente compromiso de los clientes ante los temas escasa calidad de la función y aporte de la IFC de sostenibilidad. en estos sectores. No obstante, para poder · Continuar fortaleciendo, mediante los aportes confirmarlo se necesitaría de un análisis en mayor del GEI, las medidas que está adoptando para profundidad. mejorar los datos sobre el desempeño de las operaciones de servicios de asesoría, lo cual Se lograron mejores resultados en el desarrollo incluye los esfuerzos para mejorar el de proyectos en aquellos lugares donde la calidad entendimiento entre el personal acerca de la de la función y aporte de la IFC fue superior, y medición de resultados, control de calidad a cuando se encontraban presentes diferentes cargo de los gerentes, así como un control de tipos de adicionalidad en forma simultánea. En desempeño antes de que concluya el proyecto. xxxv INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 · Planificar claramente la adicionalidad en sus vida del proyecto, teniendo en cuenta el marco estrategias (incluidas las que se desarrollan con analítico que se describe en este informe. el Banco Mundial) y desarrollar lineamientos · Efectuar un mayor análisis de la adicionalidad e incentivos para contribuir a que el personal de la IFC en las regiones, sectores y grupos de operativo pueda identificar y cumplir con la clientes con mayores carencias, a los efectos adicionalidad de una mejor forma. La IFC de identificar cuáles son las medidas podría complementar estos esfuerzos específicas que se requieren para mejorar el mejorando su metodología para estimar y desempeño. rastrear la adicionalidad a lo largo del ciclo de xxxvi IFC Management Response to IEG-IFC Independent Evaluation of IFC's Development Results 2008: IFC's Additionality in Supporting Private Sector Development* M anagement welcomes IEG-IFC's annual evaluation of IFC's devel- opment results. The 2008 report summarizes development results for projects evaluated over the last three years and provides a review of IFC's additionality in projects. Introduction alyzed at early operating maturity (about five Overall, we are pleased to see a number of pos- years after approval), IFC additionality was evident itive results highlighted in this year's report. in 93 percent of projects, with over 80 percent First, the development outcomes for the projects rated high in terms of IFC making a special con- evaluated during 2005­07 (approved during tribution and being catalytic. These results were 2000­02) were higher than in previous years, achieved despite the fact that when some proj- with 63 percent of projects (75 percent when ects ran into operating problems, for example, weighted by size of investment) meeting or ex- owing to external factors the companies could not ceeding stringent market, financial, economic, en- control, it became quite difficult for these proj- vironmental, and social performance benchmarks ects to absorb all of the planned value-added in- and standards. The 2006­07 results are particu- puts from IFC. Third, in advisory services, the larly strong, with about 70 percent of projects pilot review of completed operations that closed meeting or exceeding the benchmarks. Second, during 2004­06, and had sufficient evaluative in the pilot analysis of IFC role and contribution data, shows that 70 percent of projects achieved for projects approved from 1991 to 2002, and an- satisfactory or better development effectiveness ratings. Lastly, the report also shows that IFC has been effective in countercyclical situations *Distributed to IFC's Board of Directors on February 15, having substantially increased its exposure fol- 2008, and discussed by the Board's Committee on Develop- lowing most country crises, whereas private sec- ment Effectiveness on February 27, 2008. Released by IFC in accordance with IFC's Policy on Disclosure of Information. tor investment frequently declined. xxxvii INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 We would also like to note that during the past IFC portfolio and risk management capabilities are several years, IFC has been undertaking signifi- a central focus under each of the three scenarios cant efforts to improve the effectiveness of the in the paper. In addition, IFC's decentralization organization, which should lead to even further should facilitate a better understanding and man- improvements in evaluation results in the fu- aging of risks associated with its operations. More ture. The specific activities being undertaken industry/portfolio management, senior credit are detailed below in the section on responses function, and environmental/social expertise are to individual recommendations in the report. being deployed to the field, enabling the con- vergence of IFC's global experience with local The current evaluation system, which has been knowledge. Global expertise will be further sup- in place for over 10 years, does not provide a ported by strengthened knowledge management mechanism for adjusting results to differentiate functions, including the development of industry projects by the risk profile of the sector or region practice groups. Human resources, training, and involved. Looking forward, as IFC continues to leadership programs are being enhanced globally take on more projects in higher-risk countries to build the strong staff skills needed to excel in and activities, for example, in International De- difficult environments. IFC is also preparing for velopment Association (IDA) countries and pi- countercyclical situations by conducting a port- oneering sectors, we would need to consider folio review in all Regions and strengthening risk creating results benchmarks that are risk ad- management functions. justed. This would avoid penalizing staff for tak- ing appropriate risks consistent with IFC's In addition, IFC is enhancing its advisory services strategies. In this regard, we will be working operations, especially given IEG-IFC's previous with IEG-IFC to examine the possibility for de- finding that overall, development outcomes are veloping risk-adjusted results benchmarks. better when investment operations go hand-in- hand with advisory services. IFC's advisory ser- Presented below are Management responses to vices improve projects by addressing, among the specific IEG-IFC recommendations. other things, critical operational, investment cli- mate, environmental, social, and corporate gov- Responses to Specific Recommendations ernance issues. Advisory services are being strengthened by focusing on core product areas Recommendation 1: IFC should pay strong where IFC can achieve global expertise and com- attention to work quality and portfolio risk parative advantage, and via advisory services management as it continues to grow and de- programs in human resources, training, and centralize its operations, particularly in newer knowledge management. markets and in view of a possible downturn in global economic growth. Recommendation 2: IFC should ensure that it addresses continued environmental and so- The quality of IFC's portfolio has improved sig- cial performance shortcomings in Africa, par- nificantly over the last five years, based on a num- ticularly as they relate to IFC supervision quality ber of measures such as nonperforming loans and client commitment to sustainability issues. and equity returns. Nevertheless, as IFC moves more toward higher-risk regions and sectors, and IFC is continuing to take steps to strengthen its as the current global financial situation is quite un- project supervision of environmental, health, certain, Management is focused on the need to and social performance in Africa. We are in- strengthen risk management and overall work creasing the overall amount of headquarter re- quality. Many of the current major IFC initiatives sources allocated to environmental supervision are dedicated to this task. As will be discussed in of the Africa portfolio. We are also managing IFC's strategy paper for fiscal years (FYs) 2009­11, our environmental supervision visits better by in- strengthened internal infrastructure to improve creasing the number of projects visited and pri- xxxviii I F C M A N A G E M E N T R E S P O N S E T O I E G - I F C oritizing them, based on environmental risks. reports, through further streamlining of core In FY08, environmental supervision visits in indicators by product line, promoting baseline Africa are expected to increase by 30 percent data collection, increasing oversight by evalua- from the FY07 level. The ongoing decentraliza- tion staff, and increasing training and knowl- tion should further strengthen client contacts and edge sharing. help collect, monitor, and improve the envi- ronmental performance of client companies. Together with IEG-IFC, the IFC results mea- IFC is also expanding its environmental and so- surement team is organizing a two-day course on cial development staff presence in the Region to monitoring and evaluation of private sector ad- complement its headquarters staff. visory programs at the International Program for Development Evaluation Training in June We would also like to note that the basis of IEG- 2008. As part of knowledge sharing, two annual IFC's findings on Africa is a sample of 13 projects conferences are organized each year, in which les- that were approved five to seven years ago, in sons learned from evaluations and evaluation 2000­02. For many clients in the Region, IFC's methodologies are shared among the broader environmental, health, and social standards rep- World Bank Group, donors, academics, and other resented a substantial change from national reg- multilateral development banks. Partnerships in ulations and enforcement practices in Africa. In evaluation have been established with leading ex- addition, as outlined in this report, companies perts from institutions such as the MIT Poverty in financial difficulty often put less priority on ad- Action Lab, and with foundations such as the Ger- dressing the environmental and social issues of man Marshall Fund. Forums on results meas- their business. urement are being held for donors and multilaterals as well as for foundations in May In "pushing the envelope" on introducing higher 2008. Competencies for monitoring and evalu- standards, IFC's experience was that many spon- ation staff are being developed to strengthen sors had difficulty meeting commitments that the cadre. they were, otherwise, willing to make at the out- set of a project. IFC remains committed to work- IFC will continue to consult with IEG-IFC on ing with sponsors on sustainability objectives, developing guidance for identifying, at approval, while recognizing that, in addition to closer projects that would require post-completion supervision, additional assistance to firms is re- monitoring so that appropriate frameworks and quired in many cases, and this objective has re- plans can be established at the outset. IFC would source implications. welcome IEG-IFC's efforts to institute a mecha- nism to provide feedback to staff on Project Recommendation 3: IFC should continue, Completion Report (PCR) reratings as soon as with input from IEG, to strengthen the steps it is possible, as is being done in the case of the Ex- taking to improve the data on the performance panded Project Supervision Report (XPSR) sys- of advisory services operations, including efforts tem on the investment side. (PCRs and XPSRs are to improve understanding among staff about re- IFC's project-level self-evaluation reports for sults measurement, quality assurance by man- advisory services and investment operations agers, as well as performance monitoring respectively.) beyond project close. Recommendation 4: IFC should clearly map Management agrees with the recommendation out its additionality in its strategies (including to strengthen measures to improve the data on those developed with the World Bank) and performance of advisory services operations, in develop guidelines and incentives to help op- consultation with IEG-IFC. IFC is currently tak- erational staff better identify and deliver ad- ing a number of steps to improve the quality of ditionality. IFC could complement these efforts data in the project supervision and completion by advancing its metrics for estimating and xxxix INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 tracking additionality through the project tors compared with other institutions. We plan lifecycle, taking account of the analytical frame- to continue using this process next year. As a re- work outlined in this report. sult, many of the individual strategies coming out of this process have substantive discussions of IFC has made significant efforts to ensure that ad- IFC's comparative advantage. ditionality considerations are an integral part of all business development and implementation As noted in the IEG-IFC paper, elements of ad- activities. With respect to developing guidelines ditionality are already discussed in many of IFC's and incentives to help operational staff better as- various strategy documents. However, we would sess and articulate additionality, IFC recently struc- strongly caution against judging the quality of tured a new analytical framework for identifying each regional, country, and sector strategy doc- and categorizing additionality, and presented it to ument by the presence of an explicit discussion IFC's Board of Executive Directors in November of IFC's unique value added, relative to other 2007. Following the Board presentation, IFC de- sources of finance and advice. While this un- veloped an additionality primer, designed to help derstanding must be considered in order to de- staff develop, assess, and communicate IFC's role velop strategy, it is not always necessary or and additionality more systematically and effec- efficient to restate these issues in every docu- tively. We have just embarked on an additionality ment. Often at the country or sector level, ref- training program, which is being delivered in the erence to established Corporate priorities that IFC induction program and will soon be part of reflect additionality may be sufficient, e.g., with the extensive, credit training course. IFC will con- respect to the frontier and IDA focus, or differ- tinue to monitor additionality and report to the entiation via sustainability competencies. Also, Board at the aggregate level, in line with the No- there are a number of different approaches to vember 2007 Board presentation. In addition, we strategy development that can be useful in dif- continue to track areas of expected high addi- ferent circumstances. Top-down planning may tionality in our corporate scorecard, such as in- not always be the best approach--sometimes a vestments in IDA countries and micro, small, and bottom-up, learning approach can be a very ef- medium enterprises. fective complement to other methods. Most of these efforts are targeted at strength- Recommendation 5: IFC and IEG should ening IFC additionality at the project level, which carry out further analysis of additionality in is ultimately the most important level at which lagging regions, sectors, and client groups in IFC additionality must be realized. At the strat- order to identify what, if any, specific steps are egy level, additionality has been an important required to enhance performance. part of IFC corporate strategies for many years, and has become even more important in recent We note the report's conclusion that its review years. At the regional and industry level, Man- of IFC's additionality raises a number of ques- agement introduced a structured strategic tions. In this regard, we support the suggestion planning process this year for all investment de- to do further evaluation of IFC's delivery of ad- partments, which addresses the external envi- ditionality with a view to identifying areas where ronment for each department, including market IFC's additionality can be enhanced. This re- development, activities of other development view should consider both analyses of areas institutions, and IFC strengths and weaknesses. where IFC has been strong and areas where IFC The process includes discussions of success fac- has been lagging. xl Chairperson's Summary: Committee on Development Effectiveness (CODE) O n February 27, 2008, the Committee on Development Effectiveness (CODE) discussed the Independent Evaluation of IFC's Development Results 2008: IFC's Additionality in Supporting Private Sector De- velopment and the Draft IFC Management Response. IEG reviews IFC de- velopment results annually and produces an evaluation of the findings. Main Findings IEG found that 85 percent of evaluated invest- The report reviewed the recent development ment operations delivered at least one form of results of IFC activities and provided a prelimi- financial additionality, with operational or insti- nary, ex-post assessment of IFC's "additional- tutional additionality apparent in approximately ity". IEG highlighted four key findings. First, it a third of these operations. IEG noted variations noted that the development outcomes (DOs) of in the evaluated quality of IFC's role and con- IFC investment operations have improved over- tribution (a key measure of additionality) be- all, although there were variations across re- tween regions and sectors. It also observed that gions, sectors, and client groups; performance IFC seems to have been a countercyclical in- was weaker for small projects; and environment vestor in response to major financial crises. IEG and social effects ratings in Africa lagged those recommendations focused on the need for of other regions. IEG observed a significant cor- IFC to: enhance work quality and portfolio risk relation between the DOs and profitability of management; improve environmental and so- investment operations. Second, IEG found that cial performance in Africa; strengthen perform- country, sector, sponsor, and specific project ance reporting of advisory services; increase the risks and IFC's work quality have influenced strategic consideration, implementation, and project development results. Third, IEG's pre- tracking of additionality; and further analyze ad- liminary analysis of advisory services showed ditionality in lagging regions, sectors, and client that 70 percent of those rated for development groups. effectiveness (DE) achieved satisfactory ratings. However, IEG observed that about one-third of IFC Management Response advisory services projects did not report DE rat- Management welcomed the positive results high- ings, and the quality of documentation to sup- lighted in the report and the constructive rec- port DE ratings was weak in many cases. Fourth, ommendations. Management stated that IFC xli INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 would be devoting additional resources to The following main issues were raised during the strengthen its portfolio and risk management as meeting: indicated in an IFC strategy paper. It agreed on the importance of enhancing overall work qual- Variations in DOs. Some speakers suggested ity, especially as IFC expands its work into higher- the need for further analysis to clarify the un- risk countries and sectors. Management derlying reasons for the regional and sectoral elaborated on its work to improve the data on variations in DOs, including the weaker per- performance of advisory services. CODE's sup- formance of smaller projects, before taking ac- port was sought for Management's proposal to tions to address them. In this context, a member develop risk-adjusted results benchmarks. This also indicated that a better understanding of was considered critical in encouraging staff to the related internal organizational issues may be take on the challenge of working in higher-risk merited, such as considering whether staff re- countries or sectors. IEG's preliminary analysis cruitment gives due attention to the skill and of additionality was considered timely, given experience needed to work in a difficult envi- IFC's ongoing efforts to better define this as- ronment and on small projects. It is hoped that pect of its work. Management looked forward to the increase in IFC investment operations in Asia working with IEG to improve the quality and and Africa will be accompanied by improvements results of IFC activities. in DOs. Emphasis was also made on the need to strengthen the DOs of smaller projects (i.e., less Overall Conclusions and Next Steps than $5 million), which is still relatively large in CODE commended IEG for an informative and the context of Africa. Noting that the business en- useful evaluation report. The committee also vironment seems to be a significant factor af- congratulated IFC Management for the im- fecting performance, a member highlighted the provements in DOs and expressed appreciation importance of strengthening IFC support for im- for Management's response. Speakers welcomed proving business climates. A speaker expressed the positive correlation between DOs and IFC interest in International Development Association profitability, which should help maintain the im- (IDA)­IFC cooperation. IFC Management noted petus for IFC to engage in high-risk regions and that in Africa, IFC's business has expanded ten- sectors. The discussion focused on additionality, fold in the past five years and that it has a dif- risk-adjusted performance measurement, varia- ferent business model today compared with tions in DOs, environmental and social effects in what was in place in early 2000, when the proj- Africa, and the performance of IFC advisory ser- ects evaluated were appraised and structured. vices. In the course of the discussion, issues of Management added that data from current staff recruitment and incentive were also raised portfolio monitoring points to continuing im- in relation to IFC's work in high-risk areas. There provements in IFC's performance in the region. was a general sentiment on the need to further deepen the understanding and analysis of addi- Risk-adjusted performance measurement. tionality. Speakers supported the proposal for IFC Speakers noted the need to take into account the and IEG, together, to develop risk-adjusted different risk profile of a region, country, or sec- results benchmarks. Nonconventional and in- tor when considering development results, and, novative approaches for engaging in frontier likewise, in the design of staff incentives. IFC countries and high-risk areas were also encour- Management said that country-office experi- aged. Speakers appreciated the constructive re- ence was a criterion for managerial promotions lationship and dialogue between IEG and IFC, and it was also developing a framework to which should continue for the purpose of compensate people working in higher-risk and strengthening IFC's operations. One speaker difficult areas, such as IDA countries and post- noted that IFC should take IEG's recommenda- conflict/fragile states. A few speakers stressed tions into consideration, based on historical ex- that, given the difficult operating environment perience, even if they may appear to be outdated. in frontier countries (e.g., many countries in xlii C H A I R P E R S O N ' S S U M M A RY: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E ) Africa), performance could not be assessed using Performance of advisory services. There was the same standards as those used for other coun- a suggestion to strengthen the performance data tries, as in the Latin America and East and Cen- of advisory services by eliciting client comments, tral Asia Regions. It was further emphasized that given that acceptance or implementation of IFC the challenges and risks in frontier countries re- advice may not fully capture the value added of quired IFC to be nonconventional and prag- advisory services. IFC explained that it conducts matic. IFC noted that its forthcoming strategy for an annual client survey of both advisory and FY09­FY11 takes into consideration not only investment clients. Some speakers sought more the risks but also cost factors of working in information about IFC's ongoing work to en- frontier markets. IFC Management commented hance advisory services operations, including that there are high costs involved in doing small the linkage between investment operations and projects as well as projects in high-risk envi- advisory services. ronments. The proposal for IFC and IEG to de- velop risk-adjusted results benchmarks together IFC's additionality. Several speakers remarked was supported. IEG said it would be advising IFC on the importance of clarifying the definition and on the risk-adjusted model using its evaluative deepening the understanding of IFC "additional- experience. One committee member wondered ity". One committee member defined it as "IFC whether the risk-adjusted picture would lead to making possible something that has not yet hap- different findings from those presented in the re- pened." Another member commented on the port. IEG indicated that since the findings are need to fully consider IFC's comparative advantage based on completed results, the risk-adjusted pic- in a specific strategic context (i.e., by region, coun- ture would not necessarily change. Another try, sector). Further to IEG's preliminary analysis member raised the issue of how to devise a sys- on additionality, which focused on inputs, some tem for result measurements that takes into con- speakers said that additionality might also be sideration the risk profile of the region, country, assessed in terms of outputs and outcomes, and or sector (as discussed by CODE in March 2008). incorporate aspects such as the potential of The integration of gender and poverty compo- "crowding out" by private capital for develop- nents into results was urged. One speaker sug- ment. Suggestions were also made to measure ad- gested assessing overall results on a portfolio ditionality in terms of benefits associated with basis instead of the current approach, in which IFC's presence and operational size, as well as small and big projects have equal weights in the for prepaid, cancelled, and dropped operations. overall outcomes. A member sought to ensure that additionality is clearly identified in strategies and projects. IEG Environmental and social effects in Africa. noted that the analysis of additionality is still a A member encouraged the effective use of re- work in progress and would continue to be re- sources to help improve the environmental and fined. IFC explained that additionality consid- social performance of IFC projects in Africa. An- erations are an integral part of its corporate other member commented on the need to en- strategy formulation process and that the re- sure that countries are not penalized for a lack gional section of its strategy paper includes dis- of capacity to apply safeguards. A few questions cussions of IFC's additionality. Management also were asked about whether the improved envi- added that its operational strategies at the lower ronmental and social standards may have had an level are anchored by IFC's additionality, and impact on the client selection and cost of com- cautioned against a move toward a process re- pliance. IFC explained the risk-based approach quirement, rather than focusing on the substance to projects. Referring to the recent update on the and effectiveness of the strategy and its imple- implementation of IFC's performance stan- mentation. IFC also elaborated on the activities dards in environmental and social safeguards, under way to strengthen its additionality. IFC noted that higher costs have been recorded for projects with higher environmental risks. Jiayi Zou, Chairperson xliii 1 Development Results of IFC-Supported Projects I FC seeks to promote sustainable private sector development, and thereby promote growth and poverty reduction, through a range of financial prod- ucts and advisory services. Financial products include loans, equity and quasi-equity instruments, guarantees, and risk-management products. Advisory services products range from those designed to help tackle con- straints in a country's business-enabling environment to those aimed at improving a firm's operational or institutional capacity. This chapter takes stock of the development re- these regions and ECA and LAC. Environ- sults of a randomly selected, representative 52 mental and social effects continued to be percent sample of 174 investment operations weak in Africa, reflecting client commitment that reached early operating maturity during and IFC supervision shortcomings. 2005­07.1 The chapter also looks at the under- · By sector, performance was strongest in in- lying reasons for these results, future perform- frastructure and finance, and was weakest in ance prospects, as well as the results emerging general manufacturing, services, and infor- from a new system for evaluating the effective- mation technology. ness of advisory services operations. · Improved, or relatively benign, market con- ditions--with the exception of Africa (and to The main findings are listed here: some extent, Asia)--contributed positively to project development performance. · The 2005­07 results show an overall im- · Factors within IFC's control also played a crit- provement over the past, and that pursuit of ical role in the results achieved, for example, development effectiveness can be beneficial investments in ECA and LAC were generally for IFC profitability (and its ability to carry carried out with higher-quality sponsors, out future operations). lower intrinsic project risks, and better IFC · However, there were shortcomings in some work quality than in other regions. Where areas. First, results continue to be much IFC work quality was high, so were project de- weaker in smaller projects. Second, less than velopment results. High work quality was less half of projects in Africa and MENA and only common in Africa, Asia, and MENA, and indi- a half in Asia, met or exceeded specific de- cates that greater attention in ensuring sound velopment benchmarks and standards, thus work quality is required in these Regions going widening the performance divide between forward. 1 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 · The advisory services evaluation pilots indicate The XPSR system features four indicators of a that, of the 198 projects where development project's development performance--project effectiveness was rated, 70 percent achieved business success, economic sustainability, envi- satisfactory ratings. Data quality issues, how- ronmental and social effects, and private sector de- ever, limit the inferences about performance velopment impacts beyond the project. To achieve that can be drawn from these pilots, and fur- a satisfactory or better rating (hereafter referred ther work is required to develop a higher to as a high rating), projects must meet or exceed standard in reporting development effective- the following benchmarks and standards: ness in the future. · Project business success: For the real sec- Results of IFC's Investment Operations tor, projects generated a financial rate of re- The development effects of IFC-supported proj- turn at least equal to the company's cost of ects are measured in terms of their financial, eco- capital (with a 350 basis-point spread to its eq- nomic, environmental, and social performance, as uity investors over its lenders' nominal yield); well as their contributions to private sector de- for financial sector projects, the associated velopment. In promoting private sector devel- subportfolios or asset growth contributed to opment through its investment operations, IFC the intermediary's profitability, financial con- is expected to support sound, sustainable busi- dition, and business objectives. On average, nesses that contribute benefits to society and projects had to deliver a 10 percent financial have a positive impact on private sector devel- rate of return in order to achieve a satisfactory opment. The development performance of IFC- rating for project business success.3 supported projects is evaluated with these · Economic sustainability: Where measurable, objectives in mind, through the Expanded Proj- projects generated an economic rate of return ect Supervision Report (XPSR) system, which has of at least 10 percent. This indicator takes into been in place in IFC since 1996 and is aligned with account net gains or losses by nonfinanciers, the global good practice standards for the eval- nonquantifiable impacts, and contributions to uation of private sector operations (box 1.1).2 widely held development objectives. Box 1.1. Evaluation System for IFC Investment Operations The current evaluation system for investment operations, the XPSR · IFC'sinvestmentreturn, which is the gross-profit contribution qual- system, was introduced in 1996. Investments are selected for eval- ity of an IFC loan and/or equity investment (see box 1.3); and uation when they reach early operating maturity (typically five years · IFC's work quality, the overall quality of IFC's due diligence and after approval), on a random sampling basis (see appendix A for fur- value added at each stage of the operation (see box 1.4). ther sampling details). Once selected, a project is self-evaluated by an IFC investment department. The ratings assigned by investment All ratings are assigned on a four-point scale (excellent, sat- departments are then independently verified (or re-rated) by IEG. isfactory, partly unsatisfactory, and unsatisfactory), except the In determining project ratings, investment and evaluation staff synthesis development outcome rating, which uses a six-point members follow the same guidelines, which are in line with global scale (highly successful, successful, mostly successful, mostly good practice standards for the evaluation of private sector oper- unsuccessful, unsuccessful, and highly unsuccessful). ations. A summary of these guidelines is available in appendix B. IFC complements the XPSR system with the Development Out- Ratings are given in three key areas of performance: come Tracking System, launched in October 2005, which monitors development results throughout the project lifecycle. IEG will re- · Project's development outcome, a bottom-line assessment of the port on similarities and differences between the DOTS and XPSR project's results across four development dimensions (each methodologies and ratings in its forthcoming Report on Operations noted separately), relative to what would have occurred with- Evaluation 2008. out the project; 2 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS Box 1.2. Examples of Projects with High and Low Development Outcome Ratings High: Telecommunications Low: General Manufacturing and Services The project was the installation of a new digital cellular network The project was a credit agency line serving wood processors and in an Asian country to provide 55 percent coverage, by area, and furniture manufacturers in a postconflict transition economy in Eu- to increase access to telephone services among poor rural com- rope. These companies were previously part of a state-owned munities. At the time, the country had one of the lowest telephone conglomerate which had collapsed. Project business success density rates in the world and a waiting time of over 10 years for was unsatisfactory because all of the companies financed through a fixed telephone line. The project was a major commercial suc- the agency line fell into financial distress. IFC provided the tech- cess (excellent project business success rating), with a subscriber nical assistance to build management capacity (ahead of a planned base of nearly half a million, more than twice what was anticipated. privatization) but it was insufficient to bridge the companies' lack Economic sustainability was rated excellent because the project of expertise, and problems were compounded by difficult trading yielded outstanding returns to the economy, including taxes and conditions. Economic sustainability was also unsatisfactory, be- duties paid to the government, revenue-sharing payments to the cause none of the companies have proven a sustainable source regulator, license fees, and lease payments to a railway company of employment, tax revenues, or added value. Their expected con- for using its fiber-optic backbone. Environmental and social effects tribution to postconflict reconstruction has been limited. Environ- were rated satisfactory, with the company committed to sound en- mental and social effects were unsatisfactory because the vironmental and social performance in compliance with World companies did not meet the prescribed standards, with one fur- Bank Group guidelines. Private sector development impacts were niture manufacturer polluting local air, soil, and surface and ground excellent, with the project increasing cellular competition and re- waters. Finally, private sector development impacts were unsat- sulting in lower tariffs, increased range, and improved quality for isfactory due to lack of interest from domestic and foreign in- users, as well as improving the essential infrastructure for other vestors in the anticipated privatization. Moreover, the agency line private sector development. failed in its objective to help build expertise within the agent banks to support future private enterprise in the country. Source: IEG. Note: Further examples of projects with high and low development outcome ratings are provided in appendix C. · Environmental and social effects: (i) En- what would have occurred without the project. vironmental performance that meets IFC's Ratings in each of the four areas combine-- requirements; and (ii) net beneficial impact, based on careful, case-by-case, evaluative judg- in terms of pollution loads, conservation of ment--into a single synthesis development biodiversity and natural resources, and in a outcome rating. Individual evaluations of proj- broader context, social, cultural, and com- ect development outcomes are then aggregated, munity health aspects, as well as labor and at the end of each calendar year, to allow the kind working conditions and workers' health and of macro assessments of development impacts safety. that are contained in this report. Box 1.2 provides · Private sector development impacts: examples of projects with high and low devel- Such impacts beyond the project company, opment outcomes. particularly demonstration effects in creating a sustainable enterprise capable of attracting IFC is growing its operations rapidly--especially finance, increasing competition, and estab- in Asia, MENA and Africa--which makes a re- lishing linkages with other firms. view of results in the field important and timely. IFC has been expanding its investment op- The project development outcome rating is a erations rapidly, with more than a doubling of bottom-line assessment of the project's results new investment operations in the last five across the above four dimensions, relative to years--from approximately $3 billion in FY02 to 3 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Figure 1.1. IFC Investment Operations, by Region, 2002­07 2,000 1,800 1,600 1,400 1,200 1,000 millions) ($ 800 600 400 200 0 2002 2003 2004 2005 2006 2007 Year Asia MENA Africa ECA LAC Source: IFC. Figure 1.2. IFC Investment Operations, by Sector, 2002­07 2,500 2,000 1,500 millions) 1,000 ($ 500 X X X X X X 0 2002 2003 2004 2005 2006 2007 Year Food & Private equity & Global financial Global manu- Health & agriculture investment funds markets facturing & services education Infrastructure X Communications & Oil, gas, mining, Subnational information technology & chemicals finance Source: IFC. Note: Abbreviations refer to the following sectors: CAG (food and agribusiness); CFN (private equity and investment funds); CGF (global financial markets); CGM (global manufacturing and services); CHE (health and education); CIN (infrastructure); CIT (communications and information tech- nologies); COC (oil, gas, mining, and chemicals); and CSF (subnational finance). 4 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS $6.5 billion in FY07 (not including syndicated B- IFC's Development Results (IEDR) The 2005­07 results loans, guarantees and risk management prod- found that IFC had generally not sup- show an overall ucts). IFC operations, by Region, have been ported projects where there was a improvement on growing fast in Asia, MENA, and Africa, and have tradeoff between project develop- the past. started to decline in LAC and ECA (figure 1.1). ment results and IFC profitability. In Growth has been noticeable in most sectors, three out of four cases, the project development with financial sector investments expanding most outcome rating--given in binary terms, either low in absolute terms (figure 1.2). A comprehensive or high, meaning it did not meet or exceed spec- review of the results achieved in the field-- ified benchmarks and standards--was the same across regions and sectors--is thus timely in as the IFC investment outcome rating. This year's providing institutional learning that can help in- review provides even stronger confirmation of the form new operations. previous finding, with 59 percent of projects evaluated during 2005­07 achieving high-high The 2005­07 results show an overall improvement outcomes (high performance in project devel- on the past. In line with the good practice stan- opment and IFC investment terms) and 26 per- dards, this review concentrates on the results of cent of projects resulting in low-low outcomes projects that were evaluated in the last three (low performance in both dimensions). In other years.4 Out of 174 operations reaching early op- words, in 85 percent of projects that IFC sup- erating maturity during 2005­07, and which were ported there was a direct correlation between randomly selected for evaluation, 63 percent project development results and IFC investment achieved results that, on balance, met or ex- returns (see Figure 1.7a). We can therefore infer ceeded specified financial, economic, environ- that IFC has not actively sought profits at the ex- mental, and social performance criteria, and pense of development effectiveness in its in- made positive contributions to private sector de- vestment operations, and vice versa. velopment beyond the project (figure 1.3). These results are better than in previous years, and Where there was a difference between project were strongest in 2007, when 71 percent of op- development results and IFC investment per- erations achieved high development outcome formance (15 percent of cases), it usually re- ratings (figure 1.4). IFC investment outcome rat- ings also improved, to record levels, with equity results much stronger than the historic norm Figure 1.3. Project Development Results, (figure 1.5; see box 1.3 for description and rat- 1996­2007 (three-year rolling average) ing criteria for this indicator). Performance im- proved in terms of project business success, 100 economic sustainability, and beyond the project 90 private sector development impacts, and was high 80 similar to the past with regard to environmental 70 rated and social effects (figure 1.6). Where financial 60 rates of return could be calculated,5 they ranged 50 from 64.0 percent to ­4 percent, with an average projects of 40 of 9.9 percent. Economic rates of return ranged from 113.0 percent to ­5.1 percent, with an av- 30 erage of 19.0 percent. Approximately 80 percent 20 Percentage of projects, where calculable, had both positive 10 financial and economic rates of returns. 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Evaluation again shows that pursuing develop- Development outcome IFC investment ment effectiveness can be beneficial for IFC prof- Source: IEG. itability. Last year's Independent Evaluation of Note: Based on 692 investment operations evaluated during 1996­2007. 5 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 flected IFC's choice of financing instrument and cent of projects with low development outcomes the associated investment risk. Of the four percent and high IFC investment outcomes, most involved of projects with high project development out- a loan. With a loan, IFC has a ranking claim on com- comes and low IFC investment outcomes, the pany cash flow for loan service as well as the col- vast majority featured equity, while, of the 11 per- lateral security package, which together provide some downside protection. Equity investments, however, face subordination and currency risk Figure 1.4. Project Development Results, and must meet more rigorous return standards 1996­2007 (year-on-year average) to compensate for this extra risk. Unsurprisingly, given their lower financial risk, loans more often 100 meet their "success" benchmarks and achieve 90 high IFC investment return ratings than equity in- high 80 vestments (figure 1.5). Conversely, on a portfolio basis (factoring out evaluative benchmarks), eq- rated 70 uity returns have been contributing more to the 60 institution's profitability than loans.6 50 projects of 40 Overall performance improvement notwith- 30 standing, development results were much weaker 20 in smaller projects. As figure 1.7b illustrates, the Percentage 10 evaluated results of IFC-supported projects are 0 much stronger by volume of commitments than 1996 1997 1999 1999 2000 2001 2002 2003 2004 2005 2006 2007 by number of projects. When measured by vol- Year ume, 75 percent of projects achieved high de- Development outcome IFC investment return velopment outcome ratings, and 82 percent Source: IEG. achieved high IFC investment return ratings, Note: Based on 692 investment operations evaluated during 1996­2007. while 74 percent of projects achieved high per- formance in both dimensions. These findings indicate, as previous evaluations have shown, Figure 1.5. IFC Investment Return, by Instrument that larger operations tend to be more success- (three-year rolling average) ful than smaller ones. Figure 1.8 examines this relationship in more detail, revealing sharp dif- 100 ferences in performance by size of IFC invest- 90 ment. The relationship between size and results high 80 is especially important in Africa and MENA, where the average project size is smallest (figure 1.9). rated 70 Reasons for variation by size, and other results, 60 are explored in the section on results drivers 50 projects and future prospects. of 40 30 The performance gap between ECA and LAC 20 and other Regions has widened. Last year's re- Percentage 10 view showed that the results of IFC-supported 0 projects varied considerably by Region, with the 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 strongest project performance in ECA and LAC, Year and the weakest in Africa and Asia. This report Loan investment outcome Equity investment outcome reveals a similar, though even more sharply de- Source: IEG. fined pattern of variation. Based on three-year Note: Based on 692 investment operations evaluated during 1996­2007. rolling averages, there was significant improve- 6 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS ment in 2007 in the evaluated development out- Regions (such projects are known to The performance gaps come ratings of projects in ECA and LAC, but lit- have difficulties achieving satisfactory between regions has tle change in Africa and Asia. Meanwhile, the environmental and social effects), per- widened. development outcome ratings of projects in formance during 2005­07 was partic- MENA declined. In these three regions--Africa, ularly low. Poor reporting was also a feature of Asia, and MENA--one-half or more of the proj- Africa projects, with five operations rated "no ects evaluated during 2005­07 achieved low de- opinion possible," four of which (three financial, velopment outcome ratings (figure 1.10).7 one nonfinancial) were because of information shortcomings, which meant that environmental Weak environmental and social effects continue to be a key feature of underperformance in Africa. Previous evaluations, dating back to 2003,8 found Box 1.3. IFC Investment Outcome Rating that IFC-supported projects in Africa achieved weaker environmental and social effects ratings than projects in other Regions, mainly among fi- IFC's investment outcome rating is an assessment of the gross-profit con- nancial intermediary operations. During 2005­07, tribution quality of an IFC loan and/or equity investment, that is, without only 4 of 13 Africa projects with environmental and taking into account transaction costs or the cost of IFC equity capital. social effects data (31 percent) achieved high en- Loans are rated satisfactory provided they are expected to be repaid vironmental and social effects--much weaker in full with interest and fees as scheduled (or are prepaid or resched- performance than in other Regions (figure 1.11). uled without loss). Of these three years, performance was lowest in 2007, with five of six evaluated projects in the Re- Equities are rated satisfactory if they yield an appropriate premium gion--two financial and three nonfinancial-- on the return of a loan to the same company (a nominal US$ internal achieving low ratings. Although the evaluated rate of return greater than or equal to the fixed, loan interest rate, plus projects included proportionally more, high credit a spread). risk and financial intermediary projects than other Figure 1.6. Project Development Results, by Subindicator (three-year rolling average) 100 90 high 80 rated 70 60 50 projects of 40 30 20 Percentage 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Business success Economic sustainability Environment & social Private sector development Source: IEG. Note: Based on 692 investment operations evaluated during 1996­2007. 7 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Figure 1.7. IFC Did Not Generally Support Projects Where There Was a Tradeoff between Project Development Results and IFC Profitability a. By number of projects b. By volume 63% 75% 59% 74% HIGH 4% High development HIGH High development rating, 1% rating, High IFC return High IFC return rating rating 70% 82% 26% 17% Development Low development 11% Development Low development 8% rating, rating, Low IFC return Low IFC return LOW LOW LOW HIGH LOW HIGH IFC investment return IFC investment return Source: IEG. Note: Based on 174 investment operations evaluated during 2005­07; "high" means that performance met or exceeded specified benchmarks and standards, and "low" means that it did not. and social impacts and/or compliance with IFC Figure 1.8. Project Development Results, standards could not be determined.9 Client com- by Investment Size mitment toward, and capacity toward, pursuing sustainability has proven to be problematic in 100 Africa, particularly when businesses underper- 90 form financially (as other evaluations have shown, 80 78% firms tend to place less priority on the environ- rating 70 62% mental and social aspects of performance when projects 60 their businesses are "in the red") and given the, of 50 48% at times, substantial imperfections in legal and reg- development 40 ulatory frameworks and implementation. Weak en- vironmental supervision and role and contribution high 30 Percentage by IFC has also been evident, with less than half 20 with of projects evaluated by IFC achieving high per- 10 formance in each of these dimensions in the last 0 0.1­5 (56) 5­15 (63) 15­50 (55) three years.10 IFC is starting to increase its envi- ronmental specialist capacity in the Africa Re- Investment ($ millions) gion, but it is too early to tell whether and when Source: IEG. Note: Based on 174 investment operations evaluated during 2005­07. Numbers in this capacity will translate into improved super- parentheses are numbers of evaluated projects. vision and role and contribution. 8 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS By sector, performance was strongest in infra- instrument. As figure 1.13 illustrates, Projects in Africa structure and finance projects, and weakest in since 2002, a difference in perform- achieved weaker general manufacturing and services, and in in- ance between loans and equities has environmental and formation and communication technology (fig- also became noticeable in relation social effects ratings. ure 1.12). Last year's IEDR found that projects to project development results. Until in IFC's strategic sectors of infrastructure and fi- 2002, project development results were broadly nance achieved strong development results. This the same, whether the investment was a loan, continues to be the case, with 84 percent of evaluated infrastructure projects and 73 per- cent of finance projects achieving high devel- Figure 1.9. Average IFC Project Size, by Region opment outcome ratings. However, less than half (48 percent) of general manufacturing and 25 services projects achieved high ratings. Overall, 22.1 47 percent of communications and information 20 technology projects achieved high ratings, al- millions) 15.9 though such aggregation masks substantial intra- ($ 15 14.3 department variation. Six of eight evaluated size 11.6 11.2 telecommunications projects met or exceeded 10 specified development benchmarks, typically project with very strong externalities in terms of 5 economic sustainability and private sector verageA development (not least in helping to reduce 0 business transaction costs). Only two of nine LAC (43) Asia (38) ECA (53) MENA (16) Africa (22) nontelecommunications projects, however, Region achieved this level of performance (Internet and Source: IEG. software operations). It is important to note Note: Based on 174 investment operations evaluated during 2005­07. Numbers in parentheses that discrepancies in sectoral performance often are numbers of evaluated projects. reflect intrinsic differences in risk profiles, by types of enterprises and financial instruments, which helps explain the lower success rates in in- Figure 1.10. Project Development Results, by formation technology projects because the ma- Region, 2003­07 jority were higher-risk equity investments in smaller ventures. None of the four evaluated In- 100 ternet projects, and only one of the five evalu- 90 ated software projects met or exceeded financial with 80 performance benchmarks, which had an accor- rating 70 dant knock-on effect on overall development 60 results in these projects. Financial sustainability projects 50 of was also a problem in general manufacturing 40 and services projects, with only 48 percent development 30 achieving high ratings in this dimension. high 20 Percentage 10 In terms of instruments, loans have been more 0 associated with high development results than MENA (16) Africa (22) Asia (38) LAC (43) ECA (53) equity investments in the last five years. As dis- Region cussed earlier, loans have historically been more 2003­05 2004­06 2005­07 effective than equity investments at meeting Source: IEG. IFC investment-return benchmarks, driven by Note: Based on 314 investment operations evaluated during 2003­07. Numbers in parenthe- the different financial risk associated with each ses are the number of operations evaluated during 2005­07. 9 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Results Drivers and Future Prospects Figure 1.11. Environmental and Social Effects Five results drivers identified in last year's review Performance, by Region, 2005­07 continue to explain major variations in the per- formance of IFC-supported projects. Based on a 100 decade of evaluation findings, the 2007 IEDR ratings 90 found that five factors significantly influence IFC's 80 78% 74% 75% high development performance at the project level: 70 60% with 60 · Quality of business environment faced by a 50 project (particularly where country business 40 projects 31% climate risk improved or deteriorated mate- of 30 rially following project approval); 20 · Type of industry sector in which an invest- 10 ment is made; 0 Percentage · Quality of the project sponsor; Africa (13) MENA (10) LAC (39) ECA (44) Asia (23) · Level of intrinsic project risks, such as prod- Region uct market, client company, and project-type Source: IEG. risks; and Note: Based on 174 investment operations evaluated during 2005­07. Numbers in parentheses · IFC work quality. are the number of operations with environmental and social effects ratings ("no opinion possi- ble" projects are excluded). In terms of relative importance, multivariate re- gression analysis revealed that IFC work quality equity only, or some combination of the two. appears to have the most influence on project Since then, loans have been associated with performance. The individual components of work project development success rates at least 10 quality, which are rated separately--upfront percent better than those of equity investments, screening, appraisal and structuring, post- which have tended to be smaller and riskier approval supervision and administration, and business propositions (for example, informa- the quality of IFC's role and contribution to the tion technology start-ups). project (see box 1.4 for definitions)--were each Figure 1.12. Project Development Results, by Sector, 2005­07 Infrastructure (19) 84% Finance (59) 73% Health & education (8) 63% Funds (8) 63% Sector Food and agribusiness (10) 60% Oil, gas, mining & chemicals (7) 57% Manufacturing & services (46) 48% Information & communication technology (17) 47% 0 10 20 30 40 50 60 70 80 90 100 Percentage of projects with high development ratings Source: IEG. Note: Based on 174 investment operations evaluated during 2005­07. Numbers in parentheses are the number of evaluated operations. 10 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS Figure 1.13. Project Development Results, by Instrument, 1996­2007 (three-year rolling average) 100 90 80 rating 70 projects 60 of 50 development 40 30 high Percentage 20 with 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Loan only Equity only Loan & equity Source: IEG. Note: Based on 692 investment operations evaluated during 1996­2007. found to be significant determinants of results. a higher share of manufacturing sector restruc- Of these, upfront screening, and appraisal and turings, which tended to be higher risk, in the structuring quality had the strongest significance, wake of the regional crisis. A combination of sec- with effective supervision generally unable to tor and country specifics helps explain low over- compensate for weak quality of work at the out- all performance in MENA, with most general set of a project.11 A rerunning of the regressions, manufacturing and services projects (including with one more year of data, confirms the mate- three in Jordan) achieving below-benchmark fi- riality of these explanatory variables.12 nancial and economic results. Positive market conditions in most regions, with Factors within IFC's control, particularly work the notable exception of Africa, have contributed quality, have also played a key role in the results to better overall development performance. Im- that were achieved. Performance variations can- proved business environments have helped sus- not be solely explained with reference to exter- tain healthy growth rates in many developing nal conditions. Investments in ECA and LAC were countries in recent years. In so doing, they have more often carried out with higher-quality spon- contributed to improved project development sors, with lower intrinsic project risks, and bet- performance, relative to the past, among IFC- ter IFC work quality than investments in other supported projects (see table 1.1), particularly in- Regions (see appendix D). Weak sponsor quality vestments in equity funds. At the same time, and high intrinsic risk can pose substantial chal- persistent high-risk business environments have lenges to achieving successful project develop- continued to constrain private investment in ment outcomes, although it is central to IFC's role Africa (see figures 1.14 and 1.15) as well as growth, as a development institution to help which would assist the development perfor- address these challenges by providing Positive market mance of IFC-supported projects. Specific market strong support to clients. This is ap- conditions . . . have conditions appear to have affected performance parent in the fact that IFC's supervi- contributed to better in certain sectors in Asia--the dot-com bubble sion and administration quality--as overall development (with Internet projects performing poorly), and evaluated by IEG--seems to have performance. 11 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Box 1.4. IFC Work Quality Rating The overall work quality rating reflects IFC's performance in three Role and contribution (at and after approval): This indicator de- areas, each of which is rated separately: scribes the extent to which IFC played a catalytic role in an in- vestment and made a special contribution. This aspect of work Screening, appraisal and structuring (at approval): The ex- quality is analyzed in greater detail in chapter 2, within the tent to which IFC followed good practice standards. For exam- context of IFC's additionality (for which this indicator is currently ple, did IFC (in hindsight) identify key risk factors, mitigate them the closest proxy). to the extent possible, and arrive at realistic expectations for project and company performance? Actual results are com- As much as possible, IFC's work quality is evaluated inde- pared with expectations and the main reasons for variance are pendently of the project's outcome to avoid bias in the ratings. For analyzed, to assess whether IFC's assumptions were well example, 7 percent of projects with high development ratings grounded in good practices with regard to due diligence and were nevertheless judged to have had low overall IFC work qual- structuring, and the extent to which differences in actual re- ity; and 34 percent of projects with low development ratings were sults were owing to extraneous effects, such as recognized but still rated high for overall IFC work quality. Occasionally, however, uncontrollable risks. actual project results can influence work quality ratings. Projects Supervision and administration (after approval): Following ap- performing poorly can expose or exaggerate the materiality of proval and commitment, and through to eventual closure, this weaknesses in IFC's structuring or supervision, which in the ab- indicator assesses how well IFC carried out its supervision of sence of significantly negative project performance, might have an investment. For example, was IFC able to detect emerging gone undetected. Conversely, a project that is performing very well problems in a company and respond expeditiously with ap- may be doing so despite shortfalls in IFC's work quality which propriate and effective interventions? could, under different circumstances, have been more evident. Table 1.1. Market Conditions Contributed to Better Project Results Change in Overall Private High risk rating development Project Environmental sector development (between outcome business Economic and social development outcome and approval and rating success sustainability effects impacts IFC investment evaluation) (% high) (% high) (% high) (% high) (% high) return (%) Improved from high risk 71 71 76 79 88 69 (n = 35) Stayed non-high risk 66 57 73 71 78 60 (n = 102) Stayed high risk 50 48 55 62 58 47 (n = 34) Deteriorated from 0 0 0 67 33 0 non-high risk to high risk (n = 3) Sources: IEG and Institutional Investor (for country credit risk ratings). Note: High risk if Institutional Investor rating was less than 30; non-high risk if rating was higher than 30. See appendix D for patterns, by region. much greater influence on project results where up-front structuring and appraisal and down- country, sponsor, and specific project risks are stream supervision and administration quality higher, than in cases when the opposite is true were each rated high, so were project develop- (table 1.2). In the best-case scenario, when both ment results 88 percent of the time.13 The close 12 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS Figure 1.14. Conducive Business Environments in Most Regions, Africa Still High Risk 50 100) 45 of 40 (out 35 30 rating High risk 25 risk 20 15 credit 10 5 Country 0 2000 2001 2002 2003 2004 2005 2006 2007 Year East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa Source: Institutional Investor. relationship between work quality and devel- Figure 1.15. Robust Private Investment in Most opment results applies across sectors and Re- Regions, Lagging in Africa gions, although the incidence of high work quality was lower in Asia, Africa, and MENA (58, 25 61, and 67 percent of cases respectively) than in LAC and ECA (see table 1.3). These findings formation 20 imply that greater resources and attention to ensuring sound work quality are required in the capital 15 first three regions. Quality was also weak among evaluated information technology projects,14 al- fixed 10 though this was a new area for IFC and the rel- atively short experience may have been a private 5 constraining factor. Low work quality was a key aspect of poor per- verageA 0 2000 2001 2002 2003 2004 2005 2006 formance among small projects. The economet- Year ric analysis carried out by IEG shows that project East Asia Europe & Latin America Middle East size alone, controlling for other variables, is not & Pacific Central Asia & Caribbean & North Africa a significant driver of development results.15 South Asia Sub-Saharan Africa However, work quality shortcomings and intrin- sic project risks tend to be greater in smaller Source: Global Development Finance database, World Bank. projects (particularly in start-up information tech- nology projects), as well as are sponsor and busi- ness-climate risk (since many small projects are to improve the experience of staff appraising in Africa). Given that it is within IFC's control to and supervising smaller projects--often field balance these risks and to take appropriate mit- staff--or that management oversight should be igating action, we can infer that either IFC needs enhanced. 13 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Table 1.2. Strong Supervision and Administration Quality Can Mitigate High Intrinsic Risk High risk intensity Fewer than four risks Four or more risks Number of % of projects Number of % of projects Supervision and administration quality projects rated high projects rated high High 76 82% 62 63% Low 11 45% 17 12% Source: IEG. Note: Based on 174 projects evaluated during 2005­07; the eight risk factors considered were: business-climate risk, sector risk, sponsor risk, product-market risk, debt service burden, greenfield risk, review intensity, and nonrepeat risk. Projects that reached early operating maturity Figure 1.16. Changes in Country Business-Climate and were evaluated ex-post between 2005 and Risk 2007 were approved between 2000 and 2002. 16 100 Percentage While it is not feasible to carry out full, ex-post 14 90 satisfactory evaluations of projects approved in more re- 80 credit 12 cent years (because they are too immature to in 70 approval) 10 have delivered tangible development and/or 60 of 8 50 projects financial results), it is instructive to examine or change (since patterns in the five key results drivers. As table 6 40 better 30 1.4 indicates, most of the key results drivers are rating 4 20 rated verageA moving in a positive direction, or their lack of 2 risk 10 change ought to have a neutral effect. Business- 0 0 2005 2006 2007 2008 climate risk has continued to fall overall (as con- Evaluation year ditions in emerging markets have become more Average change in country risk rating (since approval) benign, although this pattern could start to Percentage of projects rated satisfactory or better reverse if the anticipated downturn in global Source: Institutional Investor. Note: Based on 244 investment operations; the higher the bar, the greater the improvement in economic growth materializes) and IFC has in- business-climate risk. creased its share of investments in historically Table 1.3. Work Quality and Development Outcomes, by Region Overall work quality (%) Region Development outcome rating Low High AFRICA: High 5 45 Low 32 16 ASIA: High 6 49 Low 37 9 MENA: High 0 40 Low 33 27 LAC: High 5 69 Low 12 14 ECA: High 2 77 Low 9 11 Source: IEG. Note: Based on 174 projects evaluated during 2005­07; excludes "no opinion possible" responses, for example, due to litigation. 14 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS Table 1.4. Patterns in Key Results Drivers Evaluation Likely impact on Result driver year(s) Direction development results Change in country business climate 2008 Improved since 2003 (when projects were Positive, but could reverse risk (after project approval) (vs. 2005­07) approved), more so than in previous years and in most cases (figure 1.16) Sector choices 2008 Increase in investments in higher-performing Positive (vs. 2005­07) sectors vs. lower-performing sectors (figure 1.17) Sponsor quality 2008 Up slightly in 2008 Neutral (vs. 2005­07) (figure 1.18) Specific project characteristics: 2008 Generally balance each other out Neutral · Product market risk (vs. 2005­07) (figure 1.18) · Client company (nonrepeat) risk · Project-type (greenfield) risk IFC work quality: 2007 · Similar Too early to tell · Screening and appraisal (vs. 2004­06) · Up · Supervision · Down · Role and contribution (figure 1.19) Source: IEG. Figure 1.18. Sponsor Quality and Specific Figure 1.17. Sector Choices Project Characteristics 90 100 80 90 70 80 70 60 projects 60 investments 50 of of 50 40 40 30 30 Percentage Percentage 20 20 10 10 0 0 2005 2006 2007 2008 2005 2006 2007 2008 Evaluation year Evaluation year Higher performing sector High-risk sponsor High market risk Lower performing sector Greenfield projects Nonrepeat projects Source: IFC. Note: Based on 244 investment operations; past evaluations show the higher-per- Source: IEG. forming sectors are infrastructure; financial markets; and oil, gas, and mining. Note: Based on 244 investment operations. 15 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 IFC work quality was higher-performing sectors. Patterns projects, 70 percent achieved satisfactory or bet- lower in Asia, Africa, in sponsor quality and certain project ter development results. Among the 30 percent and MENA. risks should largely cancel each other that were rated less than satisfactory, initial out. With regard to the fifth key driver, lessons include the importance of tailoring IFC work quality, it is too early to tell whether this operations to local conditions, ensuring client will improve or weaken in 2008. Maintaining commitment up front, and effective project man- strong work quality will be fundamental to good agement. See box 1.7 for examples of more and performance, as in the past. less successful operations. Emerging Results of IFC Advisory Inferences about performance are, however, Service Operations constrained by considerable data gaps. The high IFC is rolling out a new system for evaluating ad- proportion of projects (one-third) with no de- visory services operations, as part of a range of velopment effectiveness ratings seriously limits monitoring and evaluation efforts. As IFC has the quality of inferences that can be drawn about been expanding its advisory services operations, performance from these pilots. In some cases, it has put significant resources into the moni- it was too early to discern the project's devel- toring and evaluation of the results of these op- opment outcomes and long-term impacts at erations. A central component of this monitoring project close (when the pilot evaluations were and evaluation has been the introduction of a carried out). Where it was possible to assign de- project completion report (PCR) system, which velopment effectiveness ratings, the supporting seeks to assess results across five dimensions: logic and documentation provided by staff in strategic relevance, efficiency, outputs, outcomes, their self-evaluations was weak in many instances. and impacts (see boxes 1.5 and 1.6). IFC has As a result, applying the PCR guidance correctly supplemented this system with a number of and consistently, IEG had to re-rate 29 percent external reviews and experimental and quasi- of projects.16 This suggests that, to date, staff have experimental evaluations of specific projects to had insufficient understanding about, or com- inform project design and effectiveness. To date, mitment to, reporting development performance IEG has independently evaluated the results re- in PCRs, and that quality assurance mechanisms ported by IFC in the first two PCR pilots, cover- have thus far been inadequate. ing 293 operations that closed during 2004­06. IEG's review focused on assessing the evalua- Prior to 2005, IFC's advisory services operations tive substance of the PCRs, and the sufficiency of originated and were managed in an ad-hoc man- evidence and correct application of the guid- ner. In 2005, the advisory services operations ance in assigning ratings. Going forward, as the were organized into five business lines: evaluative substance of PCRs improves, IEG will carry out more in-depth desk and field-based · Access to finance: Aimed at facilitating the validations. development of effective institutions within in- dividual financial intermediaries and related Pilot evaluations show that, where calculable, institutions (for example, credit bureaus). 70 percent of IFC advisory service projects had This includes programs intended to improve satisfactory or better development effectiveness the enabling environment for financial mar- ratings. Where the outcomes of a project could kets, as well as to facilitate market conditions not be discerned at the time of evaluation (and, amenable to increased future investment. by implication, the project's longer-term im- · Business-enabling environment: Designed pacts), no development effectiveness rating was to improve the overall environment for doing assigned. Under the first two PCR pilots, devel- business in client countries. Activities include opment effectiveness ratings were given to 198 identification and diagnostic assessments of of 293 in the project population. Of those 198 business environment problems, improve- 16 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS ment of legal and institutional frameworks, trade facilitation, and the establishment of commercial Figure 1.19. IFC Work Quality dispute-resolution mechanisms. · Environmental and social sustainability: 100 Aimedatadvancinginnovativebusinessinitiatives 90 that deliver environmental and social benefits, to high 80 demonstrate their commercial viability and to en- rated 70 courage their independent replication in the pri- 60 vate sector of emerging markets (through loans, 50 equity investments, grants for project cofinanc- projects 40 ing, advisory services, and capacity building). of · Infrastructure: Geared at promoting eco- 30 nomic growth and the delivery of basic services, 20 mainly through the provision of structuring and 10 Percentage implementation advice to member governments 0 2005 2006 2007 (in ways that balance the interests of potential Evaluation year investors with public policy considerations). Screening and appraisal Supervision · Value addition to firms: Focused on help- Role and contribution ing enterprises, particularly small and medium Source: IEG. enterprises, improve their performance, cor- Note: Based on 174 investment operations evaluated during 2005­07. porate governance structure, and access to capital, thereby expanding employment and income generation in local communities. to determine whether these initial differences will be sustained. Of the 198 projects where development effec- tiveness ratings could be assigned, there was Results appear to be similar across Regions, al- some variation in results across business lines, though a small number of MENA and global proj- with business-enabling environment achieving ects have performed less well than others. As the strongest pilot ratings and infrastructure the discussed earlier, the performance of IFC in- weakest (figure 1.20). Given the relatively small vestment operations has differed substantially sample sizes in some business lines, and an ab- across Regions. To the extent that data are avail- sence of development effectiveness ratings in a able, this does not appear to be the case with ad- third of the cases, further PCR data are required visory services operations, with projects in most Box 1.5. Evaluation System for Advisory Services Operations Starting in August 2006, IFC began a large-scale self-evaluation and checks the extent to which the ratings assigned are con- pilot of its completed advisory services (formerly called tech- sistent with the guidance. Advisory services operations are nical assistance and advisory services) projects. Project com- evaluated when they reach project close (rather than operating pletion reports (PCRs) address the operational and financial maturity, as in the case of investment operations). To date, performance, its downstream outcomes and impacts, and les- under the first two PCR pilots, 293 projects that closed during sons learned. PCR authors assign a development effective- the period July 2004­June 2006 have been evaluated. See ap- ness rating to each advisory service project. pendix B for details on how these projects were selected for IEG has developed procedures for desk reviews of PCRs. IEG evaluation. uses the same guidance given to IFC staff completing the PCRs 17 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Box 1.6. Development Effectiveness Rating The development effectiveness rating is a case-by-case assess- Output achievement (Were the anticipated products, capi- ment of performance across five dimensions: tal goods, and services delivered?): Were "key" deliverables achieved? To what extent were clients satisfied with the ad- Strategic relevance (Was it the right project at the right visory service? time?): (i) Appropriateness of assistance: Did it fit the politi- cal and economic conditions? Did it address a market failure? Outcome achievement (Were the intended short- and medium- Was the right client selected, given project objectives? Was term effects achieved?): Were outcomes achieved? Were the project aligned with the country assistance strategy (CAS) there unexpected/unintended positive or negative outcomes? and IFC strategy? Was the project consistent with the coun- Impact achievement (Were the intended longer-term effects try's development priorities? (ii) Impact--Was the project ex- achieved?): What would have happened without the inter- pected to have broad impact at the regional/national levels? vention, that is, what is the counterfactual? (iii) Interest/receptivity of a client (client contribution-financial and in-kind). No rating is assigned if the outcomes and impacts of a project Efficiency (Were the costs reasonable relative to results?): cannot be discerned at the time of evaluation. How reasonable were costs relative to benefits? How eco- More guidance on specific ratings (including the distinctions nomically were funds, expertise, time, etc., used (compared among excellent, satisfactory, partly unsatisfactory, and unsat- with similar projects)? Were there less costly ways to achieve isfactory performance quality) is available at www.ifc.org/ieg. objectives (cost-effectiveness)? Regions achieving broadly similar results. Re- observe that development institutions involved sults in MENA and in global projects seem to be in advisory services operations geared toward weaker than their geographical comparators, private sector development--where data are although the sample size in the latter is rela- available--have achieved "success rates" both tively small (figure 1.21). Again, further PCR data above and below those reported under the first are required to determine whether these emerg- two PCR pilots. Independent evaluations of the ing patterns are sustained. performance of the advisory operations of the Eu- ropean Bank for Reconstruction and Develop- The performance of other development institu- ment and the Asian Development Bank report tions involved with broadly comparable advisory success rates of 63 percent and 84 percent, re- services work does not show a clear pattern with spectively. Meanwhile, the African Development respect to IFC's results reported under the first Bank has achieved evaluated successful rates of two pilots. IFC is one of many organizations pro- 60 percent for meeting short-term objectives viding advisory services in support of private sec- and 76 percent for meeting development objec- tor development. It is therefore useful to compare tives.17 For the World Bank, IEG is currently em- the performance of projects supported by IFC ad- barking on an evaluation that will assess the visory services with those supported by other extent to which its advisory projects have met institutions. While there is no direct comparator their stated objectives, and derive lessons for to IFC, and evaluation methodologies vary, we can improving their effectiveness. 18 DEVELOPMENT RESULTS OF IFC-SUPPORTED PROJECTS Figure 1.20. Advisory Services Results, by Business Line Business enabling envt. (80) 74% Value addition to firms (50) 68% line Environmental & social sustainability (18) 66% Business Access to finance (32) 66% Infrastructure (18) 61% 0 10 20 30 40 50 60 70 80 90 100 Percentage of projects with satisfactory or better rating Source: IEG. Note: Based on 198 pilot evaluations of projects that closed during 2004­06 (and where an outcome rating was available). Numbers in parentheses are numbers of eval- uated projects. Figure 1.21. Advisory Services Results, by Region 100 better 90 or 80 74% 73% 72% 69% 69% 70 63% satisfactory 60 rated 50 40% 40 projects 30 of 20 10 Percentage 0 Africa (39) LAC (22) ECA (57) Asia (54) MENA (16) World (10) Total (n = 198) Region Source: IEG. Note: Based on 198 pilot evaluations of projects that closed during 2004­06 (and where an outcome rating was available). 19 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Box 1.7. Examples of Successful and Unsuccessful Advisory Services Operations Successful: Business-Enabling Environment Unsuccessful: Value Addition (Corporate Governance) Objective: A plan for business startup and licensing reform and, Objective: Toprovideareviewofthecorporategovernancepoli- together with the World Bank and IMF in the field, an assess- cies and practices of the company, with recommendations to ment of the tax system's impact on business, investment, and improve the company's performance and access to capital. growth. Strategic relevance: The company's leadership was not suf- Strategic relevance: Advice on startup, work permits, and li- ficiently sensitized and prepared to address the central issues censing procedures such that any fiscal implications could be of accountability and transparency in this exercise. IFC was anx- offset in the next budget phase. On the tax side, a quick analy- ious to demonstrate value added, but corporate governance is- sis was used to guide the authorities on tax policy for the next sues were not discussed in much detail during investment budget. preparation--which probably sent a signal to the client that cor- porate governance was not a priority for IFC. Output achievement: Within six weeks of the mission, the au- thorities received an action plan, together with recommenda- Output achievement: The formal deliverables (final report and tions, for policy changes on start-ups and work permits, as well PowerPoint presentations) were completed. However, the work as tax modifications. of the consultants was not up to par and substantial revision was necessary, along with extensive follow-up work. Outcome Achievement: The government enacted all the pol- icy changes and most of the tax recommendations, which Outcome achievement: The short- to medium-term effect of the should result in a much more streamlined business start-up work was to educate senior management about corporate regime comparable to international best practice. governance. They gained a preliminary understanding of best practices and market expectations in respect of shareholder The project efficiency was satisfactory because the assignment treatment, boards of directors, the control environment, and was completed in a very short time, with successful results. Al- transparency and disclosure. However, despite substantial though the impact is not known yet, this was a tightly scoped and follow-on work, the client has not yet demonstrated real com- well-executed assignment with an engaged client, all outputs mitment to improving practices. were delivered as planned to a tight timetable, and all recom- mendations have been enacted by the government. The project is Impact achievement: A greater contribution to corporate gov- expected to have the desired effect on streamlining business reg- ernance advancement was expected from this project. istration and improving the country's business climate in line with Extensive efforts were undertaken to identify appropriate con- the government's objectives. sultants, to interview them in-country and to educate them on the use of the IFC corporate governance methodology. Taking into account the sub-par quality of the consultants' performance and the overall expenditure of financial and human resources devoted to supporting this project, this was ultimately an inefficiently de- livered project. 20 2 IFC Additionality I FC was established with a special mandate to support and catalyze pri- vate sector development in developing countries.1 As mentioned earlier in the report, IFC is expanding its operations quickly in pursuit of this mission. At the same time, net private capital flows to emerging markets have increased steeply, and other development finance institutions have also been expanding their operations in many of the same countries in which IFC operates.2 In this context, it is important to re-examine the assessment of the presence and quality of ad- extent to which IFC brings to the market, prod- ditionality in IFC's investment operations. ucts and services that are uniquely beneficial, or · An ex-post review of 692 evaluated invest- additional, to those provided by other financiers. ment operations identified at least one form Market data suggest clients approach IFC for of financial additionality (such as loan tenor reasons other than price (clients typically pay or grace period) in 85 percent of cases, and more to borrow from IFC than other financiers, at least one form of operational or institu- yet operations are growing)3 but, at the same tional additionality in about a third of cases. time, do not reveal the specific value the insti- In most recent crises, when IFC's financing is tution brings to their operations. This chapter ex- arguably most needed, IFC appears to have plores the concept of additionality, the extent to largely invested on a countercyclical basis. which additionality has featured in IFC's strate- · The evaluated quality of IFC's role and con- gies, the available evidence on additionality in IFC tribution in its investment operations (which operations, possible drivers and inhibitors of considers whether IFC made a special con- identified additionality, connections between tribution to a project and was catalytic in help- additionality and development impact, and areas ing private investors make good investments) for improvement. was satisfactory in most cases. · Quality was generally higher in the ECA and The main findings are listed here: LAC Regions; in the extractive, food and agribusiness, and infrastructure sectors; and · IFC corporate strategies have placed increased in capacity building through long-term en- focus on the institution's additionality, al- gagement with clients. though region, sector, and country strategies · Quality was less than satisfactory (meaning could better articulate IFC's unique value IFC's additionality fell short in a material area added. or IFC was deemed not to be plausibly addi- · It is difficult to measure additionality precisely, tional) in nearly 30 percent of projects in Asia but proxies are available to conduct an initial and Africa, and in similar proportions in the 21 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 financial and health and education sectors to compensate for market and institutional fail- in all Regions. Econometric analysis does not ures and imperfections at the local and interna- reveal clear drivers of these variations, and fur- tional level, because of concerns about efficiency ther investigation is required. and equity. These development institutions are · Better development results were achieved expected to help mitigate the lack of institu- where additionality was more apparent, and tional capacity and market development in de- there is also no apparent tradeoff between veloping countries, thus helping to speed additionality and IFC's profitability. development. The international development · Going forward, more consistent strategic con- institutions therefore deal with the causes and sideration, operationalization, and tracking consequences of institutional failures and im- of additionality, would be beneficial. perfections in developing countries.9 It is im- portant to recognize, however, that this feature Concept of Additionality is not their unique and defining characteristic. Development is no longer seen primarily as a A variety of organizations including government, process of capital accumulation but also as a private for-profits, and nonprofits have been es- process of institutional change.4 Differences be- tablished or expected, at least in part, to deal with tween industrial and developing countries can be various types of institutional imperfections. None largely attributed to differences in economic or- of these mechanisms, including the international ganization, that is, how individuals interact and development institutions, is perfect, and none the institutions that mediate these interactions. is less likely to succeed without interacting with, Among the most important of these "institu- and complementing, the others.10 The most ap- tions" are markets. It is, by now, well recognized propriate combination and role for each of these that there are many instances of market fail- actors will be different in each country and in ures.5 In some cases, market failures can be ame- each set of circumstances.11 liorated by nonmarket institutions (such as for-profit firms, government organizations, non- It is in this context of multiple organizational profit organizations). However, it is also recog- forms, dealing with various types of market and nized that nonmarket institutions may not fully institutional failures and imperfections, that the ameliorate the inefficiencies arising from market question of additionality arises. For international failures and imperfections, and they may actually development institutions, "additionality" refers exacerbate the market failure.6 to the specific inputs and services that these in- stitutions provide in addition to those deliv- While market and nonmarket institutional failures ered by the market or institutional framework and imperfections are present in any economy, that is in place. To qualify as "additional" the in- they tend to be more prevalent in developing puts and services have to complement--and countries. Market failure is more common in not substitute for--what other institutions can low- and middle-income countries or are willing to provide in order to pursue the Additionality ultimately than in more-developed countries, achievement of a given set of development ob- refers to unique or and the nonmarket institutions that jectives. Additionality ultimately refers to unique special contributions. ameliorate the consequences, at least or special contributions to the achievement of in many instances, are less successful these objectives. It is the pursuit of these ob- in doing so.7 Many developing countries, par- jectives that explains the status or mandate given ticularly in Africa, also show a paucity of formal to such institutions--status and mandate which private firms and nonprofit organizations, and a have also been enlarged in response to external dominance of government and informal insti- and internal challenges. For the international tutions, relative to more developed economies.8 development institutions, additionality is de- rived from their ability to serve as instruments International development institutions have of collective action, used by the international been created by the international community community, to deal with the issues of persistent 22 IFC ADDITIONALITY poverty, and from the unique capacities they sition as a public organization to bring investors have developed during their existence as a result to places they would not invest in otherwise, by of leadership, empirical experience, learning, lowering the associated political risks. IFC's af- and innovation. filiation with the World Bank was thought to be especially important in this regard.12 In fulfilling Additionality, as a concept, can be viewed as rel- its objectives, IFC needed to be guided by two ative, situational, and dynamic. Additionality is rel- important additionality considerations. Accord- ative because it refers to what is available from ing to its Articles, the Corporation "should not others. It is also situational because "availabil- undertake any financing for which in its opinion ity" depends on circumstances and situations sufficient private capital could be obtained on rea- exhibiting market and institutional imperfections sonable terms,"13 and IFC's investments should, that inhibit development. Finally, additionality where possible, have a catalytic component.14 can be highly dynamic: the additionality of a de- velopment institution may change as it broadens IFC's corporate strategies have, at various times and deepens its own capacities, as other institu- during the last decade, revisited the issue of the tions enhance their capabilities and willingness institution's additionality. IFC's 1998 strategy, to provide certain inputs in challenging situa- (the Corporation's first major strategic review tions, and as circumstances evolve in developing since 1991) was developed in circumstances sim- countries. ilar to the current period: rapid growth in both IFC and private capital flows to developing coun- Additionality is different from development im- tries, with a concurrent expansion by multilateral pact but is usually positively correlated with it. and bilateral development banks active in the pri- While additionality is embodied in the inputs vate sector. (The 1998 strategy was initiated be- and services that a development institution is fore the effects of the Asia crisis started to providing, development impact concerns the re- dampen investor appetite for emerg- sults of its interventions. Development impact ing markets.) Stakeholders conse- Additionality is embodied might arise through the independent actions of quently questioned IFC's additionality in inputs and services, . . . private and/or government agents in finding their and this strategy sought, among other development impact own solutions to market and institutional im- things, to outline the institution's spe- concerns the results. perfections. Alternatively, even when additional cial role. Elements of the distinctive inputs are provided, development progress could role discussed included IFC's long-term com- be cancelled out by other failures, factors, or in- mitment to clients (especially to provide finan- terventions that have greater bearing. It is there- cial stability during crises); the ability to innovate fore possible to observe various combinations of and pioneer along the risk frontier (in riskier high and low additionality and high and low de- countries, sectors, products, and markets); as velopment impact, although the correlation be- well as the capacity to leverage, mobilize and cat- tween the two is expected to be positive. alyze others, build partnerships, share knowl- edge, and make special contributions to projects Strategic Consideration of without displacing the private sector. Additionality IFC's potential to uniquely address market and IFC's additionality was discussed somewhat in- institutional failures was recognized when the in- termittently in annual strategies during 1999­ stitution was established in 1956. The founders 2006. The subject did form the focal point of a acknowledged that the institution had the po- special briefing to the Board in early 2002 and tential to play a unique role in promoting the ex- new guidelines on additionality were developed pansion of private sector enterprise across the for investment staff in 2006. In the 2002 briefing, world. It would be the only global institution IFC described its additionality as ultimately com- specifically charged with promoting private sec- prising the provision of scarce capital and/or tor development. IFC would use its special po- know-how, funds mobilization, and political risk 23 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 protection, the precise mix of which would de- vantages such as "global knowledge" and "long- pend on the needs of the particular client (for term partnerships" with clients, but they do not example, whether the client was a local com- clearly reference the activities of other institu- pany, a large foreign company, or a government). tions (for example, which sectors, countries, and client groups other sources of finance and There has been substantial strategic considera- advice are reaching and how these activities can tion of IFC's additionality in the last year. Re- be complemented with actions by IFC). Ac- flecting renewed interest in the Corporation's cordingly, IFC's unique value added, relative to additionality, in light of the growth in other others, is not always apparent.17 sources of finance to developing countries, IFC's 2007 strategy devotes a whole chapter to the Recent country strategies (developed with the topic. It defines IFC's additionality in terms of World Bank) have similarly placed limited at- the institution's financing ("providing financ- tention on IFC's comparative advantages relative ing to support productive private enterprises to other financiers. While IFC's long-term in- where sufficient private capital is not available vestment pipeline is typically not well known at on reasonable terms"), its expertise and value the time a CAS is developed,18 it is possible to added services, its preferred creditor status and compare the products and services IFC is able objectivity, its results measurement to offer in a country with those available from Most CASs . . . did not (which promotes accountability and other financiers, and to discern what, if any, systematically discuss performance), and its strong client unique comparative advantages the institution the unique value of relationships.15 This approach was possesses. Among the 25 joint IFC/World Bank IFC and/or the World further refined in a recent technical CASs that were produced during fiscal years Bank Group. briefing to the Board, covering IFC's 2006 and 2007, only seven (less than 30 per- investment operations, which classi- cent) explicitly mentioned the value added or fied expected additionality in four dimensions: comparative advantage of IFC in the country, or risk mitigation (including providing comfort to in a particular sector within that country. These other investors in terms of political and coun- were mainly CASs for middle-income countries try risk, changing the risk perception of projects, (Argentina, Chile, China, Jordan, Peru) where and providing financial products beyond what IFC's role has been questioned by outsiders. In the market would provide on its own, such as none of these cases (and none of the 20 that re- long-term finance and local currency financ- ferred to the World Bank as having a compara- ing); knowledge and innovation; standard set- tive advantage) was there a clear explanation of ting; and policy work (together with the World what made IFC or the World Bank products and Bank).16 services value added. Most CASs referred to the sharing of "knowledge," "international expertise" Most region and sector strategies have con- or best practice," but did not systematically dis- tained limited articulation of IFC's unique value, cuss the unique value of IFC and/or the World relative to other sources of finance and advice. Bank Group. Four of the 25 CASs (16 percent) In addition to its corporate strategy, IFC also mentioned the need to address market failures, develops strategies at the sector, region, and but did not link this need to specific activities of country levels. Although the 2002 briefing placed the World Bank Group. a special focus on how IFC's role might vary across regions and sectors, and on the growth Strategic discussion of additionality has been in alternative sources of finance in recent years, based more on a priori assumptions than eval- the differentiation between IFC and other in- uated results. Where additionality has been dis- stitutions across different regions and sectors has cussed in IFC's strategies, the discussion has not been articulated at any length in strategic usually contained limited evidence of IFC's documents at these levels. Some of these strate- record in delivering additionality in different gies make general reference to possible IFC ad- countries, sectors, and clients (partly due to cer- 24 IFC ADDITIONALITY Box 2.1. Definitions of Additionality among Other Multilateral Development Institutions African Development Bank "additionality": The principle that ex- European Investment Bank "value added": The extent to which the ternal resources do not substitute for national resources. Verifi- operation is consistent with the European Union's priority objec- cation of resource additionality requires a sound knowledge of the tives, the project is sound and of good quality, and the particular level of expenditure prior to financing, a hypothesis on the evolu- benefits are obtained as a result of the use of EIB funds. tion of internal resources and a verification of expenditures made. Inter-American Development Bank "additionality": The value Asian Development Bank "additionality": Based on whether (i) added by the IDB's contribution to enhance a project's long-range Asian Development Bank finance was a necessary condition for sustainability prospects or its development benefits. the timely realization of the project, through direct mobilization of funds and/or indirectly by providing comfort to other financiers, and MultilateralInvestmentGuaranteeAgency"roleandcontribution": (ii) Asian Development Bank's contribution to the project design and The rating considers MIGA's additionality as an insurer, influence function improved the development impact. on project design, and synergy with partners (whether MIGA lever- aged and complemented other sponsors). European Bank for Reconstruction and Development "addition- ality": The extent to which the client would have been able to se- It should be noted that a number of bilateral institutions have cure financing from market financiers, on acceptable terms, and also developed definitions of additionality, along similar lines to the to what extent the EBRD's impact on the existence, design, or multilaterals.22 functioning of a project enhances transition impact. tain measurement challenges, as discussed role and contribution of other international fi- below). In corporate strategies, the evidence nance institutions, to the extent that data exist. has consisted either of selective references to Finally, the strategies do not track what happens client surveys or analysis of recent project ap- with dropped19 and cancelled20 projects--where provals to indicate IFC's expected (but not re- the sponsor decided to disengage from IFC and alized) role and contribution in its projects. The proceeded with financing from other sources. strategies accordingly rely more on a priori as- Tracking the performance of IFC's cancelled or sumptions about IFC's additionality than on re- dropped projects may help to deepen under- alized value added. For example, the 2007 standing of IFC's additionality. strategy assumes that IFC's additionality will vary across clients, with smaller clients benefit- Measuring Additionality ing from financing and expertise not readily Market and institutional failures and imperfec- available from the private sector, and larger tions can be hard to identify precisely, which clients benefiting from more complex financial presents challenges for measuring additionality. products and value added services. Finally, the A variety of quantitative indicators can be used strategy makes a comparison between IFC's eval- to assess the state of development in a country uated "role and contribution" ratings--a quality or region, from the strictly economic (such as judgment that considers IFC's value added in a gross domestic product) to those that capture project--and the ratings for other aspects of broader aspects of progress (like the United Na- IFC's work quality such as project appraisal, tion's Human Development Index). However, it structuring, and supervision. These work-qual- is more difficult to assess the state of public ity dimensions are interrelated. A more appro- goods provision, and how well market failures priate comparison would be with the evaluated and externalities are being addressed. Capturing 25 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Box 2.2. Evaluation of IFC's Role and Contribution in a Project Investment Operations that IFC's B-loans confer certain advantages to commercial Since 1996, the XPSR system has assessed the quality of IFC's "role banks, the test is whether they would have entered into the and contribution" in its investment projects. The "role and contri- transaction, and on terms as favorable to the company, in the ab- bution" rating considers three basic operating principles (that sence of IFC involvement.)23 feature in IFC's Article 1): The rating also takes into account certain process issues, such · Making a special contribution (not offered or brought to the deal as IFC's timeliness, efficiency, and client satisfaction, as well as by other investors). This includes any pioneering or innovative the degree to which the project was relevant to IFC's country dimensions of a project introduced by IFC, whether IFC's fi- strategy, and evidence of IFC-led improvements to standards of cor- nancing could have been replaced by private financing, on ac- porate governance and environmental and social sustainability. ceptable terms, if the same security had been offered, and--if IFC has Board representation--the extent that IFC used its po- Advisory Services Operations sition to provide assistance and direction to the company and In the case of advisory services, the pilot evaluation framework in- to improve its governance, financial performance, and devel- volves a judgment of the quality of IFC's "role and contribution" with opmental results. reference to the following questions: · Operating like a business (and taking the same commercial risks). Did IFC take the same commercial risks and earn the · Was IFC particularly catalytic or innovative in its advisory same returns as private participants in the same risk categories services? (for example, coequity investors, colenders)? If performance · Was IFC able to play a unique role and fill a gap not easily filled materially surpassed IFC's appraisal projections, did IFC receive by others? any upside gain commensurate with its investment risk? · Did IFC add gender, environment, HIV/AIDS, or other similar · Being catalytic in facilitating private investors and markets in focus which increased the development impact? making good investments. Did IFC bring private investors and · Did IFC leverage key areas of expertise, draw on its credibility, lenders to the project opportunity, mobilize funding, or attract bet- global experience, or links to the World Bank Group? ter terms than would otherwise have been the case? (Given the contribution of an institution in addressing that was drawn earlier between additionality and these failures can therefore be challenging and development impact). In general, most involve implies a careful approach to the estimation of qualitative, case-by-case judgments rather than additionality. standardized quantitative metrics--reflecting the challenges of determining additionality. In the Development institutions have adopted a variety case of development institutions geared toward of additionality proxies for their private sector op- the public sector, such as the World Bank and erations, most of which involve case-by-case IMF, there is presently no evaluative system for judgments. In seeking to identify their unique assessing their additionality. Box 2.1 summarizes contributions to development, many develop- the different definitions being used by other ment institutions have designed evaluative frame- multilateral development banks (MDBs). works for assessing the additionality of their private sector operations. Most of these frame- IFC's additionality to date has been evaluated in works consider both the inherent nature of the terms of the quality of the institution's role and intervention, such as whether the institution's fi- contribution in a project. As described in chap- nancing could have been obtained on similar ter 1, the XPSR system includes a rating of IFC's terms elsewhere, as well as the results of the in- work quality in a project and, within that, a rat- terventions (thus somewhat blurring the line ing of IFC's role and contribution in a project. 26 IFC ADDITIONALITY Box 2.3. Good Practice Standards for MDB Additionality Rating in Private Sector Operations According to the Multilateral Development Bank Evaluation Co- · Was the MDB (because it is a multilateral institution) needed operation Group's Good Practice Standards for Evaluation of to reduce the risks or provide comfort (that is, improve the in- Private Sector Operations (3rd edition, finalized in May 2007), vestors' perceptions of the risks involved) and, thus, to en- ratings of MDB additionality should take into consideration the courage the investors and lenders to proceed? following: · Did the MDB improve the venture's design or functioning--in business, development, transition, social, or environmental · Would the client have been able to obtain sufficient funding from terms? privatesourcesonappropriateterms?Judgmentsonthisindicator · Was the MDB needed to bring about a fair, efficient allocation considerpricing(includingadditionalcostsarisingfromMDBcon- of risks and responsibilities, for example, between the public ditionsthatwouldnotbeimposedbyprivateinvestors),tenor,grace sector and private investors? period, currency, and timeliness, that is, the availability of fi- nancing without unduly delaying the project. The role and contribution assessment considers tions. As shown in box 2.3, the standards focus three basic operating principles of IFC (making on the quality of an MDB's contribution to a a special contribution, operating like a busi- project (as opposed to the intervention's re- ness, and being catalytic), and while it does sults) and, while not referring explicitly to mar- have limitations in that it captures some ket and nonmarket institutional failures, these nonunique roles, such as "operating like a busi- can be inferred to some degree. For instance, if ness," it is the best available proxy for assessing a client is unable to obtain sufficient funding the quality of IFC's additionality in its investment from private sources on appropriate terms (the operations.21 Box 2.2 provides further detail on first of the four criteria covered by the stan- how role and contribution is evaluated case-by- dards), this may be due to some kind of market case, and also indicates how the metric is being failure, institutional failure, or combination of the applied to pilot evaluations of IFC's advisory two that would inhibit this funding (such as lack services operations. In the last year, IFC has of nonbank financial capacity to enable long- begun to supplement this ex-post analysis with term lending and/or legal barriers to private an ex-ante profiling of new project approvals in lending). Similarly, if the MDB is needed to bring terms of four dimensions of anticipated addi- out a fair, efficient allocation of risks and re- tionality, which were referred to in a recent sponsibilities between the public and private technical briefing to the Board: risk mitigation, sectors, it follows that market and nonmarket ac- knowledge and innovation, standard setting, tors would, alone, have failed to achieve such an and policy work with the World Bank. outcome. At the same time, not every business venture will be sustainable enough to deserve fi- Development institutions are starting to nancing or other forms of development institu- harmonize their approaches to additionality tion support. Each project should therefore still measurement. Since 1999, through the Multi- pass the test of commercial viability. lateral Development Bank Evaluation Coopera- tion Group, the various MDBs have come Building on current thinking, additionality can together to develop good practice standards for be categorized as financial, operational, or in- the evaluation of private sector operations. These stitutional in nature. Looking at all the investment standards, now in their third edition, include and advisory activities that a development insti- guidance on the rating of a development insti- tution might be involved in, considering both tution's additionality in its investment opera- micro and more systemic-level interventions, 27 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Table 2.1. Different Types of Potential Additionality Micro-level Macro-level Dimension Failure additionality as a solution additionality as a solution Financial Lack of Investment: Terms such as tenor, grace period, Countercyclical financial crisis and postconflict adequate, local currency denomination, innovative lending. appropriate structuring, and type of product/product mix. resources Mobilization of other funds. "Halo effects" of an investment--can provide "comfort" (stamp of approval) for additional investors (through bond issues, initial public offerings) and new entrants into the market. Operational Insufficient Investment: Assistance with project functioning, Advice on monitoring or implementing standards knowledge business strategy, operations management, new and regulations in an economy/region. and skills business development (where not otherwise Disclosed reports on the quality of county and available in the sector/country). regional business environments, and about private sector development more generally. Institutional Weak Investment/advisory services: Standards and Advisory services: New/improved regulations institutional systems of corporate governance and environ- and standards at the country and sector level capacity mental and social sustainability; improved (for example, environmental and social). public/private risk allocation ("honest broker" Advisory services/program of investments: role in a deal). Improvement of public/private risk allocation (for example, in support of a series of public-private partnerships). Assisting foreign investment promotion agencies/activities. Source: IEG. we can see that an MDB with private sector op- hance transparency, and contribute to the erations might uniquely address market and sound implementation of government poli- institutional failures (and provide additionality) cies, regulations, and standards. in three ways: · Institutional: At the company level, im- proving standards of corporate governance · Financial: At the project level, providing and environmental and social sustainability. At funding on terms otherwise not available from a systemic level, contributing to the devel- private sources, and mobilizing funds from opment of better policies, regulations, and other financiers (direct mobilization or indi- standards, and more efficient allocation of rect mobilization by changing the risk per- risk between the public and private sectors. ception).24 At a systemic level, playing a stabilizing role by lending to countries on a Additionality Identified in countercyclical basis (during times of financial IFC Operations and/or other crises). IFC has developed the kind of products and ser- · Operational: At the project level, seeking to vices that could potentially deliver different types improve a venture's design or functioning (in of additionality. At its inception, IFC's products business, development, transition, social, or and services were quite narrow and financial in environmental terms) with specialized advice nature, with the institution ultimately serving and knowledge. At the systemic level, efforts as a source of finance when clients could not ob- that help improve contract enforcement, en- tain financing elsewhere, and as a way to in- 28 IFC ADDITIONALITY crease the flow of private foreign capital into and project development outcomes. IEG com- developing countries.25 As the institution has plemented this analysis with an ex-ante assess- grown, it has increased the range of products and ment of the types of additionality anticipated in services that it provides to its clients, including recently approved investment operations. This through its advisory arm. These products and ser- involved a review of the project approval docu- vices now span the three types of additionality ments of a random, representative sample of outlined above, but the real test of additionality 304 investment operations that will reach early is whether the products and services addressed operating maturity (and be eligible for evalua- a failure or imperfection that would not have tion) in the 2008­11 period.27 Table 2.2 sum- been addressed otherwise. Table 2.1 lays out marizes IEG's approach, and table 2.3 shows the some examples of IFC's potential additionality, overlaps and differences between IEG's addi- in terms of different products and services, in tionality classification and the monitoring re- each of the three areas. cently begun by IFC Management. On the advisory services side, because IFC is still rolling For this report, IEG carried out the first detailed out a system to systematically evaluate this side review of the presence and quality of IFC's ad- of its business, conclusions about IFC's addi- ditionality in its investment operations. Using tionality at this stage are limited. The available data available in 692 project evaluations, com- evidence is discussed later in this section. pleted during 1996­2007, IEG conducted a two- part analysis. First, IEG sought to identify the IFC's identified additionality has remained mostly presence or absence of additionality in each of financial in nature, although institutional addi- the three dimensions above (financial, opera- tionality appears to be increasing in prevalence. tional, and institutional).26 Second, IEG assessed As figure 2.1 shows, at least one type of financial how the evaluated quality of IFC's role and con- additionality was identified in 85 percent of tribution (considering the extent to which IFC cases. Within the financial additionality category made a special contribution and was catalytic) (figure 2.2), the most common form of recorded varied by region, sector, and client group. The additionality was financial terms (55 percent), aim of this combined exercise was to develop an then funds mobilization (46 percent) and mar- understanding about how consistently additional ket risk comfort (30 percent). The level of iden- IFC appears to have been in its investment op- tified financial additionality has remained fairly erations, as well as any clear drivers of addi- constant over time, as has operational addi- tionality and connections between additionality tionality, although institutional additionality Table 2.2. Identifying and Judging Additionality Quality Coverage Number of Number of Objective Approach Ex post operations Ex ante of operations Identifying Coding of IFC's recorded addition- 1996­2007 692 2008­11a 304 additionality ality into three categories (financial, operational, and institutional), using project approval and evaluation documentation. Judging "Role and contribution" evaluation 1996­2007 692 Not applicable Not applicable additionality (extent IFC was catalytic and made quality a special contribution). Source: IEG. a. Will reach early operating maturity in 2008­11. 29 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Table 2.3. Similarities and Differences between Additionality Metrics IEG's additionality IFC's classification nomenclature Similarities Differences Financial "Risk mitigation" Financial terms, resource mobilization, IFC tracking also includes: market risk comfort (stamp of approval, · "long term partnerships through loan and political- and country-risk cover), and equity investments," postcrisis financing. · "honest broker for government relations," and · "introducing clients to other financial institutions and investors." Operational "Knowledge and Specialist advice and knowledge, for IFC tracking also includes: innovation" example, on business strategy/operations, · "privatization/public private partnerships" sector, market, and country dynamics. and financial structuring. Institutional "Standard setting" Improving company standards (corporate IEG classification includes "better public/ "Policy work" (with governance, environmental and social, private risk allocation" (for example, through the World Bank) energy efficiency) and policy/regulatory public-private partnerships/privatization). change. Source: IEG. of each type of additionality identified in evalu- Figure 2.1. IFC's Identified Additionality Has Been ated investment operations. IFC client surveys Mostly Financial in Nature provide a similar narrative on IFC's value added, with loan maturity and funds mobilization reg- ularly reported among the main reasons clients 100 choose IFC, and growing reference to knowledge 90 85% and expertise in various areas. 80 70 Based on an ex-ante review of recent Board ap- projects 60 provals, these patterns are expected to continue, of 50 although IFC will need to adapt in order for 40 35% these expectations to be realized. A review of 304 30% 30 recent project approvals (projects that will reach Percentage 20 early operating maturity during 2008­11) indi- cates that instances of operational and institu- 10 tional additionality are expected to continue to 0 Financial Operational Institutional increase in frequency and that the vast majority Type of additionality of projects are expected to have two or more types of additionality (figure 2.4). Some form Source: IEG. of financial additionality is expected to remain Note: Based on 692 investment operations evaluated during 1996­2007; projects exhibit at least one type of additionality but more than one type of additionality can be delivered in a single present in around eight-tenths of projects. In the project. face of increased market liquidity and invest- ments by other development finance institu- tions, it is apparent that IFC will need to innovate seems to be increasing in frequency, in line with and adapt the products and services that it pro- IFC's evolution away from a pure financing in- vides simply to remain at the same level of value stitution (figure 2.3). See box 2.4 for examples added (for example, market data from 2000­07 30 IFC ADDITIONALITY show that IFC loan maturities are generally longer between middle- and low-income countries, than those of private financiers but not those of which was identified in a recent thematic IEG other development finance institutions with pri- Evaluation Note,29 given the preponderance of vate sector operations, and length of loan, in it- low-income countries in Africa.30 self, is only additional if it fits client investment needs).28 One area of concern arising from the review of project approvals is the approximately Figure 2.2. Most Commonly Identified 10 percent of cases in which IFC's anticipated ad- Additionalities Have Been Financial ditionality was not clearly specified. This may Terms and Funds Mobilization reflect a lack of understanding about addition- ality among investment staff who prepare Board Financial: Terms submissions (and which the new guidance issued in 2006 might help improve), but it could also Financial: Funds mobilization mean that IFC is not actually playing a unique role Financial: Market risk comfort in these projects. Operational: Knowledge and innovation The quality of IFC's overall role and contribution Institutional: New/better standards was rated satisfactory in the majority of proj- ects, and less than satisfactory in nearly one- Institutional: Public/private risk allocation fifth. In 27 percent of cases, IFC's involvement Institutional: New/better regulations was deemed essential for the project to go ahead 0 10 20 30 40 50 60 ("excellent" rating), and IFC's role and con- tribution was judged to be "satisfactory" in 53 Percentage of projects percent of projects, that is, in line with IFC's Source: IEG. operating principles of making a special contri- Note: Based on 692 investment operations evaluated during 1996­2007; projects exhibit at least bution and being catalytic. However, in 20 per- one type of additionality but more than one type of additionality can be delivered in a single project. cent of cases, IFC's role and contribution was assessed as less than satisfactory, meaning that IFC's role and contribution fell short in a mate- rial area (in 12 percent of cases) or IFC's role was Figure 2.3. Over Time, Institutional Additionality not plausibly additional and IFC did not deliver Seems to Have Increased in Prevalence on its expected contribution (in 7 percent of cases; see box 2.5 for rating criteria). Examples of "missing" additionality are presented in box 100 2.6. Possible reasons for less than satisfactory 90 86% 84% performance are explored in the section on driv- 80 ers and inhibitors. 70 projects 60 of The evaluated quality of IFC's role and contri- 50 41% bution varies considerably by Region and seems 40 28% 30% to lag significantly in Africa and Asia. While IFC's 30 23% role and contribution was rated as satisfactory or Percentage 20 better in nearly nine-tenths of cases in ECA, it was 10 deemed to be satisfactory or better in far fewer 0 operations in Asia and Africa. In these regions, Financial Operational Institutional IFC's role and contribution was judged to be Type of additionality less than satisfactory in about three-tenths of 1996­2000 2001­07 operations (figure 2.5). This regional variation Source: IEG. helps to explain the difference in performance Note: Based on 692 investment operations evaluated during 1996­2007. 31 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Box 2.4. Examples of Additionality Identified in Evaluated Investment Operations Financial Institutional · Terms: Long-term loan--"IFC's involvement allowed the Com- · New/better standards: Corporate governance--"IFC helped pany, for the first-time ever, to obtain long-term foreign currency the company to formulate a more transparent structure between financing at attractive rates." Long-term quasi-equity--"IFC sister companies. Additionally, IFC identified weaknesses in the arranged and provided long-term quasi-equity financing at rea- company's financial controls and pushed the sponsors and man- sonable rates at a time when it was almost impossible to obtain agement to upgrade these controls." Environmental and social-- equity or quasi-equity financing in the country." "IFC insisted on an independent review of the water resources · Funds mobilization (loan syndication): "IFC played a catalytic role available to the region's sugar industry and the project, in par- by mobilizing a B-loan from a major international bank, which oth- ticular. The review revealed that the security of water supplies erwise would not have been forthcoming, particularly for an in the area was precarious and that the safe yields of the region's agroindustry project." reservoirs had been systematically overestimated. As a result, · Market risk comfort: "As other bilateral and official lenders with- the sugar industry embarked on an active investment program drew early from the project, IFC's involvement provided comfort to construct additional storage and basin transfer schemes, in to commercial lenders who otherwise would not have participated order to improve the security of its water supply." in IFC's absence." "IFC's participation lent credibility to a new con- · Public/private risk allocation: Public/private partnership--"IFC cept in the country (rating agency) and helped bring together a actively assisted the [public-private partnership] process by strong foreign technical partner and local sponsor." conveying, as an honest broker, the concerns of the sponsor to the government. Most of the concerns were accepted and re- Operational flected in the final contract." · Specialist advice: "Significant assistance was provided by IFC · New/better regulations: Leasing--"IFC assisted the govern- to other senior lenders and sponsors on the structure of the ment in amending and improving the legal and regulatory frame- project, with IFC acting as the lead advisor throughout the work, in order to permit leasing operations to be undertaken in negotiations." the country." Figure 2.4. Recent Board Submissions Box 2.5. Role and Contribution Ratings, Anticipate Further Bundling of 1996­2007 Additionality Taking account of the pursuit of the three basic operating 80 principles mentioned earlier, the quality of IFC's role and 70 contribution is ultimately rated as one of the following: 60 approvals 50 · Excellent: (27 percent) IFC's participation was essential for the project to go ahead and IFC made a major contribution Board 40 of to its success. 30 · Satisfactory: (53 percent) IFC's contribution was in line with 20 IFC's operating principles of making a special contribution 10 Percentage and being catalytic. 0 2008 2009 2010 2011 · Partly unsatisfactory: (12 percent) IFC's role or contribu- Year tion fell short in a material area. None One type Two or more types · Unsatisfactory: (7 percent) IFC's role was not plau- Source: IEG. Note: Based on 304 investment operations that will reach early operating ma- sibly additional and IFC did not deliver its expected turity during 2008­11 (approved during 2003­06); the types are financial, oper- contribution. ational, and institutional. 32 IFC ADDITIONALITY Box 2.6. Examples of "Missing" Additionality in Evaluated Investment Operations Financial Institutional · Terms: Long-term loan--"Given that the loan was guaranteed · New/better standards: Environmental and Social--"IFC did not by strong world-class sponsors, it is reasonable to assume that fully explore the possibility of providing additional financing or the project would have gone ahead without IFC. The guarantee technical support to ensure timely and proper implementation of is still in place five years after approval." an upgraded water treatment system. Performance fell short be- · Market risk comfort: "IFC's catalytic role is unproven--it is not cause of (i) poor company management capacity (including on clear that IFC's investment brought other investors to the coun- environmental matters); (ii) lack of interaction for follow-up ac- try (as expected)." tions between the sponsor and environmental specialist; and (iii) lack of funds." Corporate governance--"IFC did not contribute Operational significantly in formulating the Company's operating policies or · Specialist advice: "The manager's relative lack of experience in governance structure as envisaged." both fund management and in the automobile sector was high- · Public/private risk allocation: Public-private partnership--"While lighted at appraisal, and IFC undertook to provide early input into IFC was able to successfully negotiate with the utility and the gov- the fund's structuring and help secure technical assistance. IFC ernment to set up the structure necessary to finance the proj- did not deliver on this contribution." ect, it did not have the desired effect in enabling other [private participations in infrastructure]." At the sector level, the quality of IFC's evaluated been a significantly higher number of cases of "ex- role and contribution has been weaker in the cellent" role and contribution with repeat clients strategic sectors of financial markets and health (42 percent, compared with 26 percent for non- and education than in other sectors. As figure 2.6 repeat clients), implying that additionality can illustrates, there is a wide spread in the ratings possibly be enhanced through long-term part- of IFC's role and contribution quality across sec- nership (figure 2.8). The evaluation data and tors. In the oil, gas, mining, and chemicals; food lessons from individual projects suggest that and agribusiness; and infrastructure sectors, IFC's role and contribution was judged to be satisfactory or better in the vast majority of cases. Figure 2.5. Quality of IFC's Role and Contribution Meanwhile, the quality of IFC's role and contri- Lagged in Asia and Africa bution was rated low in financial projects in 27 percent of cases, and in 33 percent of cases in the social sectors. See appendix E for examples. 100 90 85% 87% 80% IFC's role and contribution is estimated to be bet- 80 rated 71% 72% ter with repeat than nonrepeat clients. There 70 better has been much debate about the appropriate mix or 60 of IFC operations between repeat and nonrepeat projects 50 of clients. Some argue that IFC ought to be more 40 additional in working with new, that is, nonrepeat 30 clients because the institution already brought satisfactory 20 its additionality to a repeat client in an earlier in- Percentage 10 vestment and the marginal value added is there- 0 fore likely to be smaller. This evaluation, however, Asia Africa MENA LAC ECA reveals that different types of additionality have Region been similar in frequency in either case (figure Source: IEG. 2.7). In terms of quality of contribution, there has Note: Based on 692 investment operations evaluated during 1996­2007. 33 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Figure 2.6. Role and Contribution Varied Substantially by Sector 100 95% 92% 90 87% 82% 82% 80 77% rated 73% 70 67% better or 60 projects 50 of 40 30 satisfactory 20 Percentage 10 0 Health and Global Global Private equity Communications Infrastructure Food and Oil, gas, education financial manufacturing and investment and information agribusiness mining, and markets and services funds technologies chemicals Sector Source: IEG. Note: Based on 692 investment operations evaluated during 1996­2007. Analysis of portfolio data indicates that IFC has Figure 2.7. Similar Types of Additionality Identified tended to be a countercyclical investor in fi- in Repeat and Nonrepeat Projects nancial crises. Just as IFC's additionality is not necessarily limited to a single intervention in 100 the case of repeat clients, so it is the case that 90 IFC may be additional across a range of inter- 80 ventions in a certain sector or country. This is par- 70 ticularly so when a country faces a financial crisis projects 60 and the supply of private capital is in shorter sup- of 50 ply than normal. In line with its mandate, IFC 40 should be taking as many opportunities as pos- 30 sible to catalyze private investment where other Percentage sources of finance are lacking--to the extent, of 20 course, that country conditions permit.31 An 10 analysis of portfolio data in countries hit by fi- 0 Financial Operational Institutional nancial crisis indicates that IFC has invested on a countercyclical basis in more cases than not. Type of additionality Of 17 crisis countries that were examined, IFC Repeat Nonrepeat increased the size of its investment portfolio in Source: IEG. 12 cases by more than 15 percent. This con- Note: Based on 503 evaluations carried out during 2000­07. (IEG began tracking repeat/non- repeat clients in 2000.) trasts with increased investments of this order by other financiers (public or private) in less through repeated engagement with clients, IFC than one-half of the cases (see appendix F). has been able to build up greater leverage for, and commitment to, institutional change than At the same time, there could be room for im- through one-off investments. provement in the quality of IFC's contribution 34 IFC ADDITIONALITY to projects implemented following crises. Of Figure 2.8. More Repeat Projects Rated "Excellent" projects approved following crises, 80 percent of for Role and Contribution projects achieved satisfactory or better role and contribution quality, which is no better than for 60 projects approved in the absence of a crisis (81 better percent) or those approved prior to a crisis or 50 (81 percent). Maximizing IFC's countercyclical sat. function will be of particular relevance in the 40 event of a possible global economic slowdown rated that materially affects developing countries. 30 projects Evaluations of the private sector operations of 20 of other development institutions, to the extent that comparable data is available, report similar 10 overall additionality performance to IFC. While Percentage 0 there is no direct global comparator against which Excellent Satisfactory Partly Unsatisfactory to benchmark IFC, we can compare IFC's per- satisfactory formance to that of several regional development Role and contribution rating institutions that use similar, though generally Repeat Nonrepeat less-differentiated definitions of additionality. Source: IEG. The European Bank for Reconstruction and De- Note: Based on 503 evaluations carried out during 2000­07. velopment's evaluations report that the Bank's ad- ditionality was "verified at large" or "verified in all respects" in 87 percent of cases during 1996­2005, similar to the role and contribution ratings IFC whether clients seek IFC for price or value rea- has achieved in the ECA region. The Asian De- sons. Pricing structures vary for advisory services, velopment Bank, although it has not, to date, with some based on cost recovery and others in- reported project-level additionality results, re- volving grant finance, and approximately one- cently gave its private sector development and op- quarter are now linked to investment operations. erations portfolio, as a whole, an additionality This problem of assessing value added is com- rating of satisfactory rather than an excellent pounded by the fact that the advisory services one. The majority of IFC's evaluated operations evaluation metrics do not distinguish between role in Asia has fallen into the "satisfactory" band for and contribution and other aspects of work qual- role and contribution quality. At the bilateral ity (as is the case with investment operations, level, FMO's (Netherlands Development Finance where appraisal and supervision work quality is Company's) evaluated role and contribution has evaluated separately) and because many projects been less than satisfactory for only 11 percent of involve contracted consultants that could po- large loans, but for as many as a third of small tentially have been hired by other institutions to loans (similar to the disparity in performance carry out the work (that is, IFC's special role is found in IFC), leading to an overall success rate not clear in these cases). Of the 293 pilot evalu- for all loans of about 70 percent.32 ations carried out for advisory services projects that closed between 2004 and 2006, and inde- Pilot evaluations of IFC's advisory services oper- pendently validated by IEG, 14 percent were ations generally rate IFC's role and contribution judged to have "excellent" IFC role and contri- as satisfactory, but it can be difficult to identify bution, 69 percent had "satisfactory," 8 percent IFC's unique role. In the case of advisory services, had "partly unsatisfactory," 4 percent had "un- there are challenges in interpreting IFC's value satisfactory," and 5 percent had "cannot tell." added--unlike with investment operations-- Examples of additionality cited include mobi- because there is no market test to determine lization of donor funds, IFC's drawing together 35 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 In the case of advisory of government and other stake- changes that IFC sought to bring about (partic- services . . . there is no holders, as well as IFC bringing ularly where the project was not a commercial market test of value specialist environmental expertise success), and shifts in the business environment added. to a project. Examples of "missing" that constrained particular ambitions for the additionality include IFC not play- project. Even though IFC may provide unique in- ing the intended role in leveraging partnerships puts, project- or country-specific factors may with private foundations, a lack of specialist ex- limit the capacity in the field to absorb these in- pertise in certain types of operations, and the proj- puts effectively. The return of market liquidity in ect being managed by other donors with little recent years and the associated increase in in- engagement by IFC. vestors' risk appetites in emerging markets have generally made it more difficult for IFC to dif- Drivers and Inhibitors of Additionality ferentiate itself in terms of financial additional- Where additionality fell short of expectations, it ity. The liquidity effect, while global in nature, has was more operational or institutional in nature been particularly pronounced in Asia. Improving than financial. This may reflect the fact that the market liquidity has also been associated with an constraints to implementing these dimensions increase in prepayments, which has limited IFC's are less well known up front and harder to de- ability to follow through on its anticipated non- liver. Of the projects that were judged to have financial roles. low role and contribution, IFC appears to have had more difficulty following through with the The role and contribution of IFC mainly reflects anticipated operational and institutional addi- its appraisal and supervision quality. As discussed tionality (60 percent of cases) than with financial earlier, within the evaluation system, IFC's role aspects (45 percent of cases). One reason may and contribution is assessed as one of three as- be that IFC's financial package is well known pects of the institution's work quality. The other (and presented) at the time of Board approval. dimensions, which are evaluated separately, are While some financial additionalities may appear upfront screening, appraisal and structuring, later (such as assistance with a public offering), and project supervision between approval and and the financial package may be adapted, almost evaluation. The quality of IFC's role and contri- all the operational and institutional additionali- bution tends to be rated less than satisfactory ties arise postapproval and are, accordingly, more (low) where work quality is also assessed as less affected by downstream complications such as than satisfactory in these other respects (ta- changes or weaknesses in personnel, product ble 2.4). Such cases are most common in Africa market, and government regulations. and in smaller operations. The relationship is strongest between role and contribution and IFC's anticipated contribution fell short for var- supervision quality, which is consistent with the ious reasons. These included overoptimism need for close client engagement in ensuring that about IFC's role, lack of client commitment to IFC's postapproval operational and institutional Table 2.4. Role and Contribution Generally Reflects Appraisal and Supervision Quality Screening, appraisal, and Supervision and structuring quality (%) administration quality (%) Low High Low High Role and High 26 54 19 62 contribution quality Low 17 3 12 8 Source: IEG. Note: Based on 692 evaluations carried out during 1996­2007. 36 IFC ADDITIONALITY Figure 2.9. Additionality and Project Figure 2.10. No Apparent Tradeoff between Development Results Seem to Additionality and Profitability Go Hand-in-Hand 59% 53% HIGH 2% High development HIGH 7% High IFC return, rating, High role and High role and contribution rating return contribution 17% 13% investment 22% Low development Low development Development 27% rating, IFC rating, Low role and Low role and contribution contribution LOW LOW LOW HIGH LOW HIGH IFC role and contribution IFC role and contribution Source: IEG. Source: IEG. Note: Based on the evaluations of 692 investment operations carried out during Note: Based on the evaluations of 692 investment operations carried out during 1996­2007; "high" is satisfactory or excellent. 1996­2007; "high" is satisfactory or excellent. additionalities are delivered. At the same time, Education Department was only established in sound appraisal and structuring is required for 2002, after which most of the evaluated opera- certain financial additionalities to arise, so it is tions were instigated) may explain the relatively not surprising that there is a connection be- poor quality of IFC's role and contribution in tween role and contribution and screening, ap- these areas. However, this would need to be praisal, and structuring quality. confirmed with more in-depth analysis. Econometric analysis does not provide clear ev- Additionality and Development Impact idence on the drivers of region and sector vari- Evaluation shows that better development ef- ations; further investigation is required. Variations fectiveness and profitability often go hand-in- in the quality of IFC's role and contribution, by hand with stronger additionality. Other things region and sector, are difficult to explain with any being equal, because additionality derives from precision. Econometric analysis indicates that a development problem in the form of market when controlling for factors such as project size, inefficiencies and/or lack of public goods pro- project risk, sponsor quality, sector, and business vision, if additionality is provided, it should, in environment, IFC's role and contribution in theory, act as a facilitator of project develop- Africa is still weaker than in other regions. This ment results. This evaluation's findings are con- implies that special factors present only in Africa sistent with this theory, in the sense that, where are adversely affecting the quality of IFC's role evaluated, IFC role and contribution (the best and contribution, and that further investiga- proxy currently available for assessing addi- tion--including field-based assessment--is re- tionality quality) was high, and project devel- quired to arrive at a more conclusive assessment. opment ratings also tended to be better (figure IFC's relative inexperience and experimentation 2.9). There was also no apparent tradeoff be- in the social sectors (a dedicated Health and tween role and contribution and profitability 37 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 (figure 2.10), which is consistent with the ear- Figure 2.11. Better Development Results Apparent lier finding of lack of tradeoff between devel- Where Different Additionalities Were opment results and IFC investment returns, Combined indicating that IFC need not compromise prof- itability in pursuit of additionality. 100 Better project development results seem to be 90 achieved where the different types of addition- 80 rating ality (financial, operational, and institutional) 70 are combined. IEG's analysis shows that in proj- projects 60 ects where no additionality could be identified, of 50 high development outcome ratings are achieved development 40 in 7 percent of cases. This compares with 79 percent of cases where IFC apparently made high 30 Percentage 20 three types of additional contributions (figure with 2.11). The value of combined contributions 10 shows up in terms of the project's financial sus- 0 0 1 2 3 tainability (project business success, a core com- ponent of project development performance), Number of additionality types with IFC assistance in areas such as business Source: IEG. strategy, management selection and develop- Note: Based on the evaluations of 692 investment operations carried out during 1996­2007; ment, as well as corporate governance, appear- "high" is satisfactory or excellent. ing to have beneficial traction on the project's bottom line (63 percent when all three types of additionality are apparent, see figure 2.12). Operational and institutional additionalities seem Figure 2.12. Project Business Success Seems to to be particularly important in the case of weak Be Stronger Where Additionalities sponsors for delivering better project outcomes. Were Combined Previous evaluations have found that sponsor quality is a key determinant of project results. It 70 is important, therefore, that IFC take steps both to screen sponsors carefully and also to miti- 60 rating gate the shortcomings of any weak sponsors with 50 that it may work with. To that end, this review sucess finds that where sponsor quality was weak but 40 projects where some form of financial, operational, and of 30 institutional additionality appears to have been business provided by IFC, development results were 20 stronger. In the case of stronger sponsors, op- project Percentage erational and institutional additionality seem to 10 high have less bearing, which is logical in that there 0 ought to be more room for operational and in- 0 1 2 3 stitutional improvement with weak sponsors Number of additionality types than strong sponsors (table 2.5). Source: IEG. Note: Based on the evaluations of 692 investment operations carried out during 1996­2007; Operational and institutional additionality seems "high" is satisfactory or excellent. to have greater influence on development per- 38 IFC ADDITIONALITY Table 2.5. Operational and Institutional Additionality Particularly Important with Weak Sponsors Financial Operational Institutional additionality and project additionality and project additionality and project development outcomes development outcomes development outcomes (% of projects rated (% of projects rated (% of projects rated satisfactory or better) satisfactory or better) satisfactory or better) With Without With Without With Without High-quality sponsor 73 33 75 64 81 63 Low-quality sponsor 52 23 57 36 65 37 Source: IEG. Note: Based on 503 evaluations carried out during 2000­07. formance in equity investments than in loans. In ing on institutional additionality rather than op- theory, IFC should be able to play a stronger erational and/or financial additionality in the operational and institution building role when it case of repeat projects makes sense. makes an equity investment, particularly when it takes a seat on the company's Board. This re- Regardless of instrument, however, the pres- view finds this type of association, with recorded ence or absence of financial additionality seems operational and institutional additionalities more to have more influence on project development closely identified with satisfactory or better proj- results than the other types of additionality. ect development performance in equity invest- Where financial additionality was evident, proj- ments than in loans. In the vast majority of cases, ects achieved satisfactory or better development the equity investment was in the financial or outcome ratings 66 percent of the time. This funds sectors, with IFC taking on a directorship contrasts with cases where financial additional- role. Identified operational additionalities in- ity was apparently absent and in which the proj- cluded assistance with strategy and policy, busi- ect development success rate was only 30 ness development, risk, operations, and fund percent. Offering clear financial additionality will management, while corporate governance was remain critical, going forward, particularly in the the main type of institutional additionality. In event a slowdown in global growth reduces liq- other sectors, where IFC directorships are less uidity in parts of the developing world. common, operational and institutional addi- tionalities in equity investments were much less Projects have delivered better environmental apparent. performance where IFC has shown a stronger role and contribution in this area (and vice versa). Institutional additionality also seems to have A separate study has examined, among other more influence on development results in repeat things, IFC's effectiveness in support of the en- projects. For nonrepeat projects, additionality of vironment (IEG forthcoming), as well as the in- any form appears to contribute to higher de- stitution's role and contribution as it relates velopment outcome ratings compared with proj- solely to environmental aspects of the projects ects without additionality. For repeat projects, that it supports. The study finds that, for proj- institutional additionality seems to have a higher ects evaluated during 2004­06, the quality of "return" on additionality compared with finan- IFC's environmental role and contribution was cial and operational forms (36 percent positive satisfactory or better in 82 percent of cases. In performance differential where institutional ad- such cases, project environmental effects were ditionality is apparent),33 indicating that focus- also satisfactory or better 80 percent of the time. 39 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Table 2.6. Areas for Improvement in Realizing IFC's Additionality Business cycle phase Conceptualization Delivery Strategic consideration Explicitly consider market and institutional Use evaluation findings on additionality to failures in strategy formulation. inform new strategic directions (see results Clearly delineate IFC's unique comparative monitoring and evaluation). advantages relative to other financiers. Establish measurable additionality goals in IFC's corporate, regional, and departmental strategies. Operational processes Clear guidance on additionality to all invest- Provide clear, high-quality additionality ment and advisory services staff--identifying rationales--based on how market and/or how IFC can offer unique value in addressing institutional failures will be addressed by the market and/or institutional failures--and how intervention. that can be rigorously assessed. Use robust metrics for judging IFC to be addi- tional compared with other actors (for accuracy, and to reduce overoptimism about IFC's role). Apply individual incentives to deliver greater additionality (along the lines for development results achievement), particularly in regions and sectors, and with client groups where performance is lagging. Results monitoring and evaluation Map market and institutional failures directly to Self-tracking of IFC's additionality through the measurement of IFC's additionality in financial, project cycle, across investments and advisory operational, and institutional terms. services, and in different strategic groupings Separate out IFC's unique roles from its (such as client groups, sectors, countries, and nonunique roles. regions). Clearly distinguish between additionality and Apply new classification to evaluating IFC's development impact. additionality ex post. Source: IEG. However, when IFC's environmental role and have the potential to break down the barriers that contribution was rated low (less than satisfac- prevent markets from functioning efficiently and tory), project environmental effects were much thus to contribute to development. Relative suc- weaker. These findings emphasize that IFC's ad- cesses for IFC, in terms of its additionality, include ditionality goes beyond just financing and that the institution's strong quality of role and con- IFC needs to optimize the environmental addi- tribution in the ECA and LAC regions; in the ex- tionality it brings to its projects. tractive, food and agribusiness, and infrastructure sectors; and with larger projects. Areas for Improvement and Further Analysis At the same time, there is considerable room for The preceding sections suggest that IFC has had improvement in the extent to which IFC dem- some successes in delivering additionality to its onstrates its additionality. Notwithstanding the clients. A range of factors may inhibit the con- successes mentioned above, and opportunities tribution of private investment to development-- for IFC to play a substantial role, this evaluation such as weak governance, environmental reveals a number of gaps in the value added externalities, and uneven capital flows. Across contributions that IFC has brought to its oper- many fronts, in both low- and middle-income ations. Relative weaknesses for IFC include the countries, carefully designed IFC interventions quality of role and contribution in projects in 40 IFC ADDITIONALITY Africa and Asia, in the financial and social sectors, · Specific types of transaction: IFC's addition- and with smaller clients and projects. ality in atypical transactions, such as those that are termed South-South (investment by Better realization of IFC's additionality would in- a company in one developing country in an- volve interlinked efforts that cut across the insti- other developing country). tution's business cycle. Going forward, based on · Within country variation: IFC's additional- the analysis presented in this report, IFC can make ity in more- and less-developed regions of improvements at different stages of its business middle-income countries (consistent data cycle to enhance its additionality, from better on such less-developed regions are not yet strategic consideration, to improved operational available). processes, to more robust monitoring and evalu- · Cooperation with development partners: ation of additionality. Table 2.6 summarizes some IFC's additionality when combined with World of the key improvements that could be made. Bank and other development institution prod- ucts and services (which, in theory, should be Further analysis of additionality would be useful greater because collectively they have more in a number of areas. This report represents the instruments that could address failures than first detailed review of IFC's additionality. As if each acted alone) and the optimum, with any first review, it is impossible to cover all IFC/World Bank/other development institu- aspects of the subject. This constraint is ampli- tion, product mix to maximize additionality fied when metrics are still evolving, as in this case. and development impact under different cir- Based on an improved classification of addi- cumstances. This would include cofinanced tionality along the lines discussed, further analy- projects as well as coordinated interventions sis would be beneficial in a range of areas: that involve cooperation of a more indirect nature. · Regional and sectoral variations in perfor- · Results comparisons with other international mance: Field-based assessments to comple- financial institutions: More benchmarking ment existing desk-based analysis. of IFC's additionality performance with that · Advisory services: Analysis of the additional- of other private sector development institu- ity IFC has provided in its advisory services op- tions (as metrics are further improved and har- erations, including whether IFC's additionality monized, and data becomes available). is greater in cases where services are bun- · Systemic additionality. Assessment of the dled (as more reliable and systematic data quality of IFC's contribution to/provision of become available). certain national, regional, and global public · Product lifecycle: IFC's additionality as it goods, such as business-climate information evolves through a transaction, from concep- and better sustainability standards. tion to completion. 41 3 Recommendations T his chapter presents IEG's recommendations for IFC Management, in order to enhance the institution's development effectiveness. Work Quality and Portfolio Risk to ensuring sound work quality are required in Management these Regions, going forward. IFC has been growing its operations quickly in recent years. Between 2002 and 2007, the an- Recommendation 1: IFC should pay strong nual commitment volume of investment opera- attention to work quality and portfolio risk tions more than doubled and expenditure on management as it continues to grow and de- advisory services operations quadrupled. At the centralize its operations, particularly in newer same time, IFC has been decentralizing its op- markets and in view of a possible downturn in erations. While the overall development results global economic growth. of IFC investment operations have recently trended upward (insufficient data available to dis- IFC's Environmental and cern trends for advisory services), the develop- Social Performance in Africa ment performance of IFC-supported projects in Previous evaluations, including last year's IEDR, Regions with the fastest operational growth tra- found that IFC-supported projects in Africa jectories (Africa, Asia, MENA) and certain sectors achieved weaker environmental and social ef- (general manufacturing, information technol- fects ratings, as compared with projects in other ogy) has lagged. In light of IFC's rapid growth and Regions, mainly among financial intermediary a possible downturn in global economic growth operations. During 2005­07, only 4 of 13 Africa over the medium term, IFC's portfolio might projects with environmental and social effects come under stress, especially in weaker regions data (31 percent) achieved satisfactory or better and sectors. environmental and social effects, much weaker performance than in other Regions. In 2007, Factors within IFC's control, notably work qual- five of six evaluated projects in the Region-- ity, have played their part in these results. Where two financial and three nonfinancial--achieved IFC work quality was high, so were project de- low ratings. Poor reporting was also a feature of velopment results--88 percent of the time. Cases Africa projects, meaning that environmental and of high work quality were less common in Africa social impacts and/or compliance with IFC stan- and Asia and imply more resources and attention dards could not be determined in some cases. 43 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Client commitment to, and capacity to pursuing Strategic Consideration, sustainability has proven to be problematic in Operationalization, and Tracking of the Africa, particularly when businesses underper- Institution's Additionality form financially and given the, at times, sub- Various corporate strategies and briefings during stantial imperfections in legal and regulatory the past decade have discussed the issue of IFC frameworks and implementation. Improvement additionality. Most region, sector, and country in performance in this Region is a particularly rel- strategies (developed with the World Bank), evant issue, in the context of strong growth in however, contain limited articulation of IFC's the volume of IFC's operations in the Region. IFC unique value added, relative to other sources of started to increase its environmental specialist finance and advice. Some omissions are appar- capacity in the Region in early 2006, but it is too ent at the project level. IFC's anticipated addi- soon to tell whether this new capacity will trans- tionality was not clearly specified in some 10 late into better environmental results. percent of recently approved investment op- erations, indicating either a significant lack of Recommendation 2: IFC should ensure that understanding about, or commitment to, addi- it addresses continued environmental and so- tionality among investment staff or a lack of clar- cial performance shortcomings in Africa, par- ity about IFC's special role in these projects. ticularly as they relate to IFC supervision quality and client commitment to sustainability issues. IFC's additionality has been evaluated, to date, in terms of the quality of the institution's role and Measuring Advisory Services contribution in a project. While a useful proxy for Performance IFC's additionality, it does have certain short- IFC is in the pilot stages of a new system for mea- comings such as the inclusion of some non- suring the performance of its advisory services unique roles (such as the extent to which IFC operations, as part of a range of monitoring and pursued the project on a commercial basis and evaluation efforts. As with all pilots, there is a IFC's timeliness in dealing with its clients). The chance to learn from experience. In some cases, role and contribution assessment also does not, it is too early to tell what the project's develop- in itself, distinguish between different types of ment outcomes and long-term impacts will be at additionality (financial, operational, institutional), project close (when the pilot evaluations have hence, the special effort in this review to classify been carried out), and more long-term moni- IFC's value added in these terms. toring is required. Where it has been possible to assign development effectiveness ratings, the Recommendation 4: IFC should clearly map supporting logic and documentation provided by out its additionality in its strategies (including staff in their self-evaluations has been weak in those developed with the World Bank) and many instances. This suggests that staff have develop guidelines and incentives to help op- had insufficient understanding about, or com- erational staff better identify and deliver ad- mitment to, reporting development perfor- ditionality. IFC could complement these efforts mance, and that quality assurance mechanisms by advancing its metrics for estimating and have, to date, been inadequate. tracking additionality through the project life- cycle, taking account of the analytical frame- Recommendation 3: IFC should continue, work outlined in this report. with input from IEG, to strengthen the steps it is taking to improve the data on the performance Additionality in Lagging Regions, of advisory services operations, including efforts Sectors, and Client Groups to improve understanding among staff about re- Relative successes for IFC, in terms of its addi- sults measurement, quality assurance by man- tionality, include the institution's quality of role agers, as well as performance monitoring and contribution in the ECA and LAC Regions; beyond project close. in the extractive, food and agribusiness, and in- 44 RECOMMENDATIONS frastructure sectors; and with repeat projects. At difficult to explain with any precision. Econo- the same time, the evaluated quality of IFC's metric analysis indicates, for example, that when role and contribution has lagged significantly in controlling for factors such as project size, spon- Africa and Asia, in the financial and social sectors. sor quality, and inherent project risk, role and contribution in Africa is still weaker than in other Overall, factors such as overoptimism about Regions. what IFC could deliver, lack of client commitment to changes that IFC sought to bring about, and Recommendation 5: IFC should carry out shifts in the external conditions appear to have further analysis of additionality in lagging re- played their part in cases of less than satisfactory gions, sectors, and client groups, in order to role and contribution. Variations in IFC's role and identify what specific steps are required to en- contribution by Region and sector are, however, hance performance. 45 APPENDIXES APPENDIX A: SAMPLE REPRESENTATIVENESS Investments are selected for evaluation on a vestment operations evaluated between 2005 random sampling basis. Between 2005 and and 2007 was between 58 percent and 68 2007, 174 projects were evaluated under the percent (see table A.1). Table A.2. provides XPSR system, representing 52 percent cov- further details of the representativeness of erage of all qualifying investment operations the cohort of projects, overall, by investment approved over the last decade. Based on a 95 size, instrument, sector, department, region, percent confidence interval, the true devel- whether the project is active or closed, and in opment success rate of the population of in- terms of indicative financial performance. Table A.1. Sampling Range, by Performance Indicator, 2005­07 Success rate in Estimate of the sampled success rate in 95% confidence interval evaluated the population operations, of operations, Standard Sampling Lower Upper Indicator 2005­07 2005­07 error error bound bound Project development outcome 63% 63% 0.03 0.05 0.58 0.68 IFC investment return 70% 70% 0.02 0.05 0.65 0.74 IFC's work quality 75% 75% 0.02 0.04 0.70 0.79 Source: IEG. 49 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Table A.2. Representativeness of the 2005­07 XPSR Sample (compared with 2000­02 net approvals population) Number of Investments Value of Investments ($ million) CY2005-07 XPSRs CY2000-02 NAP (c) = CY2005-07 XPSRs CY2000-02 NAP (c) = (a) (b) (a)/(b) (a) (b) (a)/(b) No. % No. % % Amt. % Amt. % % 174 100 332 100 52 3358 100 6395 100 53 Net IFC: Mean ­ ­ ­ ­ ­ 19 ­ 19 ­ ­ Median ­ ­ ­ ­ ­ 11 ­ 12 ­ ­ Investment Size: X = < 3.64 37 21 72 22 51 66 2 140 2 47 3.64 < X = < 34.88 112 64 208 63 54 1601 48 3041 48 53 X > 34.88 25 14 52 16 48 1691 50 3214 50 53 174 100 332 100 52 3358 100 6395 100 53 Instruments: Equity only 42 24 81 24 52 478 14 867 14 55 Other 132 76 251 76 53 2881 86 5528 86 52 174 100 332 100 52 3358 100 6395 100 53 Sectors: Financial markets 71 41 137 41 52 1554 46 2578 40 60 Non-financial markets 103 59 195 59 53 1804 54 3817 60 47 174 100 332 100 52 3358 100 6395 100 53 Departments: Agribusiness 10 6 19 6 53 216 6 367 6 59 Global Financial Markets Group 59 34 115 35 51 1259 37 2071 32 61 Global Inform. & Comm. Tech. 17 10 32 10 53 246 7 811 13 30 Global Manufacturing & Services 46 26 89 27 52 679 20 1403 22 48 Health and Education 8 5 14 4 57 79 2 108 2 73 Infrastructure 19 11 35 11 54 417 12 877 14 48 Oil, Gas, Mining And Chemicals 7 4 14 4 50 224 7 367 6 61 Private Equity and Investment Funds 8 5 14 4 57 238 7 392 6 61 174 100 332 100 52 3358 100 6395 100 53 Regions: Africa 22 13 43 13 51 256 8 747 12 34 Asia 38 22 73 22 52 773 23 1496 24 52 Europe & Central Asia 53 30 97 29 55 936 28 1479 23 63 LAC 43 25 82 25 52 1178 35 2100 33 56 MENA 16 9 31 9 52 207 6 483 8 43 World 2 1 6 2 33 9 0 89 174 100 332 100 52 3358 100 6395 100 53 50 APPENDIX A: SAMPLE REPRESENTATIVENESS Table A.2. Representativeness of the 2005­07 XPSR Sample (continued) (compared with 2000­02 Net Approvals Population) Number of Investments Value of Investments ($ million) CY2005-07 XPSRs CY2000-02 NAP (c) = CY2005-07 XPSRs CY2000-02 NAP (c) = (a) (b) (a)/(b) (a) (b) (a)/(b) No. % No. % % Amt. % Amt. % % Active/Closed Active 145 83 266 80 55 2887 86 5095 80 57 Closed 29 17 66 20 44 471 14 1300 20 36 174 100 332 100 52 3358 100 6395 100 53 Indicative Performance: (as of 06/30/2007) (i) all investments:a With loss reserves 9 5 14 4 64 74 2 127 2 58 Without loss reserves 165 95 318 96 52 3284 98 6268 98 52 174 100 332 100 52 3358 100 6395 100 53 (ii) equity only: a With loss reserves 0 0 0 0 ­ 0 0 0 0 ­ Without loss reserves 42 100 81 100 52 478 100 867 100 55 42 100 81 100 52 478 100 867 100 55 Countries (excluding regional): 62 79 78 Source: IEG. a. Amounts "with loss reserves" are the IFC-approved investments that are affected by such (and not the actual amount reserved). 51 APPENDIX B: SUMMARY OF EVALUATION METHODOLOGY Investment Operations · Economic sustainability: In nonfinancial IEG's evaluations of achieved success rates are market operations, this indicator evaluates based on project-level results derived from a sys- the project's effects on the local economy, tem introduced in IFC in 1996, the Expanded and the associated benefits and costs that are Project Supervision Report (XPSR) system. The measured by economic rates of return. In ad- XPSR process, first of all, involves a self-evaluation dition to the project's effects, subprojects' of the project by an IFC investment department, effects are included in the financial market op- using corporate guidelines. The ratings assigned erations' economic sustainability analysis. by investment departments are then independ- · Environmental and social effects: IFC's ently verified (or re-rated) by IEG in terms of Policy and Performance Standards on Social bottom-line outcome ratings and their respective & Environmental Sustainability (2006) con- subcomponents. sider social and environmental sustainability to be an important component of development The development outcome rating is a bottom- outcome quality in the projects that IFC fi- line assessment, not an arithmetic average, of the nances. The XPSR's assessment of environ- project's results across four development di- mental and social effects should cover: (i) the mensions, relative to what would have occurred project's environmental performance in meet- without the project. It measures a project's busi- ing IFC's requirements; and (ii) the project's ness success, economic sustainability, environ- actual environmental impacts through its sub- ment and social effects, and private sector projects, including pollution loads, conserva- development impacts. tion of biodiversity and natural resources, and, in a broader context, social, cultural, and com- · Project business performance: In finan- munity health aspects, as well as labor and cial market operations, project business per- working conditions and workers' health and formance measures the project's long-term safety. impact on the financial intermediary's prof- · Private sector development impacts (be- itability and viability, using the indicators like yond the project): This indicator addresses capital adequacy, asset quality, management to what extent the financial intermediary has quality, earnings performance, and liquidity developed into a corporate role model--pos- structure and balance sheet. In nonfinancial itive or negative--and whether the project market operations, project business per- has contributed to IFC's purpose by spread- formance measures the project's actual and ing the growth benefits of productive private projected financial impact on the company's enterprise beyond the financial intermediary. financiers, that is, lenders and equity investors. The principal indicator of a project's busi- IFC's investment outcome rating is an assessment ness performance is its real, after-tax, finan- of the gross profit contribution quality of an IFC cial rate of return. loan and/or equity investment, that is, without 53 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 taking into account transaction costs or the cost Principle--"IFC will function like a business in of IFC equity capital. partnership with the private sector and take the same commercial risks"; and (iii) Catalytic · Gross contribution-loan: The primary in- Principle--"IFC will seek above all to be a cat- dicator for this rating is whether the borrower alyst in facilitating private investors and mar- is current on its payments to IFC (interest, kets in making good investments." fees, etc.). It is also important to assess the likely future debt-servicing capacity of the For each rating, a four-point rating scale is used client. (excellent, satisfactory, partly unsatisfactory, and · Gross contribution-equity: The nominal, unsatisfactory), except for the synthesis devel- equity, internal rate of return (also called re- opment outcome rating, which involves a six- turn on equity or ROE). The rating criteria for point scale (highly successful, successful, mostly equity investments are based on a comparison successful, mostly unsuccessful, unsuccessful, of the nominal, equity, internal rate of return and highly unsuccessful). In the IEG binary analy- with the actual (or notional) fixed-rate, loan sis, "high" refers to satisfactory or better on the interest rate (FR) that was (or would have four-point scale, and mostly successful or better been) approved for the same. on the six-point scale. The assessment of IFC work quality involves a Advisory Services Operations judgment about the overall quality of IFC's due Considering the increasing role of advisory ser- diligence and value added at each stage of the vices in IFC's business, in August 2006 IFC began operation. It measures the IFC's performance in a large-scale self-evaluation pilot of its completed screening, appraisal, structuring, supervision advisory services (formerly called technical as- and administration, and IFC's role & contribution. sistance and advisory services) projects, through project completion reports. PCRs address the · Screening, appraisal, and structuring: operational and financial performance over a The extent to which IFC professionally exe- project's life, its downstream outcomes and im- cuted its front-end work toward a sustainable pacts, and lessons learned. PCR authors also as- corporate performance standard. IFC's op- sign development effectiveness and work quality erating policies and procedures, as well as ratings for each advisory service project. its credit notes provide guidance on what IFC considers an appropriate professional Advisory services operations are selected for standard. evaluation when they are closed or reach closure · Supervision and administration: Su- (rather than operating maturity, as in the case of pervision, for this purpose, starts after com- investment operations). To date, under the first mitment of IFC's funding. To what extent IFC two PCR pilots, 173 projects that were active has professionally executed its supervision, and then operationally closed during July 2004­ taking into account that the appropriate level December 2005 (pilot 1), and 120 advisory proj- of supervision will depend on a project's cir- ects completed in the first half of 2006 (pilot 2), cumstances. IFC's Operational Procedures have been evaluated. Projects were selected provide guidance on what IFC considers an ap- based on the following criteria: propriate professional standard. · IFC's role & contribution: How well IFC (i) All projects with funding greater than fulfilled its role in terms of three basic oper- $100 thousand; ating principles: (i) Additionality/Special Con- (ii) A random sample of 30 projects (50 per- tribution Principle--"IFC should participate in cent of eligible population) for pilot 1 and an investment only when it can make a spe- 50 projects (20 percent of eligible pop- cial contribution not offered or brought ulation) for pilot 2 with funding of $25­ to the deal by other investors"; (ii) Business 100 thousand; and 54 APPENDIX B: SUMMARY OF EVALUATION METHODOLOGY (iii) Projects with funding of less than $25 project timeframe. The issue is not whether thousand were not included. every output specified has been achieved but, rather, whether the key ones have been As in the XPSR system, the project is first self- achieved. evaluated (by the advisory service team) using · Outcome achievement: Were the intended PCR guidelines, and then independently evalu- short- and medium-term effects of the inter- ated by IEG which checks, using the same guide- vention achieved? lines, the extent to which the ratings assigned are Outcomes are the positive and negative, consistent with the guidance. intended or unintended, short-term and medium-term effects of the advisory services. Advisory services projects are rated on six di- Outcomes require the PCR author to con- mensions: (i) relevance, (ii) efficiency, (iii) out- sider whether the observed effects, or how put achievement, (iv) outcome achievement, much of the observed effects, can be at- (v) impact achievement, and (vi) IFC's role & tributed to the project as an intervention. contribution. Ratings on the first five dimen- This involves consideration of a counterfac- sions are synthesized into an overall rating of de- tual or a comparison of current performance velopment effectiveness, and are assessed as with what would likely have happened in the follows: absence of the program. Client action taken because of the advisory services is one com- · Relevance: Did IFC do the right project at mon type of outcome measure. IFC's policy the right time? requires that "all its operations are carried Project relevance measures, in retrospect, the out in an environmentally and socially re- importance of the project to achieving major sponsible manner," so "environmental, health, strategic issues, its appropriateness at initia- and safety" is another outcome achievement tion and completion given conditions at the indicator. time, and whether the project was the ap- · Impact achievement: Were the intended propriate instrument for the work. Principal longer-term effects of the intervention indicators of a technical assistance project's achieved? relevance are its focus on the investment cli- An issue that must be addressed in deter- mate and relation to a designated CAS or mining impact achievement, as with outcome other strategy document high priority issue, achievement, is the counterfactual--what cost recovery through client fees, designated would have likely happened in the absence of high impact at inception and/or at completion. the project. · Efficiency: Were the costs reasonable in re- lation to the potential results? These dimensions are evaluated on a four-point A project is efficient to the extent that its rating scale: excellent, satisfactory, partly unsat- costs are reasonable in relation to the po- isfactory, and unsatisfactory. However, if there is tential results. Even where the project has a no outcome, or impacts have been achieved at positive cost-benefit ratio, however, another completion, then a rating of "not yet achieved" dimension of efficiency is how economically is assigned. In this case, there is an automatic resources were used. Similarly, there might or requirement for follow-on monitoring and eval- might not have been more efficient ways of uation by the responsible unit. The overall de- achieving the same objectives--a third as- velopment effectiveness rating is not a mechanical pect of efficiency. average but, rather, a synthesis of the project's "re- · Output achievement: Were the products, sults on the ground" and its contribution to IFC's capital goods, and services delivered? purpose and mission. The rating may change This section reviews the extent to which ex- over time as medium-term outcomes and longer- pected outputs are defined in project data term impacts often will not be apparent at proj- sheets. Outputs should be evident during the ect completion. Therefore, ratings of outcomes 55 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 may be entered by staff either at the project com- additionality or special contributions to the ad- pletion stage, one year after completion, two visory services: Was IFC especially pioneering years after completion, and/or three years after or innovative? Was it particularly catalytic in this completion. The same options are available for case? Did it enter a crowded field and provide ad- impact ratings. Changes in these ratings over visory services which others could have pro- time may require an update of the development vided? To what extent did IFC provide assistance effectiveness synthesis rating. and direction that yielded greater development results than would have been the case without The assessment of IFC's role & contribution IFC's involvement? seeks to determine to what extent IFC brought 56 APPENDIX C: FURTHER EXAMPLES OF HIGH AND LOW DEVELOPMENT OUTCOME RATINGS This appendix provides further examples of proj- benefited from the project. For example, the com- ects with high and low development outcome pany offered a large quantity of subsidized tick- ratings, drawn from the infrastructure and in- ets for all national citizens. Using the foreign formation technology sectors. sponsor's experiences as a hotel operator, the company successfully managed to integrate rail Examples of Projects with High and and hotel services to promote ecotourism in the Low Development Outcome Ratings region. The project also brought income tax and track-access fee revenue to the government. The High: Infrastructure project is in material compliance with both ap- The project involved an investment program to praisal and current environmental requirements. upgrade the railway network, rolling stock, and The project also contributed positively to the ex- telecommunication equipment of the privatized port of mineral products by its freights services. national railway company in a Latin American country, after a competitive public bidding Low: Information Technology processes. Before privatization, the national rail- The project was the expansion of a digital media way company was performing poorly, with in- company. The company sought IFC's assistance creasing operating losses and a sharp decline in as deteriorating market conditions for technology market share (characterized by a nonintegrated companies globally were making it difficult for and low-density network, a difficult topography, the company to raise growth capital. The project poor shape of the existing network, and lack of was expected to have a demonstration effect and long-term investment). Despite this decline, rail- help attract more foreign capital into the infor- roads remained important for key geographic mation technology sector in the country. However, routes. In the first five-year period since IFC's in- at the time of IFC's exit the company's long term vestment, the railway company improved signif- sustainability remained in question and the proj- icantly its entire rail network, including ect was rated with a low development outcome. rehabilitation of its tracks, upgrading of rolling Project business success was unsatisfactory due stock, and improvement in its operational per- to the company's lack of credibility in its field. Eco- formance. IFC's investment helped to improve the nomic sustainability was low because none of the quality, efficiency, and availability of rail services. objectives--such as creating jobs, investing in The company's financial performance has been the training, and stimulating further investment better than expected. Tourist traffic increased as in the country's technology sector--were fully the train service has become more reliable and achieved. No environmental and social effects comfortable. At the same time, the company re- rating was given because this was a category-C focused its freight services in a very competitive project. While the project had little positive im- market to target the bulk commodity segment of pact on private sector development, it did not re- the market. As a result, the company managed to sult in substantial negative demonstration effects. reach much higher profitability levels than antic- The private sector development rating was ac- ipated. Both tourists and the local population cordingly rated partly unsatisfactory. 57 APPENDIX D: FURTHER DETAILS ON RESULTS CHARACTERISTICS AND DRIVERS Figure D.1. Combined Project Development Outcome and IFC Investment Return Characteristics, 2005­07 Number of operations: 7 Number of operations: 102 Commitments: $31 m (1%) Commitments: $2,064 m (74%) Project business success: 57% Project business success: 89% ESHS effects success rate: 100% ESHS effects success rate: 74% >=4 high-risk factors: 100% >=4 high-risk factors: 33% Instrument: ­Loan 14% Instrument: ­Loan 63% ­Equity 86% ­Equity 21% Equity success rate (4 invs.): 0% ­Loan and Equity 12% Equity aggregate real IRR: 2.02% ­Others 4% Work quality: ­High 100% Equity success rate (34 invs.): 88% ­Low 0% Equity aggregate real IRR: 54.07% Country risk: ­Improved 33% Work quality: ­High 94% ­Unchanged 67% ­Low 6% ­Deteriorated 0% 59% HIGH Country risk: ­Improved 57% % in strategic sectors (by #): 43% 4% High development ­Unchanged 41% outcome ­Deteriorated 2% High IFC return % in strategic sectors (by #): 7.1% outcome 26% 11% Number of operations: 46 Development Number of operations: 19 Commitments: $468 m (17%) Commitments: $208 m (8%) Project business success: 0% LOW Project business success: 0% ESHS effects success rate: 67% ESHS effects success rate: 47% >=4 high-risk factors: 78% LOW HIGH >=4 high-risk factors: 42% Instrument: ­Loan 35% Investment outcome Instrument: ­Loan 79% ­Equity 46% ­Equity 5% ­Loan and Equity 15% ­Loan and Equity 11% ­Equity and Guarantee 2% ­Guarantee 5% ­Loan and Guarantee 2% Equity success rate (3 invs.): 100% Equity success rate (26 invs.): 0% Equity aggregate real IRR: 14.05% Equity aggregate real IRR: ­8.26% Work quality: ­High 44% Work quality: ­High 65% ­Low 35% ­Low 56% Country risk: ­Improved 35% Country risk: ­Improved 47% ­Unchanged 57% ­Unchanged 47% ­Deteriorated 8% ­Deteriorated 5% % in strategic sectors (by #): 46% % in strategic sectors (by #): 58% Source: IEG. 59 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Figure D.2. Characteristics of Development Outcome, Investment Return, and Work Quality Ratings, 2005­07 LOW OUTCOMES HIGH OUTCOMES Highly Mostly Mostly Highly unsuccessful Successful Successful Unsuccessful unsuccessful successful Project development DEVELOPMENT OUTCOME 7 17 13 17 34 11 outcome ratings, 37 63 2005­07 3 10 12 22 42 12 (by commitment volume) 25 75 Partly Unsatisfactory Satisfactory Excellent unsatisfactory Project business success 28 16 30 27 43 57 Economic sustainability 19 11 42 28 30 70 Environmental effects 7 22 61 10 29 71 Private sector development 7 17 45 30 25 75 Partly Unsatisfactory Satisfactory Excellent unsatisfactory IFC investment return IFC INVESTMENT OUTCOME 24 7 48 21 ratings, 2005­07 31 69 (by commitment volume) 13 6 52 30 18 82 Loan 11 6 73 10 17 83 Equity 43 9 12 35 52 48 Partly Unsatisfactory Satisfactory Excellent unsatisfactory IFC work quality ratings, IFC'S OVERALL WORK QUALITY 1 24 61 13 2005­07 25 74 (by commitment volume) 2 15 61 23 32 83 Screening, appraisal, structuring 5 27 54 14 32 68 Supervision and administration 0 17 66 17 17 83 Role and contribution 4 17 50 29 21 79 Source: IEG. Notes: IEG uses a binary interpretation of these evaluation results, which describes operations' ratings as either "high" or "low." By-volume figures are the percentages of the total committed IFC investment amounts in each outcome-rating group. The success rates above are the percentages of all assigned ratings. 60 APPENDIX D: FURTHER DETAILS ON RESULTS CHARACTERISTICS AND DRIVERS Table D.1. Market Conditions, by Region 2005­07 ECA Evaluations Change in country business-climate risk (n = 53 projects) Stayed non-high risk 43% Improved from high risk 40% Stayed high risk 15% Deteriorated from non-high risk to high risk 2% LAC Change in country business-climate risk (n = 43) Stayed non-high risk 79% Improved from high risk 7% Stayed high risk 12% Deteriorated from non-high risk to high risk 2% AFRICA Change in country business-climate risk (n = 22) Stayed non-high risk 32% Improved from high risk 5% Stayed high risk 64% Deteriorated from non-high risk to high risk 0% ASIA Change in country business-climate risk (n = 38) Stayed non-high risk 71% Improved from high risk 16% Stayed high risk 13% Deteriorated from non-high risk to high risk 0% MENA Change in country business-climate risk (n = 16) Stayed non-high risk 69% Improved from high risk 25% Stayed high risk 0% Deteriorated from non-high risk to high risk 6% Source: IEG, using Institutional Investor country business-climate risk ratings. Note: "High risk" applied if the Institutional Investor rating was less than 30 (out of 100), "non-high risk" if the rating was above that level. 61 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 Figure D.3. Sponsor Quality, by Region 70 60 with 50 40 projects sponsor of 30 high-risk 20 Percentage 10 0 2002 2003 2004 2005 2006 2007 Year Africa Asia ECA LAC MENA Source: IEG. Figure D.4. Project Risk Variation, by Region 100 90 80 70 projects 60 of 50 40 30 Percentage 20 10 0 Africa MENA Asia ECA LAC Region Product market risk Nonrepeat risk Greenfield risk Source: IEG. 62 APPENDIX D: FURTHER DETAILS ON RESULTS CHARACTERISTICS AND DRIVERS Figure D.5. Risk Variation, by Project Figure D.6. Work Quality, by Project Size, 2005­07 Size, 2005­07 100 100 90 90 80 80 70 (%) 70 projects 60 60 of 50 quality 50 40 work 40 30 30 Percetnage High 20 20 10 10 0 0 0.1­5 5­15 >15 0.1­5 5­15 >15 Project size ($ million) Project size ($ million) High product-market risk Nonrepeat project Source: IEG. Greenfield project Source: IEG. Table D.2. Work Quality, by Department, 2005­07 % of Evaluated Number of projects with high Department evaluated projects work quality rating Funds 8 88% Oil, Gas, Mining, and Chemicals 7 86% Infrastructure 19 84% Finance 59 75% General manufacturing and Services 39 74% Food and agribusiness 10 70% Health and education 8 63% Information and communications technologies 17 59% (Telecommunications) (8) (88%) (Information technology) (9) (33%) Source: IEG. Note: Excludes "no opinion possible" rating, for example, due to litigation. 63 APPENDIX E: EXAMPLES OF HIGH AND LOW IFC ROLE AND CONTRIBUTION This appendix provides examples of projects IFC reviewed the company's organizational struc- with high and low IFC role and contribution rat- ture and made recommendations, which were ings drawn from the food and agribusiness and accepted and largely implemented by the client, education sectors. to improve corporate governance. IFC identified the following areas for improvement: (i) Board Examples of Projects with High and composition and practices; (ii) transparency and Low Role and Contribution Ratings disclosure; (iii) shareholder rights; and (iv) stake- holder relations. High: Food and Agribusiness The company was the largest beverage manu- IFC also advised on (i) improvements in envi- facturer and distributor in some Latin American ronmental performance; (ii) expansion of out- countries. The project aimed at modernization, sourcing; (iii) expansion of the company's expansion, and rationalization of the company's support for a foundation, in line with the growth facilities in some of the regional countries. Goals of its income and operations, including other included managing recurrent capital expendi- country operations; and (iv) support to small and ture; financial restructuring, corporate gover- medium enterprises. nance improvements, and other measures designed to improve the ability of the company Low: Education to access international sources of finance to im- The project was aimed at establishing an edu- plement its investment program and undertake cation portal using Web technology as the me- acquisitions. Measures to improve the environ- dium of delivery for education content. The site mental performance and enhance the social im- would provide online tutorials and test prepa- pact of the company were also needed. ration to supplement ordinary secondary edu- cation in an Asian country. The project's focus IFC assisted the company in several ways. First, was on providing academic content through tai- it arranged a syndicated loan to meet part of lored tutorials at all educational levels, not just the company's financing needs. International secondary education. banks had indicated to both the company and IFC that they were unwilling to provide term At appraisal, IFC was expected to give credibil- funding without political risk mitigation. Sec- ity to the new companies involved, especially in ond, IFC advised the company on the measures its dealings with schools, parents, and state and needed to access international financial markets national governments. However, indications are on a sustained basis. Leveraging on this sup- that IFC's participation did not enhance the proj- port, IFC sought commitments from the group ect's credibility and adoption. to set benchmarks for sustainable business prac- tices in the areas of corporate governance, the The project was expected to benefit from environment, supplier assistance, and commu- e-learning content developed by the World nity support. Bank. However, the World Bank materials were 65 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 inappropriate in this case and did not directly company. In addition, its equity contribution contribute to the content. was small. With no position on the Board, even in an advisory capacity, it was unable either to IFC was participating in the second capitalization help monitor or improve the company's corpo- of the company and, therefore, could not claim rate governance quality or significantly influ- a catalytic effect in stimulating investment in the ence the business decisions of the company. 66 APPENDIX F: IFC INVESTMENTS IN CRISIS COUNTRIES Table F.1. Investment Patterns, by Crisis Country Percentage Percentage Investment change change pattern by others Percentage in private in public Percentage Investment (< +/­ 15% change investment investment change pattern = Neutral; in IFC (fixed- (fixed- in private by IFC > +/­ 15% = portfolio capital capital capital (< +/­ 15% Up/Down; balance, formation), formation), flows, = Neutral; Different GDP Year of pre- and pre- and pre- and pre- and > +/­ 15% = patterns = (2006, Country crisis postcrisis postcrisis postcrisis postcrisis Up/Down) Mixed) $ billions) China 1998 83% 50% 40% 29% Up Up 2668.1 Brazil 1998 18% na na 26% Up Up 1068.0 Russian Federation 1995,1998 497% na na na Up na 986.9 Korea, Rep. of 1997 615% na na ­ 36% Up Down 888.0 Mexico 1994 ­ 8% ­ 8% ­ 21% ­ 44% Neutral Down 839.2 Turkey 1994, 2000 11% ­ 37% ­ 17% 89% Neutral Mixed 402.7 Indonesia 1997 10% na na ­ 151% Neutral Down 364.5 Argentina 2001 ­ 25% 80% 117% 97% Down Up 214.1 Thailand 1997 7% ­ 71% ­ 30% 18% Neutral Mixed 206.2 Venezuela, R.B. de 1994 32% na na 212% Up Up 181.9 Malaysia 1997 17% na na ­ 13% Up Neutral 148.9 Philippines 1998 32% ­ 23% ­ 19% ­ 21% Up Down 116.9 Ukraine 1997 394% ­ 28% ­ 66% 40% Up Mixed 106.1 Vietnam 1997 109% na na na Up na 60.9 Croatia 1996 100% 108% 174% 1,022% Up Up 42.7 Ecuador 1996,1998 211% 37% 89% ­ 72% Up Mixed 40.8 Lithuania 1995 100% na na na Up na 29.8 Sources: IFC; Global Development Finance database. Note: Precrisis refers to the three calendar years preceding a crisis, while postcrisis refers to the three years following a crisis. na = not available. 67 ENDNOTES Executive Summary ment volume for 2005­07 contrasts with $3 billion in 1. Unless specifically noted, IEG refers to IEG-IFC the 2004­06 period (52 percent sample) and $3.6 bil- in this document. lion in the 2003­05 period (56 percent sample). 2. At early operating maturity, operations have gen- 7. It follows that IFC's development results cannot erally recorded at least 18 months of operating revenue. be directly compared with those of other multilateral 3. Last year's IEDR was a special 10-year retrospec- institutions, such as the World Bank, which does not tive on performance in these dimensions, and identi- face the same commercial risk in its projects and which fied lessons learned during that time as well as strategic assesses performance based on achievement of ob- implications going forward. This review incorporates jectives rather than market-based benchmarks. one more year of evaluated data on the performance 8. In 2007, IFC begin tracking the additionality it is of investment operations, and concentrates--in line expecting to provide in its investment operations with the good practice standards of the Multilateral De- through ex-ante review of project approval documents, velopment Bank Evaluation Cooperation Group's Work- though with four categories of additionality instead of ing Group in Private Sector Evaluation--on patterns three. The similarities and differences between this emerging from the last three years of evaluation, classification system and the one used by IFC are dis- 2005­07. A three-year sample is used to provide suffi- cussed in chapter 2. cient data to enable reliable comparisons, by region and sector. This report also examines, for the first time, al- Résumé analytique beit on a pilot basis, the performance of IFC-supported 1. Sauf indication contraire, le sigle IEG désigne advisory services operations. IEG-IFC dans le présent document. 4. IFC began piloting a system for evaluating the re- 2. Sont considérés en régime de croisière des projets sults of its advisory services operations in August 2006. ayant généralement permis de percevoir au moins 18 Prior to that, IFC did not have a system for evaluating mois de produits d'exploitation. the results of its advisory services operations, although 3. Le rapport IEDR de l'an dernier, une édition evaluations of several regional advisory services pro- spéciale de cette publication, a permis de jeter un grams have been carried out by IEG, including a recently regard rétrospectif sur les résultats obtenus en 10 ans completed evaluation of IFC's Private Enterprise Part- dans ces domaines, mettant en évidence les nership Program in the former Soviet Union. Findings enseignements tirés de l'expérience durant cette of these evaluations are available at www.ifc.org/ieg. Full période et les implications sur le plan stratégique à roll-out of the new advisory services project evaluation l'avenir. Les données d'une année supplémentaire, system is expected in 2008. après évaluation des résultats des projets 5. The volume of investment operations increased d'investissement, ont été intégrées au présent examen from approximately $3 billion in FY02 to $6.5 billion in et--conformément aux normes de bonne pratique du FY07. Meanwhile, advisory services expenditures in- Groupe de travail sur l'évaluation du secteur privé créé creased from $45.4 million in FY02 to $196.9 million par le Groupe de travail sur la coopération in FY07. internationale pour l'évaluation, lequel a été mis en 6. IFC investments typically make up about one- place par les banques multilatérales de quarter the value of the project. The evaluated invest- développement--portent principalement sur les 69 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 tendances qui se dégagent des trois dernières années Resumen ejecutivo d'évaluation (période de 2005­07). Un échantillon 1. A menos que se especifique lo contrario, el GEI couvrant trois années permet de disposer de données se refiere a IEG-IFC en este documento. suffisantes pour réaliser des comparaisons fiables par 2. En el vencimiento operativo anticipado, las région et par secteur. Bien qu'à titre d'essai, le rapport operaciones generalmente registran al menos 18 meses permet d'étudier pour la première fois, la performance de ingresos operativos. des projets de services-conseil financés par l'IFC. 3. La evaluación IEDR del año pasado fue una 4. C'est en août 2006 que l'IFC a commencé à mettre retrospectiva de 10 años sobre el desempeño en estas à l'essai un système d'évaluation des résultats liés à ses dimensiones, e identificó las lecciones aprendidas projets de services-conseil. Avant cette date, l'IFC ne durante ese lapso, así como las implicancias estratégicas disposait pas de système d'évaluation des résultats de a futuro. Este análisis incorpora un año más de datos cette catégorie de projets, bien que l'évaluation de con evaluaciones sobre el desempeño de las plusieurs programmes régionaux de services-conseil ait operaciones de inversión, y se concentra--en línea été réalisée par l'IEG, y compris une évaluation con las normas de buenas prácticas del "Grupo de récemment menée dans le cadre du programme de Trabajo en la Evaluación del Sector Privado" del Grupo Partenariat pour l'entreprise privée dans l'ex-Union de Cooperación de Evaluación del Banco Multilateral soviétique. Les conclusions de ces évaluations sont de Desarrollo­ sobre las pautas que surgen de los disponibles sur le site www.ifc.org/ieg. Le lancement à últimos tres años evaluados, de 2005 a 2007. Se utiliza part entière du nouveau système d'évaluation des un trienio de muestra para proporcionar datos projets de services-conseil est attendu en 2008. suficientes como para permitir la realización de 5. Le volume des projets d'investissement s'est accru, comparaciones confiables por región y por sector. Este passant d'environ 3 milliards de dollars durant l'exercice informe también analiza, por primera vez, aunque en 02 à 6,5 milliards de dollars pendant l'exercice 07. Dans forma piloto, el desempeño de las operaciones de l'intervalle, les dépenses liées aux services-conseil ont servicios de asesoría que contaron con el apoyo de la augmenté de 45,4 millions de dollars durant l'exercice IFC. 02 à 196,9 millions de dollars pendant l'exercice 07. 4. La IFC comenzó a trabajar en forma piloto con un 6. L'IFC, à travers ses investissements, participe sistema para evaluar los resultados de sus operaciones généralement à hauteur de quelque 25 % en valeur aux de servicios de asesoría en agosto de 2006. Antes de eso projets qu'elle finance. Ainsi qu'évalué, le volume des la IFC no contaba con un sistema para evaluar los investissements correspondant à la période 2005­07 resultados de sus operaciones en servicios de asesoría, se distingue bien des 3 milliards de dollars de la période pese a que el GEI ha realizado evaluaciones de varios 2004­06 (échantillon de 52 %) et des 3,6 milliards de programas de servicios de asesoría regional, incluido una dollars réalisés dans la période 2003­05 (échantillon evaluación recientemente terminada sobre el Programa de 56 %). de Asociación de la IFC con Empresas Privadas en la 7. Il est donc logique qu'on ne puisse pas effectuer antigua Unión Soviética. Las conclusiones de estas une comparaison directe des résultats obtenus par evaluaciones se encuentran en www.ifc.org/ieg. Se espera l'IFC dans le domaine du développement à ceux que se implemente totalmente el nuevo sistema de d'autres institutions multilatérales telles que la Banque evaluación de proyectos con servicios de asesoría en mondiale qui évaluent la performance en fonction des 2008. objectifs atteints plutôt que sur la base de valeurs de 5. El volumen de las operaciones de inversión référence dictées par le marché. aumentó desde aproximadamente US$3.000 millones 8. En 2007, l'IFC a démarré, dans le contexte de en el ejercicio fiscal 2002 a US$6.500 millones en el l'additionnalité, le suivi qu'elle entend fournir dans ejercicio fiscal 2007. Mientras tanto, los gastos en ses projets d'investissement à travers un examen ex-ante servicios de asesoría aumentaron desde US$45,4 des documents d'évaluation de projet, quoique sur la millones en el ejercicio fiscal 2002 a US$196,9 millones base de quatre au lieu de trois catégories en el ejercicio fiscal 2007. d'additionnalité. Les points communs et les différences 6. Las inversiones de la IFC suelen representar entre ce système de classification et celui utilisé par l'IFC alrededor de un cuarto del valor del proyecto. El sont traités dans le deuxième chapitre du rapport. volumen de inversión evaluado para el período 2005­07 70 ENDNOTES contrasta con los US$3.000 millones para el período 7. Note that there is some variation within the Asia 2004-06 (muestra del 52%) y los US$3.600 millones region, with 46 percent of projects in East Asia and the para el período 2003-05 (muestra del 56%). Pacific Region rated satisfactory or better and 57 percent 7. Se deduce que los resultados de desarrollo de la of projects in South Asia rated satisfactory or better. IFC no se pueden comparar directamente con los de 8. IEG's FY2002 Annual Review, which was com- otras instituciones multilaterales, como el Banco pleted and submitted to CODE in early 2003, raised the Mundial, que evalúa el desempeño basado en el issue of poor environmental and social results in high- cumplimiento de objetivos y no en indicadores de risk countries, particularly in Sub-Saharan Africa (see IEG- referencia vinculados al mercado. IFC 2003). Last year's IEDR also highlighted the issue 8. En 2007 la IFC comenzó a efectuar un seguimiento of weak environmental and social-effects performance de la adicionalidad que espera aportar en sus in the region, particularly among financial intermediaries. operaciones de inversión a través de un análisis ex 9. The other project was in litigation at the time of ante de los documentos para la aprobación del evaluation. 10. Evaluated environmental supervision quality proyecto, aunque con cuatro categorías de adicionalidad and IFC's environmental role and contribution were en vez de tres. En el capítulo 2 se analizan las similitudes rated high, respectively, in 44 and 41 percent of cases. y diferencias entre este sistema de clasificación y el que High ratings in other regions ranged from 63 to 81 utiliza la IFC. percent for environmental supervision quality and 63 Chapter 1 to 90 percent for environmental role and contribution quality. In many cases, IFC did not consistently de- 1. Three hundred and thirty-two projects were ap- mand that the uncommitted clients submit missing proved in the period 2000­02 and were eligible for annual reports or Environmental Management System evaluation in 2005­07. The Net Approval Population for documents. sampling (NAP) comprises 2000­02 calendar year ap- 11. See IEG-IFC 2007, p. 23. provals from which droppages, cancellations, rights 12. The multivariate analysis considered a wide issues, reschedulings, restructurings, supplementary in- range of possible explanatory variables, with each rated vestments made in the context of previously approved on a binary basis (except for changes in country credit projects, investments through the African Enterprise risk which was measured on a continuous scale) and Fund, Small Enterprise Foundation, Pacific Islands In- significance determined on the basis of z-scores. vestment Fund, Mekong Financing Line, and individual 13. This compares with a mere 14 percent of proj- investments under agency lines were excluded, in ad- ects achieving high development outcomes when qual- dition to the projects that do not meet the "early ity was low in both dimensions. operating maturity" test. However, some projects ap- 14. Only three of nine evaluated information tech- proved prior to calendar year 2000, which had previ- nology projects achieved high work quality ratings. ously been deemed too early to evaluate, are included. 15. Project size had the right sign, but the z-score See appendix A for further sampling details. was not significant. 2. The global good practice standards were first es- 16. Nine percent of projects were downrated, 4 per- tablished by the Multilateral Development Bank Eval- cent uprated, and 16 percent changed to "too early uation Co-operation Group's "Working Group on to tell." Private Sector Evaluation" in 1999 and are now in their 17. European Bank for Reconstruction and Devel- third edition (2006). opment 2006, Asian Development Bank 2007a, and 3. Benchmark financial rates of return for achieving African Development Bank 1998. a satisfactory ratings ranged from 6 percent to 14 percent. 4. A three-year sample is used to provide sufficient Chapter 2 data to enable reliable comparisons by region and sector. 1. The Corporation's Article 1 defines IFC's pur- 5. Both financial and economic rates of returns pose as "to further economic development by en- could be calculated for 63 projects. couraging the growth of productive private enterprise 6. See IFC Annual Reports. in member countries, particularly in the less devel- 71 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 oped areas, thus supplementing the activities of the In- the other hand, have monopoly powers over the le- ternational Bank for Reconstruction and Develop- gitimate use of funds, which through taxation and reg- ment." The Article goes on to state that "in carrying out ulation they can use to internalize externalities and this purpose, the Corporation shall: (i) in association produce public goods. They are, however, often part with private investors, assist in financing the estab- of a long organizational chain of command, which im- lishment, improvement and expansion of productive poses a degree of bureaucratization that can make private enterprises which would contribute to the de- them more costly and less flexible than their for-profit velopment of its member countries by making invest- and nonprofit counterparts. Also, as with any monop- ments, without guarantee of repayment by the member oly, the monopoly over the legitimate use of funds government concerned, in cases where sufficient pri- may pose challenges to the accountability and the re- vate capital is not available on reasonable terms; (ii) seek sponsiveness of government organizations to social to bring together investment opportunities, domestic needs. Private nonprofits have the corresponding ad- and foreign private capital, and experienced manage- vantage that they develop as independent firms and thus ment; and (iii) seek to stimulate, and to help create can be subject to greater competition and be more re- conditions conducive to, the flow of private capital, do- sponsive to market forces than their government coun- mestic and foreign, into productive investment in mem- terparts. Many of them pursue social objectives rather ber countries." than narrow, profit-oriented behavior. However, often 2. The private sector commitment volumes of other nonprofits do not have reliable access to funding development finance institutions increased from $7,6 sources and have to rely on donor financing or subsi- billion in 2000 to nearly $20 billion in 2006. dies, including exemptions from certain taxes. Differ- 3. Available loan pricing data for the period 2000­07 ences in capacities can also be due to differences in shows that the cost of an IFC loan is, on average, 100 leadership, past strategic choices, learning, and inno- basis points higher than the cost of a loan through vation. This accounts for large heterogeneity even other private financiers, with greater differentiation within the same organizational types. between the two in countries where business climate 11. Inefficiencies at any one point in time can be the risk is lower and there is typically a wider range of al- source of entrepreneurial action and subsequent mar- ternative sources of finance than IFC. ket correction. Today's institutional imperfections can 4. Hoff and Stiglitz 2001. be tomorrow's profit opportunity. Changing tech- 5. See World Bank 2003, p.28. nologies, for example, find ways to fence externalities, 6. See Krueger 1986. For further discussion of market erode market power, and improve the structure of in- efficiency, see Stiglitz and Dasgupta 1971; DeGennaro centives and the flow and quality of information. Gov- 2005. ernment institutions may bring certain public goods 7. For a discussion of market failures and imper- solutions, policies to regulate externalities, and inject fections in middle-income countries, see IEG-IFC 2008. capital during times of financial and other crises. A va- 8. This pattern has been attributed to the crowding riety of nonprofit organizations have evolved in re- out of formal private and nonprofit institutions by gov- sponse to the inability of governments to provide ernment and informal ones. certain public goods. 9. For further discussion of how market and insti- 12. It should be noted that, under its own Articles tutional failures relate to the existence of development of Agreement, the World Bank was to promote private institutions, mainly multilateral ones, see Marques- foreign investment through guarantees or loans and to Mendes and Meica (forthcoming); Sherk 1994; Rodrik supplement private investment with its own funds, 1995, 1996; Bird and Rowlands 1997, 2000, 2001; Ratha when private capital was not available on reasonable 2001; Gibbon and Schulpen 2002; and Akyüz 2004. terms. However, the requirement of government guar- 10. Private institutions, for instance, are typically antees and an inability to invest in equity ultimately lim- driven by profit motive and competitive pressures. ited the Bank's reach and was a main driver behind the This makes them more nimble and innovative. They do setting up of a sister institution to the Bank, in the form not, however, always take the full social impacts of of IFC. For a fuller discussion of the establishment of their actions into account. Government institutions, on the IFC, see Haralz 1997. 72 ENDNOTES 13. IFC Articles of Agreement (1993), Article III, United States Agency for International Development Section 3 (i). "additionality": Loan guarantees should be designed to 14. Article 1 states that IFC will "seek to stimulate, stimulate new private investment rather than subsi- and to help create conditions conducive to the flow of dize existing sources of capital. If a guaranteed loan private capital, domestic and foreign, into productive would have been made regardless of the guarantee, the investment in member countries." (IFC 1993, Article I). guarantee may simply reflect a subsidy to the lender and 15. IFC 2007. it does not stimulate any additional lending. The ag- 16. Internal IFC document. gregate amount of lending with or without the guar- 17. IEG reviewed annual updates to regional strate- antee is the same. "Additionality" arises when a loan is gies that are included as annexes to IFC's Strategic made that would not have otherwise been made but Directions paper, sector strategy summaries that are for the guarantee. If additionality is achieved, the ag- covered in the same document, as well as full strategies gregate amount of lending is thus increased and this for Sub-Saharan Africa (2003 and 2008), Latin America can promote economic growth. and the Caribbean (2005), education (2001), health 23. In other words, the participants required IFC's (2002), finance (2006 and 2007), and small and medium presence to help ensure contract stability or appropriate enterprises (2000). regulatory treatment, rather than simply enjoying a 18. The nature of IFC's investment pipeline de- slightly higher rate of return due to IFC's participation. pends fundamentally on market and country conditions, 24. As opposed to participating because of a tax ad- which can fluctuate significantly. Accordingly, the pat- vantage or financial subsidy. tern of new IFC investments is typically known only 6­12 25. For further detail on IFC's early history, see Har- months in advance, which contrasts with a CAS plan- alz 1997, pp. 805­99. ning horizon of 4­5 years. 26. The reviews did not involve the assignment of 19. Dropped projects are those where IFC obtained weights to different types of additionality, based on Board approval to finance the project, but did not pro- the premise that one form of additionality might be ceed to commitment. more relevant in one context than another. 20. Cancelled projects are those where IFC com- 27. The random sample was derived using the same mitted to finance the project, but the agreement was stratified random assignment process that IEG uses terminated prior to disbursement. for each annual XPSR program, with selected projects 21. Other nonunique roles would include effective representative of the population of projects across a va- negotiations with a sponsor, in order to make a proj- riety of dimensions, including region and sector. By ap- ect financially viable, when no specialist financial or op- proval year, the evaluated project base was as follows:70 erational expertise was required, that is, the role could projects for 2003; 70 projects for 2004; 80 projects for have been carried out by another financier. However, 2005; and 84 projects for 2006. these kinds of roles are the exception rather than the 28. Average loan maturities for private sector oper- rule, in terms of the "role and contribution" assessment. ations, based on available data during 2000­07, were 22. DEG [a subsidiary of the German development as follows: 8.2 years for IFC; 4 years for commercial pri- bank, KfW] "strategic role": The extent to which DEG vate investors; 6.8 years for European Bank for Re- fulfills its role as a development finance and consultancy construction and Development; 7.6 years for KfW institution in projects. This is assessed by evaluating com- (German development bank); and 8.7 years for DEG pliance with the principle of additionality, mobilization (a subsidiary of KfW). It should be noted that maturi- of additional outside funds for the project company, and ties varied considerably by sector, and the gap between consulting services provided to the project company. development finance institutions and private loan ma- FMO [Netherlands Development Finance Company] turities was greater in infrastructure and in oil, gas, "role and intended contribution": The degree to which and mining operations. FMO was additional to the market (additionality), acted 29. IEG-IFC 2008. as a catalyst for other investors (catalytic role) and 30. Forty-three percent of all lower-income countries made specific contributions to a project's perform- projects were in Africa, and IFC's role and contribution ance (where appropriate). quality was actually lower in Africa middle-income 73 INDEPENDENT EVALUATION OF IFC'S DEVELOPMENT RESULTS 2008 countries (although these projects represented only 17 32. European Bank for Reconstruction and Devel- percent of Africa projects). opment 2006, Asian Development Bank 2007b; and 31. For an example of challenging country conditions FMO 2006. following a crisis, see the forthcoming IEG report on 33. This contrasts with a 22 percent positive differ- Indonesia. ential for financial additionality and 6 percent positive differential for operational additionality. For nonrepeat 74 REFERENCES African Development Bank. 1998. Study of the Ef- Report for 2006. Evaluation Group. 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Bank. 76 THE WORLD BANK GROUP WORKING FOR A WORLD FREE OF POVERTY The World Bank Group consists of five institutions ­ the International Bank for Reconstruction and Development (IBRD); International Finance Corporation (IFC); the International Development Association (IDA); the Multilateral Investment Guarantee Agency (MIGA); and the International Center for the Settlement of Investment Disputes (ICSID). Its mission is to fight poverty for lasting results and to help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and private sectors. THE INDEPENDENT EVALUATION GROUP ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Independent Evaluation Group (IEG) is an independent, three-part unit within the World Bank Group. IEG-IFC independently evaluates IFC's investment projects and Advisory Services operations that support private sector development. IEG-World Bank is charged with evaluating the activities of the IBRD (The World Bank) and IDA, and IEG-MIGA evaluates the contributions of MIGA guarantee projects and services. IEG reports directly to World Bank Group's Boards of Directors through the Director-General, Evaluation. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the World Bank Group's work, and to provide accountability in achieving its objectives. IEG seeks to improve World Bank Group work by identifying and disseminating lessons learned from experience and by framing recommendations drawn from evaluation findings. e-ISBN-978-0-8213-7594-5 DOI - 10.1596/978-0-8213-7593-8 IEG Independent Evaluation Group Independent Evaluation Group-IFC E-mail: AskIEG@ifc.org Telephone: 202-458-2299 Facsimile: 202-974-4302 ISBN: 978-0-8213-7593-8 SKU 17598