37399 v 1 IncreasIng Impact The year in review 2006 1956 CelebraTing 50 years of improving lives by fosTering privaTe seCTor developmenT worldwide 2006 The International Finance Corporation, the private sector arm of the World Bank Group, is the largest multilateral provider of financing for private enterprise in developing countries. IFC finances private sector investments, mobilizes capital in international financial markets, facilitates trade, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY06, IFC has committed more than $56 billion of its own funds for private sector investments in the developing world and mobilized an additional $25 billion in syndications for 3,531 companies in 140 developing countries. With the support of funding from donors, it has also provided more than $1 billion in technical assistance and advisory services. For more information, visit www.ifc.org. Cover photo: Colin J. warren The world's longest conveyor belt carries limestone from india to the lafarge surma cement plant in bangladesh. avokahzuhC anElE InternatIonal FInance corporatIon 2006 annual REpoRt volumE 1 ContEnts IFC at a Glance 2 IFC Board of Directors 6 Executive messages 7 Increasing Impact 12 Report on operations 24 Investing and Working Responsibly 32 Report on Regions 41 acronyms, notes, and Definitions 77 For Further Information 78 IFC aT a GlanCE catalyst For Development anD prIvate sector FInancIng IFC invests only in developing countries, stimulating investment and helping create conditions that are conducive to the flow of private capital. We are a global institution, and our investments and projects are well diversified. our financial results reflect the success and growth of enterprises in emerging markets around the world. IFC's mIssIon IFc's net Income anD net Worth IFc promotes sustainable IFC has made a profit every year for 50 years, demonstrating the reward potential of emerging market investments. private sector investment in developing countries, helping net Income (U.S.$ millions) net Worth (U.S.$ billions) 3,000 12 to reduce poverty and improve people's lives. 2,500 10 2,000 8 1,500 6 1,000 4 500 2 0 0 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FInancIally strong The Corporation has aaa/aaa ratings from IFC raises from international markets the funds IFC is directly owned by 178 standard & poor's and moody's. These necessary for loans to clients in emerging markets. It member countries, with voting ratings have been reaffirmed every year also issues bonds in local currency markets to stimulate power based on contributions since 1989 and carry a stable outlook. capital market development in developing countries. to paid-in capital. Borrowed $1.8 Billion in 7 currencies in Fy06 strong shareholder support moody's rating aaa swiss franc 1% (october 2005) Russia 3% Euro 2% u.s. dollar 64% India 3% new zealand dollar 4% Italy 3% south african rand 7% Canada 3% s&p rating aaa 169 other France 5% countries (september 2005) Chinese renminbi 8% 43% united kingdom 5% outlook: stable Germany 5% Japanese yen 14% Japan 6% united states 24% paGE 2 IFC annual REpoRT 2006 IFc concentrates much oF Its Investments anD technIcal 100% assIstance In FrontIer countrIes 85 88 as investment in emerging markets has risen, IFC 80% 75 has adapted its strategy to focus more and more on frontier countries. IFC's investments are now 60% more concentrated in these low-income or high-risk 49 51 countries than those of other investors. The share of IFC's investments in these countries is about twice 40% their share of overall foreign direct investment. 25 To help improve the often challenging investment 20% 15 climate in frontier countries, IFC provides technical 12 assistance and advisory services (Taas) to address obstacles to private investment and assist private 0% companies. The share of IFC's Taas in frontier FRonTIER non-FRonTIER countries is about four times as great as their share IFC TEChnICal IFC InvEsTmEnT GDp FDI of foreign direct investment. assIsTanCE CommITmEnTs 2004 2004 EXpEnDITuREs FY06 FY06 InvestIng In prIvate sector Development: commItteD portFolIo For IFC's own account as of June 30, 2006: $21.6 billion By region* largest country exposures** Global middle East & north africa 7.2% 0.7% u.s.$ percent oF country mIllIons gloBal portFolIo south asia 8.3% Europe & Central asia 30.2% Russian Federation 1,974 9% Brazil 1,505 7% sub-saharan africa 9.4% China 1,498 7% India 1,261 6% Turkey 1,197 6% East asia & the pacific 15.1% mexico 1,093 5% argentina 810 4% latin america & the Caribbean 29.1% Indonesia 606 3% nigeria 544 3% By sector ukraine 533 2% other 13.5% Finance & Insurance 35.0% agriculture & Forestry 3.0% Chemicals 3.5% Food & Beverages 3.8% Industrial & Consumer products 4.0% our loan and equity Information Technology 4.4% portfolio includes Collective Investment vehicles 4.8% nonmetallic mineral product manufacturing 5.2% utilities 9.5% 1,368 companies in Transportation & Warehousing 6.1% oil, Gas, & mining 7.2% 112 countries. * Some amounts include regional shares of investments that are officially classified as global projects. See regional sections for details. ** Excludes individual country shares of regional and global projects. aT a GlanCEpaGE 3 IFC At A GlAnCE IFc Investment oPeratIons and resources, FY02 to FY06 (U.S.$ millions) FY06 FY05 FY0 FY03 FY02 Investment commItments number of projects1 28 236 217 20 203 number of countries 66 67 6 6 76 total commitments signed $ 8,275 $ 6,9 $ 5,632 $ 5,037 $ 3,9 For IFC's own account 6,703 5,373 ,753 3,856 2,957 Held for others3 1,572 1,076 879 1,181 518 Investment dIsBursements total financing disbursed $ 5,739 $ ,011 $ ,115 $ ,68 $ 2,072 For IFC's own account ,28 3,56 3,152 2,959 1,98 Held for others 1,311 555 96 1,509 57 commItted PortFolIo2 number of firms 1,368 1,313 1,333 1,378 1,02 total committed portfolio3 $26,706 $2,536 $23,60 $23,379 $21,569 For IFC's own account 21,627 19,253 17,913 16,777 15,09 Held for others3 5,079 5,283 5,56 6,602 6,519 1 Includes first commitment to projects in the fiscal year. Projects involving financing to more than one company are counted as one commitment. 2 Includes loan guarantees and risk management products. 3 total committed portfolio and held for others include securitized loans. Investment Projects For FY06 Total of $8.3 billion committed for IFC's own account and mobilized through syndicated loans. By Industry By region* Global 0.2% other 7.% Middle East & north Africa 8.1%* latin America & Collective Investment Vehicles 3.7% Finance & the Caribbean Information technology .1% Insurance 33.2% Sub-Saharan Africa 8.5%* 31.8% Primary Metals .6% South Asia 8.5% Pulp & Paper 5.1% Chemicals 5.% East Asia & Food & Beverages 5.9% the Pacific 1.8% Europe & Central nonmetallic Mineral utilities 9.6% Asia 28.1%* In our 50th Product Manufacturing 6.1% oil, Gas, & Mining 8.1% transportation & Warehousing 6.8% year, we made investment By Product Guarantees 7% commitments Equity 1% of $6.7 billion loans 60% for our own loan Syndications 19% account in 66 countries. * Some amounts include regional shares of investments that are officially classified as global projects. See regional sections for details. PAGE IFC AnnuAl rEPort 2006 Balance sheet hIghlIghts (U.S.$ millions) FY06 FY05 FY04 FY03 FY02 assets liquid assets, excluding derivatives $20,594 $22,781 $18,397 $17,004 $16,924 net loans and equity investments 12,731 11,489 10,279 9,377 7,963 Derivative assets 1,128 1,516 1,092 1,734 1,077 IFC also provided Receivables and other assets 3,967 3,774 2,593 3,428 1,775 Total assets 38,420 39,560 32,361 31,543 27,739 technical assistance lIaBIlItIes to businesses and Borrowings outstanding $14,967 $15,359 $16,254 $17,315 $16,581 Derivative liabilities 1,288 2,332 1,549 1,264 1,576 governments in over payables and other liabilities 11,089 12,071 6,776 6,175 3,278 80 countries. about Total liabilities 27,344 29,762 24,579 24,754 21,435 40 percent of project capItal Capital stock $ 2,364 $ 2,364 $ 2,361 $ 2,360 $ 2,360 funding approved this Retained earnings 8,711 7,433 5,418 4,425 3,938 other 1 1 3 4 6 year was for work in Total capital 11,076 9,798 7,782 6,789 6,304 sub-saharan africa. Income statement hIghlIghts technIcal assIstance anD (U.S.$ millions) aDvIsory servIce projects FY06 FY05 FY04 FY03 FY02 For Fy06 Interest and financial About $200 million in funding approved.* fees from loans $ 807 $ 660 $ 518 $ 477 $ 547 By region Income from liquid asset trading activities 444 358 177 475 524 Global 2% south asia 5% sub-saharan Charges on borrowings (603) (309) $(141) $(226) (438) africa 42% latin america & the Caribbean 7% Income from equity investments 1,228 1,365 658 145 160 Release of/provision for losses middle East & north africa 10% on loans and guarantees (15) 261 103 (48) (389) net other expense (362) (344) (304) (295) (243) East asia & Expenditures for Taas* (55) (38) (29) -- -- the pacific 17% Europe & Expenditures for performance- Central asia 17% based grants (35) -- -- -- -- By project type operating income $1,409 $1,953 $ 982 $ 528 $ 161 Environment & social access to sustainability 3% Finance net gains/losses on non-trading Infrastructure 37% financial instruments (131) 62 11 (41) 54 12% net income $1,278 $2,015 $ 993 $ 487 $ 215 value addition to Firms 12% Business Enabling *Technical assistance and advisory services. Environment 36% *The data presented is unaudited and is based on technical assistance and advisory service projects approved in IFC's corporate system between July 1, 2005 and June 30, 2006. Some projects approved in FY06 have not been processed and are not included here, but this does not materially affect the business line and regional distributions. aT a GlanCE paGE 5 IFC BoaRD oF DIRECToRs (left to right) (standing) Gino Alzetta, Zou Jiayi, Marcel Massé, Paulo F. Gomes, Jakub Karnowski, Jaime Quijandria, Mulu Ketsela, Dhanendra Kumar, Yoshio Okubo, Sid Ahmed Dib, Pierre Duquesne, Joong-Kyung Choi, Jennifer Dorn, Herwidayatmo, Mahdy Ismail Aljazzaf, Abdulrahman M. Almofadhi, Biagio Bossone; (seated) Otaviano Canuto, Thorsteinn Ingolfsson, Eckhard Deutscher, Alexey Kvasov, Jan Willem van der Kaaij, Tom Scholar. Not pictured: Luis Marti. BoarD oF DIrectors: direCTors and alTernaTes perspectIve anD oversIght For IFc direCTors alTernaTes This year the Board of Directors approved a number of investments and mahdy Ismail aljazzaf mohamed kamel amr maintained close oversight of the development and implementation of IFC's abdulrahman m. almofadhi abdulhamid alkhalifa strategy. The Board reviewed country-specific operations and discussed Gino alzetta melih nemli 17 joint World Bank­IFC­mIGa country assistance strategies and Biagio Bossone nuno mota pinto related products. otaviano Canuto Jeremias n. paul, Jr. Directors reaffirmed their support for IFC's five strategic priorities and for Joong-kyung Choi Terry o'Brien an increase in activities to expand IFC's development impact. specific issues that Directors discussed with IFC management include the Corporation's new policy Eckhard Deutscher Walter hermann and performance standards on social and environmental sustainability and sid ahmed Dib shuja shah disclosure. In keeping with its oversight responsibility, the Board discussed the pierre Duquesne alexis kohler annual evaluation of IFC operations and the IFC management response. paulo F. Gomes louis philippe ong seng The Board appreciated the continued positive dialogue between IFC herwidayatmo nursiah arshad management and the Independent Evaluation Group. Thorsteinn Ingolfsson svein aass With respect to the Corporation's performance, the Board welcomed IFC's Dhanendra kumar zakin ahmed khan achievements in FY06. These include strong financial results; significant expansion alexey kvasov Eugene miagkov of activity in frontier markets, particularly in africa; and important strides in luis marti Jorge Familiar measuring development impact of investments and technical assistance. marcel massé Gobind Ganga Jaime Quijandria alieto Guadagni Tom scholar Caroline sergeant mathias sinamenye mulu ketsela leTTer To The board of governors The Board of Directors of the International Finance Corporation has Jan Willem van der kaaij anca Ciobanu had this annual report prepared in accordance with the Corporation's pietro veglio Jakub karnowski bylaws. paul D. Wolfowitz, president of IFC and chairman of the zou Jiayi Yang Jinlin Board of Directors, has submitted this report with the accompanying (vacant) Jennifer Dorn audited financial statements to the Board of Governors. (vacant) Toshio oya The Directors are pleased to report that for the fiscal year ended June 30, 2006, IFC expanded its sustainable development impact through private sector project financing operations and advisory activities. paGE 6 IFC annual REpoRT 2006 EXECuTIvE mEssaGEs (left to right) paul wolfowitz President, World Bank Group lars Thunell TREB Executive Vice President, IFC malEnIREhTak message From the presIDent In the last 25 years, the most successful a voucher that can be redeemed from a regulations that get in the way of private quarter-century in the global fight against retailer for a bed net. It was very moving business. The Doing Business report, a poverty, half a billion people have escaped to talk to a mother of five children, all of joint IFC/World Bank publication that poverty in China, India, and other whom have malaria, who now has a bed measures how government regulations successful developing countries. most of net for the first time. affect, and often limit, economic growth that success can be attributed to reforms The basic structure of financing for has quickly become a standard tool for that have made it possible for private developing countries has been transformed governments, policymakers, researchers, businesses to grow and create jobs. This over the past 20 years, and private capital and investors seeking to assess a country's past year, as I traveled to five continents, flows have become the most powerful business environment. In a number of I saw many compelling examples of the force for development. For every dollar countries, the findings from Doing Business importance of the private sector's role in of official development assistance to have already become a starting point for offering opportunity for poor people to developing countries, there is now more economic reform. transform their lives and to give their than $4 in cross-border private investment successful development is a team children a better future. from rich to poor countries. Today the effort, requiring the joint participation In monterrey, mexico, I met one of private sector accounts for 90 percent of of many people and institutions. For 50 more than 4,000 families that have been jobs in the developing world, and years, the dedicated men and women of able to buy new, affordable homes in ultimately, it will be these jobs that offer IFC have led the way in demonstrating a community developed by homex, a the most promising path out of poverty. the power of private enterprise to company IFC invested in through a IFC's investments leverage private improve people's lives, balancing private equity fund. Before moving to the sector money for creative, innovative profitability with tangible development Real de san Jose community, which has projects with sustainable economic impact, and I thank them for their tireless good schools and recreation and health benefit. By taking the long view and efforts. I also thank our shareholder and facilities, the eight members of the Ruiz providing patient capital, IFC's projects donor nations, who have embraced IFC's family had lived without running water have a direct impact on the creation of mission and supported its efforts to and other basic infrastructure. jobs and income levels. Countless families provide critical financing and develop In Tanzania, I saw firsthand at a bed are lifted out of poverty this way, one entrepreneurship throughout the world. net factory just how the private sector, by one. and each new job, each new through a public-private partnership, opportunity, gives each generation a is helping governments deliver services chance to do better than the last. to the poor. Because they are especially one of the most important actions susceptible to malaria, all pregnant that we can take--and that we are paul Wolfowitz women in Tanzania are entitled to receive taking--is to help governments identify June 30, 2006 EXECuTIvE mEssaGEs paGE 7 EXECuTIvE mEssaGEs message From the executIve vIce presIDent strong groWth, ImpressIve Development Impact As the global leader in private sector development, IFC is successfully expanding its operations and increasing its ability to catalyze sustainable private sector investments in emerging and developing markets. This year, investments for our own account grew by nearly 25 percent, and staff increased by a quarter. We are also raising our activity in high-risk and low-income areas, where our help is needed most, and providing better measurement of the development impact of our activities. IFC's 50th anniversary this year is more our $1.3 billion last fiscal year. reserves for loan losses, improved in than a historical milestone; it represents · our investment commitments in FY06 for the third successive year, a critical step in IFC's evolution. In 2005, sub-saharan africa increased to while nonperforming loans fell. IFC's our Board of Directors agreed to a $700 million, an increase of projects also generally reap economic long-term scaling-up strategy for the nearly 60 percent over last year. benefits that surpass their financial institution: 50 percent growth in our · Investments benefiting small and rates of return. investment commitments over three medium enterprises have roughly The Corporation is delivering years, coupled with significant growth tripled during the past three years, concrete development results. projects in technical assistance. as demonstrated exceeding $1 billion for FY06. we have invested in provided health care throughout this year's report, the · In the critical areas of infrastructure to 2.4 million patients and education Corporation is ahead of schedule in and private sector health and education, services to 320,000 students last year. implementing this strategy: our investments increased by more than our investments in telecommunications · Investment commitments for IFC's own 50 percent. have helped 80 million people gain account, $6.7 billion this year, increased While the Corporation's performance access to phone service since 1996. oil, from $5.4 billion in FY05. has exceeded our targets, the quality of gas, and mining companies IFC has · activities in areas of high developmental IFC's investments and their contribution invested in contributed $4.4 billion to impact, such as investments in low- to sustainable development are just government revenues in developing income or high-risk countries and as important. Investment quality, as nations last year. These companies have regions, were $1.5 billion, well above measured by the decrease in total also created 50,000 jobs. paGE 8 IFC annual REpoRT 2006 llIh nahTanoJ IFC Executive vice president lars Thunell meets children in China's Yongshou County whose families are becoming more productive suppliers to north andre apple Concentrate Juice Company through technical assistance tied to an IFC investment. IFC made important strides in sector growth in infrastructure, health, beyond environmental, social, and technical assistance and advisory activities and education; and developing local corporate governance by restructuring these activities into five financial markets through innovative · Improving client satisfaction through strategic business lines, allowing us to products and institution-building. further decentralization of our focus on our strengths, improve project at the same time, we have set higher operations and improvements in our quality, and increase knowledge sharing. sights for IFC. We extended our growth work processes We also put in place new development impact monitoring systems for both our investments and our technical assistance IFC staff can look back over our history and activities. We continued to improve see countless examples where they have cooperation with other members of the World Bank Group at the strategic level been able to harness the power of private through transactions such as public- enterprise to improve people's lives. private partnerships and subnational finance and through technical assistance programs in such areas as investment strategy by a year, to fiscal year 2009. six · Continuing the Corporation's sound climate reform. key corporate goals were established: financial performance, with a greater our Board of Directors reaffirmed · Improving the Corporation's focus on risk management the five pillars of IFC's strategy: development impact by increasing our · attracting, training, and retaining a strengthening the focus on frontier focus on africa and the middle East, diverse, talented staff and rigorously markets; building long-term relationships enhancing our technical assistance, and measuring their performance with emerging global companies based in supporting investment climate reforms IFC's long-term strategy provides developing countries; leading through · Cooperating across the World Bank a strong foundation for the years environmental and social sustainability; Group more effectively ahead. still, there is always room addressing the constraints to private · Extending our leadership role for improvement. In January and EXECuTIvE mEssaGEs paGE 9 EXECuTIvE mEssaGEs February of this year, IFC's management countries, to helping privatize and combines commercial discipline and undertook a wide-ranging review of restructure entire economic sectors. development impact, that combines the the Corporation's direction, considering In the past few months alone, time-tested wisdom of an experienced the external environment, the changing IFC continued to pioneer with the investor with the willingness to pioneer needs of our clients, and IFC's role as a issuance of the first-ever bond by a new development solutions, and that member of the World Bank Group. multilateral institution in China. The combines tangible, measurable progress with that most intangible of qualities, leadership. 2.4 million patients received health care and The success we see today is not necessarily the result of recently adopted 320,000 students received education services policies. In many cases, it results from last year from companies IFC financed. our the hard work and difficult decisions made five, 10, or even 20 years ago. investments in telecommunications firms have Working with such a talented and helped 80 million people gain access to phone dedicated staff gives me great pride. I service since 1996. look forward to leading this institution into its second half-century and to building on our admirable track record of expanding private sector opportunities our results make this 50th Corporation also introduced a new throughout the developing world. anniversary year a cause for celebration. generation of environmental and social IFC staff can look back over our history performance standards, helped create a and see countless examples where they sustainability index in Brazil, and began a have been able to harness the power of pilot initiative in the Democratic Republic private enterprise to improve people's of Congo, a post conflict nation in the lives, from helping grow enterprises in heart of africa. developing countries that have become The challenge for IFC is to carry lars h. Thunell engines of job creation, to encouraging its proud legacy and important role Executive vice president private equity investors to enter those into the future. This is a role that June 30, 2006 paGE 10 IFC annual REpoRT 2006 IFc's management group lars Thunell Dorothy Berry Declan Duff Executive Vice President Vice President Vice President Human Resources and Industries* Administration Javed hamid Farida khambata michael klein Edward nassim Senior Advisor* Vice President Vice President Vice President Asia and Latin America* Private Sector Development Europe, Africa, and the and IFC Chief Economist Middle East* TREB W. paatii ofosu-amaah nina shapiro Jennifer sullivan malEnIREhTak:soTohp Vice President and Vice President General Counsel Corporate Secretary Finance and Treasurer *Titles effective as of July 1, 2006. manaGEmEnT GRoup paGE 11 InCREasInG ImpaCT ICuhCI m assI producing insecticide-treated bed nets in Tanzania. Bed nets help stop the spread of malaria. IncreasIng Impact IFC is the largest multilateral provider supporting our private sector clients to sustainability we help these projects of financing--loans, equity, risk while remaining fully accountable to our increase their positive impact on the management, and structured finance shareholders. Given the immense need environment and local communities. products--in the developing world. at for private sector development, we over the past 20 years, we have its founding in 1956, IFC was the first also work in partnership with other provided over $1 billion worth of institution of its kind, operating on development, nonprofit, financial, and technical assistance and advisory commercial principles yet wholly owned private sector institutions. projects--funded primarily through by its member countries (31 then, 178 over the past 50 years, we have the generosity of donor nations--and today). By the mid-1950s, World Bank committed $56 billion of our own we now employ more than 800 staff lending to governments had helped funds and arranged over $25 billion members for technical assistance. strengthen the public sector in many in syndications for 3,531 companies in Today we are building on our solid essential ways. But the private sector 140 developing countries. IFC has been track record of investments and private deserved a similar focus because it offered at the forefront of domestic capital sector advisory work to increase our impact. a strong potential to create jobs, build market development, helping introduce IFC has set ambitious growth goals, skills, and raise living standards. new asset classes by structuring collective focusing on progress in key areas: · strengthening our focus on countries and regions where needs are greatest We invest in projects that become cornerstones · Building long-term partnerships with of job creation and macroeconomic growth. emerging global players · Ensuring environmental and social sustainability · promoting private sector growth in key This has been IFC's challenge for the investment vehicles for emerging markets, sectors, including infrastructure last half century. We work shoulder-to- expanding the availability of trade and · supporting the development of local shoulder with outside investors, putting housing finance, disbursing local currency financial markets our money at risk alongside theirs to loans, and becoming the first multilateral To manage this expansion of our support promising business projects that to issue bonds in many markets. We scope and capabilities successfully, we might otherwise go unfinanced. To ensure regularly invest in major projects that are adding staff in our field offices. This market discipline, we work with clients become cornerstones of job creation and allows us to be closer to our clients in the on market terms. We earn a profit while macroeconomic growth in developing markets where IFC financing, expertise, contributing to sustainable development, countries, and through our commitment and innovation are most needed. paGE 12 IFC annual REpoRT 2006 IFc's Development partners IFC is the world's largest private sector development corporation, but our impact draws on our collaboration with key partners, including regional development banks, the development aid arms of many of our member country governments, and the full range of Given the immense need for private sector international financial institutions. For example, staff from our development, we work in partnership with multidonor facility, the private Enterprise other development, nonprofit, financial, partnership for africa, are implementing technical assistance programs for the and private sector institutions. african Development Bank. These efforts target small businesses and female entrepreneurs throughout sub-saharan africa. We also invest in projects across the region in cooperation with other bilateral and multilateral institutions. They include the European Investment Bank and the private sector development entities of individual countries, such as proparco of France. For larger, more complex investment transactions, we take a structured approach to coordinating with other institutions, such as the European Bank for Reconstruction and Development. For many projects, we actively compete with other financial institutions. We also work with foundations and charitable organizations on a variety of initiatives, focusing on partnerships related to environmental sustainability, health and education, rural development, and social entrepreneurship. We are developing opportunities for foundations to use our extensive network of on-the-ground technical assistance providers to help implement and monitor projects. The collaboration of our donor partners is integral to our success, and we are grateful for their support. Donor funds supported programs in more than 80 countries this fiscal year, making it possible to help developing countries attract private sector investment and build strong enterprises that drive growth, create jobs, and free people from poverty. lanoITanRETnI XEDnIhCFo YsETRuoC InCREasInG ImpaCTpaGE 13 InCREasInG ImpaCT snIGGIhlEahCI m Investments In FrontIer markets up 20 percent Investment projects in frontier countries-- on financial market development and region has been in trade, housing, and typically those with low per capita income, on improving governance and the small business finance. severe economic challenges, or political investment climate, in an effort to In the middle East and north instability--represented more than a maximize impact in these countries. In africa, historically a region where IFC's quarter of IFC's commitments this year, countries with more developed financial operations have not expanded rapidly, although projects are typically smaller in markets, IFC focuses on underserved commitments more than doubled the least-developed economies. We made niches, such as microfinance and financing this year. This investment growth was $1.5 billion in commitments in frontier for small and medium enterprises. accompanied by enhanced capacity markets during FY06, a 20 percent as a result of our expanded to deliver technical assistance in the increase over the previous year. capabilities in sub-saharan africa, region, with a 50 percent increase in the IFC has substantially increased its commitments there grew to $700 million number of staff for these projects. This investments and technical assistance in in FY06 from only $140 million three work included a substantial expansion africa and the middle East. our focus is years before. much of our activity in the in corporate governance projects. strengthenIng our Focus Where neeDs are greatest FY06 FY05 Commitments in sub-saharan africa $700 million $445 million Commitments in micro, small, and medium enterprises* $ 1.6 billion $ 1.1 billion Total commitments in frontier countries** $ 1.5 billion $ 1.3 billion * These commitments include: direct MSME borrowers; financial institutions with MSMEs as more than 50 percent of their business clients; and any other investments that explicitly target MSMEs as primary beneficiaries. ** Frontier countries are low-income (World Bank income category) or highest-risk (Institutional Investor rating of 30 or less) countries. Twenty percent increase in commitments in frontier countries is based on unrounded numbers. Actual commitments were $1,536 million and $1,277 million for FY06 and FY05, respectively. paGE 14 IFC annual REpoRT 2006 FosterIng prIvate enterprIse In DIFFIcult envIronments IFC in the 1990s: Investing in Mozambique IFC often serves as a catalyst, mobilizing new private capital for countries that investors would otherwise consider too risky, as our early investment in mozal, an aluminum smelter in mozambique, illustrates. IFC support of $110 million in financing for the first phase in 1997 was crucial to the $1.3 billion project, the first major foreign investment in mozambique. The resulting business has created well-paying jobs and encouraged others to invest in a poor country still recovering from a devastating civil war. mozal, which was IFC's largest single investment up to that time, has had a positive impact on mozambique's economy. By 2001, it generated 55 percent of the country's exports and accounted for about 8 percent of its GDp. During a second phase of the project in 2001, IFC provided an additional $25 million. We also supported mozal's hIv/aIDs programs and helped the company expand its sourcing from small local businesses. We continue to invest in difficult environments today, in places such as afghanistan, the Democratic Republic of Congo, and Iraq, where the need for private sector development is greatest but financing is scarcest. EssoRBalEllECRuoCEnIoTna invesTmenT ClimaTe iniTiaTives For example, IFC launched the alternative forms of financing for In general, IFC faces two obstacles to private Enterprise partnership for africa small businesses. expanding our impact: the investment this year. The partnership is designed pEp africa is based on our climate and the absorptive capacity to coordinate investment climate successful private Enterprise partnership of markets. We are addressing these initiatives in sub-saharan africa and in the former soviet union, which has been working since 2000 with donor support to strengthen financial sectors, IFC's investment commitments to firms in the introduce international standards of corporate governance, simplify business middle East and north africa more than doubled regulations, and link small businesses this year. our commitments in sub-saharan into supply chains of large enterprises. africa increased nearly 60 percent. IFC has mobilized $915 million in investment, helping create over 30,000 new jobs and 160 new businesses in 10 countries. lessons learned here have impediments by increasing our advisory integrate technical assistance with our influenced our approach to technical role with governments that seek to investment operations. It concentrates assistance across the globe, including establish a more robust private sector. on streamlining business start-up our commitment to integrating Efforts include greater collaboration with procedures and tax regimes, improving technical assistance and investment the World Bank, as well as technical private sector property rights and work to achieve broad and lasting assistance and advice on privatization. access to finance, and developing economic development. InCREasInG ImpaCTpaGE 15 InCREasInG ImpaCT DGaFo YsETRuoC groWth In Investments anD technIcal assIstance For emergIng gloBal companIes IFC's global presence and expertise allow including our support for a new cellular addition to providing innovative financial us to support companies in emerging telephone network in afghanistan. products. IFC's ability to help companies markets that want to invest in other Investments like these are made adapt and prosper in changing developing nations--one of the fastest- possible, in part, by moving more IFC environments is another important growing segments of foreign direct staff and resources to local field offices, advantage that clients cite. investment. In addition to providing where they are closer to and more financing to companies as they grow, engaged with new and long-standing CorporaTe governanCe we can help clients improve their clients. In fact, the most recent annual Corporate governance assessments are business practices and raise their survey of our clients indicates that the an essential part of IFC's efforts to help environmental, social, and corporate prospect of long-term partnership emerging firms achieve best practices governance standards. In fact, our remains one of the top reasons clients and grow. They also provide long-term involvement in such investments has come to and stay with IFC. protection for our interests and those grown steadily for the past three years, We have the greatest impact when of other minority shareholders in reaching $673 million in FY06. more we help clients with value-added services, equity investments. than 63 percent of these south-south such as our support to increase the Corporate governance is an projects were with repeat clients, sustainability of their businesses, in essential tool for companies seeking to BuIlDIng long-term partnershIps FY06 FY05 Domestic sponsors as percentage of total number of commitments 63% 66% south-south commitments* $673 million $484 million * Investment commitments for companies based in emerging markets that are investing in other developing nations. paGE 16 IFC annual REpoRT 2006 argentIna's agD receIves IFc clIent leaDershIp aWarD Each year IFC presents a Client leadership award to recognize a highly successful corporate client who, in line with IFC's mission, has made a significant contribution to sustainable development. This year's award goes to aceitera General Deheza, a leading agribusiness DGaFo group in argentina and an IFC client YsETRuoC since 1986. aGD is the country's largest family- owned exporter of oilseeds and related package in 2001­2002, when argentine to local schools and collaborates with products; in its 2006 fiscal year it had companies could not access normal organizations that provide general revenues exceeding $1.6 billion and more trade financing lines. IFC also invested in health services, social assistance to than 2,250 employees. It is one of the projects sponsored by aGD and its senior citizens, and care for disabled most profitable companies in its sector partners to improve the country's export children. The company provides and has remained successful despite a infrastructure and develop the oilseed ongoing training to staff and secures challenging investment climate and processing industry. By improving the medical insurance for all employees severe economic crisis. primarily because railway system, building a state-of-the- and their dependents. of aGD, a large network of farmers and art port, and increasing inland storage The success of aGD shows the intermediaries in rural areas continues to capacity, aGD has reduced difference a single company can make, grow and prosper. transportation and handling costs, not just in building a business but in aGD has also increased its global benefiting the entire supply chain. supporting a community, a sector, even competitiveness, aided by IFC loans aGD is a good corporate citizen in a country--and in opening markets. IFC and equity investments. This includes the city of General Deheza, the site of is proud to be aGD's partner for the a $100 million long-term financing its main plant. It provides support long term. avoid corrupt business practices. IFC's worldwide, where they educate the next of directors on corporate governance. technical assistance to companies from generation of businesspeople about the We substantially expanded our support more than 80 countries on board value of strong corporate governance. for such programs this year in the middle practices, shareholder rights, internal In addition to this private sector East, doubling our staff for these efforts control environments, transparency, assistance, IFC advises governments, and launching new initiatives in Egypt and disclosure has made us a leader regulators, stock markets, and institutes (see page 76) and pakistan. on corporate governance in emerging markets. In the past decade, IFC has shared its expertise through major IFC supports companies in emerging markets projects in azerbaijan, China, Georgia, Russia, and ukraine. We have also that want to invest in other developing nations-- sponsored corporate governance forums one of the fastest-growing segments of foreign in East asia and latin america. our corporate governance materials are direct investment. used in 75 law and business schools InCREasInG ImpaCT paGE 17 InCREasInG ImpaCT InalIaJDsuGa IFC technical assistance benefits furniture producers using sustainable wood sources in Java, Indonesia. neW generatIon oF sustaInaBIlIty stanDarDs IntroDuceD IFC has established a leading role in with a capital cost of $10 million or more. $671 million from $314 million in FY05, several areas of sustainability, in particular This makes the Equator principles--and with marked growth in financing for through our environmental and social by extension IFC--the de facto global small and local investors. at the same standards, which we have recently standard for environmental and social time, IFC's investments in renewable and strengthened (see page 31). sustainability performance in project finance. IFC, in natural gas energy projects increased. underlies the efforts of companies and partnership with the Equator banks, also We are making considerable progress in financial institutions to build better promotes adoption of the principles by extending our leadership position in the businesses, as well as IFC's ability to other institutions, including bilateral and sustainable development of extractive support long-term development impact. multilateral agencies. industries, where governance issues are other international financiers have of utmost importance. The World Bank followed our lead by adopting the exTraCTive indusTries Group is working with 20 countries to Equator principles, which have been Demand for IFC's financing and social implement the Extractive Industries revised based on IFC's standards. These and environmental expertise has Transparency Initiative, supporting banks together supply more than intensified in extractive industries as high improved governance in resource-rich 80 percent of all project finance lending prices for oil and minerals have led to countries through the full publication in developing countries, and they will increased investments. our combined and verification of company payments apply the revised principles to privately commitments and syndications in this and government revenues from the oil, financed projects in all industry sectors sector more than doubled this year, to gas, and mining industries. leaDIng through sustaInaBIlIty FY06 FY05 IFC commitments in sustainable energy* $393 million $221 million Total investment in sustainable energy leveraged by IFC's commitments $ 1.8 billion $832 million * Estimated portion of IFC's investments that correspond to the percentage of total project cost represented by renewable energy or energy-efficient project components. paGE 18 IFC annual REpoRT 2006 TCEJoRpTnE sustaInaBle Development In extractIve InDustrIes mpolEvED YTInu m Engaging, empowering, and building the suppliers and small businesses; and moC capacity of local communities is critical programs on the environment, gender, not only for the success of investments in and hIv/aIDs. extractive industries but also for sustainable In Guatemala, for example, the development beyond the life of the well, program is funding a community-based DETaRGETnI'spRoCTnE pipeline, or mine. monitoring committee, representing a IFC has committed $10 million to broad array of stakeholders, to monitor improve the long-term development the environmental impact of the marlin mpolEvEDsnEzITICFo impact of extractive industry projects mine. This effort is expected to serve on local communities. The Community as a model for constructive dialogue YsETRuoC Development Facility's initiatives include between local communities and the These small business owners received microfinancing through a community project supported by the marlin capacity building for stakeholders, extractive industries throughout Guatemala. mine in san miguel, Guatemala. community foundations, and those Recently, the program was awarded a involved in local and regional prize by the latin american mining innovative effort to integrate a mining governance; development of local organization as the region's most operation with its local communities. knowing what governments accepted the principles of the Extractive will facilitate compliance as projects receive, and what companies pay, is Industries Transparency Initiative in move into the construction and a critical first step to holding decision- 2005 and published an unaudited production phases. makers accountable for the use of account of government revenues from those revenues. our investments in this the mining sector in march 2006. empowering women sector reflect our support for greater · To support sustainable extractive enTrepreneurs transparency and sustainability. projects, we committed $6 million this IFC integrates gender issues throughout · During fiscal year 2006, IFC committed year to the asian lion Fund, which will its operations and helps leverage to acquire a 5 percent equity stake in make early-stage equity and equity- the untapped potential of women in emerging markets. our Gender To improve the long-term development impact Entrepreneurship markets initiative of oil, gas, and mining projects, we committed focuses on expanding access to finance for women, adding value to IFC $10 million for environmental, social, and investment projects, and undertaking community programs. assessments at the request of governments to address gender-specific barriers to women's full participation in private simfer in Guinea, a subsidiary of Rio related investments in small to medium sector development, with primary Tinto, which has committed to full mining and exploration projects in emphasis on africa and the middle local disclosure of all payments made africa and asia. The fund will ensure East. This year, for example, we to governments. IFC's financing will that companies in its portfolio comply provided a $15 million line of credit support a feasibility study on mining with IFC's environmental and social and technical assistance to help access of high-grade iron ore in eastern policies and performance standards. Bank in nigeria deliver financing to Guinea. Guinea's government formally Early-stage adoption of these standards female entrepreneurs. InCREasInG ImpaCT paGE 19 InCREasInG ImpaCT DRa W mIT IFC's advisory services helped samoa's government find a new private sector partner to continue the operations of a publicly owned airline. DemanD For puBlIc-prIvate partnershIp aDvIce groWIng rapIDly as a private sector development such mandates, which often follow the philippine government this year institution and a member of the World sector reform work by the World Bank, on privatization of the off-grid power Bank Group, IFC has a unique capacity typically lay the groundwork for supply and the governments of to structure private participation in subsequent private investments. IFC's Cameroon and samoa on the partial infrastructure projects in a way that advisory teams work to help structure sale of state-owned airlines. balances commercial viability with the projects with a public component. public good. Demand for IFC's advisory Recent work includes a cross-border infrasTruCTure invesTmenTs support has grown 150 percent in the railway concession in kenya and Infrastructure improvements are a critical past three years, with the number of uganda, where IFC has advised on need in the developing world. millions of advisory mandates rising to 30 at the the tender and bidding process, while lives are threatened every day by lack of end of FY06 from 12 three years before. World Bank lending is supporting clean water or safe sanitation. untold This activity is most concentrated in resettlement and restructuring of the numbers of businesses suffer because africa and the middle East. railway's workforce. We also advised they lack reliable power for industrial aDDressIng constraInts to prIvate sector groWth In InFrastructure, health, anD eDucatIon FY06 FY05 Commitments in information and communication technologies $366 million $200 million Commitments in infrastructure $955 million $599 million Commitments in health and education $126 million $ 81 million Commitments in subnational projects $ 52 million -- number of advisory mandates to increase private sector participation in public infrastructure services 30 25 paGE 20 IFC annual REpoRT 2006 InFormatIon technology For nIgerIan unIversItIes IFC's support has helped socketWorks nigeria. The company agrees to limited offer services the private sector was equip and maintain an IT facility at a unable to provide. This includes automating university with essential infrastructure, administrative processes at 10 nigerian such as power generators, air conditioning, universities and providing 150,000 electrical wiring, equipment, and software university students with access to online for the period of the agreement. It study tools, including offshore libraries. provides computers equipped with With the help of a local currency loan socketWorks' Collegeportal technology equivalent to $2.5 million and continued to the university's staff and faculty, skRo technical assistance from IFC, socketWorks delivers software training, and enters is expanding to another 14 universities in the university's data into its databases. WTEkCosFo nigeria, doubling the number of students When students pay their tuition it will serve, and is planning to expand to via nigeria's banking system, the YsETRuoC other parts of africa. amount includes about $20 toward Because socketWorks signs long- socketWorks' services. governance, this is helping the company term agreements with universities, IFC has been providing technical expand its product offerings and take usually for a period of 10 years, it needed assistance to socketWorks since 2003. its business model to other parts of africa. longer-term financing than is generally Besides strengthening management The firm recently established a 51 percent­ available to private sector companies in capacity and improving corporate owned subsidiary in sierra leone. processes or the infrastructure necessary committed $52 million for subnational is supporting private companies that to get goods to markets. projects in such countries as Guatemala, work directly with public institutions to IFC's commitments for infrastructure mexico, and south africa. Because IFC's provide much-needed services. ongoing increased more than 50 percent in FY06, municipal Fund projects have had a projects include the private provision of compared with the previous year. Totaling significant development impact, we distance education technology to make $955 million, they represent almost are increasing support in this area and medical training available to nurses in 15 percent of total commitments pursuing additional opportunities. public hospitals throughout China. this year. This growth reflects our IFC seeks to use its experience in efforts to engage earlier with healTh and eduCaTion private health and education--unique infrastructure companies that are The Corporation's commitments to among bilateral and multilateral exploring project opportunities. health and education projects rose more development institutions--to establish than 50 percent over the past fiscal year, itself as a center for networking and subnaTional finanCing to $126 million. In these sectors, IFC information among private institutions Greater decentralization of government continues to build on its experience with and investors worldwide. This year, services in our member countries has financing for capital expenditures on IFC and China's finance ministry given the World Bank Group a new hospitals, schools, and universities, as organized a conference on public- opportunity to help at the municipal, well as technology-assisted education private partnerships in education and a state, and provincial levels. IFC's services. We seek to support institutions workshop on technical and vocational municipal Fund, established in 2003, that introduce market innovations, education and training. We also held is the first phase of the World Bank demonstrate best practices, and are our second International Forum for Group's response to the demand for aligned with public sector objectives. Investment in private higher Education, lending to local governments without a IFC is exploring innovative ways to with representatives of 135 institutions sovereign guarantee. During FY06, IFC promote student financing initiatives and from 30 countries attending. InCREasInG ImpaCT paGE 21 InCREasInG ImpaCT IDahRaF kERoT DevelopIng local FInancIal markets Increases access to FInance Development of well-functioning finanCial seCTor new loans from local banks. IFC also helps financial markets is essential for TeChniCal assisTanCe build the financial infrastructure necessary successful, sustainable economic growth, at the end of FY06, IFC's financial sector for expanding access to finance through and IFC's financial sector investments, technical assistance activities included both direct investments and technical up 13 percent to $2.5 billion in FY06, 133 projects. our work in this area includes assistance. This year we helped develop represent the largest component of our technical help for financial institutions credit bureaus in 38 countries worldwide portfolio. Banks are some of our most and assistance in improving financial through the donor-funded Global Credit important partners in all regions, but infrastructure, such as market development Bureau program. central to IFC's developmental mission is for bonds and securities. For example, a a full range of financial institutions: successful project to increase access to supporT for finanCial leasing companies, stock markets, credit finance in Indonesia this year helped more inTermediaries rating agencies, venture capital funds, than 150 small and medium enterprises In emerging markets and frontier and microfinance institutions. obtain the equivalent of $10.5 million in countries, the banking sector generally support For local FInancIal markets FY06 FY05 Total financial sector commitments $ 2.5 billion $ 2.2 billion Commitments in housing finance $586 million $565 million Commitments in local currency $ 1.3 billion $820 million number of technical assistance and advisory services in financial sector 133 135 paGE 22 IFC annual REpoRT 2006 new sourCe of privaTe CapiTal IFc In the 1980s: the emergIng market groWth FunD In the 1980s, while trying to interest korean equities, which was brought $50 million vehicle, the Emerging market investors in a "Third World Investment to market despite skepticism from Wall Growth Fund. Fund," IFC coined the phrase "emerging street. a smaller fund for Thailand Together, these steps helped give rise markets," and the term's broad soon followed, along with ongoing IFC to a new industry, one that 20 years later acceptance has paralleled the growth technical support to help build stock invests more than $60 billion a year in of a new asset class. at the time, many markets throughout the developing stocks and bonds from developing investors viewed the infant stock markets world. Teaming up with a respected countries. In the process, this massive of the developing world as highly asset management company, the Capital source of new private capital has speculative, given these markets' weak Group, IFC then put its own money at strengthened companies in the trading infrastructure and poor regulation. risk in a global fund. This helped bring an developing world, lifted them onto the In 1984, IFC organized and co-underwrote early set of pension funds and insurance international financial stage, and helped a $60 million single-country fund for companies into a globally diversified create jobs and reduce poverty. constitutes the bulk of the formal 2005, microfinance institutions and derivative-based local currency financial system. IFC works to strengthen supported by IFC had outstanding products. local currency financing banks by providing them with adequate portfolios of about 2.5 million loans helps domestic borrowers match capitalization, sufficient management totaling $4.1 billion. our microfinance assets and liabilities and eliminates capabilities and infrastructure, and strong investments typically combine financing the risk associated with borrowing corporate governance practices. We with technical assistance. in a foreign currency. We offer local invest in banks in developing member countries that are financially and commercially sound as well as environmentally and socially sustainable. IFC's microfinance portfolio includes microfinance programs can play a 74 institutions. 2.5 million borrowers key role in stimulating business activity, have outstanding loans averaging especially in areas where there is little or no access to formal credit institutions. $1,600 from these lenders. To reach the largest number of micro and small enterprises, we provide support to microfinance institutions and encourage commercial banks to overall commitments targeting currency loans and hedges in any develop lending services for small small and medium enterprises rose to currency for which we can hedge local businesses. at the end of FY06, $1.4 billion by the end of FY06. currency loan flows back into u.s. dollars. investments to support financing for To expand our ability to offer this micro, small, and medium businesses loCal CurrenCy finanCing financing, we are developing derivative- represented 60 percent of IFC's financial about 20 percent of our commitments based products for local currencies in markets commitments. microfinance this year were in local currencies. sub-saharan africa and are seeking commitments increased during the year We promote local currency financing approval to provide these products to $132 million. as of December 31, through structured finance products in China, pakistan, and ukraine. InCREasInG ImpaCT paGE 23 REpoRT on opERaTIons In Beijing this year, IFC issued the first-ever panda bond by a multilateral institution, supporting the development of China's capital markets. report on operatIons IFC is the largest provider of multilateral and growth of enterprises in emerging We also introduced new programs financing for private sector projects markets around the world. and products to meet the needs of in the developing world. In FY06, we our operations contribute to businesses and entrepreneurs, made committed $6.7 billion in funds from economic, financial, environmental, important strides toward measuring our own account and mobilized and social sustainability in emerging our success in enhancing development, an additional $1.6 billion through markets. This year nearly a quarter of and introduced new standards that syndications and $1.3 billion through our commitments were in low-income require our client companies to structured finance. Based on the or high-risk countries, demonstrating adopt social and environmental risk total costs of the private sector the viability of private enterprise even management as an integral part of projects we helped finance this year, in difficult environments. their operations. each $1 in IFC commitments for our own account resulted in an additional $2.88 in funding from other sources. IFc's FInancIal perFormance hIghlIghts altogether, we supported 284 (U.S.$ millions) investment projects in 66 countries. We Fy06 Fy05 also approved over 400 new technical Client services--operating income $1,231 $1,759 assistance programs, primarily to loan--operating income 106 323 Equity/quasi-equity--operating income 1,318 1,425 strengthen the technical expertise of firms non-investment advisory services (16) (8) and improve the environment for and Expenditures for technical assistance and sustainability of private sector operations. performance-based grants (90) (38) IFC has been consistently profitable Corporate charges and other (88) 57 since 1956. Businesses must create IFC treasury services--operating income 178 194 profits to generate jobs and wealth, and IFC operating income 1,409 1,953 IFC's financial results reflect the success paGE 24 IFC annual REpoRT 2006 overview of finanCial resulTs assets, as compared to $194 million and products of $1.2 billion accounted for IFC's performance for FY06 continued $124 million, respectively, in FY05. 5 percent of the committed portfolio, its recent strong trend. Income after new investment commitments for and risk management products of expenditures for technical assistance IFC's account amounted to $6.7 billion $159 million accounted for almost and performance-based grants in FY06, including $588 million in signed 1 percent. In addition, IFC held and (operating income) was $1.4 billion in guarantees. This represents an increase managed for participants $5.1 billion in FY06, a decrease of $544 million when of 25 percent compared to $5.4 billion in loans it had syndicated. at the end of compared with FY05's record results. FY05, when new investment commitments FY06, the committed portfolio included operating income comprises revenue for IFC rose 13 percent from $4.8 billion. loan and equity investments, risk from client services operations (primarily IFC also mobilized an additional management products, and guarantees corporate and project finance) and $2.8 billion through loan participations in 1,368 companies in 112 countries. income from treasury services, after and structured finance in FY06. The nearly a quarter of these investments administrative expenses. overall, our disbursed outstanding investment were for projects in low-income or high- operating return on average net worth portfolio stood at $13.4 billion on risk frontier countries. was 13.7 percent in FY06, compared June 30, 2006, compared with The net increase in committed to 22.6 percent in FY05. $12.3 billion on June 30, 2005. To portfolio was $2.3 billion after taking net income reported for FY06, achieve this operational growth, the into account new commitments, including losses on non-trading financial Corporation's regular administrative repayments, sales, cancellations, instruments, was $1.3 billion, compared expenses increased as well. actual prepayments, write-offs, and translation with $2 billion for FY05. While income regular administrative expenses rose adjustments. loan principal repayments and fees from loans, capital gains, and 17 percent to $472 million in FY06 and prepayments totaled nearly dividends from equity investments all compared to an increase of 15 percent $2.8 billion, and $539 million in equity increased in FY06, net income declined. to $404 million in FY05. investments were sold or redeemed. The total disbursed portfolio for IFC's own account increased to Businesses must create profits to generate jobs $13.4 billion at the end of FY06, from and wealth, and IFC's financial results reflect the $12.3 billion at the end of FY05. During the fiscal year, the disbursed loan success and growth of enterprises in emerging portfolio grew by 9 percent, while markets around the world. the disbursed equity portfolio grew by 10.2 percent. This was because of relatively small loan invesTmenT aCTiviTy COMMITMENTS AND DISBURSEMENTS loss provisioning in FY06 as compared INVESTMENT AND PORTFOLIO ACTIVITY new commitments for IFC's own account with FY05, and nonrecurring income in IFC's committed portfolio, including off- were concentrated in Europe and Central FY05 from changes in the carrying value balance sheet guarantees and risk asia (31 percent), latin america and the of equity investments. management products, increased by Caribbean (26 percent), and East asia IFC's liquid asset portfolios 11.9 percent to $21.6 billion on June 30, and the pacific (15 percent). our outperformed their respective 2006, from $19.3 billion at the end commitments in sub-saharan africa and benchmarks and earned a positive return of FY05. nearly 76 percent of the in the middle East and north africa for the year. Income from liquid assets, committed portfolio was in loans together represented 20 percent of total net of allocated funding cost, amounted amounting to $16.4 billion, and FY06 commitments, up from 14 percent to $178 million, including $92 million of 18 percent was in equity investments in FY05. south asian commitments spread income from market-funded liquid amounting to $3.9 billion. Guarantee represented 8 percent of this year's total. REpoRT on opERaTIons paGE 25 REpoRT on opERaTIons The business sectors with the highest portfolio, down from 9.9 percent Equity investments provide the long- volume of new commitments were in FY05. The decrease was due to term developmental support that finance and insurance with 38 percent, a $210 million reduction in specific entrepreneurs and private enterprises followed by utilities with 8 percent. loan loss reserves, after write-offs most need, with long-term risk Disbursements for IFC's own of $111 million, and a $120 million assumption as well as participation in account in FY06 were $4.4 billion, increase in general loan loss reserves. gains. Equity investments also provide up from $3.5 billion in FY05. loan opportunities to support reforms, disbursements were $3.7 billion, and SYNDICATED LOANS particularly in corporate governance. equity disbursements were $711 million. IFC's syndicated loan program helps We generally subscribe to between 5 IFC also disbursed $1.3 billion on behalf commercial banks and other financial and 20 percent of a company's equity. We of financial institutions participating institutions participate in private sector are long-term investors and usually exit by in its syndicated loans. projects in developing countries. These selling shares, either in a trade sale or, if liquidity permits, in a capital market following a public offering. We also invest Through structured finance transactions, in quasi-equity instruments, which may have either debt or equity characteristics. we mobilized $1.3 billion this year with our equity and quasi-equity investments commitments of $327 million. are funded from IFC's retained earnings. Income from our equity investment portfolio decreased 9 percent in FY06 to $1.2 billion. Capital gains realized on LOANS AND INTERMEDIARY SERVICES loans are a key part of our efforts to equity sales were $928 million in FY06, We finance projects and companies mobilize additional financing and up from $723 million in FY05. through loans for our own account, increase development impact. IFC is the We changed our process of generally for seven to 12 years, though lender of record for syndicated loans; the estimating impairment on equity some loans have been extended for as other financial institutions share fully in investments in FY05 to a methodology long as 20 years. We also make loans to the commercial credit risk of projects based largely on fair value estimates. intermediary banks, leasing companies, while benefiting from IFC's preferred Equity investment impairment write- and other financial institutions for further creditor status. downs totaled $57 million in FY06. on-lending, for example, to small and new syndicated loans, $1.6 billion medium enterprises. IFC extends loans this fiscal year, increased nearly STRUCTURED FINANCE in both major and local currencies, 50 percent from the previous fiscal structured finance products provide IFC's depending on the needs of our clients, year. about half were for projects in clients with cost-effective forms of and we hedge against currency risk by latin america and the Caribbean, with financing that would not otherwise be using swap-based instruments. the remainder in asia and Europe. readily accessible. products IFC offers In FY06, we made commitments projects in the general manufacturing, include partial credit guarantees, structured for $5 billion in new loans. Interest and infrastructure, and oil and gas sectors liquidity facilities, portfolio risk transfer, financial fees from loans (including accounted for approximately three and participation in securitizations. These guarantee fees) increased 22 percent in quarters of FY06 syndications. products allow IFC to use its aaa/aaa FY06 to $807 million, from $660 million credit rating to help clients diversify their in FY05. EQUITY AND QUASI-EQUITY funding sources, extend maturities, and Total reserves against losses IFC risks its own capital by buying obtain financing in their currency of choice. on loan investments decreased to shares in project companies, other In FY06, we continued to strengthen $898 million in FY06, representing project entities, financial institutions, our presence in emerging markets, 8.3 percent of the disbursed loan and portfolio or private equity funds. providing innovative structured finance paGE 26 IFC annual REpoRT 2006 solutions to new and established clients, with a focus on transactions in local currencies. Important transactions this BreakDoWn oF IFc portFolIo As of June 30, 2006 (U.S.$ millions) year included partial credit guarantees for 2006 2005 municipalities in Guatemala, Russia, and Committed loans and equity $20,318 $18,108 south africa. IFC provided innovative loans 16,407 14,781 products that allowed each client to Equity 3,912 3,327 pursue infrastructure projects and off-balance-sheet exposure contribute to the development of their (on risk management and guarantee products) 1,309 1,146 respective local capital markets. We also offered structured risk sharing facilities Total committed portfolio for IFC's own account 21,627 19,253 on portfolios of local currency loans to Total committed portfolio held for participants 5,079 5,283 microfinance institutions and small and Total disbursed portfolio 13,408 12,276 medium enterprises in the Balkans, madagascar, and morocco. Total undisbursed portfolio 6,911 5,832 We structured the first-ever mortgage- backed securitization in mexican pesos, IFc commItteD portFolIo, Fy02 to Fy06 for a portfolio of residential mortgages (U.S.$ millions) aggregated by GmaC Financiera. In Russia, For IFC's own account* held for others we credit-enhanced the first market-placed consumer loan securitization, which was $25,000 issued by Russian standard Bank. In saudi arabia, IFC also credit-enhanced the $20,000 first true-sale securitization in the Gulf Cooperation Council countries; this was backed by residential mortgages originated $15,000 by kingdom Installment Company. other transactions in FY06 included $10,000 risk-sharing structures that allowed us to mobilize local currency financing for clients in Brazil, China, Colombia, hungary, $ 5,000 and peru. liquidiTy managemenT $ 0 liquid assets on the balance sheet FY02 FY03 FY04 FY05 FY06 totaled $12.7 billion on June 30, 2006, compared with $13.3 billion a year *Totals for IFC's own account include risk management and guarantees. earlier. The majority of liquid assets are held in u.s. dollars, with small euro and Japanese yen balances held to support operational disbursements. Total liquid assets held are determined by the pace of new borrowings and disbursements within ranges consistent with IFC's aaa/aaa credit ratings. REpoRT on opERaTIons paGE 27 REpoRT on opERaTIons DGaFo YsETRuoC CapiTal and reTained earnings member countries or more general balance was borrowed in a variety IFC's net worth consists of retained market downturns, while retaining of other markets. see page 2 for a earnings and paid-in capital. our paid-in capacity to preserve our triple-a rating breakdown of IFC's FY06 borrowing capital remains at $2.4 billion, while net and play a countercyclical role. by currency. income of $1.3 billion this year increased IFC's current and projected capacity In october 2005, IFC launched a retained earnings to $8.7 billion. The over the medium term is considered bond issue in the Chinese domestic Corporation's net worth at the end of adequate for these purposes. since market. The 1.13 billion renminbi FY06 was $11.1 billion. fiscal year 2004, IFC has allowed for ($140 million equivalent) 10-year bonds IFC's capital adequacy ratio at the allocations from retained earnings were placed with institutional investors end of FY06, which includes paid-in for technical assistance programs; in the national interbank market. This capital, retained earnings (adjusted for these are an increasing function of bond issue represents an important step accounting items that do not count as realized income. for China's capital markets, facilitating available capital), and general reserves expansion of the country's bond market compared with risk-weighted assets, funding managemenT and increasing access to capital for both on- and off-balance sheet, stood at IFC funds its lending activities by issuing private companies. 54 percent. This is well above the policy bonds in international capital markets about $55 million of our FY06 minimum of 30 percent, defined under and has been the first multilateral, disbursements for technical assistance and the capital adequacy framework adopted or among the first, to issue bonds advisory services was expensed from IFC's by the Board of Directors in may 1994. in the local currencies of many retained earnings through the Funding IFC's leverage ratio--outstanding emerging markets. mechanism for Technical assistance and borrowings and guarantees measured most of the Corporation's advisory services. our donor partners in relation to the sum of subscribed investments are denominated in provided additional funding. pending capital and retained earnings--was u.s. dollars, but IFC borrows in a Board approval, we plan to designate 1.5 to 1, well within the limit of variety of currencies to diversify access $230 million of retained earnings from 4.0 to 1 prescribed by the Corporation's to funding, reduce borrowing costs, FY06 for technical assistance and financial policies. and develop local capital markets. advisory work. IFC's paid-in capital, retained Because most loans IFC makes are earnings, and general loan loss reserves denominated in u.s. dollars on a floating- risk managemenT constitute its financial capacity. This rate basis, most of our borrowings were our exposure to the 10 largest countries financial capital serves to support swapped into floating-rate u.s. dollars. in our portfolio declined to 52 percent the existing business, accommodate new borrowings in the international on June 30, 2006, from 57.4 percent medium-term growth opportunities markets totaled $1.8 billion equivalent at the end of FY00. IFC reviews and strategic plans, and provide a buffer in FY06. We borrowed $1 billion through exposures annually and, if necessary, to withstand shocks or crises in some a global u.s. dollar borrowing. The sets additional controls if risks appear to be paGE 28 IFC annual REpoRT 2006 concentrating. Guidelines for maximum management, a separate vice presidency portfolio manager. This structure helps exposure levels trigger reviews based on for risk management was established, identify problems and address them early risk and absorptive capacity. Guidelines apart from portfolio operations, effective on. an investment credit risk-rating also influence sector exposures, obligor July 1, 2006. system also supports this process. IFC limits, and product limits. The Corporation has traditionally ensures that banks participating in IFC Because IFC operates in high-risk prepared one set of financial statements loans are kept regularly informed of environments, the Corporation's and footnotes, complying with both project developments, as part of close effectiveness and capacity to deliver generally accepted accounting principles and continuing consultation. sound development outcomes depend in the u.s. and International Financial operational departments evaluate on its ability to manage various types Reporting standards. more information projects when difficulties arise. For projects with severe problems, our Euromoney magazine named IFC the Best special operations Department determines appropriate remedial action. sovereign supranational agency Borrower in It seeks to negotiate agreements with 2006 because of our pioneering work developing all creditors and shareholders to share the burden of restructuring so that local bond markets. problems can be worked out while the project continues to operate. In exceptional cases, when the parties of risks, including social, environmental, about specific financial and portfolio reach an impasse, IFC takes all necessary and corporate governance dimensions. policies is included in volume 2. Recently, and appropriate measures to protect sustainable, long-term portfolio growth, it has not been possible to satisfy the its interests. increased transaction volume, and greater requirements of both u.s. Gaap and IFC manages financial risks and emphasis on operating in frontier IFRs through one set of financial exposures for its investment portfolio countries and sectors all require a sharp statements, primarily due to differences through market-based risk management focus on managing the risks posed by in accounting rules for derivatives instruments, tools, and strategies. These the changing profile of our operations. and hedging. IFC plans to resume include instruments to perform hedging over the past few years, IFC has presentation of its financial statements transactions on the IFC loan and equity introduced a number of measures to using IFRs in fiscal year 2008. portfolio as well as equity buyback improve our management of financial, strategies. all transactions and strategies operational, and enterprise risks. IFC porTfolio managemenT share the goal of protecting the portfolio has initiated a further review of its as part of its supervision efforts, IFC against downside risk. practices to enhance risk and control closely monitors compliance with IFC management determines specific functions and to support the further investment agreements, visits sites to reserves against loan losses on the basis decentralization of operations. The check on project status, and helps find of portfolio reviews and recommendations goal is a structure and processes that solutions to problem projects. To by the portfolio management units in balance flexibility with control and strengthen portfolio supervision, we the investment departments. The entire allow adaptation to changing business have portfolio management units in all loan portfolio is reviewed quarterly. conditions. To further consolidate risk investment departments, each under a management determines general REpoRT on opERaTIons paGE 29 REpoRT on opERaTIons reserves using a monte Carlo­based this year was for projects in sub-saharan operations.* Corporate, departmental, and simulation technique. The Corporation's africa. We also focus on key business individual goals and incentives are aligned external auditors closely examine lines where we have a competitive with achievement of positive development the recommendations, policies, and advantage. over 70 percent of approved results. To further incorporate measurement methods for determining the reserves funding was for projects advancing of development results into IFC's work, this against losses. access to finance and improvements year we introduced a new development in investment climates. outcome tracking system for investment TeChniCal assisTanCe This year, we restructured our operations. For each project, staff identify and advisory serviCes assistance and advisory practices into development result indicators during IFC provides technical assistance and five business lines that correspond with the project approval process. We then advisory services for the same reason our operational strategy. This alignment track achievement of these results, as well as investment products: to promote provides greater focus to our technical as financial, economic, environmental, and sustainable private sector enterprises in assistance activities. It will leverage social performance, throughout the project developing countries. Through this work, our existing knowledge and capacity cycle. In FY06, we trained over 1,200 staff IFC contributes to development where and will improve our ability to replicate in development results measurement opportunities for investments may be successful programs. and completed initial assessments of the limited. We are also uniquely placed development results of 1,100 projects in to pioneer new business models that measuring ifC's ConTribuTion our investment portfolio. address social and environmental needs. To developmenT We have implemented a similar our expenditures for technical monitoring and evaluating development approach for our technical assistance assistance and advisory service work results are a critical part of IFC's processes. and advisory services, monitoring the increased by more than 23 percent in The independent evaluation system for our development impact of all active projects. FY06 to $134 million. most of this work investment operations has been ranked For a more rigorous assessment of is in low-income or high-risk countries. best among multilateral development impacts, we have designed experimental about 40 percent of funding approved banks dealing with private sector and control groups to measure success. IFc's technIcal assIstance anD aDvIsory servIces BusIness enaBlIng value aDDItIon to FIrms envIronmental anD InFrastructure envIronment socIal sustaInaBIlIty access to FInance · Diagnostic · Corporate governance · sustainable energy · health and education · Banking · policy and legislation · Entrepreneurship · Biodiversity · Infrastructure · nonbank financial institutions · Cross-border · Business service providers · Cleaner technologies and production · housing and property · subnational · small business linkages finance (supply chain) · sustainable investing · Industry-specific · securities markets · hIv/aIDs · social responsibility · Dispute resolution · microfinance · Gender · Business advocacy · Trade finance · Direct assistance to small and medium enterprises · Credit bureau · Grassroots organizations · Insurance · municipal finance · sustainable finance paGE 30 IFC annual REpoRT 2006 *Ranking was done by a consultant working for the Evaluation Cooperation Group of Multilateral Development Banks. at a conference held this fiscal year, we shared key findings and lessons from these activities with staff, donors, and external evaluation experts. IFC is committed to reporting on the development effectiveness of its activities. We will begin publishing s mRaF development results annually, starting with our FY07 annual report. nETsRakFo new poliCies on environmenTal YsETRuoC and soCial susTainabiliTy and disClosure This year, IFC completed a rigorous · IFC's new sustainability policy defines requirements for community engagement update of the policies and performance the Corporation's responsibility for and consultation, biodiversity protection, standards that we use to ensure social supporting project performance in community and worker grievance and environmental sustainability in all partnership with clients. mechanisms, use of security forces, and greenhouse gas monitoring. They add new requirements for community health, our new environmental and social standards safety, and security; labor conditions; are stronger, better, and more comprehensive pollution prevention and abatement; integrated social and environmental than those of any other international finance assessments; and management systems. institution working with the private sector. IFC's new disclosure policy expands our responsibility to disclose corporate information to the public. It clarifies our investments. The new policies also · Environmental and social performance the balance between IFC's disclosure resulted in an expanded commitment by standards define our client companies' as a publicly owned institution working IFC to disclose information to the public. roles and responsibilities for managing in the private sector and the business updating our policies and standards their projects, as well as requirements confidentiality of its client companies. gave us an opportunity to advance our for receiving and retaining IFC The policy improves IFC's disclosure own practices and provide greater clarity support. The standards include process and expands the types of for an increasing number of interested requirements to disclose information information disclosed. stakeholders. It included our widest as an integral part of engaging with public consultation ever, to ensure communities affected by projects. that we responded to evolving expectations of the private sector's · IFC's disclosure policy defines the role in sustainability. The new standards Corporation's obligation to disclose reinforce our conviction that active information about its activities. management of social and environmental risks is an integral part of responsible The new policies and performance investment and promotes the commercial standards are among the strongest success of our clients' enterprises. The environmental and social standards in revised framework consists of three parts: the world. The standards strengthen REpoRT on opERaTIons paGE 31 InvEsTInG anD WoRkInG REsponsIBlY TTEllop DET an IFC social and resettlement monitoring panel meets with members of a local community affected by the BTC pipeline in Turkey. InvestIng anD WorkIng responsIBly IFC is committed to promoting support on community development, goods. The list includes weapons sustainable private sector development energy efficiency, and clean production and munitions; tobacco; radioactive projects that are economically beneficial, and have a network of development materials; chemicals subject to financially and commercially sound, and facilities to assist small businesses in international phaseouts or bans; environmentally and socially sustainable. all emerging markets. all serve as a ozone-depleting substances subject We believe that sound economic growth means of promoting sustainable private to international phaseout; gambling; is key to poverty reduction, that it is sector development--locally, regionally, wildlife or wildlife products regulated grounded in the development of and globally. under the Convention on International entrepreneurship and successful private Trade in Endangered species; logging investment, and that an environment invesTing responsibly activities in primary tropical forests; conducive to business is needed for such IFC invests in enterprises majority-owned and some types of drift net fishing. investments to thrive and contribute to by the private sector in most developing To ensure that our investments are improving people's lives. IFC screens countries of the world and operates on a environmentally and socially sustainable, projects to ensure not only that they fully commercial basis, sharing the same we updated our performance standards are financially sound, but also that risks as other investors. We have to profit this year. please see page 31 for they meet IFC's stringent environmental from our investments to remain more information. and social performance standards, financially sustainable as a development do not depend on subsidies or other finance institution. our equity and quasi- finanCing susTainable energy distortions, and more generally benefit equity investments are funded from our IFC is developing new business models the host economy. capital and retained earnings, while for that stimulate private sector investment We see sustainability as an lending operations we carry out public in sustainable energy. This is part of opportunity to drive innovation in borrowings or private placements in our effort to increase investments in new areas and to add value to our international financial markets. our renewable energy and energy efficiency clients by helping them improve their profits increase our capital and our and to help new products, including business performance. our advisory ability to channel funds into higher-risk low-cost, clean energy alternatives, work includes a broad spectrum development projects and initiatives that enter the marketplace. We expect to of approaches to catalyze change, promote sustainability. increase substantially our contribution including guidance to companies on IFC's exclusion list prohibits the to the overall World Bank Group target corporate governance, hIv/aIDs, and financing of projects involving certain of 20 percent growth in this portfolio gender issues. We also offer extensive activities, production, or trade in specific between fiscal years 2005 and 2009. paGE 32 IFC annual REpoRT 2006 IFC is also playing an important role in the World Bank Group's effort to establish a framework for international financial institutions to accelerate hsohG investments in low-carbon energy BanaRp systems and to increase climate change-related technical assistance rIo Do Fogo WInD project to developing countries. We invested in 21 projects with energy We supported the construction, operation, and maintenance of a efficiency or renewable energy components 49.3-megawatt wind power park in Rio do Fogo in northeast Brazil with this fiscal year, including a wind project in an equity investment of $5.5 million in Energias Renovaveis do Brasil ltda Brazil and our first investments for small (Enerbrasil) this year. Enerbrasil is a wholly owned Brazilian subsidiary of hydropower projects in China and India. Iberdrola Energias Renovables, a leading renewable energy utility with about We lent $22 million for Yunnan zhongda 3,600 megawatts of wind projects under management worldwide. scheduled Yanjin power Generation Co. ltd. to build to begin operating in June 2006, the Rio do Fogo wind farm is expected to three small run-of-river hydropower be Brazil's first large-scale wind power project to enter commercial operation. stations in China with a total installed Enerbrasil will sell all its output to Centrais Eletricas Brasileiras, Brazil's capacity of 78 megawatts. India state-controlled electricity utility, under a 20-year power purchase agreement. hydropower Development Company Brazil has been a leading user of renewable energy resources, including received $15 million for construction and hydroelectricity and alcohol-based vehicle fuels. acquisition of six small hydropower To stimulate greater use of electricity generated from nontraditional stations. IFC provided $160 million in renewable energy resources such as wind, biomass, and small hydropower financing for the 155-megawatt la higuera projects, Brazil launched a national program that supports such projects hydropower project in the Tinguiririca through sales contracts with the utility at higher tariffs than would otherwise valley in Chile. The financing package be available in the market. included a $35 million senior loan, a $115 million syndicated loan for the account of participant banks, and a Carbon finanCe We also have about $150 million $10 million subordinated loan. Capitalizing on our ability to assess and under management in partnership with the We also provide innovative manage long-term project and credit government of the netherlands through mechanisms for energy efficiency. IFC risk in emerging markets, IFC launched which we purchase emission reduction introduced the China utility-Based Energy a new product to guarantee delivery credits from projects eligible under the Efficiency Finance program this year, with of carbon credits from projects in kyoto protocol's Clean Development and support from Finland's government. under developing countries to companies Joint Implementation mechanisms. In this program, we provide partial risk and financial institutions in industrialized FY06, we concluded emission reduction sharing to commercial and industrial countries. Through credit enhancement, agreements with three firms. Ecopower customers in China to support bank IFC will be able to help projects operates small run-of-river hydropower financing of energy equipment. utilities obtain a premium price for credits plants in sri lanka; van der Wiel stortgas working with us, including IFC client Xinao in the global carbon market, while recovers and flares methane gas from a Gas, will provide these customers with eliminating delivery risk for carbon landfill in argentina; and Enercon India cleaner energy. credit buyers. owns and operates wind farms. InvEsTInG anD WoRkInG REsponsIBlY paGE 33 InvEsTInG anD WoRkInG REsponsIBlY lisTening To our ClienTs IFC conducts an annual survey to obtain client companies' views on their experience of working with us. Each year, we send the survey to about a quarter of the clients in our portfolio. We survey most clients twice over the life of a project or corporate investment, TTEllop thus obtaining feedback at different DET phases of a project that can help a rainwater collector well system developed as part of a technical assistance program in Rajasthan, India, will improve our client service. The survey reduce the distance local women will have to walk for water. is anonymous so that clients can provide honest feedback. corporate governance advisory work. working responsibly Client satisfaction with our overall although clients expressed increased practicing sustainability in our service was 79 percent in 2005. Repeat satisfaction with IFC's responsiveness, headquarters in Washington, D.C., and clients, even more than first-time clients, half the respondents thought that IFC in our field offices is an important part appreciated our value-added services, procedures were inefficient, and a of living our mission and being consistent such as environmental, social, and majority reported that IFC is risk-averse. with what we ask of our clients. This cultural outreach IFC supports local communities where we work. In 1997, IFC moved into its new headquarters building in Washington, D.C., on a site that formerly housed a theater. IFC replaced this cultural outlet with a regular performing arts program that is free and open to the public, reaching about 2,000 members of the community each year. We host international musicians, dancers, theater, and film, using the performances as a starting point for educational workshops, lectures, and discussions. We also partner with other organizations to use performing arts to raise awareness of social issues. paGE 34 IFC annual REpoRT 2006 carBon emIssIons For Fy06 For headquarters facility and travel of Washington­based staff. Fuel use air travel* means improving our environmental defined goals. up to half felt more could 148 tonnes Co2 10,468 tonnes Co2 1% 55% and social footprint, which encompasses be done to encourage interdepartmental the direct impacts from the operation cooperation and strengthen the link of our buildings and daily work habits, between headquarters and field as well as the relationship between IFC offices, and a quarter indicated that and the local communities in which we improvements in internal procedures Electricity 8,288 tonnes Co2 work and live. would enhance their ability to serve 44% Based on guidelines from the Global clients. Compared with the previous Reporting Initiative, recommendations survey, the Corporation's recognition *Air travel emissions are based on the number of miles flown by World Bank Group staff. IFC's share is based by our own environmental experts, and an of staff contributions was seen as the on its percentage of total staff. independent review conducted in 2002, area of greatest improvement. we identified priority areas for the short and medium term that reflect the most significant impacts of our offices. These IFc goes carBon neutral priority areas, which we actively managed, include: energy use, procurement, waste, on June 5, 2006, World Environment Day, the World Bank Group became carbon paper consumption, electronics use, neutral. This means that greenhouse gas emissions from its Washington, D.C., community outreach, diversity, and offices, its spring and annual meetings, staff commuting, and all operational staff awareness and engagement. travel from headquarters are now offset by investments in renewable energy more information is available in the and energy efficiency and through the purchase of verified emissions reductions Corporation's Sustainability Report, from projects in developing countries. available at www.ifc.org/sustainability. The vast majority of IFC's carbon emissions derive from air travel and electricity use. since December 2004, IFC has been purchasing green, renewable lisTening To our sTaff power for all its electricity in Washington. The headquarters building was The World Bank Group conducts designed to be energy efficient, and it received the Energy star label in 2005 an anonymous staff survey every two and several previous years, ranking it in the top 25 percent of energy efficient years, from which IFC staff responses buildings in the united states. For remaining emissions, IFC and the World Bank are tabulated separately. The survey have purchased carbon-offset credits--specifically, verified emissions reductions seeks feedback on service to clients, from projects by the Forestry agency in moldova and precious Woods in Costa teamwork, integrity, learning and Rica. IFC chose these offsets in recognition of the role of forests in countering development, and work-life issues. desertification--the theme of this year's World Environment Day. The 2005 survey showed that 84 percent of staff believe IFC has well- InvEsTInG anD WoRkInG REsponsIBlY paGE 35 InvEsTInG anD WoRkInG REsponsIBlY ifC's governanCe · The personnel Committee advises on other time in our history. The majority IFC coordinates its activities with the other compensation and other significant of these placements were in field institutions of the World Bank Group but personnel policies. offices around the world as part of our is legally and financially independent. our 178 member countries provide IFC's share our growth and decentralization provide an capital and collectively determine our policies through a Board of Governors opportunity to strengthen workforce diversity and a 24-member Board of Directors. as well as our talent pool. voting power is weighted according to the share capital each director represents. The five countries with the · The Committee on Governance and move toward greater decentralization. largest voting power are the united states Executive Directors' administrative Today, 47 percent of our staff work in (23.66 percent), Japan (5.87 percent), matters handles additional field offices, and 53 percent are based Germany (5.36 percent), France (5.04 responsibilities of the Board. at our Washington, D.C., headquarters. percent), and the united kingdom (5.04 This represents a significant shift: In percent). voting, however, is rarely used organizaTion and sTaffing 2001 only 32 percent of employees as a means of reaching decisions. IFC's a new management structure, announced worked in field offices. Board emphasizes rigorous discussion this year and effective at the beginning of our growth and decentralization as a means of reaching consensus. FY07, adds two new vice presidents for provide an opportunity to strengthen IFC's Board of Directors meets IFC regions. To maintain the Corporation's workforce diversity as well as our talent regularly at headquarters in Washington, financial strength while allowing for pool. IFC has made progress on key D.C., where it reviews and decides on risks, the new structure separates the diversity issues in recent years by investment projects and provides overall responsibility for risk management from increasing the representation of women strategic guidance to IFC management. investment operations. and people from developing countries and IFC agreed to begin disclosing minutes IFC's workforce is expected to by raising staff awareness of this issue. grow by up to 50 percent over the Going forward, issues of diversity and of formal Board meetings to the public next three years, compared with a inclusion will receive greater attention, in 2006. Directors also serve on one or 35 percent growth rate over the past with a particular focus on women in more standing committees that help the five years. as part of the Board- senior positions, wider representation of Board fulfill its oversight responsibilities approved growth strategy, we hired nationalities, and recruitment of staff from by examining policies and procedures more professionals in FY06 than at any more diverse educational backgrounds. in depth. · The audit Committee advises on financial and risk management, corporate governance, and oversight issues. · The Budget Committee considers business processes, administrative policies, standards, and budget issues that have a significant impact on the cost- effectiveness of Bank Group operations. · The Committee on Development Effectiveness focuses on operations nERRa and policy evaluation and development W.J effectiveness with a view to monitoring nIloC progress on poverty reduction. Children at a community center built and run by lafarge surma Cement in Bangladesh. paGE 36 IFC annual REpoRT 2006 Board of Governors Director-General ifC organizaTional sTruCTure Independent Evaluation Board of Directors Compliance advisor/ ombudsman president (IFC & mIGa) vice president & Corporate secretary Director, Independent Executive vice Evaluation Group president vice president (Bank/IFC) vice president vice president vice president vice president vice president private sector Dev. Europe, africa, asia and latin vice president human Resources Finance and & IFC Chief middle East america Industries Risk management & administration Treasurer Economist Director Director Director (Bank/IFC) Director Director East asia Director syndications and Corporate Central & Eastern Business Risk & the pacific advisory services Resource Governance Europe Group mobilization Director (Bank/IFC) Director Director Director Director Investment middle East latin america agribusiness Controller's & Climate & north africa & the Caribbean Budgeting General Counsel Director (Bank/ Chief Information IFC) small & Director Director Director officer medium southern Europe south asia Global Financial Corporate Business Enterprise & Central asia markets Informatics senior manager Corporate Director Director (Bank/IFC) Director Relations sub-saharan Director Global Info. Corporate africa Tokyo office & Comm. portfolio Technologies management Director Environment Director & social Global Director Development manufacturing Credit Review & services Director senior manager municipal Fund operational Director (Bank/ strategy IFC) Grassroots Director Business Financial Director organizations operations (Bank/IFC) oil, Gas, mining, & Chemicals Director Director health & Risk management Director Education & Financial policy private Equity & Investment Funds Director Director Infrastructure special operations Director Trust Funds InvEsTInG anD WoRkInG REsponsIBlY paGE 37 InvEsTInG anD WoRkInG REsponsIBlY moniToring performanCe well as the Corporation's accessibility to Bank Group management, and IFC tracks clients' compliance with affected and concerned stakeholders: the promoting resolution of disputes. commitments made in their investment Compliance advisor/ombudsman and the Compliance audits are independent agreements, such as reporting on Independent Evaluation Group (previously assessments of the application of relevant environmental and social performance the operations Evaluation Group). policies, standards, procedures, and as stipulated prior to disbursement and guidelines. The focus is on the role of submission of annual reports on financial, COMPLIANCE ADVISOR/OMBUDSMAN IFC, but the actions of a client company environmental, and social performance. The Compliance advisor/ombudsman is may also be considered, as well as the The revision of IFC's environmental and an independent post reporting directly to influence of other parties or factors on social policy and performance standards the president of the World Bank Group, ensuring or hindering compliance. The and the introduction of improved with a mandate to help IFC address Cao provides independent, timely, and management systems will allow us complaints from people affected by objective advice to the president of the to track and support sustainability private sector development projects; to World Bank Group and the management throughout the investment cycle. do so in a manner that is fair, objective, of IFC and mIGa. This advice relates only and constructive; and to enhance social to broader environmental and social aCCounTabiliTy and environmental outcomes. The Cao's policies, guidelines, procedures, Two independent units work to ensure office has three distinct functions: resources, and systems. IFC's accountability to shareholders, as ensuring compliance, advising World The Cao also promotes resolution of complaints raised by affected communities about the social and environmental complIance aDvIsor/omBuDsman actIvItIes DurIng 2005 anD 2006 effects of IFC projects. The ombudsman's primary function is to convene project stakeholders--including community complIance auDIts members, IFC, client companies, and Brazil: amaggi soybean Investment other relevant parties--in collaborative Democratic Republic of Congo: Dikulushi Copper and silver mine approaches to problem-solving. uruguay: orion and Celulosas de m'Bopicua pulp mill projects In FY06, the Cao received five complaints on four different projects that aDvIsory project IFC financed or considered financing. Cao Comments on Draft IFC policy and performance standards INDEPENDENT EVALUATION and Draft policy on Disclosure Information GROUP FOR IFC The Independent Evaluation Group, an omBuDsman InterventIons independent unit within the World Bank Botswana: kalahari Diamond mine Group, reports directly to the Bank Chile: pangue hydroelectric project Group's Boards. Formerly the operations Georgia: Baku-Tbilisi-Ceyhan Export pipeline Evaluation Group, IEG adopted its new Guatemala: marlin Gold and silver mine name following Board approval of a India: allain Duhangan hydroelectric project mandate to foster independence of the kazakhstan: karachaganak oil and Gas Condensate Field evaluation function across the World peru: antamina Copper, zinc, silver, and molybdenum mine Bank Group. The World Bank, IFC, and peru: Yanacocha Gold mine mIGa each have a separate IEG unit uruguay: orion and Celulosas de m'Bopicua pulp mill projects under the director general of evaluation, and a number of evaluations are joint Details on these activities can be found on the Cao Web site, www.cao-ombudsman.org. efforts. IEG-IFC also cochairs the paGE 38 IFC annual REpoRT 2006 multilateral Development Bank Evaluation documents distributed to IFC's Board. The earlier that have reached early operating Cooperation Group's working group new policy addresses public demand for maturity. staff research and analyze on private sector evaluation, which is greater disclosure and transparency by results and rate each project on nine harmonizing evaluation policies, multilateral institutions and will indicators, using a four-point scale. IEG standards, and measurement for significantly expand the amount of IEG then independently reviews each report development impact reporting among information that is publicly available. and the associated project files and multilateral development banks with verifies each rating (or rerates it, as private sector operations. INDEPENDENT REVIEW OF IFC'S appropriate) to ensure that evaluation IEG evaluations are distributed PROJECT OUTCOMES standards are applied consistently within IFC, and recommendations from Each year, using corporate guidelines throughout IFC. IEG synthesizes its major IEG reports and their implementation developed jointly by IEG and IFC findings with those of the previous are tracked and reported to IFC's Board management, IFC's investment staff two years in its annual Review. of Directors. a new disclosure policy that execute project self-evaluations for a This year, IEG presented went into effect in may 2006 allows for representative, randomly selected sample development and investment results public disclosure of all IEG evaluation of investments approved about five years from 210 randomly selected operations evaluated between 2002 and 2004, or 53 percent of all investments that were FIgure 1: lIttle traDe-oFF BetWeen Development anD Investment outcomes approved between 1997 and 1999. It 79 percent of operations (by number) had either high-high or low-low outcomes (squares 1 and 4). In the projects that IFC chose to support, there was thus little trade-off between development impacts also examined, with an eye toward future and investment results measured by outcome criteria. marginally more operations achieved good results, how effectively IFC is managing development outcomes (59 percent) than good investment outcomes (55 percent), a pattern four key drivers of project outcomes: consistent with the data in previous annual Reviews. work quality, risk intensity, strategic outcomes by number of projects choices, and business climate. In addition, the report assessed whether 59% IFC is addressing the unique challenges of doing business in sub-saharan africa in the context of the proposed scaling up of its operations there (see page 47). 1 2 12% 47% overall, IEG found that positive development and investment outcomes e high Development moctuotne hGIh tend to occur together in the projects high Development outcome outcome high IFC Return IFC chooses to support. IFC achieved low IFC Return 55% high development and high investment outcomes in 47 percent of projects mpoleveD 4 32% 3 9% (55 percent by volume), indicating that at the individual project level, they made low Development low Development a satisfactory or better contribution Wol outcome outcome low IFC Return high IFC Return both to development in a country and to IFC's profitability and financial capacity for future development. among the loW hIGh 210 operations evaluated, 59 percent achieved high development outcomes, Investment outcome while 55 percent achieved high investment outcomes (see figure 1). InvEsTInG anD WoRkInG REsponsIBlY paGE 39 InvEsTInG anD WoRkInG REsponsIBlY FIgure 2: IFc has IncreaseD Its commItments In strategIc sectors sInce 1998 Without sector strategy (pre-1998) With sector strategy (post-1998) Finance and Insurance 19% Finance and Insurance 37% other sectors 42% Infrastructure and Information Technology 17% other sectors 63% health and Education 1% health and Infrastructure and Information Education 2% Technology 19% mixed outcomes (boxes 2 and 3 in its wider development impact. IEG's having a positive impact during the figure 1) occurred in 21 percent of projects annual Review confirmed the importance operational phase of evaluated projects. and mainly reflected financing instrument of the four key drivers within IFC's core Risk intensity has been reduced. IFC choice. projects with high development business model: put in place more intensive credit review outcomes but low investment outcomes · IFC's work quality, especially in the procedures, more realistic debt service involved mostly equity financing, while screening, appraisal, and structuring coverage ratios, and more use of quasi- projects with low development outcomes of projects and investments equity instruments in commitments but high IFC investment outcomes involved · The level of a project's intrinsic risk approved between 2002 and 2004. mainly secured senior loans. high intensity at approval, along with the This also suggests improvement in IFC investment/high development outcomes financial risk in IFC's associated appraisal and structuring quality and the were also characterized by instrument instrument choice potential for better outcome quality from choice and higher IFC work quality ratings. · IFC's strategic choices of a sector, more recently approved projects. In 65 percent of projects with high thematic, or country focus Better overall outcomes were found investment and high development · Changes in business climate quality for investments in IFC's strategic sectors outcomes, IFC provided only a loan for between approval and evaluation than for those in nonstrategic sectors. IFC its own account. In the overall sample, Where key drivers of results can be has increased its share of commitments loan-only investments were made in controlled, IFC is generally managing them in strategic sectors since 1998 (see about half of all cases. well. IFC has made positive progress in figure 2). overall, the evaluated low investment/low development the first three areas, reflecting the results investment operations in the strategic outcomes were more likely to reflect poor of a number of work quality initiatives sectors yielded higher average work quality ratings or be projects in implemented since 1998 and the pursuit development and investment outcome environments with high or increasing of a more targeted corporate strategy. success rates than operations in business climate risk. only a quarter of Work quality has improved nonstrategic sectors. equity investments had satisfactory or substantially in recent years. The IFC's frontier strategy, a focus on excellent investment outcomes. This is upward trend largely reflects improved activity in high-risk or low-income not surprising given the high-risk nature supervision and administration, an countries that began in 1998, has led IFC of equity investments. IFC's investment indication that several IFC quality to increase its investments in areas where success rate is similar to the typical improvement steps--including it has the most potential to make a venture-capital type of return pattern, strengthened environmental procedures difference. Because of this strategy, where a few projects drive overall in 1998, the establishment of portfolio business climate risk is rising in IFC's success. Generally, a project's financial units in 1999, and the introduction of portfolio, and effective management performance is a strong determinant of IFC's sustainability initiative in 2001--are of this risk will be critical. paGE 40 IFC annual REpoRT 2006 RepoRt on Regions report on regions 2006pAge 41 report on regions 2006 sub-saharan Africa AngolA Benin BotswAnA BurkinA FAso Burundi CAmeroon CApe Verde CentrAl AFriCAn repuBliC ChAd Comoros demoCrAtiC repuBliC oF Congo repuBliC oF Congo Côte d'iVoire djiBouti equAtoriAl guineA eritreA ethiopiA gABon the gAmBiA ghAnA guineA guineA-BissAu kenyA lesotho liBeriA mAdAgAsCAr mAlAwi mAli mAuritAniA mAuritius mozAmBique nAmiBiA niger nigeriA rwAndA senegAl seyChelles sierrA leone somAliA south AFriCA sudAn swAzilAnd tAnzAniA togo ugAndA zAmBiA zimBABwe iFC's stRategy FoR sub-sahaRan aFRiCa Commitments (U.S.$ millions) · increase investment commitments to about $900 million by Fy09 · improve the investment climate; enhance support for small and Financing for iFC's own account syndications medium enterprises; and proactively develop large investment projects $900 · increase emphasis on cross-border activities, with specific attention 700 to the development of financial and physical infrastructure, trade $600 finance, small business competitiveness, and support for global expansion of emerging enterprises 405 445 · significantly increase iFC's reach and sustained impact in frontier $300 countries by integrating technical assistance and investment operations 140 26 $ 0 0 0 0 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 38 30 (U.S.$ millions) total expenditures for technical assistance nigeria and advisory service projects (u.s.$ millions) $27 $26 Fy06 $544 Fy05 $ 419 south africa iFC staFF and Consultants Fy06 $206 headquarters Field offices Fy05 $ 191 As of june 30, 2006 5 237 Cameroon Fy06 $190 Fy05 $ 121 pRojeCt FinanCing and poRtFolio Kenya (U.S.$ millions) Fy06* Fy05** Fy06 $ 152 Financing committed for iFC's account $ 700 $ 445 Fy05 $ 115 loans*** 393 357 mozambique equity*** 72 36 Fy06 $ 121 guarantees and risk management 235 52 Fy05 $ 139 loan syndications signed 0 0 totAl Commitments signed 700 445 *Includes regional shares of Veolia Water AMI investments, which is officially classified as a global project. Committed portfolio for IFC's Committed portfolio for iFC's account 2,033 1,698 account includes regional share of BAPTFF, which is officially classified Committed portfolio held for others 168 194 as a global project. **Includes regional share of BAPTFF investment, which is officially (loan and guarantee participations) classified as a global project. ***Loans include loan-type, quasi-equity products. Equity includes equity- totAl Committed portFolio 2,201 1,892 type, quasi-equity products. pAge 42 iFC AnnuAl report 2006 olok A mitAF utehsiA Advanced Bio-extracts limited works with farmers in kenya, tanzania, and uganda to supply critical active ingredients to the pharmaceutical industry. impRoving the Climate FoR pRivate investment the sub-saharan region has seen six sector investment and better integration ImprovIng Access to FInAnce consecutive years of gdp growth, of iFC's investments and technical in Africa, 80 percent of firms are small, including economic expansion of assistance, has led to a substantial and gaining access to financing is an 4.6 percent in calendar year 2005. increase in our business in sub-saharan even greater challenge for private national and international efforts to Africa. Commitments in the region companies here than in other emerging increase foreign direct investment have totaled $700 million during the regions. to bridge this gap, iFC and the met with some success, with investment fiscal year, an increase of nearly international development Association, in natural resources particularly strong. As 60 percent from the previous year, and the world Bank's concessionary lending a result of high prices for minerals and oil were concentrated in financial market arm, are working together to strengthen and a rise in profitability for investments in and infrastructure projects. iFC's total local environments for financial markets the extractive and natural resource sectors, portfolio in the region surpassed by enhancing the ability of financial resource-rich nations have dominated $2 billion this year for the first time. institutions to lend profitably to small the region's recent economic growth. in late 2005, iFC launched the businesses and developing innovative macroeconomic management in several private enterprise partnership for Africa, ways to supply risk capital. the idA-iFC large countries has steadily improved, and, or pep Africa, as its primary vehicle for sme program is being piloted in 10 notwithstanding some continuing problem promoting sustainable private sector African countries: Burkina Faso, ghana, spots, there is greater political stability, growth. in response to the challenges kenya, madagascar, mali, mozambique, with fewer conflicts across the region. of the regional investment climate, pep nigeria, rwanda, tanzania, and uganda. intraregional investments, led by south Africa is collaborating with the world the program offers technical assistance, African firms, have increased, as have Bank and African governments to capacity building, output-based grants, investments by firms based in developing streamline business start-up procedures and assistance with regulatory reform. countries outside of Africa. and tax systems, as well as to improve Financial products available include economic expansion, along with the private sector property rights and performance-based lending, region's growing appreciation of private women's access to finance. microfinance, and local currency report on regions 2006 pAge 43 suB-sAhArAn AFriCA portfolio guarantee products. this About half of iFC's sub-saharan collateral, iFC is increasing its investments program complements iFC initiatives investments are in financial sector projects, in leasing projects as well as its support for trade and housing finance, the and we also support financial sector to private banks that provide alternative pilot sme solution Centers we have development with technical assistance. means of financing. Commitments this set up in madagascar and kenya, and Because some African countries lack year included financing for credit lines and our initiative for small and medium property rights, and local borrowers microfinance facilities for small businesses enterprises in mozambique. cannot arrange financing without in kenya, nigeria, and uganda. InFrAstructure Investments iFC's global trade Finance program aims during Fy06, iFC committed $185 million to projects in the power, to increase developing countries' share of water and sanitation, and transportation worldwide trade and promote trade to sectors. to expand the number of viable and from emerging markets. infrastructure projects in Africa, iFC has increased its collaboration with other members of the world Bank group. iFC lAheB hsejAr gRape gRoweR expands beyond in other countries across the region gain a black economic empowerment south aFRiCan base by diversifying their risk exposure and project, the thandi program, which is a developing experience in other markets. joint effort between iFC and Capespan, iFC made a rand-denominated loan iFC's investment in karsten also supports south Africa's premier fruit exporter, equivalent to $7.24 million this fiscal year the continued growth of a successful to help black south African farmers. to karsten Farms, a leading south African firm, allowing it to increase capacity, working with a farm involved in exporter of table grapes. the firm is diversify its production base, and work the program, karsten is sharing using the loan to expand its operations in toward year-round operation. its technical skills and marketing south Africa and establish grape farming in addition to providing financing, experience with small farmers, operations in egypt. this reflects a trend iFC will help the company implement upgrading the quality of grapes for in foreign direct investment by emerging community programs for hiV/Aids, export, and training other Africans market firms, known as south-south adult literacy, skills training, and health in international standards for quality investment. African companies investing care. karsten is the technical partner in control and handling of fruit. pAge 44 iFC AnnuAl report 2006 provided advice and technical assistance on the bidding process for the railway network linking kenya poweR geneRation in senegal and uganda, and we are working with the world Bank's partial risk iFC played a key role in developing and financing a 67.5-megawatt independent guarantee department to finance power project in senegal that will provide much-needed capacity to the the new concession. our support country's electricity sector. idA provided a partial-risk guarantee to help a local includes a pep Africa program that commercial bank provide local currency financing for the project. maximizes economic links to the iFC's commitment for 17 million, part of a package of loans from a number kenyan economy. iFC and the world of development banks, will be used to build a privately run, heavy fuel oil­fired Bank have also worked together to diesel power generation plant outside of dakar. intended to provide baseload provide financing combined with capacity, the plant is more cost-effective than other power generation options. technical and policy advice for power from the plant will be purchased by société nationale d'electricité du infrastructure projects in Cameroon, sénégal (senelec), the state electric utility, under a 15-year agreement, and a Côte d'ivoire, ghana, rwanda, private sector partner will be selected through a bidding process. senegal, and uganda. FosteRing gRowth in tRade FinanCe iFC's global trade Finance program aims to increase the developing countries' share of worldwide trade and promote trade to and from emerging markets. through the program, we offer confirming banks partial or full guarantees against underlying trade transactions and oCsArrAC AnA cover the payment risk of participating issuing banks. iFC provided a partial trade finance guarantee for a $1 million export of palm oil. in the first nine months of the · A $370,000 export of steel products sector investment in that country's program's operation, iFC issued more from south Africa to kenya, where iFC's urban transportation. than 380 guarantees for a volume of support accommodated a small-value iFC's guarantee coverage of bank $317 million. From high-tech products to transaction that was important in risk allows recipients to expand their agricultural goods, the program supports promoting trade between two African trade finance transactions within an trade through a network of issuing banks markets at a time when the confirming extensive network of countries and and confirming banks in more than bank could not accommodate the credit banks and enhance service to their 40 countries. the average guarantee exposure on the issuing bank. clients. iFC hopes to increase trade is for less than $1 million, and about · iFC's $9.8 million three-year financing in other African countries 80 percent of transactions this year guarantee for the sale of buses from with high export potential, including were in sub-saharan Africa. deals in Brazil to nigeria provided scarce Angola, Cameroon, ethiopia, rwanda, Africa included: longer-term financing for private senegal, and sudan. report on regions 2006 pAge 45 suB-sAhArAn AFriCA we provided $89 million in financing to Aes sonel, Cameroon's electricity utility, to improve the reliability of electricity supply and connect new customers. our largest infrastructure commitment to date in Africa is for a financing package for Aes sonel, Cameroon's integrated electricity utility. As part of a package of loans from several development finance institutions, this will be used to improve the reliability of electricity supply and connect new customers over the next five years. iFC worked closely with the world Bank, which is engaged in further discussions on infrastructure with Cameroon's noskCinluAp government. iFC and idA are also Aes sonel plant in Cameroon. working with ghana's government to encourage private investment in the services that operates public services a freight-hauling company. the money power sector. in both industrialized and developing helped finance the expansion of the iFC made its first investment in countries. iFC's investment will support company's truck fleets, the purchase of water and sanitation in Africa with a improvements in water and sanitation tracking and monitoring equipment, and 65 million financing package to Veolia services across the continent. the development and construction of water Ami, a company established to in the transportation sector, we storage depots. Also in Cameroon, iFC pursue water and sanitation projects in made our first commitment for a logistics advised the government on the selection Africa. it is part of the Veolia environnement project in Africa, providing a loan for the of sn Brussels as manager and partial group, a world leader in environmental equivalent of $1.3 million to 3t-Cameroon, owner of Cameroon Airlines. investing in post ConFliCt and general manufacturing. short-, codes in the drC, and iFC committed Regions: demoCRatiC RepubliC medium-, and long-term initiatives were financing for the country's first project oF Congo readied for implementation following the to be governed by the new mining code. country's elections. we exercised our option to become a Following iFC executive Vice president joint iFC­world Bank teams have shareholder in kingamyambo musonoi lars thunell's visit to the democratic found potential for private sector tailings sArl, investing $5.5 million for a republic of Congo in February 2006, iFC investments in power, telecommunications, 7.5 percent equity stake. the investment and the world Bank launched a pilot engineering and construction, and financial will support a feasibility study for the post conflict initiative to maximize markets, as well as for advisory services treatment of waste byproducts from opportunities for private sector and technical assistance in a number of mining activities. we are also considering investment and technical assistance areas, including infrastructure, investment providing kmt with additional debt and following the country's political climate, and entrepreneurship. we equity financing for the construction of transition. the first phase involves an anticipate that lessons learned from its $400 million copper- and cobalt- intensive effort by six iFC teams-- our work in the drC will provide the mining operation, which is expected to coordinating with the world Bank, foundation for a comprehensive world open in 2007. By investing in the early migA, and drC authorities--to assess Bank group approach to reconstruction stages of the project's implementation, opportunities and challenges for private and engagement in post conflict countries. iFC has a role in environmental and social enterprise in telecommunications, iFC has worked with the world Bank impact assessments and in plans for infrastructure, mining, financial markets, to establish new investment and mining community engagement. pAge 46 iFC AnnuAl report 2006 ieg assessment oF iFC's priority for the region, along with the private investment have also increased. aCtivities in aFRiCa FRom development of small enterprises, which iFC's operations have also changed in 1990 to 2005 are the mainstay of African economies. sub-saharan Africa in recent years. since however, iFC's investment 1995, iFC has established a stronger this year, as the Corporation seeks to opportunities and commitment levels in regional presence, with a hub office expand its activities in sub-saharan many parts of the region have remained in johannesburg supporting six smaller Africa, the independent evaluation group constrained by the poor business climate offices. programs to support small assessed iFC's management of the and a relative lack of viable investment businesses have been restructured, unique challenges in the region. Business projects with good private sector sponsors. and the private enterprise partnership for climate risk remains a major barrier to As the figure below illustrates, weak Africa has been launched. iFC's African private investment in much of Africa. business climates have severely curtailed except for a few countries, Africa has investment in the region, especially in portfolio was unprofitable from 1990 the world's highest-risk investment non­oil-producing, frontier Africa. to 2003, but there has been a significant environment. iFC's strategies in Africa A few African countries have, turnaround in the past few years. this is since 1994 have repeatedly targeted however, improved investment climates important because financially successful business climate improvement as a key in the last few years, and their levels of enterprises are the most likely to have a wider development impact. For the evaluated projects in pRivate investment in aFRiCa vs. Rest oF woRld, 1990 to 2004 Africa that achieved high development outcomes, ieg estimated that each sub-saharan Africa $1 of investment provided $1.50 of net latin America & the Caribbean economic benefits in present-value middle east & north Africa terms. in contrast, projects with low Asia europe & Central Asia development outcomes provided a net economic benefit of only $0.10 per Frontier countries outside Africa $1 invested. overall, the development Frontier countries in Africa oil-producing frontier success rate was 48 percent of countries in Africa non­oil-producing frontier countries in Africa projects by number and 64 percent of 0 5 10 15 20 investments by volume. iFC's proposed AVerAge priVAte FiXed CApitAl FormAtion 1990­2004 (% gdp) scaling-up in Africa will be more effective if it is able to match higher volumes with sourCe: world BAnk stAtistiCs dAtABAse better-quality outcomes. drol drAhCir report on regions 2006 pAge 47 report on regions 2006 east Asia and the pacific CAmBodiA ChinA Fiji indonesiA kiriBAti repuBliC oF koreA lAo people's demoCrAtiC repuBliC mAlAysiA mArshAll islAnds FederAted stAtes oF miCronesiA mongoliA myAnmAr pAlAu pApuA new guineA philippines sAmoA solomon islAnds thAilAnd timor-leste tongA VAnuAtu VietnAm iFC's stRategy FoR east asia and the paCiFiC · strengthen financial institutions in the region, deepen capital markets, and expand access to finance for small and medium enterprises Commitments (U.S.$ millions) · support Chinese domestic companies seeking to adopt international standards in governance, environmental, and social practices Financing for iFC's own account syndications · Assist in developing nonbank financial institutions and capital $1,200 markets and improve access to finance for underserved markets 982 · Create model infrastructure projects to meet indonesia's significant $ 800 infrastructure needs 730 740 · develop financial markets and invest in infrastructure in the region's 573 low-income and high-risk countries, with focus on the needs of $ 400 small and medium enterprises 243 72 $ 0 10 33 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 41 40 (U.S.$ millions) total expenditures for technical assistance and China advisory service projects (u.s.$ millions) $26 $24 Fy06 $1,498 Fy05 $ 999 iFC staFF and Consultants indonesia Fy06 $ 606 headquarters Field offices Fy05 $ 494 As of june 30, 2006 6 344 philippines Fy06 $ 407 pRojeCt FinanCing and poRtFolio Fy05 $ 460 (U.S.$ millions) Fy06* Fy05 thailand Financing committed for iFC's account $ 982 $ 740 Fy06 $ 250 loans** 624 520 Fy05 $ 336 equity** 310 195 vietnam guarantees and risk management 48 25 Fy06 $ 104 loan syndications signed 243 72 Fy05 $ 87 totAl Commitments signed 1,225 811 Committed portfolio for iFC's account 3,253 2,920 Committed portfolio held for others 689 821 *Includes regional shares of Soco Facility and Avenue Asia investments, (loan and guarantee participations) which are officially classified as global projects. **Loans include loan-type, quasi-equity products. Equity includes equity- totAl Committed portFolio 3,942 3,741 type, quasi-equity products. pAge 48 iFC AnnuAl report 2006 gnud nAut gnAoh iFC is helping the Bat trang Ceramics Association in Vietnam increase sales and export its products. balanCing sustainable pRivate seCtoR development with Rapid gRowth east Asia and the pacific continues to system, broadening the base of growth term local currency financing, be the world's fastest-growing region, through small business development, including local currency bonds, with gdp growth of about 6.8 percent meeting infrastructure needs, and and investing in nonbank financial in calendar year 2005, down slightly managing the social and environmental institutions. this year, iFC was the from 7.5 percent in 2004. economic consequences of high growth. iFC's first multilateral issuer of a panda growth accelerated in Cambodia, strategy in east Asia and the pacific is bond in the Chinese nongovernment indonesia, and Vietnam and continued to develop solutions to these challenges domestic market, a transaction that at very high rates in China, whereas through innovative combinations of marked the opening of the renminbi it slowed in malaysia, the philippines, financing, technical assistance, and bond market to international thailand, and the smaller economies public-private partnerships. financial institutions. in the pacific region. while higher iFC's commitments in the iFC's financial sector commitments oil prices have moderated growth, region totaled $982 million in Fy06, in the region included a local currency consumer and business confidence in compared with $740 million in Fy05, loan of 1.3 trillion rupiahs, equivalent the region has remained strong, and and included increased financing for to about $150 million, to indonesia's pt private consumption and investment agribusiness, information technology, Bank danamon. this loan, our largest growth have gained momentum. and manufacturing projects. we local currency facility globally and our intraregional trade continues to opened two new technical assistance largest transaction to date in indonesia, grow as Chinese companies become facilities this year, one in a rural and will support expansion of the bank's important investors both within and underdeveloped part of the philippines microcredit unit. beyond the region. and the other in an area of indonesia rapid growth is creating recovering from the 2004 tsunami. support For smAll BusInesses tensions regarding infrastructure, the AnD regIonAl FIrms environment, the social fabric, and FInAncIAl sector Development As part of its development mandate, iFC financial systems. the sustainability during the fiscal year, iFC continued supports the transformation of domestic of the region's economic growth will to deepen and diversify the region's companies into regional and global depend on deepening its financial financial sector by introducing long- players. iFC provided a $45 million loan report on regions 2006 pAge 49 eAst AsiA And the pACiFiC for expansion of production capacity to indonesia's Centralpertiwi Bahari, a pRomoting aCCess to CRedit in indonesia subsidiary of Charoeon pokhpand group, the leading agribusiness group in Asia. this indonesian banks generally provide short-term loans for working capital to will help the company meet increasing large businesses, rather than to the rapidly growing smaller firms that make a demand for its exports, while creating key contribution to economic growth. to combat financing obstacles for 5,000 jobs in rural areas with limited smaller firms, iFC's program for eastern indonesia sme Assistance and its economic activity. we also committed project partner, swisscontact, have established new business centers, called $8 million for paul maitland international, promoting enterprise Access to Credit, to help small businesses get loans from an exporter of wood furniture in Vietnam. local banks and provide training programs to business service providers. the investment, in addition to providing more than 150 indonesian small and medium enterprises that are working long-term financing, will help the company with business centers have already obtained the equivalent of over maintain its global competitiveness in $10.5 million in new loans from local banks. certified wood products. iFC's technical assistance for small and medium enterprises is particularly businesses in the agribusiness and introduce web portals and local critical in the frontier regions of emerging fisheries sectors and improving access booking offices, giving more than 400 economies. east Asia now hosts six to finance for businesses devastated by smaller hotels and guesthouses in the private enterprise partnerships for the 2004 tsunami. iFC's mekong private mekong region the opportunity to technical assistance, including new sector development Facility collaborated advertise and accept reservations online. initiatives in the philippines and the Aceh this year with gap inc., the largest buyer this project has been spun off as a province of indonesia. All six facilities of garments made in Cambodia, to separate company, worldhotel-link. focus on investment climate issues, access provide training to more than 650 web sites previously established for Fiji, to finance, and corporate governance. supervisors in garment factories. samoa, and Vanuatu by worldhotel-link the new private enterprise partnership in the tourism sector, mpdF will continue to be supported by the for Aceh and nias is revitalizing small provided technical assistance to new company. ijdA AdisAl AdirAF iFC's program for eastern indonesia sme Assistance works with local furniture manufacturers to improve quality and competitiveness. pAge 50 iFC AnnuAl report 2006 sustAInABle growth For food traceability and agricultural the long term practices at the tens of thousands of Companies are recognizing the value farms in the company's supply chain. of sustainable business practices in employee health and safety and reducing long-term risks, particularly in agrochemical use are concerns for east Asia and pacific island economies, the multinational companies that buy where development pressures on north Andre's juice. lAnoitAnretni XednihCFo A subsidiary of Charoeon pokhpand group, ysetruoC the leading agribusiness group in Asia, plans iFC is supporting united Family hospitals, an innovative private sector heath care provider in China. to create 5,000 jobs in rural areas of indonesia with a $45 million iFC loan to expand indonesian acacia plantation gain membership in the world wildlife Fund's production capacity. global Forest and trade network: this certification is a major milestone for plantation forestry in a country where natural forests continue to be lost to natural resources are acute. iFC's work our private enterprise partnerships illegal logging. we are also working with in this arena ranges from reducing the provide technical assistance for best the international labour organization in emissions of power generation facilities practices of sustainability. in indonesia, southeast Asia to promote niche tourism in China to ensuring reasonable stable employment and sustainable initiatives and institutionalize factory housing and work opportunities for livelihoods are being created through compliance projects. in Vietnam, iFC people in communities affected by projects in the seaweed cultivation and completed an analysis of constraints development projects. forestry industries, and we are helping facing women business owners and we provided technical assistance small businesses in nearby communities managers, then launched a sustainable this year to north Andre, a major become part of the supply chain for a large finance program to improve their access Chinese apple juice producer, to improve natural gas project. iFC-pensA helped an to finance. model publiC-pRivate paRtneRship in samoa international transport links are critical to samoa's economic development. iFC's advisory services provided a unique solution to meet the country's air transport needs by involving the private sector. samoa's government could not afford the subsidies required to continue operations of publicly owned polynesian Airlines, and iFC helped devise a competitive process to select a new private sector partner. Australia's Virgin Blue emerged as the successful bidder with a proposal that will allow the samoan government to develop tourism, guarantee air access to samoa, and reduce its contributions to the airline. in other markets where it operates, Virgin Blue has increased tourist arrivals by over a third within the first three years of operations. the samoan public-private partnership, which will be managed on a commercial, for-profit basis, is the first instance of a low-cost carrier participating in an airline privatization. report on regions 2006 pAge 51 eAst AsiA And the pACiFiC to help relieve water shortages, we provided financing for dagang newspring to build a seawater desalination plant in tianjin, China. InFrAstructure AnD heAlth cAre infrastructure investments, a high priority for iFC in the region, are needed gas emissions by an estimated 8 million fund; and a $10 million investment to maintain existing systems and support tons over 30 years. this project is in neophotonics, which designs and continued growth at rates that reduce expected to attract more investors to produces components for fiber optic poverty. we diversified into new yunnan and nearby provinces, where networks. infrastructure sectors in east Asia this investment lags behind China's urbanized iFC provided an $8 million loan to year with loans for desalination and coast. we are also advising the philippine expand China's united Family hospitals. small hydropower development in government on the privatization of parts the country is in the early stages of China. iFC provided financing to of the small power utilities group, which opening its health sector to private dagang newspring to build a seawater supplies electricity to rural areas off the practitioners and foreign investors, and desalination plant in tianjin, China. the power grid. the project will increase access to high- plant will help relieve water shortages our investments in China's high- quality health care. we also provided and alleviate pollution of surface and growth technology sector totaled a $4.6 million financing package for groundwater. $50 million this year for five projects. shanghai Aerospace Computer system we lent $22 million to zhongda these included a $15 million equity engineering Co., ltd., which provides yanjin power generation for three run-of- investment in Chinasoft, a software high-quality, affordable medical river power stations. this project, our first solutions provider, which received a education and training via satellite investment in yunnan, one of China's less matching investment by microsoft throughout China, allowing health developed western provinces, will ease Corporation usA; a $20 million equity care practitioners to satisfy continuing power shortages and reduce greenhouse participation in the sBCVC technology education requirements in remote areas. suppoRt FoR business poliCy development in vietnam in december 2005, Vietnam's national assembly passed two key pieces of business legislation--the investment law and the enterprise law--to improve the investment climate for domestic and foreign businesses. iFC's mekong private sector development Facility provided comprehensive technical assistance to government drafting committees and the national Assembly during the law- making process, earning government praise for this support. mpdF's assistance began with research and presentations for the two drafting committees; topics included best international practice for investment incentives, investor protection, corporate governance, and alternative approaches for legally establishing corporate groups. the facility's advocacy and communications campaign ensured that the issues were widely discussed in the media and among stakeholders to provide wide-ranging feedback ijdA on the draft laws. AdisAl AdirAF A sustainable tourism technical assistance project develops export markets for handicraft producers. pAge 52 iFC AnnuAl report 2006 gnAij yrrAl iFC's investment in Central pertiwi Bahari is helping this indonesian shrimp farm expand to new export markets. loCal CuRRenCy loan FaCility beneFits small indonesian businesses iFC provided its largest local currency loan, equivalent to local currency financing $150 million, this year to pt Bank danamon. the bank is the leading lender for small and medium enterprises and consumer helps domestic borrowers financing in the indonesian market. iFC's financing, unavailable match assets and liabilities to the bank in the private market, will help the bank substantially and eliminates the risk increase its microfinance and small business lending. the structure of the local currency loan also demonstrates that iFC can offer associated with borrowing the innovative, large-scale lending that east Asia requires. in a foreign currency. our support for Bank danamon is part of a broader commitment to increase our activities in indonesia and continue our support for small and medium enterprises. iFC's investment is expected to encourage other institutions to begin or increase lending to entrepreneurs and small and medium enterprises. report on regions 2006pAge 53 report on regions 2006 south Asia BAnglAdesh BhutAn indiA mAldiVes nepAl sri lAnkA iFC's stRategy FoR south asia · support regional integration into the global economy by supporting investments into and out of the region, sharing global best practices, and investing equity and debt in internationally competitive midsize companies · increase private investment in infrastructure through project finance, support for domestic financial institutions and infrastructure Commitments development companies, municipal finance transactions, and advisory (U.S.$ millions) work on specific projects Financing for iFC's own account syndications · promote energy efficiency, cleaner production, and use of renewable $600 energy in industry and infrastructure 507 · promote development of small and medium enterprises, especially in 443 frontier markets, in partnership with iFC investee companies, domestic $400 405 386 financial institutions, governments, and business associations · Build greater financial institution capacity, particularly in frontier $200 200 200 countries, to expand financial services to underserved segments, 109 including small and medium enterprises 37 $ 0 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 25 20 (U.S.$ millions) total expenditures for technical assistance india and advisory service projects (u.s.$ millions) $12 $6 Fy06 $1,261 Fy05 $1,268 iFC staFF and Consultants bangladesh headquarters Field offices Fy06 $ 161 Fy05 As of june 30, 2006 4 139 $ 111 sri lanka Fy06 $ 90 pRojeCt FinanCing and poRtFolio Fy05 $ 102 (U.S.$ millions) Fy06* Fy05 maldives Financing committed for iFC's account $ 507 $ 443 Fy06 $ 71 loans** 367 384 Fy05 $ 55 equity** 130 57 nepal guarantees and risk management 10 2 Fy06 $ 43 loan syndications signed 200 200 Fy05 $ 47 totAl Commitments signed 707 643 Committed portfolio for iFC's account 1,800 1,634 Committed portfolio held for others 584 416 *Includes regional shares of Avenue Asia investments, which is officially (loan and guarantee participations) classified as a global project. **Loans include loan-type, quasi-equity products. Equity includes equity- totAl Committed portFolio 2,384 2,050 type, quasi-equity products. pAge 54 iFC AnnuAl report 2006 ygrene nriACFo ysetruoC inCReasing entRepReneuRship and pRivate investment in inFRastRuCtuRe one of the world's fastest-growing develops financial markets and, more dramatic. iFC continues to focus on regions, south Asia witnessed another generally, supports improvements in improving india's investment climate by landmark year in 2005, with economic the investment climate. supporting greater private participation growth averaging 7.6 percent. growth iFC continues to support the in infrastructure development and was strong in Bangladesh, Bhutan, india, development of small and medium government efforts to increase and sri lanka, but comparatively weak enterprises in Bangladesh, Bhutan, investment and rural productivity. in the maldives and nepal. northeast india, maldives, nepal, and sri in this environment, iFC committed lanka through the southAsia enterprise Investments In InFrAstructure $507 million for its own account development Facility. the sedF program substantial improvements in and mobilized $200 million in loan is laying the foundation for future infrastructure are needed to sustain syndications in Fy06. our investments investment opportunities by engaging south Asia's growth. severe bottlenecks, in south Asia this year were largely to with local banks to increase access to including in power, water, and support clients' expansion of capacity finance and working with governments transportation services, continue to and the development of new products to improve the business-enabling impede economic competitiveness. to and services. infrastructure development, environment. sedF works closely with address infrastructure constraints, iFC where progress is critical to economic the world Bank, leveraging its analytical made three investments in public-private growth and quality of life, is also work, including investment climate partnerships in Fy06, for a total of central to our investment strategy in assessments. iFC opened two new $44 million. the region. offices this year, in guwahati in northern we signed an agreement with technical assistance for small business india and in sri lanka, to respond more the u.s.-based national rural electric development is our main contribution effectively to needs in low-income and Cooperative Association and the power to private sector development in areas high-risk regions. Finance Corporation, india's public financial where investment opportunities remain while india's economic growth institution for the power sector, to set up a limited. iFC's technical assistance work rates are impressive, improvement in the public-private partnership for rural electricity in Bangladesh, Bhutan, and sri lanka quality of life for the poor has been less distribution and provide advisory services report on regions 2006 pAge 55 south AsiA for pilot electrification programs. this alliance is an important step toward india's goal of achieving universal electrification by 2012. the rural distribution utilities the program establishes will be owned by community-based organizations and managed by private entities, with microlending and institutional support from nongovernmental organizations. the first project will be in west Bengal, where only 1 percent of the population currently AnAhiAr receives electricity from the state utility. AFiFA iFC lent $15 million to india in Bhutan, we provide training to small business owners. hydropower development Company, a firm setting up six small and medium public-private infrastructure projects. plants, sell carbon emission credits. the hydroelectric generation facilities iFC also entered the indian water iFC-netherlands Carbon Facility, our joint in the states of himachal pradesh, sector for the first time, with $25 million initiative with the dutch government, maharashtra, and madhya pradesh. in financing for Chennai water desalination signed an agreement in August 2005 iFC followed a prior investment in limited, the country's first private project worth $4.5 million to purchase greenhouse infrastructure development Finance to supply desalinated water. this is also one gas emission reductions from eco power's Company limited with both a syndicated of iFC's first investments in the desalination renewable energy projects. sales of these loan of $100 million and technical sector, which is growing globally. carbon credits will help the netherlands assistance to increase the company's in sri lanka, we helped eco power comply with its commitments under the capacity to advise state and municipal private limited, a developer and operator Clean development mechanism of the governments on developing of small-scale hydropower generation kyoto protocol. shaRing stRategies FoR emeRging maRKet multinationals employment for cane investment flows between emerging markets rose threefold between 1995 and 2003, to $46 billion, accounting for roughly 35 percent of total foreign direct farmers in rural areas investment in developing countries. iFC's commitments in support of such will increase with an south-south investments have also grown rapidly, reaching $673 million this expansion of sugar year and including investment projects in every region. to help emerging market companies learn from each other's experiences in production capacity cross-border investment, iFC organized a conference in mumbai in november that iFC helped finance. 2005 in conjunction with the Financial Times. presentations by regional and global government and business leaders from Africa, Asia, europe, the middle east, and latin America helped the 250 participants from 35 countries better understand investment trends and effective strategies for cross-border investing. pAge 56 iFC AnnuAl report 2006 inCReasing ConneCtivity to spuR eConomiC gRowth A $20 million loan to wataniya telecom maldives private limited, a subsidiary of kuwait-based wataniya telecom, will promote telecommunications competition in the maldives and provide mobile coverage to underserved areas, including more than 100 islands. the company is building a nationwide mobile telecommunications network in the country and plans to set up a submarine fiber optic cable that will improve connections to the rest of the world. wataniya telecom's project will provide mobile coverage to all inhabited islands as well as the maldives' main fishing areas. working closely with horizon Fisheries, a local private company, wataniya is helping boat captains use communications to improve how they match supply with demand at local processing plants. FInAncIng growth In expand the company's sugar production investments in indecomm, nevis, and emergIng sectors capacity. this will lower unit production kpit Cummins infosystems. we continue to provide long-term costs and increase employment for cane to support development of oil and debt and equity in india, making key farmers in rural areas. gas reserves in south Asia, iFC provided investments this year in manufacturing, technology accounts for 25 percent a second loan to Cairn energy for agribusiness, information technology, of exports and continues to be a key driver $150 million. Cairn is developing fields and financial services. of economic growth. we responded to in india and Bangladesh, and our new iFC provided a $26.5 million the need for early-stage financing in the investment will support work in an combined loan and equity investment to indian it sector with a $20 million equity underdeveloped area of rajasthan. jk paper, one of the country's leading investment in ilabs, an early-stage the project offers a significant pulp and paper producers, increasing its technology fund. we also made equity opportunity for communities near ability to meet domestic demand and improve environmental systems. to support infrastructure development, we committed a combined loan and equity investment of $20 million for psl limited, india's largest producer of large-diameter steel pipes. in the auto components industry, we provided financing for lgB and international Auto limited to help those companies meet growing demand. in the agribusiness sector, ruchi soya, an indian producer of edible oils, is adding new facilities, training employees, and increasing its workforce with an investment from iFC. we also supported dsCl, a diversified indian agribusiness and chemical company. Following a $30 million investment in nerrA w.j dsCl's chemical operations last year, niloC iFC committed $15 million in Fy06 to iFC's first investment in Bhutan supported the tourism sector with financing for resort construction. report on regions 2006 pAge 57 south AsiA the rajasthani fields, and iFC is private sector bank in southern india, helping local importers gain better partnering with Cairn to support supporting its efforts to expand access to credit through a network of extensive community engagement and nationally and helping meet its growing confirming banks worldwide. economic development programs. need for capital. iFC also made a support For entrepreneurs AnD greAter competItIveness we helped more than 2,000 of india's grassroots iFC's southAsia enterprise development Facility worked with the Bangladesh entrepreneurs and artisans find new jobs or knitware manufacturers and exporters increase their sales in Fy06. Association this year to help local manufacturers expand their market share and their understanding of market channels and requirements. Changes in in the financial sector, iFC invests $2 million equity investment in lok trade agreements on textiles, particularly in, and provides technical assistance to, investments, a fund set up to invest in the multifiber agreement, have created private financial institutions that expand microfinance institutions around india an increasingly competitive environment services to underserved markets, (see box). two banks in Bangladesh, for the garment industry, which accounts including small businesses. we invested dhaka Bank and eastern Bank, joined for more than 75 percent of Bangladesh's $31.5 million in Federal Bank, a midsize iFC's global trade Finance program, export earnings and over 2 million jobs. innovative solutions in miCRoFinanCe lok investments will use $2 million in iFC equity, in conjunction with equity provided by other institutions, to invest in up to 20 microfinance institutions across india. the company hopes to encourage local banks to increase their emphasis on microfinance by demonstrating the sector's profit potential. in addition to investments in nonbank finance companies, lok plans to invest in service companies--independent, private limited companies that originate loans and manage cash flows between microfinance clients and partner banks in exchange for a set fee. this innovative approach to developing microfinance has been successful in test cases by indian banks. we expect that investments made by lok investments will result in microfinance loans to 1.5 million borrowers, primarily low-income people in rural areas. nerrA w.j niloC work on the expansion of Andhra pradesh paper mills in india. pAge 58 iFC AnnuAl report 2006 sedF organized a trade mission to take knitwear manufacturers to the united states, helping them develop market contacts, sales opportunities, and marketing skills. sedF is implementing a follow-up development program to enhance collaboration and competitiveness in the industry. to promote entrepreneurship among india's youth, iFC's grassroots Business initiative is supporting the Bharatiya yuva shakti trust, which provides mentoring and start-up capital to disadvantaged young people. iFC is helping Byst increase its reach to 90,000 youth entrepreneurs and 30,000 mentors throughout india during the next five years. iFC has also contributed $500,000 to an entrepreneurship growth Fund that will seek to address the "missing middle" among private enterprises--businesses not yet able to access commercial finance but with financing demands that exceed the capacity of microfinance institutions. ttellop det one of Cairn energy's exploration rigs in rajasthan, india. iFC against aids in india the iFC Against Aids program demonstrates that private enterprises can be partners with government, nongovernmental organizations, and international development agencies to curb the hiV/Aids epidemic. this year, the program worked with four iFC client companies in india to launch or expand workplace and community awareness and hiV prevention programs. the Ambuja Cement Foundation, Apollo tyres, Ballarpur industries limited, and usha martin worked with iFC to develop and expand programs, enhance their clinical capacity for addressing hiV/Aids through treatment of sexually transmitted infections, and promote prevention and behavior change among long-distance truckers, migratory workers, and other at-risk populations that interact with their operations. report on regions 2006pAge 59 report on regions 2006 europe and Central Asia AlBAniA ArmeniA AzerBAijAn BelArus BosniA And herzegoVinA BulgAriA CroAtiA CzeCh repuBliC estoniA georgiA hungAry kAzAkhstAn kyrgyz repuBliC lAtViA lithuAniA Former yugoslAV repuBliC oF mACedoniA moldoVA polAnd romAniA russiAn FederAtion serBiA And montenegro sloVAk repuBliC sloVeniA tAjikistAn turkey turkmenistAn ukrAine uzBekistAn iFC's stRategy FoR euRope and CentRal asia · promote transparency and good corporate governance in Commitments environmentally and socially sustainable projects, with a focus on (U.S.$ millions) frontier markets Financing for iFC's own account syndications · support investments to diversify economies and modernize $2,100 2,084 industrial structures and infrastructure, accelerating the transition 1,938 to market economies 1,667 $1,400 · develop financial markets, with a focus on access to finance for 1,203 small and medium enterprises, institution building, and innovative financial products $ 700 · Catalyze intraregional investments and public-private partnerships 363 419 241 in infrastructure and social sectors 191 $ 0 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 80 67 (U.S.$ millions) total expenditures for technical assistance Russian Federation and advisory service projects (u.s.$ millions) $32 $38 Fy06 $1,974 Fy05 $1,432 turkey iFC staFF and Consultants Fy06 $ 1,197 headquarters Field offices Fy05 $ 981 As of june 30, 2006 12 486 ukraine Fy06 $ 533 pRojeCt FinanCing and poRtFolio Fy05 $ 265 (U.S.$ millions) Fy06* Fy05** Romania $ 530 Financing committed for iFC's account $2,084 $1,938 Fy06 Fy05 $ 409 loans*** 1,710 1,751 equity*** 231 187 serbia and montenegro Fy06 $ 330 guarantees and risk management 143 0 Fy05 $ 142 loan syndications signed 241 419 totAl Commitments signed 2,325 2,357 *Committed portfolio for IFC's account and held for others includes regional share of BTC Pipeline, which is officially classified as a global project. Committed portfolio for iFC's account 6,525 5,423 **Includes regional share of Melrose Facility investment, which is officially Committed portfolio held for others 995 1,008 classified as a global project. Committed portfolio for IFC's account and held for others includes regional share of BTC Pipeline, which is officially (loan and guarantee participations) classified as a global project. ***Loans include loan-type, quasi-equity products. Equity includes equity- totAl Committed portFolio 7,519 6,431 type, quasi-equity products. pAge 60 iFC AnnuAl report 2006 yksVeirdnA ri midAlV in ukraine, iFC provided sandora, a leading juice company, with financing for a new plant. we also provided technical assistance to local farmers to improve the company's supply of fruit and vegetables. expanding aCCess to FinanCe and loCal maRKets strong growth rates continued in the mobilized an additional $50 million supportIng FInAncIAl mArkets region in 2005, exceeding 5 percent in in syndicated loans. throughout the region, development of most countries. the Caucasus and the in the Balkans, iFC operations financial institutions remained a strong Baltics experienced particularly rapid continued to increase, particularly priority, accounting for half of our Fy06 increases in gdp, with Azerbaijan, in romania and serbia and montenegro. investment projects and much of our Armenia, and latvia all growing at iFC's activity in ukraine grew for a technical assistance. double-digit rates. new eu members second consecutive year, and there in the region's smaller economies, grew as a result of greater integration were also significant increases in we combine financing with expertise into global markets. in a number of the Caucasus and the Balkans. on best practices to help strengthen resource-rich transition countries, such in Central Asia, iFC investment local banks. For example, in Fy06, iFC as kazakhstan and russia, robust growth operations remained constant, with worked in Armenia with inecobank, rates were buoyed by high commodity a growing emphasis on micro and in Azerbaijan with Azerigazbank and prices. At the same time, several small businesses. the microfinance Bank of Azerbaijan, countries, including the kyrgyz republic, technical assistance continued and in georgia with tBC Bank and poland, romania, and ukraine, saw a to play an important role in the former mobiasbanca. we continue to take a sharp slowdown in growth. soviet countries, with ongoing work similar approach in less developed our commitments in europe to develop financial institutions, regions of russia, working this year and Central Asia this fiscal year improve the business environment, with four banks outside of moscow, were $2.08 billion, with an additional and strengthen corporate governance two of which are new clients. $241 million in syndications. the practices. in the Balkans, iFC refocused in ukraine, we provided a subordinated majority of this investment went to its technical assistance on these areas loan to Aval Bank for on-lending to small russia, where iFC invested more than as well as on promoting alternative businesses. in southeast europe, we $591 million for its own account and mechanisms for dispute resolution, supported lending for small businesses in syndicated $142 million for 27 projects, assisting companies in meeting eu romania through financing for Banca and to turkey, where iFC invested standards, and promoting public- Comerciala romana, and in serbia and $513 million in 10 projects and private partnerships in infrastructure. montenegro through a loan to Banca report on regions 2006 pAge 61 europe And CentrAl AsiA intesa. we cooperated with kreditanstalt für wiederaufbau, germany's bilateral RegulatoRy ReFoRm helps small businesses in uzbeKistan lending agency, to spur lending to micro and small businesses, committing in uzbekistan, iFC advisory efforts have resulted in annual savings of $37 million for the european Fund for $33 million by small businesses. Consultations provided by iFC's in- southeast europe. in Bosnia and country advisory team led to government adoption of seven presidential herzegovina, iFC worked with mi-Bospo, decrees that improve the country's business environment by streamlining a microcredit organization that lends to taxation, inspections, permit issuance, and financial reporting procedures low-income female entrepreneurs. for small businesses. we committed $82 million to private paperwork requirements for uzbek entrepreneurs are now less equity funds to strengthen businesses onerous, and small businesses will be able to pay their taxes through a in the region. our investments in the single payment equal to 13 percent of sales. inspectors will no longer be emerging europe Convergence Fund, able to shut down a business without turning to the court system nor the marbleton property Fund, and the be able to place exorbitant fines on firms for minor infractions or first euroventures ukraine Fund will support offenses. the cancellation of mandatory permits for retail trade and 10 investments in infrastructure, real estate, other commercial activities, which had been issued to 20 percent of uzbek and midsize private firms. entrepreneurs on an annual basis, will help businesses by liberalizing other Fy06 projects focused on market entry and expansion. iFC will continue to monitor the effect of leasing and housing finance. our loan these changes and the impact of its advisory assistance through annual to uniBank, the first investment by surveys of uzbek entrepreneurs. an international financial institution in Azerbaijan's leasing sector, grew out of early advisory work that we conducted with the swiss government to develop through an investment (alongside an ADDressIng InFrAstructure Azerbaijan's leasing industry. iFC has investment fund based in the region) in constrAInts continued to support development of Bosnia and herzegovina's nova Banka, the private sector is helping increase russia's housing finance sector through which operates in the underdeveloped access to markets by removing advisory work for the primary mortgage republic of srpska. infrastructure impediments to business market development project and through we continued to provide technical growth in europe and Central Asia. financing for mortgage origination to assistance to foster the growth of credit iFC's private enterprise partnership for Absolut Bank, Credit Bank of moscow, information services for businesses in southeast europe provides advisory and delta Credit Bank. iFC promoted the region; this information will make services for structuring and implementing housing and small business finance lending less risky and costly for banks. public-private partnerships in infrastructure. since its start in october 2005, pep-se infrastructure has been appointed by serbia's government to serve as lead to address the scarcity of financing for small advisor in the restructuring of the and medium enterprises in Azerbaijan, we national carrier, jat Airways, and by Albania's government in furthering provided technical assistance and a $3 million the country's public-private partnership loan to develop the leasing industry. agenda. the facility is also working on similar partnerships for water, sewer, and waste disposal services. in russia, iFC supported the expansion of Brunswick rail leasing and pAge 62 iFC AnnuAl report 2006 the construction of six inland container upgrading outdated heating systems and terminals by eurosib group in various antiquated production lines. nearly half parts of the country. we also provided of russia's industrial equipment is at least financing for Air taxi, a russian company 20 years old, and energy consumption establishing passenger airline shuttle per unit of production is 10 times that services, and for turkish client tAV of the wealthiest countries. in rostov-on- holdings' airport projects in georgia. don in southern russia, iFC provided a $4 million ruble-indexed loan to Investments wIth Centerinvest Bank to finance several envIronmentAl ImpAct such projects, including new heating since 2001, iFC has helped banks finance equipment for 400 homes. the energy efficiency improvements in many equipment is expected to reduce eastern european countries. iFC provides home heating costs by 40 percent. banks and leasing companies with credit other Fy06 investments will have lines and credit enhancement packages, positive environmental impacts in along with advice and training in Bulgaria and romania. epiq nV, an structuring and marketing financial electronics manufacturer and an iFC products for such improvements. client since 2001, received a loan to despite very cold weather and rising expand and modernize its Bulgarian energy costs last winter, many hungarians operations. sensors the company actually paid less than before for home produces for car makers will monitor the heating. over the past two years, iFC emission of polluting gases and improve has helped a local hungarian bank finance fuel efficiency in diesel cars in europe. energy-efficient home improvements, A 14 million loan we made to CnFr including better insulation, more efficient navrom galati s.A., romania's largest windows, and new thermostats. private river shipping company, will be this year, we also began working used to upgrade its fleet of tugboats VeAtejnek with russian banks to finance energy with engines that meet eu environmental efficiency projects for companies requirements for emissions. keBzoro iFC is helping improve housing conditions in the kyrgyz republic through housing finance projects. KyRgyz miCRoentRepReneuRs institutions. iFC financing will be used tushum will be able to provide a beneFit FRom iFC FinanCing to transform Bai tushum from a not- wide range of credit and savings for-profit entity into a more sustainable, products that are not widely available iFC signed an agreement to provide a commercially oriented financial to local microentrepreneurs. An $2.2 million financing package this year institution, expanding its lending to estimated 3,200 new kyrgyz to micro Credit Agency Bai tushum farmers, private entrepreneurs, and microentrepreneurs are expected Financial Foundation, one of the kyrgyz small enterprises in remote regions. As to benefit, boosting private sector republic's leading microlending a regulated microfinance company, Bai wealth and job creation. report on regions 2006 pAge 63 europe And CentrAl AsiA two large iFC investments in the otherwise be sustainable. we also steel sector are also expected to bring provided $10 million in financing for marked environmental improvements rise, an integrated agribusiness company, for the surrounding communities. A to help increase farmers' access to key $60 million loan to russia's Vyksa steel supplies and services in moldova, russia, works of omk group and a $100 million and ukraine. we also assisted rise in loan to ukraine's industrial union of revising its business plan and improving donbass will help finance extensive its corporate governance. modernization programs, helping the Construction growth across the companies phase out polluting open- region has increased the need for hearth furnaces and meet international- building materials, another sector we level environmental standards. supported this year. iFC lent to zeus Ceramica for a new ceramic tile plant in other economIc sectors the donetsk region of ukraine. in turkey, Access to local markets in the region we lent to the sanko group to support is restricted by limited transport its construction of a large greenfield infrastructure as well as underdeveloped cement plant. retail and logistics networks. iFC's iFC also made its first investment commitments included an investment in in eastern europe's oil refining sector, regnidehsAihttA m galnaftogaz to add to its growing system providing a loan and syndication petrotel-lukoil's romanian refinery will modernize of petroleum filling stations in ukraine. for $82 million for petrotel-lukoil's and make environmental upgrades with $82 million in financing arranged by iFC. Also in ukraine, we lent to nova liniya, romanian refinery. in addition to a small home improvement company, to helping this russian company expand allow it to expand into provincial cities, operations into a nearby country, our and we helped the Biocon group expand investment will allow it to modernize its pharmaceutical distribution and retail and make environmental upgrades. business. in Armenia, iFC supported more than 800 small retailers by providing financing to improve and 400 homes in southern russia received expand the bazaar where they operate in yerevan. in russia, iFC provided financing new, energy-efficient heating equipment for trio, a modern distribution and through an iFC ruble-indexed loan to warehouse center for frozen food products. Also in russia, we supported Centerinvest Bank. ramstore's expansion into the country's less-developed regions. with links to transport infrastructure and logistics in we provided a $120 million loan the moscow region, trio will set a new to Avea, a turkish mobile phone industry standard for high-quality operator we have been advising for handling of perishable products. three years. this investment supports iFC's agribusiness investments in the liberalization of the telecom industry europe will increase the market for in turkey and increases competition in primary food processors. in the Balkans, the sector, which ultimately makes we helped Agrokor restructure two telecommunications services more meat-processing plants that would not affordable for consumers. pAge 64 iFC AnnuAl report 2006 investments in health and eduCation in tuRKey iFC is expanding its support for private sector health and education projects in turkey. we extended our first turkish sloohCseCuyFo lira loan this year, for the equivalent of $4.5 million, to yuce, a primary and ysetruoC yuce school in Ankara, turkey. secondary school and it training institute in Ankara. the loan will help yuce meet projects with local currency is particularly hospitals and ambulatory care facilities the growing demand for vocational important in social sectors, where most in istanbul. the loan, iFC's second for training in the it sector and enhance its institutions have local currency revenues. the company's expansion, will allow educational software products, which we also lent the equivalent of Acibadem to expand in istanbul and are widely used in both public and $40 million for Acibadem healthcare into smaller cities in turkey where high- private schools. the ability to finance group, which operates a network of quality health care is less available. yksVeirdnA ri midAlV high-quality fruit is essential to sandora's business. agRibusiness in uKRaine fruit and vegetables, iFC's private better produce, ukrainian farmers enterprise partnership is working will develop stronger business ukraine's leading producer of branded with local producers to improve farm partnerships that improve employment juice, sandora, has received $20 million management and marketing practices. stability in rural areas. For the 2006 in iFC loans to build a new bottling the project is supported by swedish growing season, sandora has signed plant and improve product quality donor funding and includes legal long-term supply contracts worth and distribution. assistance for farmers negotiating $5.6 million with 25 farms. together to support the company's need supply contracts. while sandora and these farms employ more than for a stable, high-quality supply of companies like it will gain access to 1,500 people. report on regions 2006 pAge 65 report on regions 2006 latin America and the Caribbean AntiguA And BArBudA ArgentinA the BAhAmAs BArBAdos Belize BoliViA BrAzil Chile ColomBiA CostA riCA dominiCA dominiCAn repuBliC eCuAdor el sAlVAdor grenAdA guAtemAlA guyAnA hAiti hondurAs jAmAiCA meXiCo niCArAguA pAnAmA pArAguAy peru st. kitts And neVis st. luCiA trinidAd And toBAgo uruguAy VenezuelA iFC's stRategy FoR latin ameRiCa and the CaRibbean Commitments (U.S.$ millions) · improve the business enabling environment, helping small Financing for iFC's own account syndications businesses join the formal economy · increase access to finance: reach microentrepreneurs, small $1,800 1,747 businesses, and second-tier companies and provide long-term 1,398 financing for corporations $1,200 1,258 1,218 · strengthen infrastructure by increasing private sector participation 918 888 and advising on reforms of the regulatory framework $ 600 · promote sustainability through higher standards for corporate 374 385 governance and environmental and social performance $ 0 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 69 54 (U.S.$ millions) total expenditures for technical assistance brazil and advisory service projects (u.s.$ millions) $13 $5 Fy06 $1,505 Fy05 $1,398 iFC staFF and Consultants mexico headquarters Field offices Fy06 $1,093 As of june 30, 2006 11 95 Fy05 $1,104 argentina Fy06 $ 810 pRojeCt FinanCing and poRtFolio Fy05 $ 731 (U.S.$ millions) Fy06 Fy05 Colombia Financing committed for iFC's account $1,747 $1,398 Fy06 $ 504 loans* 1,371 1,221 Fy05 $ 387 equity* 265 75 peru guarantees and risk management 111 103 Fy06 $ 272 loan syndications signed 888 385 Fy05 $ 320 totAl Commitments signed 2,635 1,783 Committed portfolio for iFC's account 6,299 6,124 Committed portfolio held for others 2,328 2,179 (loan and guarantee participations) *Loans include loan-type, quasi-equity products. Equity includes totAl Committed portFolio 8,627 8,304 equity-type, quasi-equity products. pAge 66 iFC AnnuAl report 2006 zerep ordnAjelA iFC's municipal Fund provided a partial credit guarantee for the purchase and operation of trains on são paulo's new subway line. suppoRting emeRging industRy leadeRs thRough long-teRm paRtneRships the latin America and Caribbean region inefficiencies. this in turn could curb additional $888 million from commercial is experiencing its fourth consecutive growth and efforts to reduce poverty. banks through syndicated loans. year of growth, with economic still, most governments in latin iFC puts clients' needs first expansion for 2006 expected to equal America and the Caribbean recognize while striving for strong growth with the 4 percent increase in 2005. But that the private sector is an increasingly developmental impact. At the regional despite domestic economic policy powerful force for development, and and country level, our strategic focus in improvements and high prices for the the private sector itself is more actively latin America and the Caribbean is on region's commodities, growth here has addressing inequality and encouraging improving the business environment, fallen behind that of other emerging entrepreneurship. many investors in infrastructure, access to finance, and markets. gdp per capita growth in the the region are identifying stakeholder the sustainability of private sector region, measured against the world engagement and sustainability as activity. to be successful with our average of the past 25 years, is lower important strategies for establishing client companies, we provide creative than all other emerging market regions strong local ties, strengthening solutions, efficient and effective except sub-saharan Africa, a region that reputations, and improving bottom lines. financial services, global knowledge, in fact outperformed latin America and iFC's activities reflect this and innovation. the Caribbean in 2005. challenging environment. through persistent poverty and inequality equity investments, loans, technical FosterIng Access to FInAnce are increasing the region's social and assistance, and advisory products, iFC is iFC committed a record $635 million political tensions, with discontent among nurturing long-term partnerships with for the financial sector through 25 groups that do not perceive the benefits client companies, improving market transactions in the region, including of economic growth evident in recent accessibility for small businesses, and $59 million in syndicated loans from elections. some of the new governments supporting the global expansion of participating banks. over two-thirds of are seeking a larger state role in the leading companies in the region. in these projects were completed by our economy, creating uncertainty for Fy06, our commitments in latin America field offices, a testament to our placing investors that could result in overall and the Caribbean reached $1.75 billion more investment staff there. About lower investment levels as well as higher for 69 projects, and we raised an 70 percent of our financial sector report on regions 2006 pAge 67 lAtin AmeriCA And the CAriBBeAn commitments, or $410 million, were 70 percent of our financial market local currency transactions, including innovative projects in Brazil, Colombia, commitments in latin America and the and peru. we developed a strong Caribbean were local currency transactions. program with second-tier banks to make credit available to midsize enterprises. our financial sector commitments in the region included $156 million in Investments In InFrAstructure, for such partnerships in mexico. in Colombia, $130 million in mexico, heAlth, AnD eDucAtIon guatemala, we provided assistance with $111 million in Brazil, and a substantially iFC committed $407 million and municipal and subnational financing. increased $81 million for projects in the mobilized an additional $312 million for our Fy06 infrastructure Caribbean. iFC committed $208 million 14 infrastructure projects in the region investments included a $62.5 million for micro, small, and medium enterprises, this year. to maximize our impact, iFC investment and a $67.5 million $150 million for housing, and nearly and the world Bank are working syndication toward a 310-megawatt $120 million for general banking. together on public-private partnerships, thermal power plant for reliable power Four trade financing lines led to 26 with iFC providing advisory services, generation in Ceara, one of Brazil's transactions totaling $45 million, many investments, and private sector poorest states. the plant will be built of which supported smaller Brazilian perspectives in discussions with and run by a special-purpose project exporters. we also invested $183 million governments. progress includes a new company, Central geradora in equity and quasi-equity instruments public-private partnership law in Brazil termelectrica Fortaleza. for companies working in the region. and an improved regulatory framework we provided financing for several airports and airline companies this year, including a financing package for the expansion of jamaica's sangster international Airport. we also made housing and tRade FinanCe a loan for facility improvements at the las Américas airport and for construction iFC made several investments this year to increase access to housing and trade of the samana airport, both in the finance. we invested in rio Bravo securitizadora in Brazil to expand its lending dominican republic. to support the for and securitization of residential real estate. our financing consisted of a expansion of tAm Airlines in Brazil, $1.5 million equity investment and a warehousing credit line equivalent to we made a commitment for $50 million $22 million. in Colombia, we provided a financing package of up to the in financing. equivalent of $61 million to Banco davivienda, the country's leading mortgage iFC invested in education projects originator, to diversify its funding sources and reduce maturity mismatches. across the region that expand access to we are supporting small, export-oriented agribusinesses in 16 countries high-quality, affordable education. we across latin America with a $30 million credit line to the latin American made a local currency loan equivalent to Agribusiness development Corporation, which enables capital investments in $30 million for the construction of three new exporting farms and small and medium agribusinesses by providing long-term campuses by universidad tecnológica funding. to improve credit access for small businesses in the region, we de méxico, the country's third-largest provided financing to Banco mercantil for trade finance aimed at small Bolivian private university. iFC also provided the importers. we also invested $3 million in equity to create solidus, an equivalent of $5 million in local currency investment company that will make quasi-equity type investments in financing to Centro español, a hospital microfinance institutions throughout the region. in tampico, for modernization and expansion. iFC's involvement will help pAge 68 iFC AnnuAl report 2006 institutionalize more efficient accounting company will use the financing to expand enabling small and medium landowners and financial management processes in several latin American countries. to increase their current income through and help the hospital strengthen its our recent work to set environmental an innovative securitization of their management of water supply, medical and social standards includes projects landholdings. in high-risk and low- waste, hygiene and infection control, and involving the mining sector in guatemala, income countries, where iFC's investment fire safety. in Brazil, we made a loan and guyana, and peru, agribusiness in the opportunities are limited, we provide equity investment in Fundo de educação Brazilian Amazon, and forestry in Chile technical assistance to improve the para o Brasil to support the expansion of and nicaragua. our goal in many of these sustainability of economic activity. Anhaguera educacional, a university that efforts is to maximize the combined in nicaragua, for example, we are primarily serves low-income students. effectiveness of iFC's financial and collaborating with the world wildlife technical assistance. in guyana, for Federation on forestry initiatives. promotIng sustAInABIlIty example, our $4.6 million investment in iFC has also provided financial iFC is leading a number of corporate guyana goldfields will support an ongoing support for development of the Business governance initiatives, notably in Brazil exploration program and project feasibility sustainability index, which was recently and peru, and providing technical studies. Because of our early involvement, launched by Bovespa for the Brazilian assistance to clients to improve their we are working with the company on stock market. the index, the second of its access to markets. to support the community and civil society partnerships, kind in emerging markets, was developed expansion of a leader in environmental local economic development, and by the Center for sustainability studies and social issues, we arranged a environmental management. and includes 28 local companies listed on $280 million financing package this with our investment in the Fondo the são paulo stock exchange. it tracks year for Arcor, a family-owned company de inversión Forestal lignum, a Chilean corporate governance and environmental that produces candy in Argentina. the private equity forestry fund, we are and social performance in addition to publiC-pRivate paRtneRships in inFRastRuCtuRe starting in 2002, iFC provided advice to the mexican government on public-private partnerships, an effort that recently led to successful bids for two projects, leon hospital and a road between irapuato and la piedad. in Brazil, iFC is advising the federal government on two initiatives, a road in Bahia and an irrigation project in pontal in northeastern Brazil. in guatemala City, we are working with the world Bank to provide financing for construction of the transmetro mass transport system. the subnational financing consists of a partial credit enhancement to Banco g&t Continental through a risk-sharing facility neniAkireeittrA of up to the local currency equivalent of $6.6 million. Altogether, this will help mobilize $46.2 million for the urban transit system. the project is expected to minuoj benefit 180,000 people daily, including many who rely on public transportation to get to work. iFC's financing for tecon salvador's cargo terminal in Brazil allowed the company to double its container-handling capacity. report on regions 2006 pAge 69 lAtin AmeriCA And the CAriBBeAn financial results. the index was unveiled iFC helped improve access to phone service at an iFC-sponsored Conference on sustainable Finance in emerging markets, and supported the largest foreign investment held in são paulo in december 2005. in haiti in 30 years with $15 million in financing for telecom operator digicel. streAmlInIng BusIness regIstrAtIon iFC and the world Bank's Doing Business reports have raised awareness of business and investment constraints more than 60 days to two or less. we across the region, and iFC is supporting also trained municipal employees and reform agendas in Brazil, Colombia, upgraded municipalities' information mexico, and peru. our latin America technology infrastructure in a number of and Caribbean facility works to simplify Bolivian cities. By improving the process business registration, helping move small for registering a business and reducing businesses into the formal economy. from six to two the average number of in peru, where more than 60 percent trips that entrepreneurs must make to of businesses operate informally, we municipal offices, Bolivia has seen more helped them enter the formal sector by businesses come into the formal economy, reducing the time needed to start a increasing municipal revenue from business in the capital city, lima, from business registration by 25 percent. helping add value to petRoChemiCal pRoduCts ille mo in bRazil ACiglosirA m suzano petroquímica, one of the largest petrochemical companies in A local artisan benefiting from iFC's indigenous Brazil, requested iFC's assistance to develop the capabilities of small enterprise development program. companies around são paulo that can transform its petrochemical products into value-added plastic products. our assistance is expected to produce dual benefits. For suzano, it will create additional demand and potentially higher margins. For Brazil, which is still principally an exporter of primary products, this is a chance to move up the value chain, create new investment opportunities and jobs, and retain more of the value-added within the country. this initiative is expected to support the development of a cluster of 20 to 30 small and medium plastic producers with about 1,200 employees. we also committed $60 million for suzano this year. the firm will use the financing for an acquisition and for corporate restructuring. pAge 70 iFC AnnuAl report 2006 50 yeaRs oF pRivate seCtoR suppoRt in latin ameRiCa iFC's first investment in 1956 was a BrAzIl by iFC and the Visa group. in 1988, $2 million, 15-year loan to siemens for iFC's investments in Brazil have provided iFC lent $80 million to the firm, which manufacturing electricity-generating $8 billion in financing to 167 companies. helped catalyze an additional $146 million equipment in Brazil. A half-century while Brazil's economy has seen ebbs in investments. the firm, which later, we have invested and mobilized and flows, iFC has innovated in times subsequently became FemsA (Fomento $31 billion in latin America and the of crisis--for instance, reactivating económico mexicano, s.A.), has since Caribbean, including nearly $600 million $800 million in trade financing in 2002. grown into one of latin America's largest with 30 companies in the region's we have consistently supported new consumer products companies, with sales lowest-income countries, Bolivia growth industries in Brazil, including the of $9.9 billion in 2005. and haiti. in the course of our work, country's first petrochemical project in the we have developed long-term 1970s, which was the first step in building colomBIA partnerships to foster the growth an industry that is now Brazil's fifth- since the early 1990s, iFC has played a of latin American firms. largest in terms of gdp. the sector is now key role in helping Colombia develop in a second phase of consolidation to a more efficient capital market and a ArgentInA enhance its global competitiveness, and sound regulatory framework. in 2001, iFC has invested $6 billion in 112 in Fy06 we invested $350 million in key iFC, along with local financial partners, companies in Argentina, sometimes petrochemical businesses. sponsored the country's first secondary under a challenging investment climate. mortgage company, titularizadora de during the country's 2001 currency mexIco Colombia, with a $40 million equity crisis, iFC remained committed to we have also been active investors during investment and a local currency Argentina as the only international periods of crisis in mexico, playing a guarantee facility of $100 million. more financial institution supporting the critical role in the reorganization and recently, in march 2002, iFC launched private sector. we continued to lend to subsequent prosperity of a distressed a bond issue for 225 billion Colombian clients such as Aceitera general deheza, company, grupo Visa. Following the 1982 pesos, or about $100 million. we were a major agribusiness group and an iFC mexican crisis, the company went through the first international institution to issue client since 1986 (please see page 17). a financial restructuring with supervision a bond in Colombian pesos. pRivate seCtoR aCtivity in haiti despite the near collapse of the haitian state in the 1990s, iFC has continued to be an active investor in the country. in 1998, iFC invested $500,000 to create the first financial institution for microentrepreneurs in haiti. microCredit national, iFC's first capital markets project in haiti, has continued to operate on a commercial basis throughout the country's recent turbulent period. this fiscal year, iFC provided $15 million in financing for a telecom project in haiti with a long-term partner in the region, digicel. the project is the largest foreign investment in the country in the past 30 years and is expected to expand mobile phone penetration by more than 50 percent by 2007. we also launched an audit of electricité de haïti in cooperation with the world Bank and with financing from the Canadian development Agency. report on regionson regions 2006 port 2006 pAge 71 pAge 71 report on regions 2006 middle east and north Africa AFghAnistAn AlgeriA BAhrAin ArAB repuBliC oF egypt islAmiC repuBliC oF irAn irAq jordAn kuwAit leBAnon liByA moroCCo omAn pAkistAn sAudi ArABiA syriAn ArAB repuBliC tunisiA united ArAB emirAtes west BAnk And gAzA repuBliC oF yemen iFC's stRategy FoR the middle east and noRth aFRiCa Commitments (U.S.$ millions) · support economic reform through investment and advice on Financing for iFC's own account syndications global best practices $900 · Focus investments in the financial, infrastructure, and small and medium enterprise sectors 668 · provide targeted, high-impact technical assistance for the financial $600 sector, small and medium enterprises, the business environment, public-private partnerships, and privatizations $300 315 · promote intra- and interregional investments to accelerate 287 236 economic integration and business expansion $ 0 0 0 0 0 Fy03 Fy04 Fy05 Fy06 oveRview oF iFC aCtivity iFC's laRgest CountRy exposuRes Fy06 Fy05 Committed portfolio for iFC's own account as of june 30, 2006. total number of investment projects 29 21 (U.S.$ millions) total expenditures for technical assistance pakistan and advisory service projects (u.s.$ millions) $20 $5 Fy06 $345 Fy05 $315 egypt iFC staFF and Consultants Fy06 $290 headquarters Field offices Fy05 $297 As of june 30, 2006 4 189 oman Fy06 $202 Fy05 $105 pRojeCt FinanCing and poRtFolio iraq (U.S.$ millions) Fy06* Fy05** Fy06 $108 Financing committed for iFC's account $ 668 $ 315 Fy05 $ 10 loans*** 504 257 algeria equity*** 100 20 Fy06 $ 97 guarantees and risk management 64 38 Fy05 $ 72 loan syndications signed 0 0 totAl Commitments signed 668 315 *Includes regional shares of Soco Facility and Veolia AMI investments, which are officially classified as global projects. Committed portfolio Committed portfolio for iFC's account 1,556 1,210 for IFC's account includes regional share of BAPTFF, which is officially Committed portfolio held for others 314 664 classified as a global project. **Includes regional shares of BAPTFF and Melrose Facility investments, (loan and guarantee participations) which are officially classified as global projects. ***Loans include loan-type, quasi-equity products. Equity includes totAl Committed portFolio 1,871 1,874 equity-type, quasi-equity products. pAge 72 iFC AnnuAl report 2006 sniggihleAhCi m pRomoting global expansion oF emeRging maRKet Companies gdp growth for the middle east and including infrastructure, manufacturing, lending to consumers and small and north Africa, overall, was 5 percent in oil and gas, and financial institutions, medium businesses. we are also 2005, with stronger expansion in oil- with the last category representing providing advice to help the bank exporting countries and comparatively over 40 percent of iFC's regional undertake socially and environmentally weak growth in iraq, lebanon, syria, the commitments. our technical assistance responsible financing. west Bank and gaza, and yemen. high for client companies, government Following an initial $1million equity unemployment rates in much of the entities, and business associations, investment in First microfinance Bank of region have spurred some countries, provided primarily by our private Afghanistan, in 2004, we provided including egypt and pakistan, to embark enterprise partnership facility, also the microfinance institution with a on reform agendas that seek to attract increased substantially this year. $3.5 million standby credit facility this private sector investment and increase year. in addition to the credit line, we jobs. in line with these reforms, iFC's support For FInAncIAl InstItutIons are working with other donors on a investment and technical assistance AnD FInAncIAl mArkets technical assistance package to help activities are increasing across the region. to support the privatization of habib FmBA manage security, gender in Fy06, our commitments in the Bank limited in pakistan, iFC provided a outreach, and staff training, as well region jumped more than 100 percent, $50 million long-term loan to diversify as address infrastructure constraints. for a total of $668 million in 29 projects, the bank's funding and enable it to in morocco, we provided the compared with $315 million for 21 offer local businesses loans with longer Foundation for local development projects during the previous year. to maturities. this project is one of many and partnership with a comprehensive expand our portfolio, we have increased involving a partnership between iFC developmental financing and assistance our business development efforts, and the Aga khan Fund for economic package to complement its growth hiring senior officers in Algeria, egypt, development. iFC's technical assistance potential and expansion plans in the pakistan, and the united Arab emirates. is helping strengthen the bank's coming years. the client is a microfinance our Fy06 investments were spread operational capacity as it continues to institution that provides credit facilities across the region, in economic sectors restructure, modernize, and tailor its to microentrepreneurs, particularly report on regions 2006 pAge 73 middle eAst And north AFriCA women, in urban and semiurban areas paktel will use $35 million in iFC of the country. iFC extended a partial credit guarantee aimed at helping financing to make cellular service Fondep access local currency financing available throughout pakistan by 2007. from local commercial banks, as well as technical assistance aimed at developing its internal controls and risk management Investments In other key sectors trade links with the global economy, system. our microfinance investments in oil and gas dominate many of the and iFC continues to support private the region also included a $1 million region's economies, and our Fy06 investments in transport and shipping. equity investment in pakistan's tameer commitments included support for in jordan, iFC committed a $15 million microfinance Bank for up to 10 percent underserved aspects of these sectors. loan to Cti group, a shipping company of the bank's initial capital. the bank red med, a logistics company offering specializing in the regional transport of plans to target low-income, self- base camp support for oil and gas cement. the company needs substantial employed individuals. companies in Algeria, received a investment to replace its aging fleet of to support alternative forms of $10 million iFC loan with an income specialized cement carriers with newer financing, we made investments in or participation feature. Also in Algeria, vessels, but it was unable to obtain long- offered technical assistance to leasing we invested $24 million in Fertial, the term funding from local banks and companies in Afghanistan, egypt, jordan, country's first privatized fertilizer had limited access to traditional ship oman, pakistan, and saudi Arabia. in company, and we will help with technical financing. iFC's long-term funding is housing finance, we provided precedent- assistance for farmers who use the critical to Cti's fleet renewal and setting support for mortgage-backed company's fertilizer. expansion plans and will facilitate securities issued by kingdom installment infrastructure is a critical investment the company's access to international Company in saudi Arabia. area as countries in the region increase shipping banks. iFC is also working iFC FinanCes CellulaR netwoRK countries nearby or with comparable spurring private sector involvement in aFghanistan economic environments. in addition and competition. to impeding economic activity, the lack Areeba Afghanistan is owned by to support the construction and of services hampers communication investcom, a mobile phone operator nationwide operation of a gsm digital between the central government and with a track record in frontier markets cellular network--one of the largest regional authorities. including Benin, ghana, guinea-Bissau, foreign investments in Afghanistan this the project will increase the liberia, sudan, syria, and yemen. year--iFC has signed an agreement for a availability of reliable and affordable iFC's financing promotes capital flows $40 million loan and an equity investment telecommunications services for between developing countries by helping of up to $5 million with Areeba Afghanistan. consumers, businesses, and public investcom, which was recently acquired by the country has one of the lowest agencies, and it will extend much- mtn, invest in underdeveloped markets. telephone density rates in the world, needed geographic coverage to rural Areeba won Afghanistan's third with less than 0.5 fixed lines and four and underserved areas in Afghanistan. By long-term operating license in september mobile lines per 100 people as of investing in Areeba, iFC is also supporting 2005 through a transparent and 2005. this is significantly less than the Afghan government's agenda for competitive award process. it expects the penetration rates found in other liberalizing telecommunications and to have 700,000 subscribers by 2009. pAge 74 iFC AnnuAl report 2006 egyptian banK pRoFits FRom businesses in the country have access to system, train loan officers, and organize miCRoFinanCe lending bank financing, this is a market segment workshops in target communities. within with tremendous potential. a year of launching the program at A pilot microfinance program iFC has iFC first surveyed the microenterprise five branches, the bank had grossed supported in cooperation with egypt's market, designed products, and put $6 million from 13,000 microloans, with second-largest bank, Banque misr, has together a business plan. we then helped a repayment rate of nearly 100 percent. been so successful that the bank is the bank draft a credit policy, procedures, the success of this program has attracted expanding the program. Because only and operating manuals for the microfinance interest in microfinance from other banks about 12 percent of the smallest operation, implement a loan-tracking in egypt and the middle east. with Cti on improving its corporate governance practices. in pakistan, we provided an $8 million loan for container terminal lAni mret berths at karachi's port. the loan will be used by the pakistan international Container terminal to buy container- handling equipment, increase capacity, reniAtnoClAnoitAnretni and improve service. in the manufacturing sector, iFC nAtsikApFo provided $133 million in loans for cement plants in iraq and yemen. we provided ysetruoC $98 million, our largest investment ever An $8 million iFC loan will help pakistan international Container terminal buy container-handling in iraq, for construction of a greenfield equipment and improve service at karachi's port. plant. the plant will be built and run by orascom Construction industries, an egyptian firm. meeting a need FoR long-teRm Capital and teChniCal Afghanistan has long been known assistanCe in algeRia for the quality of its fresh and dried fruits. despite decades of political iFC made a $10 million investment this year in an Algerian company, red med, unrest that undermined investment, to help the firm meet growing demand for local logistics services from foreign the country's raisin and pomegranate companies in the oil and gas sector. Algeria's hydrocarbon deposits are located crops still have significant export in remote desert areas, where infrastructure is inadequate, making it difficult for potential. iFC is helping producers and foreign companies to operate. iFC's investment in red med, our first with a local traders improve outdated production Algerian firm, will support a four-year, $32 million expansion of the company's and processing technologies, build their core activities, including the acquisition of additional cranes, trucks, aircraft, and supply chains, and expand their medical testing equipment. knowledge of export markets. this Because Algeria's banking sector is dominated by state-owned banks with effort should enhance product quality limited access to long-term funding resources, iFC's long-term financing is critical and export earnings. to the company's expansion plans. iFC is also helping red med with corporate governance practices, including revamping its holding structure. these steps will help red med access international capital markets in the future. report on regions 2006 pAge 75 middle eAst And north AFriCA FosterIng prIvAte enterprIse through technIcAl AssIstAnce AnD ADvIsory servIces iFC's donor-funded facility, the private enterprise partnership for the middle east and north Africa, provides technical assistance to support the financial sector, small and medium idAhrAF enterprises, business environment kerot reforms, and public-private partnerships iFC is advising jordan's government on the privatization of queen Alia international Airport. for infrastructure projects. we are stepping up our corporate governance program run by pep-menA. program standards. since october 2004, we advisory work throughout the region, partners receive training and have certified 11 training partners, particularly in egypt and pakistan. in certification in marketing, human who in turn have trained more than egypt, we are also increasing the resources, finance, accounting, and 2,500 managers and owners of small management capacity of small and methods for improving productivity, enterprises. we are expanding the medium enterprises through the and pep-menA monitors their program to jordan, oman, the united Business edge management training performance to maintain quality Arab emirates, and yemen, as well as partnering with large corporations to our microfinance investments included provide management training to small enterprises in their supply chains. an equity investment in pakistan's tameer iFC is the lead advisor to the microfinance Bank to support its lending jordanian government's executive privatization Committee, which is to low-income microentrepreneurs. mobilizing private sector participation to expand and rehabilitate queen Alia international Airport. we are also providing advisory services to support the airport's privatization. upgrading the airport will increase stRengthening CoRpoRate goveRnanCe the competitiveness of jordan's tourism industry. during Fy06, iFC provided corporate governance training to more than 1,000 in Afghanistan, iFC and kabul managers and directors from 200 companies in the middle east and north university are developing a business Africa. we provided input on and helped establish four codes of corporate skills training program for local governance--two in egypt and one each in lebanon and the united Arab entrepreneurs who need more emirates. we also raised awareness of good corporate governance among expertise in marketing, accounting, the press, providing training for journalists in egypt and pakistan. and financial planning. the curriculum iFC's pep-menA facility continues to support the egyptian institute is available in two local languages, of directors, the first organization of its type in the region. to improve and 120 students and entrepreneurs corporate governance in egyptian corporations, pep-menA is working have enrolled in the first pilot. we are with the world Bank to build the institute's capacity to deliver programs, also helping the university develop a including the country's first certification program for board development. strategy to offer the training on an ongoing basis. pAge 76 iFC AnnuAl report 2006 aCRonyms, notes, and deFinitions aCRonyms notes and deFinitions cAo compliance Advisor/ombudsman The fiscal year at IFC runs from July 1 to June 30. Fy fiscal year thus, Fy06 began on July 1, 2005, and ended on gDp gross domestic product June 30, 2006. IBrD International Bank for reconstruction Investment amounts are given in u.s. dollars and Development unless otherwise specified. IcsID International centre for settlement of Investment Disputes On-lending is the process of lending funds from IDA International Development Association IFc's own sources through intermediaries, such as Ieg Independent evaluation group local banks and microfinance institutions. IFc International Finance corporation Participants and IFC fully share the commercial ImF International monetary Fund credit risks of projects, but because IFc is the lender mIgA multilateral Investment guarantee Agency of record, participants receive the same tax and mpDF mekong private sector Development Facility country risk benefits that IFc derives from its special pensA program for eastern Indonesia sme Assistance status as a multilateral financial institution. pep private enterprise partnership Quasi-equity instruments incorporate both pep Africa private enterprise partnership for Africa loan and equity features, which are designed to pep-menA private enterprise partnership for the provide varying degrees of risk/return trade-offs middle east and north Africa that lie between those of straight loan and pep-se private enterprise partnership for equity investments. southeast europe seDF southAsia enterprise Development Facility Rounding of numbers may cause totals to differ sme small and medium enterprise from the sum of individual figures in some tables. The World Bank includes both IBrD and IDA. The World Bank Group includes IBrD, IDA, IFc, mIgA, and IcsID. ACronyms, notes, And deFinitionspAge 77 FoR FuRtheR inFoRmation web site the iFC web site, www.ifc.org, contains social development policies, publications, comprehensive information on every aspect contact details for iFC's country offices and of the Corporation's activities. it includes facilities, and all products and services. project information, environmental and otheR Key publiCations sustAInABIlIty report gooD prActIce notes this report shows how iFC is using its this series of publications provides unique position and resources to respond guidance and good practice examples to global challenges, including climate to private sector clients on a variety of change, poverty, corruption, hiV/Aids, social and environmental topics, ranging women's participation in private sector from hiV/Aids in the workplace to development, and the preservation of nondiscrimination and equal natural resources. opportunity promotion. report to the Donor communIty cAo AnnuAl report our 2006 Report to the Donor the Compliance Advisor/Ombudsman Community gives a comprehensive Annual Report highlights efforts of the description of the main achievements CAo office to address complaints from of the partnerships between iFC and people affected by projects and enhance its donor countries in reducing poverty the social and environmental outcomes of and in helping our clients achieve the projects in which iFC and migA play a role. millennium development goals through Further information can be found at technical assistance programs. www.cao-ombudsman.org. DoIng BusIness Ieg FInDIngs Doing Business is a series of annual the Independent Evaluation Group reports from iFC and the world Bank Findings is a publication series designed investigating regulations that ease doing to help inform stakeholders of new business and those that constrain it. the evaluation findings and recommendations 2007 edition focuses on implementing for iFC's investment and technical reforms and compares indicators from assistance projects. Further information 175 developing and industrialized about ieg is available at www.ifc.org/ieg. countries. For more information, visit rru.worldbank.org/doingbusiness. worlD BAnk AnnuAl report this report highlights the achievements of the world Bank in its efforts to alleviate poverty worldwide and includes its financial statement. the world Bank's web site is www.worldbank.org. pAge 78 iFC AnnuAl report 2006 Project Manager and Editor sidney edelmann Janine pampolina susan Blesener torek Farhadi henny rahardja matthew gamser Fereshteh raissian Corporate Relations Contributors Dianne garama usha rao-monari Bruce moats, head, louise gardiner yasmina sam corporate relations Anastasia gekis ellen schwab Dana lane, chief of publications stella gonzalez minakshi seth paul mcclure, Associate publisher Darrin hartzler karin strydom Ariadne garscadden, kate henvey tomoko suzuki Information Assistant mariko higashi william v. todd neil Flanigan and Declan heery, Brigid holleran hannfried von hindenburg consultants vikram Jackson eduardo wallentin naira Abajyan and kelly Finnegan, ludwina Joseph wai-keen wong program Assistants rita Jupe rob wright lisa kaestner gulnara yunusova IFC and World Bank Contributors Arthur karlin goran zaric hayat Abdo Alzbeta klein maxwell Aitken David lawrence Web Design Anthony Aylward elena lee stephenie Dekouadio paul A. Barbour Irina likhacheva vincent yemoh paul Bravery toshiya masuoka yanni chen roland michelitsch Design Julia chiperfield Joyce msuya Financial communications Inc. 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