CIF - Annual Report 2018 Redefining Development Finance

Annual Report 2018 Redefining Development FinanceIFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a group that collectively determines our policies. We have six decades of experience in the world’s most challenging markets. With a global presence in about 100 countries, a network consisting of hundreds of financial institutions, and about 2,000 private sector clients, IFC is uniquely positioned to create markets and opportunities where they are needed most. We use our capital, expertise, and influence to help end extreme poverty and boost shared prosperity. ABOUT IFCCONTENTS Letter from the IFC Board 2 Lett er from Jim Yong Kim, World Bank Group President 3 Lett er from Philippe Le Houérou,

IFC CEO 6

Our Ma nagement Team 9 REDE

FINING

DEVELOPMENT FINANCE 10

Mobil izing Private Solutions 24 Cre ating Markets 32 Pro moting Sustainability 44 Endi ng Poverty 52 IFC Y

EAR IN REVIEW 62

IFC O perational Highlights 64 IFC F inancial Highlights 65 Worl d Bank Group Summary Results 68 AB

OUT US 72

Meas uring Up 73 Our E xpertise 76 Our P eople & Practices 84

Cover: To maximize finance for development, IFC follows a decision-making sequence that prioritizes private sector solutions. We call this approach the Cascade.

IFC ANNUAL REPORT 2018 | 1During fiscal 2018, the Board was actively involved in the discussion with management on implementation of the Forward Look vision for the World Bank Group. An integral part of this discussion included a proposed capital package that would allow the Bank Group to deliver development results more effectively — and in a financially sustainable manner.

the discussion with management on implementation of the Forward Look vision for the World Bank Group. An integral part of this discussion included a proposed capital package that would allow the Bank Group to deliver development results more effectively — and in a financially sustainable manner. This transformative financial and policy package is the largest injection of capital into the World Bank and IFC to date, and it represents a major shift in approaches to address today’s toughest development challenges. Together with a commitment by Bank Group management to implement necessary internal reforms, the package of initiatives will help support achievement of the 2030 development agenda, the IDA18 vision, Maximizing Finance for Development, and will help the Bank Group continue to lead on global public goods and scale up its support in fragile and c onflicta ffected situations. The Board also engaged on the shareholding review to rebalance shareholding among members, and agreed to reduce extreme underre presentation in order to realize voice reform and more closely align voting power between the institutions of the Bank Group. The Board has also provided guidance and direction on initiatives that enable the Bank Group to continue to improve its business model — including through simpler and more agile processes, strengthened strategic frameworks, market creation and increased development impact through the IFC 3.0 strategy, efficiency measures in compensation and other expenses, and frameworks and mechanisms to ensure financial sustainability.

STANDING

(Left to Right)

Werner Gruber Switzerland Frank Heemskerk The Netherlands Turki Almutairi Saudi Arabia (Alternate) Andrei Lushin Russian Federation Yingming Yang China JeanC laude Tchatchouang Cameroon (Alternate) Hervé de Villeroché France Otaviano Canuto Brazil Kazuhiko Koguchi Japan Andin Hadiyanto Indonesia Erik Bethel United States (Alternate) Fernando Jimenez Latorre

Cameroon (Alternate) Hervé de Villeroché France Otaviano Canuto Brazil Kazuhiko Koguchi Japan Andin Hadiyanto Indonesia Erik Bethel United States (Alternate) Fernando Jimenez Latorre Spain Omar Bougara Algeria Aparna Subramani India

SEATED

(Left to Right) Melanie Robinson United Kingdom Christine Hogan Canada Máximo Torero Peru Jason Allford Australia Bongi Kunene South Africa Merza Hasan Kuwait (Dean) Franciscus Godts Belgium Patrizio Pagano Italy Juergen Zattler Germany Susan Ulbaek Denmark Andrew N. Bvumbe Zimbabwe LETTER FROM THE IFC BOARD IFC ANNUAL REPORT 2018 | 2It’s not an exaggeration to say that today’s challenges can seem overwhelming. In our work around the world, we’re facing overlapping crises such as climate change, conflict, pandemics, natural disasters, and forced displacement. We must simultaneously help our client countries address immediate crises, build resilience against challenges on the horizon, and make enduring investments to prepare for an un certain future. But even in difficult times, I have never been more optimistic that we can achieve our twin goals: to end extreme poverty by 2030, and to boost shared prosperity among the poorest 40 percent around the world. Across the World Bank Group, we are harnessing new technologies and developing financial innovations to drive progress on the three parts of our strategy to get there: accelerate inclusive, sustainable economic growth; build resilience to shocks and threats; and help our client countries invest in their people. First, to accelerate inclusive, sustainable economic growth, we need a new vision for financing developcial innovations to drive progress on the three parts of our strategy to get there: accelerate inclusive, sustainable economic growth; build resilience to shocks and threats; and help our client countries invest in their people. First, to accelerate inclusive, sustainable economic growth, we need a new vision for financing development — one that helps make the global market system work for everyone and the planet. In a world where achieving the Global Goals will cost tr illions every year, but official development assistance is stagnant in the billions, we cannot end poverty without a fundamentally different approach. With the adoption of the Hamburg Principles in July 2017, the G-20 endorsed an approach that we call the Cascade, which will lead to our goal of Maximizing Finance for Development. The World Bank, IFC, and MIGA are working more closely together to create markets and bring private sector solutions in sectors such as infrastructure, agriculture, telecommunications, renewable energy, and affordable housing. (Read more on page 5.) Second, to build resilience to shocks and threats — ev en as we continue developing cl imatesm art infrastructure and improving response systems — we n eed innovative financial tools to help poor countries do what wealthy ones have long done: share the risks of crises with global capital markets. This spring, we saw the first impact of the Pandemic Emergency Financing Facility (PEF) with a rapid grant to support the Ebola response surge in the Democratic Republic of Congo. With this facility — and a similar one we are developing to improve responses to and prevent famine — we are finding new ways to help the poorest countries share risks with financial markets, helping break the cycle of panic and neglect that often occurs with crises. LETTER FROM JIM YONG KIM World Bank Group President IFC ANNUAL REPORT 2018 | 3But resilience must start with the existential threat of climate change. When we returned to Paris in December 2017 to celebrate the two-year anniverthat often occurs with crises. LETTER FROM JIM YONG KIM World Bank Group President IFC ANNUAL REPORT 2018 | 3But resilience must start with the existential threat of climate change. When we returned to Paris in December 2017 to celebrate the two-year anniversary of the Paris Climate Agreement, we put more than a dozen deals on the table to finance significant climate action such as preventing coastal erosion in West Africa and scaling up renewable energy worldwide. It was critical to lead by example, and we announced that after 2019, we will no longer finance upstream oil and gas while helping countries find sustainable ways to achieve their development goals. Third, to prepare for a future where innovations will only accelerate, we must find new ways to help countries invest more — and more effectively — in their people. The jobs of the future will require specific, complex skills, and human capital will become an increasingly valuable resource. With the Human Capital Project, which we launched this year, we are developing a rigorous and detailed measure of human capital in each country. At the Annual Meetings in Indonesia in October 2018, we will unveil the Human Capital Index, which will rank countries according to how well they are investing in the human capital of the next generation. The ranking will put the issue squarely in front of heads of state and finance ministers so they can accelerate investments in their people and prepare for the economy of the future. Around the world, demand continues to rise for financing, expertise, and innovation. The needs are great — but the costs of failure are simply too high. Our shareholders are helping us meet that challenge with their approval of a historic $13 billion capital increase, which will strengthen the World Bank Group’s ability to reduce poverty, address the most critical challenges of our time, and help our client countries — and their people — reach their highest aspirations. This year, the World Bank Group committed

challenge with their approval of a historic $13 billion capital increase, which will strengthen the World Bank Group’s ability to reduce poverty, address the most critical challenges of our time, and help our client countries — and their people — reach their highest aspirations. This year, the World Bank Group committed nearly $67 billion in financing, investments, and guarantees. The International Bank for Reconstruction and Development (IBRD) continues to see strong demand from clients for its services, with commitments rising to $23 billion in fiscal 2018. Meanwhile, the International Development Association (IDA) provided $24 billion to help the poorest countries — the largest year of IDA commitments on record. This year, we leveraged IDA’s strong capital base and launched the inaugural IDA bond. Investor demand for the $1.5 billion bond reached more than $4 billion. By combining IDA’s traditional donor funding with funds raised in the capital markets, this financial innovation will expand IDA’s ability to support the world’s poorest countries, including efforts to prevent conflict. The International Finance Corporation (IFC) provided more than $23 billion in financing for private sector development this past year, including $11.7 billion mobilized from investment partners. Of this, nearly $6.8 billion went to IDA countries, and more than $3.7 billion was invested in areas affected by fragility, conflict, and violence. Marking its 30th year of operation, the Multilateral Investment Guarantee Agency (MIGA) has become the third leading institution among the MDBs in terms of mobilizing direct private capital to lowand middle-income countries. This year, MIGA issued a record $5.3 billion in political risk insurance and credit enhancement guarantees, helping finance $17.9 billion worth of projects in developing countries. New issuances and gross

lowand middle-income countries. This year, MIGA issued a record $5.3 billion in political risk insurance and credit enhancement guarantees, helping finance $17.9 billion worth of projects in developing countries. New issuances and gross outstanding exposure — at $21.2 billion this year — almost doubled as compared to fiscal 2013. We know that the 2018 World Bank Group capital increase was a strong vote of confidence in our staff, who work tirelessly to end poverty around the globe. I am inspired every day by their dedication and their ability to deliver on our ambitious commitments to meet the aspirations of the people we serve. But we also know that the capital increase represents an enormous challenge to operate more efficiently and effectively, to drive innovation, and to accelerate progress toward a world that is finally free of poverty. In the year ahead, we will step up once again to meet that challenge every day.

Jim Yong Kim World Bank Group President LETTER FROM JIM YONG KIM World Bank Group President IFC ANNUAL REPORT 2018 | 4The MFD approach is a continuation of the World Bank Group’s efforts to mobilize resources beyond official development assistance to meet countries’ development needs. It leverages capabilities across the Bank Group institutions to come up with innovative solutions that will help achieve the Bank Group’s twin goals. More importantly, MFD envisages a key role for the private sector — both as financier and as a source of knowledge. In 2014, the Egyptian government began working with the World Bank Group to address its energy problems, bringing together local and global experts to develop a national strategy that prioritized energy sustainability and private sector investment. This clear articulation of policy helped attract over $30 billion of private investment by March 2015 into Egypt’s oil and gas production and in liquefied natural gas. In December 2015, IBRD approved the

to develop a national strategy that prioritized energy sustainability and private sector investment. This clear articulation of policy helped attract over $30 billion of private investment by March 2015 into Egypt’s oil and gas production and in liquefied natural gas. In December 2015, IBRD approved the first of three programmatic loans to deliver the technical and financial support to achieve Egypt’s energy sector reform goals, committing more than $3 billion over 2015–17. A key part of the reform program was to leverage Egypt’s abundant supply of sunshine. In 2015, IFC worked with the government to develop the Four years ago, the Arab Republic of Egypt faced a serious power crisis. Hours-long power cuts affected businesses and the quality of life, while demand for electricity exceeded supply by 20 percent. With scarce public funds needed elsewhere, Egypt needed an alternative way to find the resources needed to solve its power problems. That’s where the World Bank Group’s emphasis on Maximizing Finance for Development (MFD) came in. contracts for the Photovoltaic Solar Feed-in Tariff (FiT) Program. In 2017, IFC finalized a $653 million debt package to finance the construction of the Benban PV Solar Park, which will be the world’s largest when complete. Benban’s 32 solar power plants will generate up to 752 megawatts of power, serve over 350,000 residential customers, and generate up to 6,000 jobs during construction. MIGA has received approval to provide up to $210 million in political risk insurance for 12 projects within the solar park. Overall, the World Bank Group and other lenders will mobilize a total of $2 billion of private investment under the FiT program to support 1,600 megawatts of power generation. Egypt’s energy sector is on the way to being transformed. Among other reforms, by 2016 the Government of Egypt halved subsidies to the sector —

under the FiT program to support 1,600 megawatts of power generation. Egypt’s energy sector is on the way to being transformed. Among other reforms, by 2016 the Government of Egypt halved subsidies to the sector — to 3.3 percent of GDP — while keeping electricity tariffs affordable relative to global benchmarks, with help from the World Bank Group. The energy sector has become more efficient and financially sustainable. The government has also improved the enabling en vironment for the private sector, freeing up more public resources for use in critical social sectors. For more information, visit www.worldbank.org/mfd. How a Unique Strategy Is Helping Egypt Overcome Its Power Distress IFC ANNUAL REPORT 2018 | 5LETTER FROM PHILIPPE LE HOUÉROU IFC Chief Executive Officer Fiscal 2018 was a historic year for the World Bank Group. Our shareholders endorsed a $13 billion paid-in capital increase for IBRD and IFC — including $7.5 billion for IBRD and $5.5 billion for IFC. For IFC, this capital increase will more than triple the cumulative paid-in capital that we have received since inception. $23.3B IN

INVESTMENTS

36%

OF OUR

INVESTMENTS WERE

CLIMATE-RELATED

30%

OF OUR

INVESTMENTS

IN IDA COUNTRIES

45%

OF NEW ADVISORY

PROJECTS INCLUDED

A FOCUS ON GENDER

IMPACT $ IFC ANNUAL REPORT 2018 | 6In addition, our shareholders agreed to suspend IFC transfers to the International Development Association (IDA). As a result, the paid-in capital plus the saved retained earnings from the suspension of IDA transfers will total $9.2 billion in additional capital to support IFC operations between now and 2030. This constitutes a clear vote of confidence in our st rategic priorities for the years ahead. But it comes with high expectations: We must deliver on our

IDA transfers will total $9.2 billion in additional capital to support IFC operations between now and 2030. This constitutes a clear vote of confidence in our st rategic priorities for the years ahead. But it comes with high expectations: We must deliver on our strategy to achieve high impact, particularly in some of the world’s toughest markets. We project that by 2030, we will have to more than double our annual commitments to reach $48 billion in total. We pledged to significantly increase our investments in IDA countries and in fragile and conflict-affected areas. We also pledged to step up our climate investments and gender-related interventions. This year, we started to roll out the new tools and instruments designed the year before. At the same time, we changed our organizational structure, and delivered record levels of investments.

ROLLING OUT

NEW TOOLS AND APPROACHES We rolled out new tools to reduce risks, select projects more strategically, and measure development results more rigorously: • To Maximize Finance for Development, the World Bank Group adopted a methodical approach that we call the Cascade — a decision-making sequence that prioritizes private sector solutions. As you can see on the cover of this Annual Report, the Cascade can be visualized as a series of waterfalls — each waterfall representing a step along the private/public solution and financing mix. • IDA18 IFC-MIGA Private Sector Window, a $2.5 billion de-risking facility that helps address high-risk projects and overcome the challenge of limited access to local-currency loans in IDA countries and in fragile and conflict-affected areas. In FY18, we delivered our first transactions and developed a pipeline of projects that will benefit from this window in the next two years. • Country Private Sector Diagnostics and Sector Deep Dives, which enable us to identify what needs to be done to create markets in each country and in each sector. These two diagnostic pieces will serve as a base for strengthened country strategies. The

will benefit from this window in the next two years. • Country Private Sector Diagnostics and Sector Deep Dives, which enable us to identify what needs to be done to create markets in each country and in each sector. These two diagnostic pieces will serve as a base for strengthened country strategies. The latter will outline the upstream agenda required to enable the private sector to come in and help close development gaps. They will also identify IFC’s specific advisory and investment program deliverables in every country. • Creating Markets Advisory Window, a funding facility to support upstream work in IDA-eligible and fragile and conflict-affected countries. In FY18, resources from this window enabled diagnostic work that is helping us focus our advisory work to create markets and develop project pipelines. • Improved Project Selection, with two new tools. The first is the Anticipated Impact Measurement and Monitoring (AIMM) system, which assesses proposed projects according to their ex-ante — or expected — development impact. The AIMM methodology and associated scoring is fully functional for all IFC investment projects since January 1, 2018; it will be expanded to advisory projects in FY19. The second is Carbon Pricing, which began May 1 for all projectfi nance investments in the cement, chemicals, and thermal power sectors. This will help IFC select more low-emission projects, in line with the recommendations of the Report of the High-Level Commission on Carbon Prices.

IFC ANNUAL REPORT 2018 | 7LETTER FROM PHILIPPE LE HOUÉROU

IFC Chief Executive Officer NEW ORGANIZATIONAL STRUCTURE To complement FY17’s organizational changes — which included the creation of the Economics & Private Sector Development and the Partnerships, Communications & Outreach teams — in FY18, we focused on Operations and rebalanced the matrix between IFC’s industry and regional teams to better leverage the full range of resources and capabilities available in IFC:

which included the creation of the Economics & Private Sector Development and the Partnerships, Communications & Outreach teams — in FY18, we focused on Operations and rebalanced the matrix between IFC’s industry and regional teams to better leverage the full range of resources and capabilities available in IFC: • A New Structure, which will allow us to fully benefit from our local presence and global sector knowledge and expertise. This includes a Chief Operating Officer to oversee all IFC operations. The teams under the new IFC Regional Vice Presidents are working in close collaboration with Global Industry Senior Directors to deliver tailored solutions for each country. Guided by substantive country strategies, stronger IFC regional teams also help us solidify our collaboration with the Bank and MIGA, and ensure that “the Cascade approach” is systematically designed and implemented at the country level. • Advisory Reforms, which are establishing a tighter link between our advisory and investment work to prioritize upstream work and proactively develop projects. At the end of FY18, we moved most of the cross-cutting advisory teams with IFC investment staff. This will allow us to better leverage our advisory experience and insights and focus on Creating Markets priorities. DELIVERING Despite all these changes, IFC delivered record levels of investment finance in FY18 — thanks to the talent and dedication of our staff. IFC provided a record $23.3 billion in financing to private companies, up from $19.3 billion in FY17. This growth reflects an unprecedented level of mobilization — at $11.7 billion in FY18 compared with $7.5 billion in FY17. Nearly 30 percent of our commitments went to support development in the poorest countries: those eligible to borrow from IDA. Climate-related investments accounted for a record 36 percent of our financing for the year. In addition, we increased our focus on gender by helping women access financial

Nearly 30 percent of our commitments went to support development in the poorest countries: those eligible to borrow from IDA. Climate-related investments accounted for a record 36 percent of our financing for the year. In addition, we increased our focus on gender by helping women access financial services, by supporting female entrepreneurs as they expand their businesses, and by fostering gender parity in the corporate world. We also continued to deliver advisory solutions to clients in developing countries — especially in IDA countries and in fragile and conflict-affected areas. About 57 percent of IFC’s Advisory program was delivered to clients in IDA co untries and 19 percent in fragile and conflictaf fected areas. Twenty-seven percent of the program was climate-related. In addition, almost 45 percent of new advisory projects included a focus on gender impact in project design — up from a third last year. We were also honored to receive more than 40 awards this year — a strong endorsement by third parties of our ability to deliver innovative projects and solutions. This past year we laid the foundation for us to im plement the new IFC strategy — with our capital increase, renewed support from our shareholders, a new structure, and new tools and approaches to deliver. This foundational work will position IFC to actively participate in the “billions to trillions” agenda and the reshaping of development finance.

Philippe Le Houérou IFC Chief Executive Officer IFC delivered record levels of investment finance in FY18 — thanks to the talent and dedication of our staff. IFC ANNUAL REPORT 2018 | 8Philippe Le Houérou IFC Chief Executive Officer Our leadership team ensures that IFC’s resources are deployed effectively, with a focus on maximizing development impact and meeting the needs of our clients. IFC’s Management Team benefits from years of development experience, a diversity of knowledge, and distinct cultural perspectives. The team shapes our strategies and policies, positioning IFC to create

Our leadership team ensures that IFC’s resources are deployed effectively, with a focus on maximizing development impact and meeting the needs of our clients. IFC’s Management Team benefits from years of development experience, a diversity of knowledge, and distinct cultural perspectives. The team shapes our strategies and policies, positioning IFC to create opportunities where they are needed most. OUR

MANAGEMENT

TEAM Ethiopis Tafara Vice President, Legal, Compliance Risk and Sustainability & General Counsel Sérgio Pimenta Vice President, Middle East and Africa Mohamed Gouled Vice President, Risk and Financial Sustainability Georgina Baker Vice President, Latin America and the Caribbean, and Europe and Central Asia Monish Mahurkar Vice President, Corporate Strategy and Resources Jingdong Hua Vice President and Treasurer Elena Bourganskaia Chief of Staff Marcos Brujis CEO, IFC Asset Management Company Karin Finkelston Vice President, Partnerships, Communication, and Outreach Nena Stoiljkovic Vice President, Asia and Pacific Stephanie von Friedeburg Chief Operating Officer Hans Peter Lankes Vice President, Economics and Private Sector Development IFC ANNUAL REPORT 2018 | 9REDEFINING DEVELOPMENT FINANCE It is a new era. Private sector solutions now stand at the forefront of development thinking — addressing more difficult challenges, in more countries, than ever before. This requires mobilizing private investment at a far larger scale than in the past — and steering it where it is needed most. IFC is the global leader in this field, leveraging our many partnerships — begi nning with our Bretton Woods partner institutions, the World Bank and the International Monetary Fund.

MAXIMIZING the PRIVATE

SECTOR’S ROLE IFC ANNUAL REPORT 2018 | 10MAXIMIZING the PRIVATE

SECTOR’S ROLE Scaling Up IFC helped European asset manager Amundi launch

World Bank and the International Monetary Fund.

MAXIMIZING the PRIVATE

SECTOR’S ROLE IFC ANNUAL REPORT 2018 | 10MAXIMIZING the PRIVATE

SECTOR’S ROLE Scaling Up IFC helped European asset manager Amundi launch the world’s largest green-bond fund focused on emerging markets. The fund is expected to deploy $2 billion in support of cl imatefi nance needs.

IFC ANNUAL REPORT 2018 | 11CHANGING

the Way We

DO BUSINESS REDEFINING DEVELOPMENT FINANCE IFC ANNUAL REPORT 2018 | 12IFC ANNUAL REPORT 2018 | 12CHANGING

the Way We DO BUSINESS Committed to Innovation Using the Cascade approach, IFC and other World Bank Group institutions are helping Egypt attract $2 billion in financing for the Benban Solar Park. To help meet today’s ambitious development goals, IFC has hardwired its Creating Markets strategy for scaling up the private sector’s role and has begun implementing it widely. The strategy begins with the Cascade — a pr iorityse tting system central to the World Bank Group’s Maximizing Finance for Development approach. This sparks the innovations and reforms needed to attract new investment and increase the impact of every dollar mobilized — especially in the poorest countries and in fragile and co nflictaf fected areas. IFC ANNUAL REPORT 2018 | 13This year, shareholders endorsed our new strategy with a record $5.5 billion capital increase. It is the largest capital increase by far that we’ve received in more than six decades as the world’s largest global development finance institution focused on the private sector. It will more than triple the cumulative paid-in capital we’ve received since inception. Now is the time to deliver on this historic vote of confidence — by building on our strong base, and by working in new ways to extend the private sector’s reach in creating jobs, reducing poverty, and increasing living standards in the toughest areas of the developing world.

cumulative paid-in capital we’ve received since inception. Now is the time to deliver on this historic vote of confidence — by building on our strong base, and by working in new ways to extend the private sector’s reach in creating jobs, reducing poverty, and increasing living standards in the toughest areas of the developing world.

REDEFINING DEVELOPMENT FINANCE IFC ANNUAL REPORT 2018 | 14

STRENGTHENING

Our CAPITAL BASEEntering Tough Markets Afghanistan’s production of raisins is expected to double — benefiting 3,000 small-scale farmers — because of IFC’s support for a state-of-the-art plant being built by Rikweda Fruit Processing Company.

IFC ANNUAL REPORT 2018 | 15IFC ANNUAL REPORT 2018 | 15

STRENGTHENING

Our CAPITAL BASEREDEFINING DEVELOPMENT FINANCE

FINDING

New Ways to Balance

RISK AND RETURN IFC ANNUAL REPORT 2018 | 16FINDING

New Ways to Balance RISK AND RETURN IFC uses a wide set of deri sking tools and platforms to clear the way for new investment and widen its impact. They increase investors’ appetite for entering riskier markets, dismantling key barriers that have held back capital flows. These new instruments include both blended finance vehicles and mobilization platforms. They help us catalyze new investment and expertise into highneed areas, filling critical gaps across the development landscape. New Tools Using the new IDA18 IFC-MIGA