The International Financial Corp, the World Bank's private-sector lender, on Thursday launched funding facilities to ease the effects of the global financial crisis on companies in emerging markets and said it will work with sovereign wealth funds to invest in Africa.
IFC Executive Vice President Lars Thunell, in an interview with Reuters, said companies in Asia, Latin America and Africa have been hard hit by the global credit squeeze and a broader global economic slowdown.
The facilities include a doubling of the IFC trade finance program to $3 billion, a new $3 billion bank recapitalization fund and an infrastructure crisis facility, which is expected to mobilize at least $1.5 billion.
Over the next three years IFC is expected to deploy about $30 billion through the funds and has invited other donors to contribute financing, including China.
From mining services firms in Zambia to foreign-owned banks in Madagascar and construction companies in Vietnam, the global credit crunch is hampering the private sector's ability to finance investments and forcing many to lay off workers.
"We've seen how this crisis, which started in Wall Street, is reaching out like a tsunami wave to the smallest of countries," Thunell told Reuters.
The IFC also launched a sovereign funds initiative that will raise and manage commercial capital from state-owned funds for equity investments in Africa.
"With the support of donors and partners, these IFC facilities will provide critical assistance to many businesses and entrepreneurs and reduce the impact of the crisis on the poor," Thunell said.
"In addition, our new sovereign funds initiative should mobilize new sources of commercial capital for long-term investment in frontier regions and countries."
Thunell said the doubling of funding for trade finance from $1.5 billion will help spur exports, which have not only slowed due to less demand but also because trade finance is more expensive and tougher to get.
The World Bank has estimated that global trade, the lifeblood of economies, will drop next year for the first time since 1982.
Thunell said there has been a significant increase in demand for the IFC's trade finance program since the financial crisis began, which provides guarantees to a network of banks for trade financing in 66 countries.
"About 50 percent of the volume we have had is in Sub-Saharan Africa, for example," he said, adding that the IFC was seeking other international donors to add to the trade finance program.
PROJECT FINANCING
He said the IFC infrastructure fund would help companies continue with projects that may have been put on hold or are in jeopardy due to a lack of commercial financing.
IFC expects to invest a maximum of $300 million over three years through the infrastructure fund and that other sources will invest between $1.2 billion and $10 billion.
"We know from a development perspective it is extremely important to get those infrastructure projects going. But also in terms of stimulus, if you don't do these things it will hurt economies even more," Thunell said.
He said the recapitalization fund would help stabilize the banking systems in developing countries that are likely to suffer deep losses as a result of the financial turmoil.
Thunell said IFC expects to invest $1 billion over three years in the recapitalization of banks, while Japan has announced it will invest $2 billion in the fund.
He said the sovereign funds initiative would help to share IFC's experience in developing countries with sovereign funds and encourage them to invest in Africa and elsewhere.
World Bank President Robert Zoellick first planted the idea of getting sovereign funds to invest some of their assets in equities in developing countries in April.
He said if wealth funds invested just 1 percent of their estimated $3 trillion of assets in Africa, it could generate about $30 billion for a region in need of energy and roads.
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