Striv­ing to break new ground

The world’s largest in­sti­tu­tional ad­viser for pri­vate sec­tors in de­vel­op­ing coun­tries has been an in­dus­try trail­blazer for 60 years, IFC’s re­gional head Vivek Pathak tells So­phie He.

China Daily (Canada) - - HONG KONG -

In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC) is not an or­ga­ni­za­tion that purely sets its sights on max­i­miz­ing profit, ac­cord­ing to its East Asia and Pa­cific Depart­ment Direc­tor Vivek Pathak.

IFC, a mem­ber of the World Bank Group, is the largest global de­vel­op­ment in­sti­tu­tion fo­cused ex­clu­sively on the pri­vate sec­tor in de­vel­op­ing coun­tries.

In­stead, IFC con­sid­ers it­self as a profit op­ti­mizer. In the 2015 fis­cal year, IFC’s longterm in­vest­ments in de­vel­op­ing coun­tries to­taled $17.7 bil­lion, a 17 per­cent in­crease over the pre­vi­ous year.

Pathak tells China Daily that IFC fo­cuses on three as­pects other than profit — prof­itabil­ity, de­vel­op­ment im­pact and sus­tain­abil­ity.

“That’s the dif­fer­ence between us and a typ­i­cal pri­vate eq­uity fund or com­mer­cial bank.”

The in­sti­tu­tion is cel­e­brat­ing its 60-year an­niver­sary this year, and Pathak re­flects that IFC has been a pi­o­neer in emerg­ing mar­kets.

“We’ve done things like helping coun­tries draft bank­ing laws, leas­ing laws, pri­vate in­sur­ance laws. We played a key role in a num­ber of mar­kets in terms of work­ing with the govern­ment, draft­ing laws to at­tract pri­vate and com­mer­cial cap­i­tal into com­mer­cial banks, leas­ing, fac­to­ries and in­sur­ance.”

In 1972 IFC sent two staff and 12 con­sul­tants to Jakarta, In­done­sia, for two years to help build the coun­try’s first se­cu­ri­ties mar­kets. In 1985 IFC pro­vided in­vest­ment-cli­mate re­form ad­vice to China at the early stage of its pri­vate sec­tor growth.

Pathak ex­plains that in the past, there was min­i­mal pri­vate com­mer­cial cap­i­tal flow­ing into these mar­kets, and IFC was a trail­blazer in this field in its first 40 years, mak­ing it pos­si­ble to uti­lize most of its in­vest­ments.

He also points out that IFC has achieved suc­cess in cap­i­tal mar­kets through de­vel­op­ing a coun­try’s fi­nan­cial in­fra­struc­ture. It has also taken the lead in a num­ber of cases in helping a coun­try to es­tab­lish stock ex­changes and im­prov­ing bank­ing reg­u­la­tion.

“IFC has around 182 coun­tries that are our share­hold­ers, we have a cap­i­tal base, and we are a reg­u­lar in­surer of the bond mar­kets.”

IFC will fo­cus on the fi­nan­cial sec­tor, sus­tain­abil­ity and cross-bor­der busi­ness in the future in Asia, ac­cord­ing to Pathak. In the fi­nan­cial sec­tor, IFC will con­cen­trate on helping peo­ple who don’t have im­me­di­ate ac­cess to fi­nan­cial ser­vices.

“Sec­ondly, we will fo­cus on sus­tain­abil­ity, which is green growth. How do we work with our clients to en­sure that they are growing in an en­ergy ef­fi­cient man­ner? How do we con­serve en­ergy? How do we pre­serve water? How do we man­age waste? I would call it green fi­nance.”

There will also be a strat­egy shift to cross-bor­der busi­ness, in or­der to cre­ate new mar­kets and op­por­tu­ni­ties.

Tra­di­tion­ally, mainly Euro­pean and US com­pa­nies in­vested in emerg­ing mar­kets, but the rise of lo­cal en­trepreneurs in these lo­ca­tions means IFC is keen to work with them. The or­ga­ni­za­tion is also en­cour­ag­ing com­pa­nies to move out­side of their com­fort zone.

“We are work­ing on how to get a com­pany in China to in­vest in South Amer­ica, and we are work­ing with com­pa­nies in terms of out­bound of China and Sin­ga­pore, Malaysia, In­done­sia, In­dia, be­cause as these com­pa­nies grow with these economies, they are also look­ing for new mar­kets.”

So in the future, IFC will strive to match the sup­ply of cap­i­tal in Asia with de­mand out­side of the con­ti­nent, ac­cord­ing to Pathak.

Pathak says he of­ten answers with “so what?” when peo­ple talk about in­vest­ment op­por­tu­ni­ties dry­ing up in China. He says China ob­vi­ously can­not con­tinue to grow at its for­mer pace, given that the world’s sec­ond-largest econ­omy is worth nearly $13 tril­lion. He says for China’s econ­omy to main­tain growth at 6 to 7 per­cent (or $700 bil­lion to $800 bil­lion), it is still tremen­dous for an econ­omy of this size.

“Ev­ery econ­o­mist pre­dicted this five to 10 years ago, but still peo­ple are acting sur­prised. ‘Oh my god, China is slow­ing down.’ Well, of course it will slow down.”

The way Pathak sees it, there are three sec­tions of the Chi­nese econ­omy rep­re­sent­ing op­por­tu­ni­ties. IFC is most in­ter­est­ing in the seg­ment growing at 5 to 15 per­cent, which in­cludes dis­rup­tive tech­nolo­gies, ser­vices, health, ed­u­ca­tion, cli­mate change and green fi­nance sec­tors — this is where the growth will come from, he says.

IFC will also con­tinue to watch the is­sue of con­sump­tion in China, which Pathak ex­plains as peo­ple’s lives im­prove, they will have more dis­pos­able in­come. This means they will chase a bet­ter ed­u­ca­tion for their chil­dren, and also im­proved health­care.

But he also is­sues a warn­ing about volatil­ity — es­pe­cially in China’s stock mar­ket. This is part of an econ­omy, with mar­ket forces play­ing a ma­jor role that’s set to re­sult in fur­ther fluc­tu­a­tion.

An­other concern IFC has about the Chi­nese econ­omy are non-per­form­ing loans. How that will be tack­led in the com­ing years will be cru­cial, says Pathak. Over­sup­ply is an­other is­sue in China (and the world) that needs to be tack­led.

When de­cid­ing whether to dive into a new project, IFC as­sesses a num­ber of cri­te­ria, he ex­plains. IFC first eval­u­ates if the project makes com­mer­cial and busi­ness sense, and then es­ti­mates what pos­si­ble im­pact it will have.

“For ex­am­ple, in ser­vices, we do tourism and ho­tels: Will we in­vest in five star ho­tels in Shang­hai and Bei­jing? No, there are enough of them. But will we in­vest in ho­tels in Myan­mar in Mon­go­lia? Yes, as the level of ser­vice does not ex­ist in those coun­tries and we want to bring in value-added projects to these coun­tries.”

When em­bark­ing on a new con­cept in a par­tic­u­lar coun­try — whether it’s in­tro­duc­ing new tech­nol­ogy or a par­tic­u­lar busi­ness model — IFC wants to en­sure it is able to draw on pri­vate cap­i­tal, Pathak says.

“These are the ar­eas we will look at, and to study the busi­ness and com­mer­cial vi­a­bil­ity of the projects.”

Con­tact the writer at so­phiehe@chi­nadai­lyhk.com

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