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What role can Finance play in developing the Nigerian Business Environment? A Case Study of the International Finance Corporation in Nigeria.

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Introduction

What role can Finance play in developing the Nigerian Business Environment? A Case Study of the International Finance Corporation in Nigeria. FOR THE COURSE- SOCIAL, POLITICAL AND ECONOMIC ENVIRONMENT OF BUSINESS (SPEB) LAGOS BUSINESS SCHOOL, JUNE 2005 BY FOLAHANMI J. FAGBULE (MBA/2005/037) I. INTRODUCTION IFC Mission- 'To promote sustainable private sector investment in developing countries.' "The World Bank's role, in my opinion, is to help improve the business environment in the developing countries so that the private sector can drive growth."- Mr. Peter Woicke, Executive Vice President of the World Bank Group (WBG) in charge of the International Finance Corporation (IFC) - Lagos, August 2004. At the time Mr. Woicke was speaking, IFC involvement in Nigeria had reached $200million in investment commitments, a figure quickly surpassed in less than a year from that date (as at June 2005, IFC investment in Nigeria was to the tune of $290million). This was in spite of the fact that only five short years before (in 1999), IFC was doing practically no business in Nigeria and merely had a functional working office in Lagos. Mr. Woicke went on to say- "We have increased our exposure since democracy returned from almost nothing to almost $800 million and an exposure at the IFC of about $200 million. We have made a bigger bet to have the bank (WB) and the IFC work on Nigeria's problems together. We were quite instrumental in advising the government on reforms in the telecom sector. We have been pushing very hard for privatization of other sectors." Clearly, the advent of democracy had re-ignited interest in Nigeria. The initiation of a reform agenda by the new government was also playing a part in this renewed interest in Nigeria. Beyond financial commitments however, IFC was beginning to offer a great deal of other services towards developing the economic environment of business in Nigeria. As Mr. Woicke put it- "I actually think we should increase our presence quite (in Nigeria) ...read more.

Middle

PRODUCTS- IFC's main services are: * Equity and Quasi-Equity * Loans and Intermediary Services * Syndicated Loans * Structured Finance * Risk Management * Technical Assistance and Advisory Services PROJECTS- IFC in Nigeria currently has commitments in excess of $300million, as against the $290million for FY04. Exhibit 1 is a list of IFC projects at the moment. These are projects with outstanding equity and debt commitments. Various other projects exist with expired debt or equity, which are no longer on IFC books. However, some of the major projects at the moment are evaluated here from a SPEB perspective. Exhibit 2 is a typical IFC published Summary of Project Information (SPI) illustrating IFC approach to these projects. A SPI exists for every IFC project in Nigeria and worldwide. * Commercial Banks Credit Lines- As mentioned earlier, as part of its development strategy aimed at SME development, IFC began to make Lines of Credit available to several reputable local Nigerian financial institutions for on lending to local businesses. The underlying assumption here is that such Banks are in a better position to lend, monitor and recover credit made available to smaller businesses in the less than $5million range that the IFC considers below its lending capacity at the moment. Diamond Bank, Citibank, Guaranty Trust Bank (GTB), FSB International Bank, Investment Banking Trust Company (IBTC) and United Bank for Africa (UBA) were some of the Banks that received about $100million for this purpose. GTB has since become a revered 'repeat customer' for IFC by taking up further facilities in this regard. As part of the Loan agreements, IFC executives say that they have put in certain limited checks to ensure that these funds get used for the appropriate purposes. However, they say they are limited in setting checks because the Banks take full responsibility for the lending risk and hence cannot be dictated to in terms of whom they should lend to. ...read more.

Conclusion

Project Business Success- Returns equal to or greater than the project cost of capital (in the real sector) or, for projects in the financial sector, sub-portfolios that contributed to the intermediary's profitability, financial condition and business objectives. The year ended June 2004 saw IFC achieving success rates to the tune of 72%, 64%, 61% and 39% respectively in its global operations as regards the above criteria. Success rates for Nigeria alone were not available as at June 2005. It seems clear from the foregoing that IFC performance with respect to project business success is quite unsatisfactory even when the difficulty of satisfying this criterion as part of the larger evaluation framework is recognized. VIII. CONCLUSION This case attempts to illustrate with many examples drawn from IFC practices, the potential for finance as a veritable tool for development within the Social, Political, Economic and Business Environment. A further learning point is the realization that such development need not be at a loss, that a business case exists for social development, a fact clearly proven by IFC but which is yet to be adopted as global best practice. Other developmental finance organizations would do well to learn from this. But even more than that, the challenge is there for profit making businesses to begin to seek creative means of contributing to SPEB development whilst creating shareholder value. This is quite possible if appropriately factored into an organizations strategic mission and plan. IFC in Nigeria provides various learning points that can be incorporated into a company's strategy for profit making within a developmental framework. By June 2005, Mr. Andrew Alli, IFC County Manager for Nigeria was simultaneously coping with the challenges of doing business in Nigeria, and the results of having elevated Nigeria to the status of IFC largest business centre in Sub-Saharan Africa during his tenure. As his term in Nigeria drew to a close, he was pondering on what the future held for Business in Nigeria, for IFC in Nigeria and for the continued Social, Political and Economic development of the Nigerian Business Environment. ?? ?? ?? ?? 1 ...read more.

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