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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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) dramatically. We don't necessarily want to lend tons of money to Nigeria, because Nigeria has lots of resources. We can contribute in terms of providing advice, transferring technology, providing technical know-how in social, environmental and corporate governance issues"

Indeed, the nature of IFC operations globally and increasingly in Nigeria were such that contribution was becoming greater in terms of technology, advice, social development, environmental assistance, corporate governance and ethical issues, and global competitiveness concerns. IFC had begun to realize that their market, and indeed their business model had reached a pivotal moment wherein clients had begun to expect more than just project finance deals and long term syndications.

Governments were asking for help on private sector issues that went far beyond privatization or concession structuring. There had arisen a case for IFC involvement as much in the Economic as in the Social, Environmental, Technological, Global and indeed perhaps ultimately- Political Environment of Business.

II. IFC- HISTORY AND EVOLUTION

The International Finance Corporation (IFC) was founded in 1956 to cater for economic growth and development of the economies of member countries by promoting private sector development. IFC is a member of the World Bank group, which includes the International Bank for Reconstruction and Development (IBRD) otherwise known as World Bank, the International Development Association (IDA) and the Multilateral Investment Guaranty Agency (MIGA). IFC is a legal entity, separate and distinct from the World Bank, IDA and MIGA. Launched with 31 members, IFC had 175 member countries by June 2001. It made its first investment of $2million in Brazil (1957) and by 1984, had capital in excess of $1billion. In Africa, IFC launched its African Enterprise Fund to finance Small and Medium Enterprises in 1988. By 1996, syndications had reached $4.8billion and environmental and social policies were being strengthened. In 2000 IFC achieved a new record for investments in sub-Saharan Africa ($1.2billion). In June 2005, IFC's stated mission was "to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives."

III. IFC- OPERATIONS

Regional and industry sector departments manage IFC investment operations.

The industry departments manage projects within their respective sector globally, regardless of which region the project is located in while the regional departments manage projects in their respective geographical area in sectors that are not covered by an IFC industry department. Most projects managed by the regional departments are in the broad areas of general manufacturing and financial services and markets.

IFC also has jointly managed departments with the World Bank in industries where there are strong interfaces between policy and private investment transactions. The departments are: Corporate Governance; Global Information & Communication Technologies; Investment Climate; Oil, Gas, Mining & Chemicals; and Small and Medium Enterprises. 2004 operating income for the IFC group was $982million, with a 23% increase in new commitments. New investments in Sub-Saharan Africa more than doubled in 2004 with a spread of business distributed across all sector. By June 2005, Nigeria had become the largest location of IFC exposure with over $290million invested. South Africa was second largest with $225million. As was stated earlier, recent developments in Nigeria (1999-2004) were responsible for these increases.
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However, Nigeria had not always been such an attractive destination for International finance.

IV. NIGERIA- HISTORY AND ECONOMIC EVOLUTION

Nigeria, situated on the west coast of Africa is home to an estimated 125 million people, (National Planning Commission, 2001) of 200 ethnic nationalities who occupy 98 million hectares of land (an estimated 76% of which is arable) and speak 500 different languages.

Prior to independence from British Colonial rule in 1960, Nigeria had developed an agricultural economy that was linked to global trade in commodities like cocoa, groundnuts, palm produce, and extractive minerals like tin. ...

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