26 November 2012

Africa: Interview - Nena Stoiljkovic


The IFC's vice president of business advisory services speaks to This is Africa on investing in post-conflict states

Over the last two decades, African states from Sierra Leone, Côte d'Ivoire and Liberia in the west to Rwanda, Mozambique and Angola in the southern region have emerged from conflict and undertaken wide-scale political and economic reforms.

While political settlements are critical to post-conflict transition, economic growth can substantially aid the process. But investors have been - unsurprisingly - nervous about entering such locales.

On the one hand, the 'peace dividend' can provide opportunities. Increased demand for goods and services, political will to rethink the institutional framework and provide investment incentives and the presence of development finance institutions are among the attractions of investing in a reforming country.

Yet opportunities often go unrealised due to preconceptions among foreign investors in particular. While there are risks in post-conflict states - the return of unrest, high financing costs, reputational damage through associations with former governments, and deterioration weak infrastructure - the difference between perception and reality can be wide.

In recognition of the need to bridge that gap, This is Africa is partnering with the Conflict Affected States in Africa Initiative (CASA) of IFC - a member of the World Bank Group and the largest development finance institution focused on the private sector - in convening a global Summit 'Business After Conflict: Investing in the new Africa'.

In an exclusive interview with TIA, Nena Stoiljkovic, IFC's vice president of business advisory services, explains why the Washington-based institution - whose financing for the region totalled more than $3.7bn in 2012 - has a role in countries affected by civil war or natural disasters.

"Post-conflict countries are often perceived as closed for business, but in fact many have made good progress strengthening the legal framework for private sector growth," Ms Stoiljkovic says.

"IFC's advisory and investment services support the private sector, which is the main driver of economic growth and job creation during recovery." A country is less likely to slide back into conflict if people see practical improvements in their lives such as reliable electricity and jobs, she adds.

IFC is active in many fragile and post-conflict countries across Africa, while its CASA Initiative, supported by Ireland, the Netherlands and Norway, focuses on seven in particular - Central African Republic, Côte d'Ivoire, Democratic Republic of Congo, Liberia, Sierra Leone and South Sudan.

Its goal is to improve the business environment by means of regulatory reform, strengthening SMEs and supporting institutions such as chambers of commerce, rebuilding financial institutions and markets, and increasing private sector involvement in building and re-constructing infrastructure such as ports, schools and power stations.

The World Bank Group classifies more than 30 countries as fragile, with about 17 in sub-Saharan Africa. The 'fragile' diagnosis is not terminal. Some of Africa's best performers today have previously been mired in institutional instability and even political breakdown, such as Ghana in the later era of Kwame Nkrumah.

But it is also true that countries can slip into fragility despite making headway towards more stable political conditions, as Mali demonstrates.

And one thing is clear: once in a fragile or conflict-affected state, it can be extremely difficult to move out. Investment often dries up, as foreign investors fear sinking money into a country whose overall security framework they do not trust. This puts a squeeze on the economy, which can lower growth, and further exacerbate tensions.

The 'demonstration' effect of multilateral institutions' investments can help encourage others to follow.

Sometimes, countries are trying to resuscitate lost economic vitality. In the 1980s, Sierra Leone received over 100,000 visitors annually, drawn to the country's beaches and mountainous jungles. That evaporated once the country descended into civil war, which only ended in the early part of the last decade.

Côte d'Ivoire, meanwhile, was once considered the 'pearl of West Africa' and that legacy, through its infrastructure and commercial ties internationally, has been resuscitated in a way that would not be possible for a post-conflict country lacking such a history.

In either case, the role of frontier investment is to show it can be done.

Extractive industries have tended to dominate the investment landscape, but increasingly, areas such as tourism and hospitality are entering the picture. These are appealing from a development perspective, because they enjoy a high investment to employment ratio.

In Burundi, IFC is financing Opulent B Ltd - a hotel management company with experience in Dar es Salaam and Zanzibar - to the tune of $5.5m, which will see the renovation of the Waterfront Hotel, previously the Novotel. The investment will prove critical for Burundi, the only member of the East African Community without an international business hotel.

In places where trade finance has been the missing link between entrepreneurs and markets - Liberia and South Sudan, for example - IFC is working through client banks to provide guarantees, as well as training.

This relatively low-risk instrument supports business expansion and employment, and helps investors like IFC establish relationships with local banks, which can lead to SME financing and other services.

Financing small-scale entrepreneurs helps a country bounce back in the first year of conflict. Last year, IFC made a $1m equity investment in microfinance group Advans Côte d'Ivoire, to support recovery in the country after its disputed presidential elections and civil war. Advans Côte d'Ivoire expects its microfinance portfolio to reach $35m by the end of 2017 and to disburse 100,000 loans by this time, half of them to women.

Partnerships are particularly important in post-conflict infrastructure, and can involve private, public and donor players. After 14 years of war, Liberia's electricity sector was destroyed.

An IFC-facilitated public-private partnership brought state-owned Liberia Electricity Corporation a new manager - Canada's Manitoba Hydro International - which is rebuilding the utility's ability to run a modern power system. The World Bank, the European Union, Norway and USAID are also providing grants.

Along with hard investments into assets and businesses, strengthening the overall institutional environment and reducing investment impediments - commonly known as 'soft' infrastructure - is also important.

In Sierra Leone from 2007, the IFC-operated and funded entity, the Sierra Leone Business Forum (SLBF) promoted private sector interests on issues such as tax modernisation, finanancial sector reform, land rights, and other legal reforms, and lobbied for business-oriented policy changes.

As well as demonstration effects from their investments, development finance institutions can also provide the data and analysis which investors use to survey opportunities.

The likes of Rwanda and Burundi are currently appearing high on the World Bank's 'Doing Business' indicators. New legislation pushed Sierra Leone up the international rankings; its Companies Act brought the country into alignment with international standards.

The Bankruptcy Act made it easier to close a business (unwieldy procedures for closing businesses being a major deterrent to new business formation). A new Payment Systems Act ensured payments can be made electronically and in line with monetary policy in the Economic Community of West African States region, and the Goods and Services Act introduced a streamlined tax that encompasses seven pre-existing and overlapping taxes.

The time it takes to register a business in Sierra Leone has also come down substantially. Before the World Bank Group's Removing Administrative Barriers to Investment (RABI) Program, which ran from 2004 to 2010, business registration took eight steps, 26 days and cost 1,540 percent of income per capita.

The 2013 Doing Business Report says it takes six steps, 12 days and costs about 80.4 percent of income per capita, making it the 76th easiest place in the world to open a business - easier than countries such as the Bahamas, Spain and Poland.

These Doing Business reports reach a wide number of investors, says Ms Stoiljkovic. "My sense is that investors do care about these rankings and find them useful." This is particularly the case among investors from developed economies. There is a strong interest by the Japanese business community in 'base of the economic pyramid' investment, for example.

The signalling effect of reform progress is also important. "When you are in the 'Top 10', that probably means you are starting from a low level. It doesn't mean your business environment is fully conducive to private sector development. But I think it's a good signal to show that movement is happening," she says.

Of all the signals of a reforming country though - which can cover investment code changes, tax systems reform and simplified business registration procedures among many others - it is the transparency level of government that is critical, she adds.

Opportunities for investors who can take the long view and identify the right partners are plentiful. Along with financial markets, telecoms and tourism, Ms Stoiljkovic points to agribusiness and infrastructure. "The business-enabling conditions are improving, and these two sectors are starting to develop," she says.

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