IFC ready to work in infrastructure in Azerbaijan (Interview)
By Sara Israfilbayova
“We welcome the Azerbaijani government’s strong focus on improving infrastructure and enhancing connectivity within the country and internationally.”
Jan van Bilsen, IFC Regional Manager for the South Caucasus tells AzerNews about IFC-Azerbaijan cooperation, making a particular accent on the investments and ensuring of food security
Question: What is the current status of cooperation between IFC and Azerbaijan?
Answer: As the largest global development institution focused on the private sector in emerging markets, IFC leverages the power of the private sector to help end poverty and boost shared prosperity. In Azerbaijan, we have been supporting the private sector for more than two decades, investing around $473 million in 56 projects, including mobilization. In addition, IFC has supported around $80 million in trade through its trade finance program, and provided $250 million for the Baku-Tbilisi-Ceyhan pipeline. IFC has also implemented a range of advisory projects aimed at encouraging private sector growth.
Since we started working in Azerbaijan in 1995, we have led the way in a number of areas, including the first FDI outside oil - Baku Coca-Cola Bottlers; the first foreign bank in Azerbaijan - Kocbank (Yapi Kredi Bank); the first micro-finance bank - AccessBank; and the first international business hotel chain – Hyatt.
Over the past decade, Azerbaijan has used its resource wealth well. Poverty has been reduced, the middle-class has grown, and the country has made progress on sharing prosperity among its population. However, in light of recent developments, especially low oil prices, countries in the region, including Azerbaijan, have to adjust to the new economic reality.
New sources of growth have to be tapped into and we are glad to see the government recognizes this and is taking steps in that direction. One of the key drivers to accelerating and sustaining progress is bringing the private sector to center-stage as the main driver of growth.
IFC is committed to continue supporting sustainable growth and the diversification of Azerbaijan’s economy by helping to mobilize the power of the private sector.
In addition, the State Oil Fund of the Republic of Azerbaijan (SOFAZ), Azerbaijan’s sovereign wealth fund, has committed $350 million to three funds managed by the IFC Asset Management Company: the IFC Global Infrastructure Fund, which invests alongside IFC in equity and equity-related investments in the infrastructure sector in emerging markets; the IFC Catalyst Fund, which invests alongside IFC in funds that provide growth capital to companies developing innovative ways to address climate change in emerging markets; and the IFC African, Latin American, and Caribbean Fund, which invests alongside IFC in equity and equity-related investments across a range of sectors in Sub-Saharan Africa, Latin America and the Caribbean.
Q.: What are IFC’s future investment plans, taking into account Azerbaijan’s eagerness to diversify its economy?
A.: I hope that along with many other investors – both foreign and domestic - IFC’s investments in the real (non-oil and non-financial) sectors will significantly increase in the years to come, thanks to ongoing reforms.
IFC stands ready to support transparent and well-managed local enterprises with good governance, and foreign direct investors in competitive industries, by investing loan and equity capital.
Continued investment climate and regulatory reforms will play an important role in building both local and foreign investors’ confidence.
Q.: Earlier, it was reported that IFC is working on a project to improve the agricultural insurance system in Azerbaijan. How is the work in this area proceeding?
A.: Azerbaijan’s government recognizes the agriculture sector as key to ensuring food security, and providing jobs and income for about 40 percent of the population who live rurally. The sector can also play a key role in boosting non-oil growth.
Better access to finance would increase the productivity and profitability of the sector, and improve the livelihoods of those employed within it. One way of ensuring increased access to finance is by mitigating the risks involved in agriculture production, such as weather and price volatility. Insurance provides a way of protecting farmers against these risks. Coverage for crop losses can help farmers reduce the chance of bankruptcies and increase their capacity to repay loans.
The road map for the development of the agricultural sector thus envisages the creation of an efficient agricultural insurance system to improve access to credit, which is vital to grow the sector.
The World Bank Group’s Europe and Central Asia Agri-Finance Advisory Project, implemented by IFC, aims to help Azerbaijan establish a strong legislative and institutional framework for agricultural insurance, and build capacity to develop agricultural insurance products.
Efforts include supporting the government in establishing a public-private partnership (PPP) to regulate and operate an agricultural insurance system.
Q.: IFC has also implemented a range of advisory projects aimed at encouraging private sector growth in Azerbaijan. What are future actions in this direction?
A.: For many years, IFC’s investments have been complemented by a range of advisory projects aiming to support private sector growth. These projects have supported investment climate reforms; helped build capacity within the banking sector in various areas, including on-lending to MSMEs; supported the development of financial market infrastructure; and promoted good corporate governance. In response to increased government efforts to improve the business-enabling environment and make the country more attractive for FDI in the non-oil sector, IFC and the World Bank Group aim to continue supporting investment climate reforms.
In addition, we recently launched an electronic and digital financial services project, which aims to help boost financial inclusion by improving access to digital financial services for individuals and smaller businesses, helping them grow and create jobs. Over the next three years, it will help introduce modern e-banking services in the country, improving access to financial services for customers who find it difficult to access branch-based services through the development of a legislative and regulatory base. It will also provide institutional and market support to help build an ecosystem conducive to the digitalization of financial services.
These advisory projects are funded by our donor partner - Switzerland’s State Secretariat for Economic Affairs (SECO).
Finally, IFC is committed to supporting the government in structuring pilot public-private partnership projects. We can help attract private investment through PPP transaction advisory support, as well as structure pre- and post-privatization investments, offering our vast global experience in structuring PPP projects in various sectors.
Q.: Which sector does IFC regard as a priority for investing?
A.: As mentioned above, building a competitive non-oil economy is key for the country’s future economic growth and job creation. This can only be achieved by leveraging the power of the private sector to boost investment, efficiency, and sustainability. We are open to investing in competitive businesses that are transparent and well managed in various productive sectors, including export-oriented industries.
It is also important to continue reforms aimed at improving trade and the investment climate to better integrate Azerbaijan into global value chains. This includes creating a level playing field for all investors, simplifying the regulatory framework, and deepening tax, judicial and financial sector reforms.
While we are open to investment projects in different sectors, we welcome the government’s strong focus on improving infrastructure and enhancing connectivity within the country and internationally. In an environment of shrinking fiscal space, private sector investment and experience in infrastructure is vital, particularly through public-private partnerships. IFC is ready to work in infrastructure in Azerbaijan, especially in energy and transport, as long as there is interest in opening these areas to the private sector and introducing PPP mechanisms.
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