IFC in Agribusiness

Financing for Agri Food Growth

Agribusiness Forum, October 2011

Saleem Karimjee

Senior Manager, Southern Africa Region

skarimjee@ifc.org IFC Johannesburg

14 Fricker Road, Illovo 2196

T. +27 11 731 3015

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IFC Fiscal Year June 2011 Highlights

Overview of IFC

• Largest multilateral source of

loan/equity financing for the

emerging markets’ private sector

• AAA rated by S&P and Moody’s

• Profitable every year

• 3,300+ staff

• In-house syndications department

working with over 200 banks

• Preferred creditor status

• Advice on environmental and

social issues.

• IFC E&S Performance Standards

adopted through the Equator

Principles by over 50 global

institutions

Committed Investments : $18.7 billion

Commitment for own acct:` $12.2 billion

Mobilization: $6.5 billion

# of new Projects: 518

# of Countries Invested: 102

Agri 6%

Manufacturing &

Services; 17%

Health & Educatio

n; 3%

Infrastructure; 16%

Oil, Gas, Mining & Chemical

s; 9%

ICT; 4%

Financial Markets;

37%

Private Equity;

5%

Subnational

Finance; 2%

Sub-Saharan Africa; 13%

Latin America;

25%

Middle East and

North Africa; 11%

Europe and

Central Asia; 25%

East Asia and

Pacific; 14%

South Asia; 11%

Global; 1%

Committed Portfolio by Industry Committed Portfolio by Region

IFC’s Global Reach

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IFC has reach in 100+ country and regional advisory services offices worldwide

Drawing on our experience and lessons-learned, we share sector best practices to the benefit of our

clients

Dakar

Nairobi

Johannesburg

Cairo

Washington

Mexico City

Bogota

Buenos Aires

São Paulo

Port-of-Spain

Moscow

IFC HQ/Hub Offices IFC Operational Centers IFC Country Offices

Hong Kong

New Delhi

Almaty

Istanbul

IFC’s Strategic Thrust in Agribusiness

• Poor competitiveness, logistics & infrastructure

• Low productivity

• Protection and limited market sizes

• Resource constraints: water, land, energy,

biodiversity

• Weak investment conditions, policy environment,

corporate governance, sponsor quality

• Fragmented supply chains

Inclusiveness: broad-based supply chains

• Investment Climate/policy/sector issues

• Smallholder capacity building

• Engagement with Commodity Roundtables

• Finance through FI’s MFI’s; GAFSP

Wholesaling: leveraging large traders,

aggregators, and commercial banks

• Direct finance with Advisory Services

• E&S engagement through supply chain

Processing, large scale agriculture: project/

corporate finance

• South-South focus

• Collaboration with WB on large scale farming

• Co-investment with private equity funds

Challenges Focus on 3 Business Models

Integrated Investment and Advisory

approaches:

• Address investment climate/policy constraints

• Upgrade supply chains with finance and

production expertise through commercial

intermediaries

• Expand mechanisms for crop finance, risk

management

Approach

Increasing rural incomes, improving food security, and diversifying exports through

competitive commercial agriculture

4

5

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

$ M

illions

Agri-Wholesaling

Rural and Trade Finance

Fertilizers

Food Retail

Agri Infrastructure

Equity Funds

Agribusiness Production & Processing

2.0 bn

1.4 bn 1.3 bn

848 m

483 m

546 m

347 m

304 m

120 m

406 m

2.0 bn

IFC’s Annual Commitments in Agribusiness

Agribusiness – Sub Sector Descriptions

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Animal processing (beef, pork, poultry, aquaculture)

Dairy products (milk, cheese, ice cream)

Palm oil, soybean crushing

Fruits & vegetables

Coffee/tea/cocoa

Rubber

Financial/wholesaling companies

Storage/warehousing/logistics

Agri-transport, rail, ports

Sugar & confectionary

Grains & milling (grain and beans production, grain/starch

processing)

Bottled water, soft drinks, fruits juices

Noodles, tomato sauce, snacks

Livestock

Vegetable Oils

Horticulture

Grain & Milling

Processed Foods

Beverages

Other

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IFC Africa Agribusiness – General Investment Criteria

A project must be commercially and economically viable and offer IFC the potential for a

commercial return while also providing development impact

A project and its supply chain must be environmentally and socially sustainable

IFC typically finances expansion projects of an existing company, rather than green field

projects (i.e. start-up). However, IFC can support a green field projects if its sponsor has

significant relevant industry experience (farming, food processing etc.) and financial strength

A project sponsor is expected to inject 40-50% equity of the total project cost

Security and support – mortgage on land/equipment, project completion from sponsor, etc.

Integrity/ethics of sponsor and company

IFC cannot finance more than 50% of a project’s total cost and IFC’s exposure shall not

exceed 25% of a company’s total capitalization (term loans plus shareholders’ equity) based

on post project completion.

Products

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Subordinated loans

Income participating loans

Convertibles

Other hybrid products

Up to 20% shareholding

Long term investment

horizon

Corporate Loans

Project Finance –

Expansion, Greenfield (only

w/ sponsors with financial

capability & experience)

Short-term Finance

Senior

Debt

Mezzanine

/ Quasi-

Equity

Equity

Direct Investments Wholesale Finance Advisory Services

Credit facilities for

on-lending

Risk Sharing

Facility (guarantee

on portfolio)

Partial Credit

Guarantee

Investment in

Private Equity

Funds

Structured

Finance

Investment

Climate

Access to Finance

Sustainable

Business Advisory

(Environment,

Linkages, IFC

Against AIDS,

Corporate

Governance)

Infrastructure

Advisory

IFC offers a wide range of products based on client needs:

GRIMAS Mali, Cote d’Iovire, Senegal

Loan €14 million Expansion of operations of

carbonated soft drinks, plastic packaging and carbon dioxide

Committed: 2010

Selected Agribusiness Transactions in Africa

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Ethiopian Coffee Ethiopia

Guarantee Facility: Up to $10 million

A 3-year, up to $10 million revolving guarantee facility on the selected banks’ portfolio of loans to coffee

farmer cooperatives Committed: 2010

Salala Rubber

Liberia

Loan: $10 million

Rehabilitation & expansion of

existing rubber plantation,

renovation of processing facilities &

provision of working capital.

Committed: 2008

Bakhresa Grain

Milling

Mozambique and Rwanda

Loan : $10.5 million

Construction of a new mill in

Mozambique and purchase of

transportation equipments in

Rwanda.

Committed: 2010

Tantalizers

Nigeria

Loan and Equity: $8.5 million

Expansion of restaurant chain to

supply convenient, affordable

packaged food for urban populations

Committed: 2010

GOPDC

Ghana

Loan: $12.5 million

Diversification oil palm plantation

and processing company in Ghana

into refined oil business.

Committed: 2007

Coca Cola SABCO

Africa Region

Loan: $57 million

Expansion and modernization of

operations in South and East Africa.

Expansion into Asia.

Committed: 2006, 2002

Kongoni River Farms

Kenya

Loan: $2 million

Expansion and modernization of

existing horticulture and flower

production in Timau.

Committed: 2005

Zambeef Zambia

Loan $10 million Expansion of livestock and retailing operations in Zambia and Nigeria.

Committed: 2010

Bonite Bottlers Limited Tanzania

Loan: $10 million Modernization and expansion of

existing plant in Moshi.

Committed: 2005

Karsten Farms

South Africa

Loan: $7.2 million

Expansion of farming operations &

establishment of fruit trading, logistics

and handling services in South Africa.

Committed: 2006

Merec

Mozambique

Loan $7 million

Expansion & optimization of mill

operations in Maputo, including

investment in a new pasta plant.

Committed: 2008

Food Concepts

Nigeria

Loan and Equity: $20 million

Expansion of restaurant chain,

bakery capacity, and backward

integration into poultry farm

Committed: 2011

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Highlight on Challenges

Food Security

• Key facts

World population expected to grow by 50 per cent by

2050.

Food production will need to rise 50% by 2030 to meet

growing demand.

Today 500 million small farms in developing countries

support 2 billion people – one third of humanity.

In December 2008 FAO’s Food Price Index was 28 per

cent higher than in 2005. Domestic food prices remain

very high in several developing countries affecting access

to food of low-income population groups.

Government spending on agriculture in the world’s

poorest countries averages 4 per cent of public

expenditure.

Development aid to agriculture was 4.6 per cent in 2007,

compared with 18 per cent in 1979.

• Source: UN Food and Agriculture Organization

Highlight on Global Agriculture and Food

Security Program Global Agriculture and Food Security Program (GAFSP) is a multilateral

mechanism set up in response to a request from the G20 in Pittsburgh in 2009.

GAFSP addresses underfunding of country and regional agriculture, and food

security investment plans being developed in countries by governments, donors

and other stakeholders.

Channels multiple sources of donor financing through a common

mechanism, reduces recipient costs for aid, aligns country programs.

GAFSP has a Public and a Private Sector window to support food security.

• The public sector window assists country-led or regional programs. It is

under the external governance of a steering committee composed of

representatives from: the Trustee, UN agencies, Supervising Entities (MDBs,

World Bank, IFAD), and civil society organisations.

• GAFSP Public Sector Window so far awarded agricultural programs of12

countries: Bangladesh, Cambodia, Ethiopia, Haiti, Liberia, Mongolia, Nepal,

Niger, Rwanda, Sierra Leone, Tajikistan, Togo.

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Private Sector Window of GAFSP

IFC nominated by G-20 to be the sole

implementing entity of the PSW.

The private sector window deploys instruments

and partnerships to increase agricultural

productivity, improve market access of

SMEs/MSMEs, support innovation in financing

and technology, improve access to capital by

small holders/companies in the agribusiness sector

= increase the commercial potential of SMEs

and farmers in low-income countries.

IFC aims to raise $1 billion: $700 million for

investments, $200 million for concessional

financing, $100 million for technical

assistance.

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IFC manages Private Sector Window of GAFSP:

designed to provide long and short term loans, credit

guarantees and equity to support private sector activities

for food security.

Improved Food

Security

Sustainable Agriculture

Innovation &

Technology

Improved Productivity

Improved Market Access

Improved Access to Capital