There are two things going on: one is that we haven’t been able to get the synergies that should flow out of our collective knowledge; then there are issues with the Bank’s business model.
Countries are not borrowing as much money any more and last year, for the first time, IFC invested more money in private companies than the bank of the World Bank dispersed to governments.
This is despite the fact the World Bank is charging a lower margin because it’s government risk and it’s often subsidised, whereas we have a commercial profit return on our minds. We generate a decent return and we’re supposed to do that, that’s our remit. But the World Bank is struggling with its revenue side, which, of course, translates into costs, which in turn translates into an integration with IFC, so there’s a bit of a struggle here and we’ve been trying to protect our investment business.
Our previous CEO Lars H. Thunell’s greatest contribution was to decentralise IFC from Washington into the regions. For example, financial markets were 70% in the region and 30% in Washington. That gets us so much closer to our clients and we do better business this way.
So you are primarily private equity?
We are entirely private equity. When I say private equity, I mean that we make our investments entirely in private companies. We are a private equity firm but we don’t primarily invest in private equity funds per se, we invest our money in private companies mainly.
And then you exit?
Then we exit because we want to churn the money. In every investment we make from IFC, we set out to achieve two results: we have to have a development impact and we have to have financial return. The World Bank, on the other hand, only needs to achieve development impact because they’re pretty much guaranteed a small financial return.
What we’re struggling with is how to measure our development impact as well as we measure a financial return. The financial return is easy – it’s cash return on invested money; it’s kind of hard to not deliver that or at least not measure it properly.
Development impact is always a fuzzy area. We are working incredibly hard right now in trying to actually identify what we’re talking about if you say ‘economic development’. It could be anything.
For banks, for example, we can say the development impact is access to finance but it’s really jobs through SMEs and how many poor people really have access to savings, payments, maybe loans that we’re trying to measure. But I have to ask the banks we invest in to measure that because I can’t do it for them.
Talking of the finance industry, you are a very important investor in several African banks, such as Ecobank and Kenya’s Equity Bank. Which other banks are you invested in?
In Kenya, we are invested in Equity Bank and KBC. Elsewhere, we have investments in the big Nigerian banks: GTB, UBA, and we’re working with First Bank. Ecobank is one of our biggest investments, of course. Globally, we are invested in about 1,000 banks. In Africa, I’m guestimating, roughly around 200, I would say.
As you said, Ecobank is one of your biggest investments. The institution has had a fairly rough ride since the retirement of Arnold Ekpe as CEO. How do you read the situation?
Speaking less about the past and more about the future, Ecobank now has the chance to stabilise and to continue on the growth path it was on for a while.
There are still some legacy issues. However, operating results are quite impressive, so with the new management – which in a way is the old management with Albert Essien in charge – a new, more active board in place and a different way of governing, Ecobank has an excellent opportunity to stabilise its business.
It should be on track to institutionalise its business and to drive towards what could be a really competitive advantage – not only having a presence in 35 countries and 15-20 currencies, but also to achieve economies of scale across these 35 countries. That’s where the group hasn’t quite realised its potential yet.