IFC advisory services

26 September 2008 | Inside the institutions

The advisory services (AS) department of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, has grown rapidly since its establishment in 1986 and is seen by the IFC as one factor that distinguishes them from other financiers. Its intention is to improve development impact, enhance capacity and creditworthiness and assist in project implementation in areas where the IFC feels it has a comparative advantage.

Services offered include: financial improvement plans; the training of key public and private sector officials; and financial advisory services for project structuring. Since 2005, AS operations have been organised into five business lines: value addition to firms; business enabling environment; access to finance; environmental and social sustainability; and infrastructure. The IFC is looking to integrate advisory work with investment as well as coordinate more closely with the public sector arms of the World Bank so as to provide broader policy advice to governments on their financial market development and reform of infrastructure sectors.

Currently, AS employs 1,100 full time staff, a third of total IFC staff. Eighty per cent of employees are field based, active in over 900 projects across 97 countries. Of the projects, 62 per cent are in frontier countries (characterised by low income or high risk) and 24 per cent are in conflict-affected countries. The current regional distribution of IFC advisory services (based on expenditure) has Africa in receipt of 23 per cent followed by East Asia (20 per cent) and Central and Eastern Europe (16 per cent). Eight per cent is spent on global programmes. By business line, the top three sectors are value addition to firms (32 per cent), access to finance (25 per cent) and infrastructure (20 per cent). Environment and social sustainability is bottom, receiving just 5 per cent.

IFC disbursements topped $11 billion last year, almost one third that of the entire World Bank Group. Of this, $197 million went on advisory services, quadruple the expenditure of five years ago. Operations are funded through a combination of donor contributions, funds from other multilateral institutions and the IFC´s own resources.

Donors also contribute to the technical assistance trust funds programme which financially assists borrowers in the hiring of financial, legal, technical or environmental consultants to work on specific projects. Some trust funds are tied to the hiring of experts from the donor country although increasingly, trust funds have no hiring restrictions.

Assisting in AS activities is the private sector liaison officer (PSLO) network. These are business intermediary organisations (chambers of commerce and industry, business and trade associations, or investment promotion agencies) trained by the World Bank Group to, amongst other things, provide information on opportunities available to local firms. For example, a PSLO in a certain country may be called on to identify domestic consultants to work on projects and provide specialised training or conduct feasibility studies. Each PSLO is based in and financed by their respective organisations.

Additionally, AS activities are conducted through facilities co-funded by donors and the IFC, which are regional (of which there are eleven) or thematic in nature. One such facility, the foreign investment advisory services (FIAS), advises borrower countries on how to improve their investment climates for domestic and foreign investors.

Presently, the IFC is initiating a new scheme for evaluating AS operations, the central component of which is the project completion review (PCR) system. It seeks to assess results across five dimensions: strategic relevance, efficiency, outputs, outcomes and, impacts. An evaluation of 198 projects counted 70 per cent of IFC AS projects as having satisfactory or better development effectiveness ratings. Of the 30 per cent that rated less than satisfactory, lessons learned included the importance of tailoring operations to local conditions, ensuring client commitment upfront and effective project management.

The World Bank’s Independent Evaluation Group´s 2008 evaluation of IFC development results made first attempts at identifying “additionality” (see Update 62)- the inputs and services provided in addition to those offered by the market or the current institutional framework. Little success was had measuring the additionality of AS, and doing so is marked as an area for improvement and further analysis.