Projects Financing Strategy


IDB project financing is carried out with reference to the strategic framework of the IDB Group. The fight against poverty which is the overriding objective of the IDB Group requires a multi-pronged approach. As a general rule of thumb, high and sustained economic growth is a pre-requisite to reducing poverty, assuming that such growth (The level of economic growth required to reduce poverty by a half by the year 2015 (as per the MDGs) is estimated at a robust 7.4% for IDB member countries in Africa for the period 2000-2015.) is matched with a 'fair' re-distribution of wealth and deliberate moves by governments to target the poor segments in society. This 'targeting' may include labor-intensive growth strategies, investment in human capital (for the poor) and safety nets for the vulnerable groups. Studies in the Middle East and North Africa have revealed that for every 1 percent growth in real GDP, the number of poor people declines by 4-5 percent (Dr. Vivi Alatas, "Poverty Reduction, a Main Challenge in Islamic World" (The International Conference of Islamic Scholars, Jakarta, Indonesia 23-25, 2004).

 

Against this backdrop, a project or program is deemed pro-poor if it aims to create a critical mass of beneficiaries-cum-consumers that will, in the long run, support and sustain the local economy (hence the direct link between economic growth and poverty reduction). It also implies that any intervention by IDB and the international donor community at large must occur in areas or sectors that benefits or uplifts a greater majority of people. These 'broad-based growth approaches' are the very basis of the Complex's sector and thematic priorities.

 

Considering that poverty in the majority of member countries is a rural phenomenon, investment in the agricultural sector, in which the bulk of the population depends for its livelihood, is an obvious target for any poverty reduction program. It's imperative that the Bank's assistance in agriculture is targeted in high-value addition sub-sectors such as agro-processing, irrigation and crop development, marketing and storage facilities, micro-credit schemes etc. Agro-processing is one area that has a high value-addition especially in Africa, and therefore, higher impact on improving the living conditions of the most vulnerable groups in society.

 

In addition to agriculture, other broad-based growth sectors are health and education (or collectively referred to as human development). Human development is a major contributor to economic growth and well-being, as experience everywhere has shown. Taking into account the specific needs and priorities of individual member countries, the Operations Complex will broadly concentrate on the basic education and health care in the low-income countries, and on research and technology in the middle and high-income countries (see Box below).

Water supply, sanitation, transport and power supply fall under the thematic group of infrastructure. It is common knowledge that infrastructure plays a multi-purpose role in any economy as it has a direct bearing on the well-being of the population, hence its positive contribution to poverty alleviation. Transport facilitates the movements of goods and services within and between production and market centers, and is of great economic significance to rural communities. Power supply offers a variety of economic and income-generating opportunities, hence an impact on the living standards. Equally crucial is water, which has many uses. The availability of clean and safe water for instance, improves the health status of the population, as many diseases afflicting the poor countries are related to unsafe, dirty and contaminated water supplies. Recently, telecommunications has been playing a vital role in energizing several economic sectors and benefiting various social groups in the member countries.

 

Both the Ordinary capital resources OCR) and those mobilized from the market will be utilized to finance infrastructure. A large share of the OCR will finance infrastructure projects in low-income countries and regional groupings. Resources generated from the market will be invested mainly in the middle-income and high-income countries. Given the dynamism and competitiveness of the operating environment in the middle-income and high-income countries, the Operations Complex will continuously assess the market conditions in these countries with the view to enhance its niche and strategic position.

 

Human Development 'Strategies' in Low, Middle and High-Income Countries


For Low-Income Countries: - Primary and secondary education
- Primary health care
- Vocational and technical training

Objective:
To contribute in meeting basic needs in health and education, and to address skill-gaps in the labor force. The three priority areas will also contribute to achieving MDGs

For Middle and High-Income Countries: - Science and technology
- Research and development (R&D)
- Higher education

Objective:
To increase the technological and research capability, with the view to improve the competitive edge of these countries in the global market.

 

With the introduction of the market raised resources, private sector financing, including big-ticket leasing and large infrastructure projects, has assumed great significance in the daily workload of the Operations Complex.

 

In addition, small and medium scale enterprises (SMEs), which are the traditional domain of the private sector, will continue to be supported by the Operations Complex (mainly though lines of financing), in view of its high income and employment generation potential, particularly in urban areas. Unlike rural poverty which is more sensitive to broad-based economic growth and the provision of social services, urban poverty is more responsive to 're-distribution' factors, of which wage employment is perhaps the most important.

 

The Operations Complex is carrying out the above strategy while keeping in mind the following concerns:

  1. To be country/client focused and service oriented.
  2. To achieve high development impact/ effectiveness.
  3. To contribute to the income and financial soundness of the Bank.
  4. To harness a strategic partnerships, co-financing and other forms of cooperation.
  5. To build capacity and enhance professionalism in the Operations Complex.