LATAM e-News – May 2018
Interview: Guillermo Foscarini
Principal Investment Officer, IFC
1- What is IFC’s vision for Latin America and what do you consider to be the countries with the greatest development potential today?
Latin America is going through a very interesting stage of recovery, but with low growth (according to IMF only +1.7% in the region), where many countries are in a phase of political transition and trying to find solutions to challenges, many of them historical, that have prevented them from moving forward. Among the most important challenges are the low productivity of the economy, due to infrastructure problems, excessive bureaucracy, low investment in R&D or problems in finding skilled labor; climate change, which affects the entire population but more strongly the poor; low access to credit, either at the individual level (49% of the population outside the formal system) or at the corporate level, since in general LAC has very little developed and deep capital markets. Governments, on the other hand, have growing budgetary constraints to meet the demands of a growing urban middle class for better quality services (80% of the population in Latin America is considered urban), which generates a leading role for the private sector to play as the engine of the economy.
Latin America and the Caribbean has traditionally been a very important region for IFC, where, due to its characteristics and level of development, IFC has not only played a central catalytic role in attracting investment, but has also served to test ideas and innovate in projects or funding structures that have been later taken to other regions of the world. IFC’s strategy in the region is precisely to try to provide solutions to these major regional challenges in order to create markets and foster inclusive growth in the countries. So we work on innovative projects in the areas of finance and climate change, mobilize resources for emerging markets from private institutional investors and support the regional integration of economies.
2- What is IFC’s mission?
The International Finance Corporation (IFC), an entity of the World Bank Group, is the leading international development institution dedicated exclusively to the private sector in developing countries. We manage a portfolio of $55B in long-term investments (21% or +$11B in LAC), with an annual trading volume of $19B (approx $5B in LAC), in +90 emerging countries in almost all sectors of the economy.
We use our products and services, and take advantage of those of the other institutions that make up the World Bank Group, to offer development solutions adapted to the needs of our clients. We apply our financial resources, technical expertise, global experience and capacity for innovation to help our partners overcome financial, operational and political challenges.
Clients see IFC as a provider and mobilizer of scarce capital, knowledge and lasting partnerships that can help approach critical constraints in areas such as finance, infrastructure, labor skills and the regulatory environment.
IFC is also a leader in mobilizing third-party resources to fund its projects. Our willingness to work in difficult environments and our leadership in attracting private funding allow us to increase our influence and generate development impact far beyond what our own resources allow.
3- Who can apply for IFC assistance and how? What are the requirements to be considered for IFC investment?
IFC finances projects in the private sector in emerging countries, so these are the first conditions. At the same time, projects must be sustainable in the long term, both from an economic/financial point of view and from an environmental and social point of view. In this sense, we work with our clients to raise these environmental and social standards so that, in a reasonable amount of time, projects can reach not only local but also international standards.
On the other hand, there is a question of the scale of the projects. IFC has two working methods: (i) direct financing to companies when projects are of a certain size (the minimum size varies according to the country and type of project); (ii) otherwise, financing to SMEs, entrepreneurs or microcredits is provided through financing to local banks, which are better prepared to manage the risks.
4- In your opinion and considering your experience, what aspects do banks and investors consider when defining an investment or project in Latin America?
A central issue that is carefully analyzed is the reputation, solvency, experience and commitment of the project promoter, who may be an individual or a company. It has been proven that this aspect is key to the success of a project.
Other important issues are the classics such as the analysis of the source of value of a project, which need the project satisfies (gap between supply and demand), how the project fits into the context of the country, the region and the market trends of the industry.
Finally, an issue that is increasingly valued in the marketplace is the environmental and social impact of the project in question. This is an increasingly important issue, which generates added value to a project and is often a crucial success factor. In the case of IFC, this is an essential condition, and we work with our clients for this purpose.
5- What is your vision of hotel investments in the region and what is the growth expected?
The tourism sector is very important to GDP (10.4% of global GDP according to the WTTC), to the generation of jobs (9.9% of global employment), and the fact that the sector is in transition from developed countries and growing very strongly in emerging countries (according to the WTO by 2030 58% of international tourists will travel to destinations in emerging economies such as Asia, LAC, Eastern Europe, Middle East and Africa). In LAC in particular, tourism contributed +$127B (+3.0%) to the regional GDP in 2017 and is expected to grow to $180B by 2028.
The World Bank Group supports the tourism industry on several fronts, including supporting governments in areas such as formulating national tourism strategies, advancing structural reforms of the sector to facilitate the development and marketing of destinations, supporting sustainable tourism development and supporting infrastructure investments that benefit the sector.
At IFC we invest long-term funds in private hotel developments, as well as selectively in means of transport such as airlines. So far IFC has invested +$3B in +680 tourism projects in 92 countries. In LAC specifically, IFC has invested +$680M in 62 hotel projects in 21 countries in the region.
6- How important do you think sustainability is in the planning of a successful hotel development?
For IFC, the sustainable development of a hotel project is key and we are convinced that the long-term sustainability of any project, including hotels, must necessarily include environmental and social issues. We analyze this by ensuring that the projects we finance adhere to IFC’s International Standards. These standards cover areas such as: (i) assessment and management of environmental and social risks and impacts; (ii) working conditions; (iii) pollution prevention and efficiency in use of resources; (iv) community health and safety; (v) land acquisition and involuntary settlement; (vi) biodiversity conservation; (vii) indigenous communities; and (viii) cultural heritage management.
When we invest in hotels in particular, as part of ensuring that the hotel project meets IFC’s environmental and social performance standards, we always ensure that these issues, in addition to the efficient use of resources, are incorporated into the project design itself. In relation to energy efficiency, IFC has developed its own evaluation tool, called EDGE (Excellence in Design for Greater Efficiencies). EDGE is a software that is available free of charge and online for everyone and that allows to determine the most economical options for the design of a project achieving a reduction of at least 20% in energy, water and energy incorporated in the materials. In turn, EDGE is a green building certification program for emerging countries, which allows you to quickly, easily and economically optimize the design and create a product that is easier to market (more profitable) and worth investing in.
7- How would you describe your participation in SAHIC South America 2017? In your opinion, how does this type of conference contribute to the hotel industry?
It was an extremely interesting and productive experience, where I was able to learn about the latest trends in the sector in the region, share experiences and develop business opportunities. SAHIC is a great platform that allows you to quickly generate relationships and contacts.
8- Which social network do you use most often and why?
Although I’m not a big fan of social networking, I usually use the usual ones, perhaps with a certain preference for Linkedin and Twitter, where you can quickly get information on specific topics in a focused way, almost in real time.
9- When you travel for pleasure, where do you choose to stay: hotel or airbnb?
When I travel for pleasure in general I travel with my family (wife and 3 daughters), so we are always analyzing the price/quality/comfort/location equation of the place where we stay, and based on that analysis we decide which option best fits our preferences.
Guillermo Foscarini is the IFC’s Southern Cone Hub Leader for Manufacturing, Agribusiness and Services.
He has over 15 years in banking, leading debt and equity investments as well as client relationships with key private sector partners across sectors and emerging markets regions -including Latin America, Africa, Middle East, Eastern Europe and Asia.
After +12 years in Washington DC, US, in July 2016 he relocated to Buenos Aires, Argentina to develop and lead a pipeline of +$700M per annum.
Before joining IFC, he worked in the auditing and corporate finance groups at Deloitte.
Guillermo holds a Master of Science in Risk Management from Stern School of Business, NYU, US a MBA from Universidad del CEMA Buenos Aires and a CPA degree from Universidad Católica de Córdoba, Argentina.