World Bank moves in

The Region

By David North

AN arm of the World Bank will soon begin to invest a new form of risk capital in the South Pacific but it is treading lightly.

The international financial institutions have never played a major role in the Pacific for three reasons: first, they tend to think in big numbers (and the island economies are small), secondly, they have not been pursued vigorously by island finance ministers, and thirdly, many islands are outside their realm (Cook Islands, Nauru, Palau, and Tuvalu are not members, and the French and American islands cannot be.) But the private sector arm of the World Bank, the International Finance Corporation (IFC) is dipping its toes into island waters in a new way, and may become more involved later if things go well, and if the islands encourage more of this kind of investment.

The very name of IFC’s new institu tion suggests caution; it is currently the Quasi-Equity Investment Fund (QEIF) but is in the throes of being renamed the Pacific Islands Investment Fund, which sounds a little more positive. QEIF/PIIF has announced that it will make invest ments worth a total of $U52,000,000 in several islands enterprises.

These will not simply be purchases of a stake in a given enterprise, or the IFC buying a block of stock; they are slated to be financial arrangements somewhere between such a stake, and a normal com mercial loan.

These arrangements, to be tailored to a particular deal, could include two varia tions; venture loans and redeemable pref erence shares. The loans (in Australian or US dollars) would require both the pay ment of the base interest rate plus a share of gross revenues. The shares would be denominated in local currencies and would earn a fixed dividend rate and/or some cut of the after-tax profits.

What kind of enterprises would these support? IFC has released some veiled specifics which shows how it might use the QEIF/PIIF funds. For example, it is

dickering with an unnamed PNG compa ny, which manufactures import-substitu tion items such as chemicals and paper and plastic products, hoping to expand those operations. The QEIF/PIIF involve ment would be about $350,000 of a

$1,000,000 expansion.

Similar conversations are underway regarding four other possible island based investments, each of which will total between $1,000,000 and $1,500,000 with the probable support from the new facility being in the $164,000 to $350,000 range The possible investments include: the refurbishment and cyclone-proofing of a hotel property in Vanuatu; a beach-side resort in Western Samoa; a bottle-produc ing plant in Fiji (to replace imported glass bottles), and a tourism project in the Marshalls. The last named may include a diving resort and a “research and devel opmen.

Over the past 11 years, IFC has made seven investments in the islands (prior to the creation of the QEIF/PIIF) or about one every year and a half. These ranged is size from a $1.7 million loan to a cloth ing factory in Fiji to a $l3 million invest ment in an agribusiness enterprise in

Png.

Only limited information was avail able to IFC/Washington about its past investments in the islands but three made within Fiji were described to PIM by an IFC loan officer.

Ghim Li Fashion, controlled by Singapore interests, is the clothing opera tion. In addition to the $1.7 million in a direct loan, made in 1993, IFC also syn dicated another $2.5 in loans to other financial institutions. IFC, apparently several years ago, lent $9 million to Capos Limited, for a tourism operation.

All but $1.7 million of this has been paid back to the bank.

In addition, IFC continues to hold a $333,000 equity stake in the Merchant Bank of Fiji, and it is committed to a $10,000,000 plus investment in a PNG tuna factory, but the money has not yet changed hands. A