http://www.commondreams.org/headline/2013/01/02-1
Published on Wednesday, January 2, 2013 by ProPublica
World Bank 'Fights Poverty' by Investing in Five-Star Hotel
by Cheryl Strauss Einhorn
Accra is a city of choking red dust where almost no rain falls for
three months at a time and clothes hung out on a line dry in 15
minutes. So the new five-star Mövenpick hotel affords a haven of
sorts in Ghana's crowded capital, with manicured lawns, amply watered
vegetation, and uniformed waiters gliding poolside on roller skates
to offer icy drinks to guests. A high concrete wall rings the
grounds, keeping out the city's overflowing poor who hawk goods in
the street by day and the homeless who lie on the sidewalks by night.
The Mövenpick, which opened in 2011, fits the model of a modern
international luxury hotel, with 260 rooms, seven floors, and 13,500
square feet of retail space displaying $2,000 Italian handbags and
other wares. But it is exceptional in at least one respect: It was
financed by a combination of two very different entities: a
multibillion-dollar investment company largely controlled by a Saudi
prince, and the poverty-fighting World Bank.
The investment company, Kingdom Holding Company, has a market value
of $12 billion, and Forbes ranks its principal owner, Prince Alwaleed
bin Talal, as the world's 29th-richest person, estimating his net
worth at $18 billion. The World Bank, meanwhile, contributed its part
through its International Finance Corporation (IFC), set up back in
1956 to muster cheap loans and other financial support for private
businesses that contribute to its planet-improving mandate. "At the
World Bank, we have made the world's most pressing development
issue-to reduce global poverty-our mission," the bank proclaims.
Why, then, did the IFC give a Saudi prince's company an attractively
priced $26 million loan to help build the Mövenpick, a hotel the
prince was fully capable of financing himself? The answer is that the
IFC's portfolio of billions of dollars in loans and investments is
not in fact primarily targeted at helping the impoverished. At least
as important is the goal of making a profit for the World Bank.
I reached this conclusion after traveling to Ghana-in many ways
typical of the more than 100 countries where the IFC works-to see
firsthand the kinds of problems the World Bank's lenders are supposed
to tackle and whether their efforts are really working on the ground.
I pored through thousands of pages of the bank's publicly available
reports and financial statements and talked to dozens of experts
familiar with its performance in Ghana and many other countries.
In case after case, the verdict was the same: The IFC likes to work
with huge corporations, funding projects these companies could
finance themselves. Its partners are billionaires and massive
multinationals, from oil giants like ExxonMobil to Grupo Arcor, the
huge Argentine candy-maker. Its projects include not only glitzy
hotels and high-end shopping malls, but also gritty gold and copper
mines and oil pipelines, some of which end up benefiting the very
corrupt, authoritarian regimes that the rest of the World Bank is
urging to change. Nearly a quarter of the IFC's paid-in capital from
member governments-now standing at $2.4 billion-came from U.S.
taxpayers, and every president in the World Bank's 69-year history
has been an American. But the United States has had little complaint
with these practices, even when they have become a subject of public
controversy.
Not long ago, the World Bank's internal watchdog sharply criticized
the IFC's approach, saying it gives little more than lip service to
the bank's poverty-fighting mission. The report, a major 2011 review
by the bank's Independent Evaluation Group, found that fewer than
half the IFC investments it studied involved fighting poverty.
"[M]ost IFC investment projects generate satisfactory returns but do
not provide evidence of identifiable opportunities for the poor to
participate in, contribute to, or benefit from the economic
activities that the project supports," the report concluded. In fact,
it said, only 13 percent of 500 projects studied "had objectives with
an explicit focus on poor people," and even those that did, the
report found, had a "limited" impact. The IFC did not dispute the
conclusions.
There is certainly need in countries like Ghana, whose per capita GDP
ranks in the bottom third of the world, with life expectancy in the
bottom 15 percent and infant mortality in the bottom fourth. The IFC
committed about $145 million in loans and equity in Ghana just in
fiscal year 2012. Yet Takyiwaa Manuh, who advises the Ghanaian
government on economic development as a member of the National
Development Planning Commission, told me she doesn't think of the
IFC's investments "as fighting poverty. Just because some people are
employed, it is hard to say that is poverty reduction."
But the policies continue. Why? Tycoons and megacompanies offer
relatively low risk and generally assured returns for the IFC,
allowing it to reinvest the earnings in more such projects. Only a
portion of this money ends up benefiting local workers, and critics
contend that the IFC's investments often work against local
development needs."The IFC's model itself is a problem," says Jesse
Griffiths, director of the European Network on Debt and Development
(Eurodad), a Belgian-based nonprofit. "The IFC undermines democracy
with its piecemeal, top-down approach to development that follows the
priorities of private companies."
"We're not saying we're perfect," Rashad Kaldany told me. He is a
veteran IFC executive and currently its vice president for global
industries. The IFC operates "at the frontier," he said. "We know
that not every project will work. It's about trying to make a
difference to the poor and about achieving financial
sustainability"-twin goals that are challenging in combination.
When it comes to luxury hotels like the Mövenpick in downtown Accra,
however, the IFC offers no apology for its investments, even making
the case for them as an economic boon for poor countries. A January
2012 report from the World Bank says hotels "play a critical role in
development as they catalyze tourism and business infrastructure,"
noting its partners include such "leading" firms as luxury chains
Shangri-La, Hilton, Marriott, InterContinental-and, of course,
Mövenpick.
In Accra, Mary-Jean Moyo, the IFC's in-country manager for Ghana,
told me the new hotel fights poverty by creating jobs. To illustrate,
she recalled how the Mövenpick's manager "noticed that a few boys
roller-skate on Sundays outside the hotel. The manager decided to
hire them to work at the pool. That is development and helping local
people." How many were hired, I asked. Six, Moyo responded.
When I spoke with Stuart Chase, the Mövenpick's manager, he told me
that other kinds of investments besides the new hotel he was clearly
proud of would do far more to stimulate Ghana's economy and reduce
poverty. Chase, who has lived and worked in Ghana for years,mentioned
the country's congested and potholed roads, poor electricity system,
limited food supplies, and lack of trade schools. "There is no hotel
school and no vocational training in the country," he complained. As
a result, all the top staff members among his 300 employees are
foreign.
Besides, Accra already has close to a dozen luxury hotels. Before
taking over the Mövenpick, Chase managed another nearby five-star
hotel owned by Ghana's Social Security and National Insurance Trust,
the country's pension system. So when the IFC decided to finance
Prince Alwaleed's hotel, it was entering into direct competition with
the people it claims it wants to lift out of poverty. Moyo
acknowledged to me that the IFC didn't study the local hotel scene
before making this investment, unlike its standard practice. "We knew
the company and had another successful investment in Kingdom that
made the Ghana deal attractive to us," she said. The other
investment? A $20 million deal in 2010 to help develop five luxury
venues in Kenya, complete with heated swimming pools, golf courses,
and organized safaris.
U.S. Sen. Patrick Leahy, a Vermont Democrat who sits on the Senate
Appropriations subcommittee that has jurisdiction over U.S.
participation in the World Bank, called the Ghana loan "not an
appropriate use of public funds" when alerted to it by a 2011
Washington Times article. The U.S. Treasury Department, which
administers American participation in the World Bank, defended the
loan, telling the newspaper that the IFC package replaced funding
expected from private banks that pulled out when market conditions
soured, putting the entire $103 million project at risk. When I was
in Accra in July, however, at least two other major hotel projects
were under construction with private financing obtained in the same
period. The prince's representatives didn't respond to requests for
comment.
* * *
Luxury hotels and resorts are hardly the only IFC investments that
offer at best limited prospects for serving its poverty-fighting
mandate. Founded just a dozen years after the World Bank itself, the
IFC has in recent years become its fastest-growing unit. It now has a
staff of some 3,400 people in 103 countries and made $15 billion in
loan commitments in 2012 across about 580 projects-more than double
its 2006 total and a figure that's projected to grow to about $20
billion in the next few years.
The original notion was that while the World Bank was lending
directly to poor countries, the IFC would stimulate the growth of
private business, entrepreneurship, and financial markets in some of
those same countries by lending to and investing in for-profit
corporations. The founders, notably including a General Foods
executive named Robert Garner, emphasized that the IFC would
participate only in projects for which "sufficient private capital is
not available on reasonable terms."
That concept has become muddied over the years, as well-heeled
borrowers with excellent credit have sought to take advantage of the
IFC's relatively attractive loan terms and other investment vehicles,
plus, in some cases, the cachet associated with World Bank support.
The IFC's growth got a boost in the early 1980s when it was permitted
for the first time to raise money from the global capital markets by
issuing bonds. More recently, its growth has accelerated as it has
entered new businesses, including trade finance, derivatives, and
private equity, sometimes to the annoyance of private banks with
which it competes.
Today, the IFC's booming list of business partners reads like a who's
who of giant multinational corporations: Dow Chemical, DuPont,
Mitsubishi, Vodafone, and many more. It has funded fast-food chains
like Domino's Pizza in South Africa and Kentucky Fried Chicken in
Jamaica. It invests in upscale shopping malls in Egypt, Ghana, the
former Soviet republics, Eastern Europe, and Central Asia. It backs
candy-shop chains in Argentina and Bangladesh; breweries with global
beer behemoths like SABMiller and with other breweries in the Czech
Republic, Laos, Romania, Russia, and Tanzania; and soft-drink
distribution for the likes of Coca-Cola, PepsiCo, and their
competitors in Cambodia, Ethiopia, Mali, Russia, South Sudan,
Uzbekistan, and more.
The criticism of most such investments-from a broad array of
academics and watchdog groups as well as local organizations in the
poor countries themselves-is that they make little impact on poverty
and could just as easily be undertaken without IFC subsidies. In some
cases, critics contend, the projects hold back development and
exacerbate poverty, not to mention subjecting affected countries to
pollution and other ills.
The debate is swirling as the World Bank has a new leader, installed
in July: Jim Yong Kim, an American physician who recently stepped
down as president of Dartmouth College. The bank declined to make him
available to comment for this article, and in his brief tenure so
far, he has given little hint of his view of the IFC. In both his
statement when he took office in July and on his first overseas
visit, to Ghana's neighbor to the west, Ivory Coast, he did note
briefly the importance of the IFC within the World Bank Group and of
the private sector to global job creation.
The IFC is also in the middle of a change in leadership. Its former
head, Lars Thunell, recently completed his term, and Chinese national
Jin-Yong Cai, a Goldman Sachs partner who was in charge of the firm's
Chinese banking operations, succeeded him in October. At that time,
Kaldany, who had been serving as the IFC's acting CEO, stepped back
to the post of vice president for global industries.
The IFC's operations have been the subject not only of outside
criticism but of significant parts of 2011's stinging internal report
and other critiques from within the World Bank. The 2011 document, in
which the bank's Independent Evaluation Group examined the IFC's
activities over the previous decade, portrayed a profit-oriented,
deal-driven organization that often fails to reach the poor, and at
times may even sacrifice the poor, in a drive to earn a healthy
return on its investments: "Greater effort is needed in translating
the strategic intentions into actions in investment operations and
advisory services to enhance IFC's poverty focus."
But the IFC's money-generating strategy has at least one benefit: It
sustains the jobs of the people who work for it. The "more money the
IFC makes, the more the bank has [available] to invest," says
Griffiths, the director of Eurodad. "Staff is incentivized to make
money."
Francis Kalitsi, a former IFC employee who is now a managing partner
at private-equity firm Serengeti Capital in Accra, has a similar
view. "To get ahead, you had to book big transactions," he recalls of
his time at the IFC. "The IFC is very profit-focused. The IFC does
not address poverty, and its investments rarely touch the poor."
The IFC sets annual targets for the number, size, and types of deals
employees should complete, and it awards performance bonuses for
reaching these targets, according to several current and former IFC
staffers. "If you don't reach the target, you don't get a bonus,"
says Alan Moody, a former IFC manager who now works elsewhere at the
World Bank. Deals often come to the IFC from private companies, not
the other way around. "We choose our projects by identifying key
clients and asking them what their needs are," says the IFC's Moyo.
That means, though, that by following private companies' priorities,
the IFC makes investments that are not necessarily aligned with
countries' own development strategies.
Even if the IFC focused more of its resources on poverty, it doesn't
have a good way to track whether its work has any impact. The 2011
report-which advises that the IFC "needs to think carefully about
questions such as who the poor are, where they are located, and how
they can be reached"-criticizes theIFCfor lacking metrics for its
investments, saying it fails to "[d]efine, monitor, and report
poverty outcomes for projects."
The IFC does not contest these criticisms. Its management responded
to the evaluation group's report by stating, "We broadly agree with
[the] report's lessons and recommendations" and conceded that the
"IFC has not been consistent in stating the anticipated poverty
reduction effects of a project." The IFC notes that it several years
ago began using a Development Outcome Tracking System (DOTS) to
measure the effectiveness of its projects at spurring economic
development and alleviating poverty. This system, however, has drawn
snickers from a number of IFC clients. They note that the DOTS
ratings rely heavily on self-reporting by the recipient companies and
depend to some extent on financial data for the entire firm, often
with multiple divisions around the world, rather than focusing on the
specific area of the IFC-funded project. Still, Kaldany expresses
enthusiasm for the effort, saying it is pathbreaking and getting
better.
Meanwhile, there has been little evidence of change on the ground.
Everywhere I looked-in Ghana, in nearby West Africa, and globally-the
IFC still seems to be giving its mandate to fight poverty short
shrift.
In finance, for example, R. Yofi Grant, executive director of
Databank, one of Ghana's largest banks, told me that the IFC's
practice of providing loans at attractive terms to multinational
companies "crowds out local banks and private-equity firms by taking
the juiciest investments and walking away with a healthy return."
Grant says that the IFC recently organized a $115 million financing
package for global telecom giantVodafone to expand its operations in
Ghana, even though six telecom companies already operate in the
country. Despite such robust private investment, the IFC's loan
package for Vodafone was its second in two years. "That is not
poverty reduction, and these are not frontier investments," Grant
says, referring to the IFC's refrain that it invests where other
financiers might not. "The IFC says all the right things and does all
the wrong things."
* * *
A thousand miles east of Ghana are Cameroon and Chad, which exemplify
a major and highly controversial domain of IFC investment, one where
the stakes are often higher than with hotels and shopping malls. That
domain is energy.
As of the end of 2011, the IFC reported a $2 billion oil-and-gas
portfolio, investing with 30 companies in 23 countries and, the IFC
boasted, achieving "Award Winning Recognition from the Market." But
critics, including environmentalists and nonprofit groups such as the
Bretton Woods Project and Christian Aid, contend that the projects
often exacerbate the poverty they are supposed to alleviate. The
projects, they say, frequently escalate local conflict and
corruption, displace communities, disrupt livelihoods, and contribute
to the emission of greenhouse gases and other pollutants.
In 2003, an independent review panel within the World Bank even
recommended that the bank, including the IFC, pull out of all oil,
natural gas, and coal-mining projects by 2008, saying such loans do
not benefit the poor who live where the natural resources are found.
But the World Bank's board overruled these recommendations. The bank
ultimately agreed to an approach that is "business as usual with
marginal changes," Emil Salim, the Indonesian officialwho led the
bank's review, told Bloomberg News in 2004. In a conference call with
reporters at the time, IFC executive Kaldany said, "There was very
broad consensus that we should remain engaged; we do add value."
The example of Chad and Cameroon, however, offers a more complicated
picture. In 2000, the IFC invested roughly $200 million with
ExxonMobil, Chevron, and others, along with the governments of Chad
and Cameroon, to support the construction of a nearly $4 billion
oil-pipeline project that experts estimate will generate more than $5
billion in revenue over the 25-year life of the project from wells
mainly in landlocked Chad to a port in Cameroon.
The two countries are even poorer than Ghana to the west. Per capita
income in Chad ranks 193rd in the world, compared with 185th place
for Cameroon and 172nd for Ghana. Life expectancy at birth in Chad,
at 48.7 years, is the world's absolute worst, and the country has
been ruled for the last two decades by heavy-handed dictator Idriss
Déby.
"Conditions were and are a hardship and horrible," says Peter
Rosenblum, co-director of the Human Rights Institute at Columbia
University, who argued that the pipeline project should demand
protections for the civilian population. The bulk of the oil revenue
was supposed to be set aside for food, education, health care, and
infrastructure. But in the face of attacks from rebel groups
supported by neighboring Sudan, and asserting a need to defend the
pipeline, Déby instead channeled substantial chunks into arms
purchases, bringing criticism not only from human rights groups but
from the World Bank. As critics of the project had warned, the oil
bonanza increased the stakes for control of the country and added to
the civil strife.
What happened with Chad is not an isolated incident. Despite
perennial controversies over energy and mining projects, often the
subject of fierce disputes related to everything from their
environmental impacts to the extent they boost authoritarian regimes,
the IFC continues to invest in them extensively. Just in 2012, the
IFC announced investments in mining projects for gold, copper, and
diamonds in places like Mongolia, Liberia, and South Africa, as well
as investments in oil and gas projects in Colombia, Ivory Coast, the
Middle East, and North Africa.
Moreover, as with Chad's Déby, the IFC continues to lend and invest
in countries with heavy-handed rulers such as Syria (Bashar al-Assad)
and Venezuela (Hugo Chávez). Kaldany told me there were about a dozen
dictatorships, which he wouldn't name, where the IFC would simply not
do business. But then there is a second tier, where he is inclined to
work. "It is a tradeoff. We can have a positive influence," he said,
referring to a recent IFC deal in now civil war-torn Syria to fund
microfinance. He said the IFC is insisting on increasingly tight
financial controls in such countries to ensure that the proceeds from
the projects are targeted directly to the poor rather than to
sustaining the dictators' hold on power. He acknowledged that the
controls in the Chad case were not nearly tight enough and that the
IFC ultimately had to pull out.
The IFC's critics see two obvious ways to fix it: dramatically
overhaul its priorities or sharply reduce its funding and channel
those resources toward the type of World Bank projects that more
closely align with its anti-poverty mission.
Kaldany said that the IFC is seeking to increase its number of small
projects, of under $5 million and tightly targeted on the poor, and
to devote more attention to the poorest of the poor countries. In the
most recent fiscal year, it generated 105 of the smaller projects, 20
percent of its total deals, although a much smaller percentage of its
total dollar outlays. (IFC officials couldn't immediately provide
that number.)
But don't count on a new direction. Although its new leadership has
remained publicly mum, the IFC's new chief, Cai, has told people he
strongly supports its current strategy.
* * *
In Accra, not far from the new Mövenpick, the IFC's posh
offices-sporting a lawn, flowers, and private parking-sit amid a
slum, surrounded by an imposing concrete wall topped by coils of
barbed wire. The only paved part of the road to the IFC is directly
in front of the guarded complex, which has no sign announcing its
identity. The rest of the road is a winding, dusty dirt path filled
with potholes and surrounded by hovels erected out of battered metal
or wood.
Barefoot children sit amid goats and roving chickens, on ground
dotted by garbage and litter. Women cook tiny fish strung onto sticks
over an open fire, ignoring the near-100-degree temperatures. I
approached them one day in July, and some of them said they had lived
there for 15 years. When asked whether they knew what the World Bank
is, they said no. When told that it fights poverty, many of them
laughed.
"We need help, and we know there are places that help," said one
woman who was cooking as two young boys clung to her legs. "But we
have never heard of them."
This story was co-published with Foreign Policy.
© 2012 Pro Publica Inc.
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