Private Sector Operations

Mr. Javier Lupo Gamarra, Vice-Chairman of Caja Los Andes (5th from left) and Mr. Pedro Arriola Bonjour, CLA General-Manager (6th from left), met with OPEC Fund staff members to discuss cooperation in micro-financing in Bolivia.

The Fund's Private Sector Facility (PSF) is a relatively new lending window, established in 1998 and endowed with its own resources, through which the Fund channels support directly to the private sector in developing countries. The main objectives of the Facility are to promote economic development by encouraging the growth of productive private enterprise and to support the development of local capital markets. Under the Facility, loans are made to financial institutions for on-lending to small, medium and micro-enterprises, as well as directly to specific projects. The Fund may also provide equity participation to private enterprises.

The PSF is part of a comprehensive approach to development by the Fund, which recognizes the complementary role of the public and private sectors in achieving economic advancement. A vibrant private sector contributes strongly to long-term economic growth, a necessary condition for sustained poverty reduction. Economic growth also increases the tax base that enables governments to provide increasing levels of basic social services. Moreover, private sector investment in infrastructure projects helps improve the quality and efficiency of essential services and allows for a reduction in public budgets, enabling governments to redirect greater resources to social spending.

The main focus of the PSF in its early years has been towards the financing of small and medium-scale enterprises through financial intermediaries, including specialized micro-finance institutions, regional development banks, leasing companies and commercial banks. Financing through financial intermediaries assists in strengthening the local capital and financial markets. Consistent with its objective to support a wider range of operations, the Fund has been increasing its involvement in direct projects and in 2001 participated in the financing of agro-industry, industrial and service sector projects. As of December 31, 2001, cumulative approvals for the Fund's private sector operations amounted to $111.7 million.

During the year 2001, approvals amounted to $58.6 million, covering a broad range of sectors including leasing companies, regional development banks, agro-industry, manufacturing, services, commercial banking and micro-finance institutions. A loan of $10 million was approved to Kenana Sugar Company Ltd. of the Sudan to acquire and install a boiler unit that will significantly increase output capacity. Lines of credit worth $10 million each were also approved for the West African Development Bank and for the East African Development Bank to allow these institutions to provide medium-term funding to developmental projects in their sub-Saharan Africa member countries. A loan of $5.6 million was also approved for the construction of a new purpose-built roof tile factory in Syria.

The Fund will not finance an enterprise or project that does not enjoy the support of the host country's Government, and will in fact obtain the written approval of the Government prior to providing finance to an enterprise. As a pre-condition to making investments, the Fund requires signature of a standard agreement with the country concerned for the encouragement and protection of investment. Recognized as a gesture of trust and confidence, the agreement accords the Fund the same privileges as those normally given to international development institutions in which the country holds membership. By December 31, 2001, the Fund had concluded agreements with 34 countries, allowing it to significantly expand its volume of private sector operations during 2001. As these agreements increasingly enter into force and further agreements are concluded, the volume of private sector operations will continue to grow in 2002 and beyond to meet the Fund's objectives for its private sector window of operations.

In its private sector activities, the Fund frequently works closely with other international financial institutions, including the IFC. In order to strengthen these relationships and identify areas of mutual benefit, the Fund may enter into cooperation and co-financing agreements with such institutions. In March 2001 the Fund signed a Cooperation Agreement with the EBRD and in July 2001 it entered into a Co-financing and Agency Agreement with PROPARCO of France. Presentations on the PSF were given at the annual meetings of the AfDB and the IDB. The Fund expects in future to extend its collaboration for private sector operations to other important development institutions, including OPEC sister organizations

Private sector financing applications can be directly downloaded from the OPEC Fund website. For detailed guidelines for private enterprises and/or private financial institutions, please click on the relevant link. Applications for financing are also available on request directly to the Fund's headquarters in Vienna, and may be submitted by post, fax or email to:

The Assistant Director-General of Operations Management
The OPEC Fund for International Development
Parkring 8
A-1010 Vienna, Austria.

Tel. (+43-1) 515 64-0
Fax (+43-1) 513 92 38

E-mail: administrator@opecfund.org