PSD Blog@IDRC: Investment Climate Facility (ICF)

This morning finally gave me the chance to meet Hugh Scott, Mohammed Jahed and Chris Daroll, the three main people spearheading the ambitious Investment Climate Facility (ICF). It was really great to meet Hugh in person, after hearing so much about him during this three week journey through Tanzania, Kenya and now South Africa. Hugh’s reputation is widely known in many circles, particularly his untiring effort to promote the ICF and get it on the ground!

What is the ICF?

The ICF is a new and unique private-public sector funded independent trust, in support of and supported by NEPAD and endorsed by African Heads of States, its mission is: to make Africa an even better place to do business by removing real and perceived obstacles to domestic and foreign investment and promoting the continent as an investment destination.

The ICF has three broad objectives:

Build the environment for investment climate reform
Get the investment climate right
Ensure business responds

Some interesting points regarding the ICF’s position, structure and operation are:

Its objectives are closely aligned with the priorities of the AU, NEPAD and the APRM
It has the high level support of, and engagement with, Africa’s leaders, the donor agencies and the private sector
It is governed and operated by private sector principles
It is a facility with a limited life not seeking its own sustainability
Its major focus is on improving the environment for domestic and small firms
Its activities will be guided by the latest research and experience of investment climate reform

The identified priority areas include

Corruption & Crime
Property rights & contract enforcement
Business registration and licensing
Taxation and customs
Financial markets
Infrastructure facilitation
Labour markets
Competition

Cross-cutting strategic themes will include: Information and services, institutional capacity and capability, policy, legislation and regulation, platform for dialogue and Africa’s image.

Who are the targeted members?

The ICF hopes to attract large private sector companies and the donor community. From the donor community their first tier of targeted agencies are from the G8, at an estimated buy-in of USD $10 million per year for a first phase of three years. The ICF hopes to have a 7 year lifespan, and Hugh stresses that they are not looking to create yet another new institution. The corporate rate of participation is USD $2.5 million. It was made crystal clear to me that under no circumstances will both donors and Corporate members be able to earmark the funds for a specific activity, but instead the funds will be pooled collectively and administered according to the direction set forth my the governance structure. Although, they are sticking to their guns as much as possible with the USD $10 million donor funding, they recognize that this is rather steep, and might dissuade some very good partners outside of the G8 members i.e. the Irish. Therefore, they are keeping a level of flexibility to accommodate such partners.

The involvement of Canada and France are seen as somewhat critical for the ICF in its success in Francophone Africa. Many of the proposed countries of operation include Francophone spots. ICF would like to see each country come on board as a package or consortium. For example, Canada might be comprised of CIDA, IDRC and one large Multinational corporation i.e. Alcan.

At this time ICF has commitment from the UK and one private sector company. They believe that they now have (or are very close) enough funds to begin operating the ICF. It is intended to be a lean operational structure with a very low overhead cost, but the lowest predictions, being less than 10%, are calculated with the full USD $550 million hoped to raise over the 7 years.

How does IDRC fit into the picture?

As Hugh said so eloquently, “IDRC is an oddball and exception to the case”. Hugh and Chris have been giving some serious thought to how IDRC funds would be allocated within the ICF. It is obvious that IDRC can not afford the USD $10 million membership fee, but with IDRC’s niche in the research for development field, they believe that our involvement would be very useful. The research would help identify gaps and be linked to the program development for the ICF.

ICF is going to have three major boxes in its structure, these being: Financial, Programs and finally a Strategic Knowledge and Research unit. It is in this last box where they see IDRC funds being best housed. There has been some talk of the strategic knowledge and research unit being sub-contracted out to SBP (Chris Daroll’s consulting firm), therefore in this case a relationship between IDRC and SBP would need to be agreed upon. SBP doe not have any desire to manage the entire facility, only the last box.

The governance structure of the ICF has been designed, but the individuals have not been selected at the moment. It is worth noting that the AU and NEPAD will have observer status in the governance structure, a position of influence vs. accountability. Hugh suggested that there could be a sub-governance structure designed for the strategic knowledge and research unit, but it would ultimately answer to the super-arching governance structure at the top level. Hugh and his colleagues seem to be open to engaging very seriously with IDRC in designing a research program, methodology, and sub-governance structure that would be suitable to our needs.

In my opinion, Hugh and his team seemed to be extremely sincere in a willingness to arrive at an arrangement that would be suitable and appropriate for an IDRC modus operandi. Hugh mentioned to me that he sees the ICF actively seeking out partnerships along the lines of a “venture capital” firm, looking to find good people – being a partnership broker. He was also quick to point out that the ICF would also be open to receiving good proposals. I believe that this latter method of attracting research proposals is better suited to IDRC’s core values, rather than seeking out the “best” candidates.

Along my journey I have encountered various concerns or criticisms regarding the ICF being too UK driven and not Africa driven. I have come to understand that in Africa there are a lot of ideological differences, particularly among the middle classes and academics. There is no question that the seed capital for this initiative derived from the north, particularly from DfID. But, today the ICF has critical buy-in from all the key African players i.e. NEPAD, AU, and African Heads of States and their respective ministers. So, perhaps how this initiative originated is less important than the fact that it is now well endorsed and looking to tackle a very serious problem. I am no expert in these matters, so I believe that I will end this discussion, which is political in nature and leave it for others to carry on as they wish.

In this last paragraph I wish to share a few interesting exchanges that we had in the meeting, but due to time constraints we were unable to delve into in any great depth. But I believe they are intriguing and worth looking into in greater detail soon.

The chosen priority themes are informed by research which already exists
Capacity building is certainly a part of the ICF, but it will be VERY targeted
The ICF claims to fill a very specific and important niche – changing mindsets
The ICF will focus on the domestic market, but as Hugh said, what is good for the domestic market is also good for MNCs
A big emphasis will be dedicated on the informal to formal sector (something that has emerged as an important priority at IDRC stakeholder meetings)
The co-chair of the ICF will be a Francophone

Comments

This is a well written piece which, in a nutshell, covers the key ideas surrounding the ICF.

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