3.1 A Look at the Portfolio and Dubious Projects
The IFC's lending in 1999 went to financial services (36%), infrastructure (15%), oil, gas and mining (15%), chemicals and petrochemicals (7%), cement and construction materials (5%), food and agribusiness (5%), manufacturing (4%), hotels and tourism (3%), and timber, pulp and paper (2%) (see pie chart).
IFC's annual reports include many projects with dubious development benefits. Coca-Cola bottling plants in Azerbaijan, nationwide cable television in Brazil, construction of a cruise ship terminal in Mexico and industrial hog farms in China are just a few examples. IFC does not explain the positive development results achieved from these investments and it is clear that many of IFC's investments do not serve the needs of the poorest and most marginalized groups, enhance equality or promote a long-term vision for economic development that is locally oriented. IFC should be more selective in its investment choices and needs to be clear about the developmental benefitsóbeyond economic growthóthat result from its investments.
3.2 The Extractive Industries: Investing in Environmental & Social Degradation
Lending to the extractive industries has represented a significant share of IFC's investments over the past five years, ranging between 14 and 17 percent.24 At the regional level, natural resource extraction accounts for a significant share of total investment in most regions in 1999, except in sub-Saharan Africa. In Central Asia, the Middle East and North Africa, 43 percent of IFC's investments went to oil, gas, and mining projects.25 In Asia and the Pacific, about 6 percent went to oil, gas and mining projects, and 23 percent went to oil, gas, mining and timber projects.26 In Europe, 17 percent went to oil, gas and mining investments, and 20 percent to these sectors and timber.27 In Latin American and the Caribbean, 23 percent went to oil, gas and mining.28 Less lending went to the extractive industries in sub-Saharan Africa (between 1 and 3 percent) in 1999, but in 1997 and 1998, IFC provided $345 million for offshore oil drilling in Cameroon alone, which amounted to about one-third of the total amount that went to sub-Saharan Africa during those years.29
Credit: Project Underground
These industries are popular sectors in which to invest for export and foreign exchange generation. Governments in need of income generation will often exploit the natural resource sectors. But these investments are often made in countries that have inadequate environmental protections and regulatory systems in place, which can result in environmental problems. Furthermore, the social impacts of investing in these sectors can be serious, ranging from human rights infractions to further entrenchment of the gaps between the rich and poor to environmental degradation.
That is not to say that every investment in the extractive industry leads to these results, but by the very nature of these projects, investments in these sectors can come at serious environmental and social costs. IFC investments, from oil development in Nigeria and Guatemala to mining in Peru and Indonesia, can lead to environmental pollution, the forced resettlement and dislocation of communities, and the endangerment of indigenous communities. The beneficiaries of these investments are often multinational corporations, like Exxon and Newmont. Since these projects require little added value in production, there is often little added benefit for the community. Even worse, in some cases extractive industries have further entrenched corrupt and dictatorial governments and exacerbated human rights abuses. From the global perspective, these projects fuel global climate change by continuing reliance on fossil fuels.
There is a strong case to be made from both an environmental/social point of view and an economic point of view that IFC should concentrate its investments in sectors other than oil, mining and gas. Aside from the negative environmental and social consequences of some of these investments, these projects already receive ample support from the private sector and these are not the sectors where additional financial support is needed. IFC is better off focusing on projects that deliver developmental benefits for local communities without investing in projects that create such serious problems.
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Credit: Korinna Horta |
Putting Communities at Risk: The Case of the Chad-Cameroon Oil Project The World Bank approved the Chad-Cameroon project in June 2000. IFC will provide $250 million to an oil consortium led by ExxonMobil for the project, which entails development of oil wells in Chad and construction of a 650-km pipeline through Cameroon to the Gulf of Guinea. The pipeline, when built, will cut through fragile coastal rainforest in Cameroon and important river systems. Environmental organizations are also concerned about increased deforestation and pollution of water resources and rivers. The World Bank acknowledges that the project will lead to increased oil development in the region, which will result in long-term cumulative greenhouse gas emissions that threaten the global environment. Because of serious governance problems in Chad and Cameroon, the conditions needed to make an oil project like this one successful for indigenous peoples and the poor do not exist presently in these countries. Human rights problems and corruption plague the two countries. Transparency International has named Cameroon the most corrupt nation in the world the last two years running. According to the U.S. State Department, there are also rampant human rights problems in the region. A week before the World Bank Group approved the project, a human rights organization from Chad released a press release stating that "under the constant threat of brutal government repression, it is highly unlikely that citizens of Chad will reap any benefits from the World Bank's proposed oil pipeline if it goes forward now."30 Prior to its approval, NGOs in Chad called for a two-year moratorium on the decision to allow time to create political momentum for developing a proper legal framework and establishing environmental and human rights protections. NGOs argued that the governance problems had to be dealt with first before oil development should move ahead. After years of international public scrutiny and internal preparation and review, IFC and the World Bank made some technical improvements to the project. For example, the Bank negotiated a revenue management plan intended to share some of the project's profits with Chad's citizens. The World Bank Group also agreed to establish an Independent Advisory Group and technical monitoring advisory group to oversee the implementation of the project. But in the end, the World Bank Group failed to address the most fundamental problemsócorruption and governance issuesóbefore it decided to finance the project. Ultimately, these issues may be the key to whether or not this project is a success in the eyes of local communities. |
3.3 Fueling Climate Change
IFC should promote the development of clean energy and invest in projects that change current energy development trends that threaten the global climate. If energy development continues in its current trend, world energy demand will increase 65 percent by 2020 and two-thirds of the increase will come from developing countries. Ninety-five percent of global energy demand under this scenario would be provided by fossil fuels, which are responsible for dangerous particulate and greenhouse gas emissions that threaten the global commons. The current trend would see the share of greenhouse gas emissions from developing nations rise to 60 percent of the world total, or 40 million tons of carbon dioxide.31
From oil drilling to pipeline delivery systems to coal-fired power plants, IFC is a major financier of climate change. IFC has committed billions of dollars to projects that will emit millions of tons of carbon dioxide into the atmosphere over their lifetime; carbon dioxide is one of the leading contributors to global warming. As of 1999, IFC committed $533.4 million to mining and extraction of fuel minerals, $205.7 million to motor vehicles, $574 million to chemicals and petrochemicals and even more to fossil fuel power plants.32 These investments dwarf the modest steps IFC is taking to break down market barriers for solar, wind, biomass and energy efficiency programs. IFC should help to create a new energy pathóone that is more environmentally sound and beneficial to the developing world.
3.4 Agribusiness/ Livestock
IFC provides loans for livestock ventures, such as cattle production and hog and chicken farms from Argentina to China. The livestock industry is one of the most ecologically inefficient and environmentally detrimental forms of food production. The World Bank estimates that 800 million people, including 200 million children under the age of five, are malnourished today. Rather than allocate half of the world's grain production to livestock feed, 33 a more efficient use of this grain production is to promote plant-based diets, which are lower on the food chain.
Increasing the production of low-cost calories and food protein is a more efficient and ecologically sound approach to food production in the developing world. Cattle production and factory farms can cause serious environmental pollution, contaminating rivers and drinking water sources, they can lead to deforestation and biodiversity loss, and they can accelerate soil erosion and lead to increased greenhouse gas emissions. The beneficiaries of these loans tend to be wealthier urban consumers rather than those with lower incomes, and these investments are supporting industrial agricultural practices instead of smaller, family farm operations that tend to be more environmentally sustainable.
3.5 Social Sectors: Health and Education
IFC's involvement in the social sectors is relatively new, currently representing only four percent of IFC's lending,34 but it is one sector that IFC Management has identified as a focus for future lending. In 1999, IFC provided financing for four education projects in West Africa.35 Privatized education is primarily aimed at providing good education for the upper and middle class. The Executive Vice President of IFC, Peter Woicke, recently posed the question: "Is there a role to foster a middle class or should we concentrate just on the poor?"36 IFC's support for private education is based upon the premise that privatization expands educational opportunities, frees up public resources for more efficient use, and broadens the scope for innovation in the classroom.37 It is important to support education and expand access to good quality education for everyone, including the middle class. Targeting the middle class is particularly important to combat the problem of "brain drain"ówhen members of the mid to upper class leave their homeland for schools in industrialized countries, and often don't return. But privatized education may harm the poor and more vulnerable in a community by accentuating and exacerbating economic disparities. Educational services should be available for everyone. If the IFC is involved in lending for private education programs, then it must ensure that the poor have access to education too. This may involve grants or subsidies that should be coordinated with other World Bank or aid agencies. At a minimum, the poor and most marginalized in a community cannot be excluded from access based on affordability of services.
The privatization of health care raises similar problems. Health care privatization treats health services as a commodity, with supply, demand, and profit maximization determining prices. While privatization can help address inefficiency and deliver health care to areas not taken care of by the state, it can also result in more limited services and restricted access for those unable to afford the new prices.38 Private health services, driven by market forces rather than medical needs, often serve more profitable areas or groups of people. IFC must be aware of the problems associated with private health care options and aim to contribute to broad health care coverage and universal access for people, regardless of level of income.
Since IFC has identified investment in the social sectors as one of its priority areas, then it must proceed with awareness that investing in these projects should not result in the exclusion of services for the poor and those most marginalized. IFC should also build alliances with development organizations to learn from their experience and incorporate innovative ways to maximize benefits for all.
