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Strong as Steel in Ecuador

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Investment summary
Client

Aceria del Ecuador C.A - ADELCA

Country

Ecuador Ecuador

Tenor

10 years

IDB/IIC loan

$67 million

China Fund

$12 million

Total project cost

$131 million

Year of Closing

2015

Project Description

A family-owned company that got its start more than 50 years ago, Acería del Ecuador C.A.—Adelca for short—is Ecuador’s leading steel producer. It recycles scrap metal and turns it into rebar, galvanized wire, nails and other “long steel” products used in the construction industry.

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In 2015, the company obtained a 10-year loan from the IDB Group to finance the construction of a modern steel plant and associated facilities in Milagro, in the southwestern province of Guayas. The new plant, with an installed capacity of 400,000 metric tons per year, more than doubles the amount of steel Adelca can produce, to 710,000 tons. Our involvement with Adelca went far beyond a construction loan. We worked with them to reinforce their corporate governance structure, improve their environmental practices and meet EDGE standards on gender equality. We also helped Adelca increase its impact on the communities where it operates by strengthening its local supply chain.

Ecuador has a shortage of scrap metal, and Adelca obtains its raw material from different sources locally and abroad—including a network of small to medium-size providers across Ecuador that collect scrap metal piece by piece, pile by pile, ton by ton. The company had started an incentive program called the Recyclers Club to build loyalty among these smaller suppliers.

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The IDB Group saw the potential to scale up that effort in a way that would create both social and business gains, or “shared value.”

Our appraisal process identified several key steps that, when implemented over a five-year period, would significantly increase Adelca’s local supply of scrap metal and benefit more than 800 suppliers and their communities. These included investing in a more efficient storage, transportation and logistics system, to make it easier for small-scale providers to amass scrap, and expanding access to technical training and financing. The shared value program ended up being incorporated into the loan agreement.

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A five-year “shared value” strategy identified ways the company could invest in its smaller suppliers and expect to see a return on that investment.