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Listen, Manage, Learn: This Is How We Address Your Concerns at IDB Invest
The Management Grievance Mechanism serves individuals, communities, and groups seeking to voice their concerns on environmental or social issues related to projects financed or under consideration.
Aristotle’s Wisdom and Synergies at IDB Group
The philosophical maxim about the whole and the parts is the perfect metaphor for illustrating how we work together to multiply the impact of our institutional efforts to build a better world.
Are Financial Institutions Ready to Face Climate Risks? This Is What We Found Out
An IDB Invest survey shows they require guidance and a solid legal framework to navigate a complex landscape. Experts recommend focusing on three pillars: governance and culture, implementation and engagement, and transition planning.
Tourism development through PPPs: An opportunity to generate employment in Latin America and the Caribbean?
Tourism is one of the world’s largest industries, particularly in terms of employment. This industry generates one out of every 11 jobs in the world, represents 10% of gross domestic product (GDP) worldwide, and 7% of exports, according to the World Tourism Organization. International arrivals around the world grew from 25 million in 1950 to more than one billion in the last few years, a period during which arrivals in developing countries exceeded those in developed countries. But what are the characteristics of employment in this industry? Why are coordinated public-private investments needed? How can we measure the impact of an investment in tourism on employment? Does investment in tourism always have positive effects on employment? Tourism and employment One of the main reasons why the developing countries are so interested in the tourism industry is its job creation potential. Expansion of the tourism industry generates direct, indirect, and induced jobs. Besides, it is a diverse and labor-intensive sector, and thus an effective generator of a wide range of job opportunities. Tourism employs more women, young people, and people with limited education than most industries, promoting an environment of inclusion and empowerment for vulnerable groups. In addition, given its low barriers to entry, this industry provides investment opportunities for entrepreneurs to start small-scale businesses and hire workers. The need for coordinated public-private investments The economic benefits of tourism do not usually reach their optimum (social) level with isolated private sector investments alone. The geographic concentration — dependence on natural and/or cultural attractions — and goods and services complementarities characteristic of this industry highlight the importance of factors like economic agglomeration effects, spillover effects, and externalities. In this context, investment decisions are interrelated so the potential benefit of a specific investment depends on the complementarity of other investments. Thus, without adequate coordination among investors, the market fails to allocate resources optimally. For example, hotel owners may under-invest in hotel capacity as their returns depend on the investment decisions made by restaurant owners and other investors in recreational and cultural activities. Similarly, public investment in infrastructure for transportation and tourism — such as roads, lighting, restoration of the historical and cultural heritage, among other investments — is limited by lack of coordination with the private sector, to generate an adequate flow of tourists. A recent experience in Latin America and the Caribbean Between 2003 and 2010, the government of the province of Salta implemented a series of interventions to generate a structural change in the tourism industry and create jobs after Argentina’s economic crisis in 2001. These investments required a high degree of coordination and collaborative frameworks to foster public-private partnerships (PPPs). The initiative was also supported by a loan from the Inter-American Development Bank (IDB) Group. The Tourism Development Policy (PDT, by its Spanish acronym) was based on three pillars: i) construction and modernization of the transportation and tourism infrastructure; ii) tax incentives for the construction, expansion, and remodeling of hotels and other types of lodging; and iii) institutional strengthening of tourism entities and a comprehensive and sustained national and international advertising campaign. How do we evaluate tourism’s impact on employment and what are our findings? In a recent study conducted by the IDB Group, we evaluated the impact of the PDT on employment using a methodology known as the Synthetic Control Method. Specifically, we used a weighted combination of other Argentine provinces to construct a ‘synthetic leap’ that reproduces what would have happened with employment in the absence of the policy. What were our main findings? The PDT created 1,376 new jobs in the tourism value chain of Salta province between 2003 and 2013. Fifty percent of this growth was led by the hotels and lodging sector. The PDT did not displace employment in other industries. On the contrary, it produced spillover effects and positive externalities in employment. For every job created in the tourism value chain, a new job was created in the rest of the economy. This means a total of 3,750 new jobs in Salta’s economy. So, does every investment in tourism have a strong positive impact on tourism? Not necessarily. Although an increase in tourism services supply and demand may benefit other industries, both through direct and indirect spending and multiplier effects, it may also produce displacement (crowding-out) effects. These latter are negative effects that may occur in other sectors, due to restrictions on the supply of labor, capital, or land. The effect in employment may be negative if the increased demand in labor generates higher salaries and captures employees from other sectors; this means, if employment in tourism grows at the expense of a reduced employment in other industries. This did not happen in the case of Salta, due to regulation of the minimum salary in all industries, and the high level of unemployment, characteristic of the province during that period. Similarly, no negative effects were anticipated due to pressure on other supplies prices (cost of capital and land) or reduced competitiveness in export or import markets through appreciation in the exchange rate. This was possible in the case of Salta given its industries’ low capital intensity, significant amounts of available land, and limited influence on the exchange rate, added to the devaluation context affecting Argentina at the time. Due to Salta’s characteristics and specific context, and the comprehensive public-private approach of the PDT, the positive multiplier effects of investments in tourism offset the negative effects; moreover, resulted a significant increase in total employment, above and beyond the tourism industry itself. Subscribe to receive more content like this! [mc4wp_form]
New ways to increase infrastructure investment
Historically, Latin America has invested 2% to 3% of regional gross domestic product (GDP) per year in infrastructure, even though it should reach at least 5% to meet the region’s needs. This difference creates a gap so large that can only be reduced with both private and public investments participation. What progress has been made to close this gap? Colombia and Chile are the countries with the highest capacity to carry out sustainable Public Private Partnerships (PPPs) in infrastructure in the region, according to the Infrascope. Chile has a long tradition of private participation in infrastructure projects that goes back 25 years. Also, it has a sound regulatory framework supporting PPPs, a solid investment and business climate, and has developed financing instruments. Colombia also enjoys a strong regulatory framework, supported particularly by the 2012 PPP law, and the strength of the institutions in charge of developing and maintaining PPP contracts. In the past five years, Chile and Colombia have awarded 70 and 30 PPP projects, respectively. What can we learn from these countries’ experiences? Colombia and Chile are two examples for the rest of region, especially regarding its regulations and PPPs' maturity, where both countries scored first in the ranking for these two Infrascope’s assessment categories. Colombia, for example, has incorporated the lessons learned from preceding toll road concession programs in the current 4G framework, particularly in the areas of: 1) risk allocation; 2) contracts financial structuring; 3) standardization of technical studies, financial models and methodologies to value risk; 4) streamlining and standardization of contracts; and 5) improvement of bankability, through the inclusion of lenders’ step-in rights and dispute resolution provisions; among others, according to a recent report from the Inter-American Development Bank (IDB). [clickToTweet tweet="Latin America needs to invest 5% of its GDP in infrastructure per year" quote="Latin America needs to invest 5% of its gross domestic product (GDP) in infrastructure per year" theme="style1"] However, while the progress is important, there are challenges that remain, particularly, in mobilizing financing for the already awarded projects. Until now only eight projects have achieved financial closings for approximately $4 billion and there are still $10 billion remaining to finance. The lessons and challenges from the 4G road concession program in Colombia are not unique to this sector, other infrastructure areas face similar constraints when it comes to accessing financing. It is no coincidence that the Infrascope’s Financing category yields the lowest score of the five assessment criteria for the 23 countries analyzed, with an average of 45 over 100. Moreover, when it comes to developing innovative financing solutions, such as mobilizing institutional investors to close the infrastructure investment gap, even countries like Chile, still faces some challenges. In this country, the local regulations do not allow private pension funds to directly finance infrastructure projects. How to help the region bridge the infrastructure financing gap? To bridge this gap there are common features in place that are working. For example, countries like Brazil, Chile and Peru, that are ranked the highest in the Infrascope’s financing category, share the common feature of having some of the most developed capital markets in the region, with freely traded local-currency bonds from public and private issuers, as well as low sovereign risk. Another example is Colombia and its work to address this gap through institutions like the Financiera de Desarrollo Nacional (FDN). This entity develops innovative financial products to reduce the financing costs for the projects and to facilitate access to finance and to capital markets, through credit guarantees and senior and subordinated debt with long tenors. Recently, the FDN launched a new product consisting of local currency loans to attract international investors that can provide guarantees and take the credit risk in the exposures but prefer to avoid the exchange rate risk. [clickToTweet tweet="Issuing impact development bonds and green bonds is key to increase infrastructure investments" quote="Issuing impact development bonds and green bonds is key to increase infrastructure investments" theme="style1"] The lessons learned so far highlight areas that need to advance such as: 1) opening up the markets to local institutional lenders (i.e. private pension funds and insurance companies); 2) issuing impact development bonds and green bonds; 3) promoting access to project development funds; and 4) facilitating innovation with more sophisticated products in the financial sector and capital markets. The debentures guarantee of Santa Vittoria do Palmar in Brazil and the B-bond for Campo Palomas in Uruguay, both structured by IDB Invest (formerly known as Inter-American Investment Corporation) show that the role of the private sector arms of multilateral development banks continues to be very relevant. These projects underscore the value of delivering innovative financing solutions and partnering with key public and private stakeholders to close the infrastructure financing gap in the region. Subscribe to receive more content like this! [mc4wp_form]
What powers Chile's energy transformation?
Recently The New York Times highlighted Chile’s energy transformation. The profile told the story of Chile’s clean energy market revolution. However, missing from the story was one key component that facilitated Chile’s sustainable energy surge: donor funds. Donor funds supported by governments can lower cost and risk barriers, which limit financing for renewable energy projects. Donor funds invest in untested technologies and new markets, while also adhering to the highest social and environmental standards. Their purpose is to jumpstart climate-friendly investments in developing countries. In 2008, Chile had less than 20 megawatts (MW) of installed non-conventional renewable energy (NCRE), such as wind, solar and geothermal. The government’s Energy 2050 law set a target to increase Chile’s share of renewable energy to at least 60% by 2035. Despite developers’ enthusiasm for Chile’s stable political environment and resource endowment, which includes over 300 days of sunshine per year in the Atacama Desert, local banks had little or no experience with NCRE technologies. Donor funds: able to overcome cost and risk barriers But with access to donor funds, other organisms, such as multilaterals can deploy financial structures that overcome certain cost and risk barriers, making projects feasible for developers. Funds like the Clean Technology Fund (CTF) and the Canadian Climate Fund for the Private Sector in the Americas (C2F) allow us to “blend” our capital and ultimately take more risks. For example, in 2013, IDB Invest (formerly known as Inter-American Investment Corporation) used a C2F loan plus our own financing for Pozo Almonte and Calama Solar, Latin America’s first large-scale photovoltaic plants. The Chilean market evolved rapidly. By 2014, the Crucero solar project, which IDB Invest also financed, piqued the interest of a commercial bank. Soon commercial banks fully financed hundreds of megawatts of NCRE. Today, solar photovoltaic in Chile no longer needs donor money. Thanks in large part to donor funds, IDB Invest financed five photovoltaic projects in Chile and recently completed our first wind project, contributing to Chile’s 3,400 MW of NCRE. A recent Inspiratia article, which covered the Aela wind farm, recognized, “for Aela, the [IDB Invest] involvement was key, not only from a ticket size perspective, but also in helping the commercial banks get comfortable with the transaction. In the Cerro Pabellon geothermal plant, by channeling resources from the CTF, for which IDB Invest is the implementing entity, IDB Invest provided an insurance-like financial instrument to Enel Green Power to offset the high cost and risk associated with exploratory geothermal drilling — a risk most commercial lenders and insurance providers are typically unwilling to take. Development banks are one of the few players positioned to test first-mover risks and provide long-term tenors; however, it is the donor funds that are perhaps the unsung heroes of Chile’s energy transformation. Market forces taking over where donor funds left off is a trend that transcends Chile. Uruguay, Costa Rica and now El Salvador have all contributed to Latin America’s renewable surge which is 53% of total energy generation compared to the 22% world average. Back in Chile, the lure of cleaner, commercially-viable energy is now attracting the next generation of industry. Companies like Amazon and Alphabet Inc.’s Google would like to set up data centers powered by this renewable energy. These firms create jobs and offer training to the Chilean workforce. And so the renewable energy story continues. Subscribe to receive more content like this! [mc4wp_form]
How can gender equality boost agribusiness?
The impact of female participation in agribusiness is one of the highest in the global economy. Women laborers produce between 60% and 80% of food in developing countries, and around the world there are about 1.6 billion women laborers, according to the United Nations Food and Agriculture Organization (FAO). Gender equality in this sector is key, so much so that family-sized farm yields could increase by up to 30% if women had the same access as men to land and resources. In terms of retention and quality of employment, female representation is important and that’s why agribusiness companies are working to provide the same opportunities for men and women. One of them is DanPer in Peru, which employs more than 6,500 people and has about 7,000 hectares cultivated throughout the country. [clickToTweet tweet="Women laborers produce between 60% and 80% of food in developing countries #equidadtotal" quote="Women laborers produce between 60% and 80% of food in developing countries" theme="style1"] DanPer has been working on gender equality since its inception and, motivated by its desire to improve in this area, recently completed the EDGE certification process. This certification measures standards of equality and also supports companies to develop a work plan to establish improvements in the future. Today, they are the first agribusiness company in Peru that has this certification. Intrigued by the effects of gender equality on agribusiness, I asked Roger Carruitero, Central Manager of Human Capital Management at DanPer, about this experience: In recent years, what changes have you seen in the treatment of women employees at the company, thanks to the implementation of gender equality practices? For DanPer, sustainability is one of the main pillars for the advancement of our people, and we want to ensure that we provide the same opportunities to women and men. For this reason, when we saw the opportunity of measuring our gender equality and learning about other experiences, we seized it immediately. That is why we applied to the EDGE certification, with the support of the IDB Group. EDGE has allowed us to strengthen our processes of managing people with an inclusive approach. By developing work plans and timetables with specific actions, we ensure the adoption of gender equality as a standard practice in our organization. So today we make use of inclusive language and adopt communication policies. In addition, this component is present in our selection, training, hiring and promotion of personnel. Finally, we encourage the participation of women and men in gender equality dialogues to monitor and measure our progress. How have advancements made in gender equity helped the business? EDGE certification has allowed us to strengthen the diversity of the company and reach a more competitive professional market, attracting quality human talent. Practices such as the expansion of the free services offered by our health service in processing plants and agricultural funds allow us to achieve greater welfare for our workers. Today, this center includes exclusive services for women such as gynecological checkups (including cancer screenings), obstetrics and pregnancy services that help us reduce absenteeism, desertions, and turnover levels. Thus we achieve greater well-being in our workers, who in many cases would have to go to hospitals where they would take longer to be treated. The greater return on personnel, less absenteeism and a decrease in turnover allows us to be more productive, because we have personnel with greater experience and skillsets. This allows our collaborators to have higher incomes that are invested mainly in a better education for their children, many of whom manage to complete technical and university studies. This higher productivity, in turn, generates savings in recruitment, selection, transportation and clothing expenses that solve a significant part of the health budget. What else would you like to see to increase the opportunities for gender equality in DanPer? Today, our challenge is to ensure that every day more women have access to positions of power at the mid- to upper levels. For this we must undertake a number of actions, including ensuring that higher education institutions provide the agribusiness industry with a greater supply of graduates in careers whose approach is erroneously directed toward men. This will allow us to have more women applying for mid-level and executive positions in the areas of agricultural production. In the same way we hope to apply it to positions that require technical training, such as mechanics, truck drivers and hopefully tractor drivers. Regardless, we must continue conducting training and awareness programs on gender equality and non-discrimination in all our headquarters. There is much to do and we are on the right track! At DanPer, the benefits of gender equality are obvious. Today, as leaders in the field, they participate in events throughout Peru and abroad, where they share their model and seek to raise awareness of the importance of being systematic in adopting measures that reduce and eliminate gender gaps. "Equality for women is progress for all," as Ban Ki-moon said, especially in an industry where equality could reduce world hunger by as much as 150 million. Subscribe to receive more content like this! [mc4wp_form]
Why is social inclusion good for agribusiness?
By 2050, a 60% increase of food production will be required, with only a 12% increase in arable land. Considering the social and demographic implications for agricultural producers, finding solutions to include them in production chains is a must. Latin America and the Caribbean region is the largest net exporter of food worldwide. Furthermore, the region has a third of the global fresh water resources, more than a fourth of high-to-medium potential production lands, and around 40% of biodiversity. However, the region has 14 million small-scale family farming, in vulnerable situation, who occupy 80% of the farms, produce 35% of lands, and provide between 40% and 50% of food, according to the study “The Next Global Breadbasket: How Latin America can Feed the World”. Gaps among agricultural producers Whether to raise cattle in Paraguay, grow coffee in Colombia or soy in Brazil, all kinds of agricultural producers are involved in the process, from large businesses to small producers and smallholders, including cooperatives. Although there are also intermediary actors, like in Argentina or Uruguay where larger scales are achieved by leasing lands. This is an already proven business model where the producers are not necessarily land owners. However, among these different types of producers there are gaps that are increasingly evident in terms of scale, access to financing and markets, and technology application. This issue is even more evident among small producers: only 5% has access to formal borrowing, and the continuous fragmentation of land ownership due to the inheritance factor (many times resulting in flawed titles) works against them when trying to achieve minimum scales. The key factor of this gap arises from the climate change effects (which is more evident in Central America due to the narrow distance between both oceans) that, together with scarce and expensive financing, price volatility, increasingly sophisticated technological advances, and climate insurance limitations, impact family farms income. As result, younger generations choose to migrate to large urban centers instead of continuing working in family farms, and thus an important social structure of rural communities keeps on deteriorating. In Mexico alone, the number of people living in rural areas decreased from 57% in 1950 to 29% in 1990, and 22% in 2010, according to the Instituto Nacional de Estadística y Geografía de México (Inegui). David and Goliath’s tale Meanwhile, the consolidation of producers could help the so-called “new generation of cooperatives” and other association forms to achieve larger production volumes to leverage their negotiation power. Along these lines, geopolitics and the global struggle to supply commodities continue being strategic for certain countries, and could become an opportunity for producers. The entry of the Chinese company, COFCO, after acquiring Nidera and Noble Agri, or the purchase of Agro Amazonia in Brazil by the Japanese Sumitomo Corp., are proof of this situation. While on the other side of the chain, if the regulating entities approve the mergers of Bayer-Monsanto, Dow-Dupont, and Syngenta-Chemchina, these companies would control 60% of the seed/biotechnology business, and 70% of the agrochemical industry. How to promote inclusion in production chains So, what can be done to promote inclusion in production chains? While some companies focus their acquisition strategies to purchase commodities from large-scale producers, other companies seek to develop their smaller clients, not only driven by a more social approach, but also because according to FAO, they have a productivity growth potential of 30% to 50% in sugar cane, dairy, and cattle production. To close the productivity gap, a likely and sustainable solution for small producers is long-term financing, provided by investment banking —through trust funds or similar vehicles—, in association with anchor businesses assuming part of the risk and supporting them with technical assistance programs. An example of this trend is the structured financing implemented by IDB Invest (formerly known as Inter-American Investment Corporation) and the International Finance Corporation (IFC), together with ECOM —a global coffee business— and Starbucks for coffee producers that have been affected by rust disease in Nicaragua. This article was originally published at the Huffington Post. Subscribe to receive more content like this! [mc4wp_form]
Soy: Paraguay’s “Green Gold”
This is the story of a small seed from Asia that has transformed the economy of a country in the heart of South America. Soy, a legume brought to Paraguay in the 50’s by immigrants from Japan, is today the country's main export product.