Private sector development is crucial to stabilising the most vulnerable countries. But ensuring businesses respect social and environmental standards is a real challenge, Anne-Sophie Rakoutz told EURACTIV France.
Anne-Sophie Rakoutz is the head of the private equity division at Proparco, a branch of the French Development Agency specialised in private sector financing. She will take part in the ID4D conference Vulnerability and Crises: What Role for Businesses? in Paris on 30 May.
Rakoutz spoke to EURACTIV.fr’s Cécile Barbière.
This interview is published in partnership with the ID4D blog, coordinated by the French Development Agency.
How do you support the private sector in developing countries?
The aim is to give the private sector access to finance. We try to offer the whole range of products that exist, from classic loans to shares in the profits of financial institutions, infrastructure projects, companies or even investment funds.
At the same time, we offer technical assistance tools in vulnerable countries. These come in the form of aid to strengthen businesses. For example, we helped a university called “Esprit” in Tunisia by financing a grant for the least well-off students and creating a business incubator within the university itself. Unfortunately, this last project did not take off. These are projects that do not necessarily have a business model, so our interventions are in the form of donations.
What are the most commonly used tools for helping the private sector and the activities you target?
We use a lot of debt, this makes up around 80% of our portfolio. But our aim is to develop our equity activities. Looking to 2020, this will be very important because it is riskier and therefore rarer on the market. This gives us more of a supporting role within businesses and responds to a real demand on the market, as well as allowing us to support more businesses.
As for the sectors in which we operate, we tend to be generalists. But Proparco has specific objectives to do with climate change, the least advanced countries, Africa and the social sectors.
How can you support the private sector in countries in conflict, for example?
We have to support the private sector in the most fragile, least developed and post-conflict countries, because this is a great factor of stabilisation. Intervention from the private sector in these countries is crucial, because it creates wealth for vulnerable populations as well as the state, through taxes.
On the other hand, we can rarely intervene without taking particular precautions and without close collaboration with the states that have been weakened. The least economically advanced countries are far less resilient to each shock, and post-conflict countries struggle in their role as regulators.
The countries on these lists change each year, so it is difficult to take an approach based on figures. But we aim to allocate €1 billion to the most vulnerable countries by 2020.
What are the limitations of private sector participation?
Where we have to be extremely vigilant is on social and environmental standards, as well as on the fight against money laundering. Each time we are involved in a project, we carry out an audit of each of the beneficiaries of our funds. These are vital because, in weakened states, businesses may not respect the social or environmental standards and may take advantage of the situation to gain control of natural resources or launder money.
Precisely, so how do you make sure the companies you support play by the rules?
It is very important to ensure that when we begin working with a fund, it will respect our approach. For example, on the environment, if the necessary measures are not already in place, which is often the case, we carry out an audit and draw up an environmental and social plan with stated deadlines. The idea is to help businesses to make progress, not to demand they are perfect from the start.
This support is a key element of our investment. And we penalise anyone who does not respect our rules.
Are there any private sector activities that Proparco does not get involved in?
There is a list of unacceptable activities: gambling, alcohol, weapons… We do not deal with coal but we do always carry out careful analyses of countries’ energy mixes. For example, we can support gas projects in certain countries, if it helps to improve their carbon footprint. And this is the case in those countries where coal is the dominant fuel.
Access to energy is the starting point for economic development. We cannot tell a country to wait for the arrival of renewable energies before it can develop.
We have been involved in mining in the past but this is not an activity we have developed at Proparco. It is extremely risky and can damage reputations. But the aim is not always to look for the easy way out, by supporting education projects. We also have to work in the more complicated sectors and see how we can improve the environment there.
Some sectors are more complicated than others, like the agri-business. But if we did not intervene we would not be doing our job.
What are the specific difficulties related to supporting the private sector in these vulnerable countries?
You need great flexibility to take on the financial risk, and that is expensive. For example, in the Central African Republic, we have financed projects that were frozen during the conflict, along with the repayments that were due. We have to be able to manage these financial hazards and that has a cost.
We also have to pair our action with technical assistance, because there are very significant problems with training and skills.
Innovation can also help us in the most vulnerable countries, notably by lightening the demands on infrastructure. We cannot launch a big infrastructure project to bring a country access to electricity, only to see conflict reignite a few months later, leaving the infrastructure destroyed and taking us back to square one.
We are forced to look for more flexible models of investment. For example, improving access to “off-grid” electricity is one response.