IFC EAP

1. Pacific Sub-Regional Strategy IFC EAP December 2008

2. Pacific context • Challenges • 11 countries, 11 governments, 11 political-economies • The tyranny of distance: small, isolated, narrowly based economies • Extractive industries; agriculture; tourism • The ‘Arc of Instability’: several fragile post-conflict countries • Limited capacity • Intensive donor coordination • Opportunities • Historically good growth (though expected to slow through current crisis, financial sector is substantially shielded through presence of well capitalized Australian Banks; oil price fall a boon for all except PNG and Timor-Leste) • Discernable improvement in Government competence, and appreciation of private sector • High aid environment: number one development priority for Australia & New Zealand • Concrete examples exist of private sector solutions - telecommunications, aviation, power etc

3. One IFC Strategy • BEE • Financial markets • Infrastructure • High-potential sectors • Tourism • Extractive Industries • Agribusiness

4. Investment Portfolio • PNG Microfinance • Digicel PNG • Bank South Pacific (trade finance facility) • ECOM PNG • KULA II

5. Business Enabling Environment • Challenges • isolated, narrowly-based & small economies • Instabilty • Opportunities • Pacific getting more attention in IFC due to IDA country focus • scaling-up and programmatic approach • more effective program delivery mechanism under WBG banner • Initiatives • Broad BEE product coverage – regulatory simplification, investment policy and promotion, Doing Business rapid response, ADR, Industry Specific BEE • Regional approach through Pacific BEE Program • Vanuatu, Tonga, Papua New Guinea and Solomon Islands, suite of four replicable BEE interventions • A P/P Task Force in each Program country to sustain reforms • Linkages between BEE program and A2F and Tourism programs through P/P working groups • Using the Doing Business indicators to diagnose gender specific constraints and introduce reforms • Examples of other BEE interventions, eg; Timor Leste PPD, PNG Informal Economy project; Gender aspects of regulation

6. Access to Finance • Challenges • Low Capacity & small scale • Multiple donors • Opportunities • Regulatory environment little changed since independence - drive for reform • Finance sector dominated by large multinational institutions - niche for local institutions • Region-wide telecommunications revolution • Initiatives • Financial Markets Infrastructure • Credit Bureaus • Secured Transactions • Company Registries • Payments Systems • Microfinance • Mobile Phone Banking • Sustainable energy financing • Investment prospects

7. Tourism • Challenges • Critical sector for many client countries but development impeded by BEE, A2F and infrastructure constraints, as well as accessibility, instability and local capacity barriers. • Tourism investment leads exist but most ‘too small’ for IFC and/or need ‘packaging’ support. • Opportunities • Investment prospects identified • Tourism accounts for 20% of GDP and employment in Pacific (world average 10% & 8.3% respectively) • Travel demand for Pacific is increasing [1.1m 2004  1.4m 2010] • Investment prospects • Initiatives • Tourism impediments diagnostic program: seven countries (extension to two more under consideration). • Tourism reform program (forthcoming) • WHL ‘Access to Market’ projects in Timor-Leste & Solomon Islands (Samoa, Vanuatu, Fiji completed)

8. Infrastructure • Challenges • Limited private sector interest due to: • Small size of the deals/small economies • Geographic dispersion and isloation • Limited natrual resources • Opportunities • Newly formed Pacific Region Infrastructure Facility • Opportunity for IFC to provide inputs on PSP across region; identify potential infra projects • Investment prospects • Initiatives • Current active mandate ( Air Vanuatu). Process currently on hold. • Close collaboration with WB & PRIF to achieve intergration with upstream work

9. Timor-Leste • Challenges • Fragile state • Small economy – high population growth - high (youth) unemployment • Poor doing business (168/178); limited access to finance • Weak institutions; lack of capacities in public and private sector • Budget execution; low administrative capacity • Donor-heavy environment • Opportunities • GoTL reform orientation (2008 = “year of reform”) • Natural resources (petroleum fund at $3bn) • Natural assets (tourism industry) • Potential investments by GoTL and private sector (infrastructure/roads; energy; telecom; coffee) • Strategy • Field presence 2006, co-located with World Bank • Focus on a few critical areas • Public-Private Dialogue to bring government and PS together, and assist coordination • Policy dialogue (e.g Doing Business): influence and align with National Priorities • BEE (incl. tourism), A2F

10. Papua New Guinea • Challenges • GDP lags behind population growth; widespread poverty, growing law & order problems • Weak government entities; declining services; failing infrastructure • Economy narrowly based on resource extraction • Resource revenues not effectively contributing to grass roots development • High liquidity among financial insitutions, but A2F remains poor Opportunities • Relative political stability, Kina stable • Very rich resource(forestry, fisheries, minerals, oil and gas, tourism) • Good progress on GoPNG/IFC engagement on BEE, infrastructure PPP; already working with Central Bank • Private sector recognises IFC role in brokering public-private dialogue • Strategy • Field presence established Jan 2006, co-located with WB • Focus on A2F, BEE and Infrastructure • Leverage investment in A2F and ICT to strenghthen A2F impact • Partner with WB in designing and delivery of Country Assistance Stategy • Collaborate with WB in design/delivery of agriculture dev. program, leveraging IFC agribusiness investment • Scope and pursue investment opportunities in OGM, GMS, Infrastructure, Financial Markets and Agribusiness

11. Team priorities • Global/Local – continue to leverage Hong Kong/D.C expertise in support of Pacific programs and transactions • Continue roll-out of ‘new-generation’ AS programs – focus on results • BEE, A2F, Tourism , CAS • Finalise and implement ‘Pacific Initiative’ • Expand prospects pool • Enhance relationships with Australian corporates • IDA/IFC infrastructure Initiative • Plan & prepare 2nd stage AS scale-up