AM23 Preview: IFC's Makhtar Diop on tackling multiple crises simultaneously

This transcript, generated from speech recognition technology, has been edited for web readers, condensed for clarity, and may differ slightly from the audio.

Makhtar Diop: We need to really be less risk-averse when it comes to investing in developing countries, and to somewhere, somehow realise that things will not be a repeat of the past.

Linda Lacina: Welcome to Meet the Leader, a podcast where top leaders share how they are tackling the world's toughest challenges. Today's leader: Makhtar Diop, Managing Director of the International Finance Corporation. He'll talk about the economy in 2023, innovative financing to tackle the food crisis and what he hopes moves forward at this year’s Annual Meeting in Davos, Switzerland.

Subscribe to Meet the Leader on Apple, Spotify, and wherever you get your favourite podcasts. And please take a moment to rate and review us. I'm Linda Lacina from the World Economic Forum, and this is Meet the Leader.

Makhtar Diop: We are entering an era where you will have important choices that society will have to make to be able to keep things sustainable, to address the issue of inclusion — which is, at the end of the day, a political question and a question that requires consensus.

Linda Lacina: The Annual Meeting is nearly here, the event like no other, one drawing leaders top leaders from business, government and civil society comes again this week to the magic mountain, as it has for more than five decades. Our last meeting had been delayed by the pandemic and was finally held in warm and sunny May, but attendees this year will find that we are back to big coats, big boots in icy and snowy January. They will also find that some of the world’s biggest problems are still stubbornly in place. Problems like economic disruption, the food crisis, an energy crisis and a pandemic that we have learned to accept but that is nowhere near eradicated. This year’s theme is “cooperation in a fragmented world,” reminding us how much we can solve together.

Makhtar Diop, managing director of the International Finance Corporation, will talk to us about an innovative funding initiative that won’t just help the millions who suffer from acute hunger or food insecurity, but a number of other overlapping crises as well, helping to leverage cooperation for a true multiplier effect. He’ll also share what themes he thinks will shape the economy this year, and the questions eladers should be asking themselves and their teams, He’ll talk about all of this, but first he’ll kick us off with more on the IFC’s (International Finance Corporation) Global Food Security Platform, what it is and why it is so important.

About the Global Food Security Platform

Makhtar Diop: This is an important initiative because it allows us to help people respond to this food crisis. The main point is that the global food crisis requires a long-term solution and not quick fixes. We need to really take that opportunity to address the structural issue faced by countries.

We know that today because of inflation, we might have more than 120 million people entering into poverty. And that will be something that will affect and slow down the growth that all these countries have made in the past year. Most of the basket consumption in the poorest countries, particularly in Africa, is linked to food.

So, when food prices are rising it affects immensely the poor. If you take that and the cost of energy, we have the two main elements which are affecting the income of the poorest. So, that's why we are trying to address the supply side of it. In fact, we can increase the production of food in part of the world that need most of it.

We have put in place an initiative, which is the Global Food Security Platform, of $6 billion, which allow us to accelerate the preparation and approval of our projects linked to food in developing countries. We are doing it to increase fertiliser supply in poor countries while are doing it to increase success to seed quality. What we are doing also is to increase trade among countries to make sure that the excess supply of food in some part of the world is made available in other parts of the world, which are immediate. It's very obvious in Africa, where unfortunately inter-Africa trade doesn't have all the financial means to be able to sustain the level of exchange that are needed to be able to address those issues.

So, this is what we are doing, and already we have committed in the last three quarters one billion dollars around that, which has allowed companies to increase their production in the food supply.

Linda Lacina: Do you think that people generally maybe don't realise the power that innovative financing solutions can have on battling big problems like food insecurity?

Makhtar Diop: In fact, people don't realise that a lot of the countries where you have still a potential land available, water available are often stress countries or in conflict countries where it's not easy to attract foreign direct investment. And these countries themselves don't have a lot of savings that they can put in investment in those sectors.

So, what is the role of IFC? In IFC, we are present in all these countries. We know the reality of these countries and we can start your project, which gives confidence to investors to come and put their money. And when they do that, they realise actually the returns are very, very high when they invest in this part of the world, so they can, at the same time help addressing this crisis, the food crisis, but also get high return.

But on top of it, we are also doing it in a way which is sustainable. There is a possibility in those countries to do smart agriculture, to use renewable energy when we try to produce goods. And also, to have these countries exporting some of the critical elements needed to increase food production.

One of them is for fertiliser. Today we are working with a company in Morocco, which is one of the leaders in the world, to increase the production throughout the African continent of fertiliser in the future, using green hydrogen using fertilisers, which will allow them to have a much, a better quality in the supply of fertilisers.

But to do that, often investors want to de-risk the investment. So, we have a window at the World bank Group, which is called the private sector window, IDA, which is grant money, which is made available to de-risk, to take the first losses that some investors could have in those countries so that we incentivise them to invest in agriculture, which is often a risky sector, but more importantly in countries, which are seen as fragile.

What change progress can make possible

Linda Lacina: Assuming all of these things grow and scale over maybe the next 10, 15 years? What do you think is the before and after that could be made possible? What would food insecurity look like maybe in a decade or more? How will it have helped tackle this problem?

Makhtar Diop: Most of the food that can be produced in those countries is produced in that country and is not imported. Let's give you some ideas. A big main element in the balance of payment of these countries is a deficit, is an import of food products, fertiliser, and energy products. If they didn't have a comparative advantage to produce it you can understand it, but they have a potential to produce it at a cost which is totally competitive with import.

So, it means that we’d have a much better macroeconomic situation, more reserves for these countries, but at the same time, we'll be having more income for the poorest in the society — in the society which is often located in the rural area. But also, for people living in cities with a more productive agricultural sector, you'll be able to lower the price of food and reduce the cost of living for people living in cities.

If, at the same time, in the rest of the world where countries which are producing much more like in Latin America, in Europe or in the US, people can do better on food waste and be able to have a supply chain which is much more sustainable, we will be able to feed the world and really improve people’s lives. It means life expectancy will be increasing in these poor countries. It means more kids going to school, kids improving their learning capability because they will not be hungry when they go to school.

All these are elements that we are seeing are the future that I'm seeing when we are talking about investing in the agricultural sector.

New collaborations, new solutions

Linda Lacina: One of the themes for this year's Annual Meeting is 'cooperation in a fragmented world.' How will partnerships and collaboration and cooperation need to evolve in order to really scale and grow things like your financing programme? What else needs to be put in place to make this even more successful?

Makhtar Diop: Absolutely. I think that you touched a very important point. Let me talk about what happened in the climate change space. In COP21 where I was, it was a long time ago, but in the discussion on COP21, it was mainly the public sector and NGOs. NGOs were doing advocacy and the public sector believed that they had all the solution in hands to be able to address this new crisis.

Fast forward to COP26 — we have a different picture. In Glasgow, people started realising that the level of investment and the magnitude of the challenge is such that we need to mobilise resources from the capital market for the private investors. But to do that, we realised also that they cannot do it on their own — because as I said, you need to de-risk investment. We need to attract them in places where we still have a possibility of investing in agriculture or in other sectors. That's why foundations, which are becoming an increasing part of the ecosystem have realised also that the grant that they are providing to countries are not really having the impact that it could have if they were teaming up with institutions like ours, like the capital market, like finances and de-risk their investment. So, the trend that we are seeing now is to have foundations, to have development finance institutions, to have a private sector working together and each of them trying to use what they are bringing to the table to increase overall impact. And for us, it means having more grant money to be able to de-risk investments that we'll be bringing all these sectors that are needed, being renewable energy being adoption of new technology like green hydrogen, being increasing the food supply, being increasing the industrialisation of some parts of the world.

The point that I'm making here is that the supply chain has been very disrupted during the last two, three years. We will need also to have a geographical distribution of supply chain and for lower income countries this is an opportunity to be more integrated in the world market and the world supply chain.

The global economy in 2023

Linda Lacina: When it comes to the global economy in 2023, what do you what do you think people aren't talking about nearly enough that they should be?

Makhtar Diop: We need to reinforce the conversation on trade. We have seen a tendency to increase non-tariff barriers in the world, and that creates a situation where the lower income countries, the poorest of the world, are not benefiting for the productivity growth that we have in the world. So, put again trade at the centre of what we are talking about.

Secondly, we need to take that opportunity to make some structural changes in some of those economies which have the potential of being a much bigger part of the world economy and reduce poverty. For instance, if you talk about Africa for ages people have been talking about Africa’s potential in term of agricultural production. They have water, they have arable land. That discussion has been going on for decades. Why isn’t that happening, and what can we do now, today to change this situation? What can we do to have all the production of mining products in the poorest countries, instead of them just exporting it and not having the value addition that is needed.

So those are the questions that we having now and that have been discussed. The current crisis that we are in gives us an opportunity to think about that. But lastly, we have an opportunity to do it in a very sustainable way and we are putting in a lot of effort at IFC to push the climate change agenda. One third of our investments are climate change related. So, it's a priority to us and we will be increasing that share. So, this is what I see: a world which is more sustainable, where we use all instruments that we have to de-risk investment and bring more investment in the poorest countries, in the more fragile countries.

And third: more trade among countries.

Concerns and hopes

Linda Lacina: As we look at this year ahead, what gives you pause? What are your areas of concern?

Makhtar Diop: Obviously conflict is an important part of the conversation. When we are in a situation of war, it’s another reality. Although the war in Ukraine, the invasion of Ukraine, is having an impact on the world economy, it's not the only conflict. We have other places where you have conflict. We need also to help countries which are receiving refugees. We have a lot of countries where you have a crisis linked to refugees, which are not spoken (about) enough. That's why we have built this partnership with UNHCR, the UN refugee institution, to be able to bring private sector investment in the camp where you have refugees, because those are very vulnerable. So, finding solutions also which are more sustainable for this situation, because I've seen an increase of internally displaced people and refugees with this conflict. So, the second is to start really — and that's the work of the politicians — to build consensus around some of the reforms that we need to be made, because we are entering an era where you will have important choices that society will have to make to be able to keep things sustainable, to address the issue of inclusion, to address the issue of inequality. That's a very specific to each country, the way that we address it, because it's at the end of the political question and a question that requires a consensus.

So, this is a question that keeps me awake at night. How each country we are working with will be able to find that equilibrium, that specific path that is relevant and is adapted to their own reality to be able to reach the targets that we have set. Last, let's not forget that we still have the SDGs as a target, and we haven't made the progress that we would like to make on the SDGs. Let's put it back the conversation at the centre of our conversation.

Linda Lacina: You talked a little bit about what keeps you up at night. What gives you hope for the next year?

Makhtar Diop: What give me hope is the resilience of people. I mean, we have seen two major and massive episodes in the invasion of Ukraine, the war. The COVID-19 crisis. All these are massive shocks that we have never, never envisaged before. And in spite of it, the world is still resilient.

I just came back from my own country, Senegal. I see how people are resilient in spite of all this. So, it means that, you know, with the right reforms and the right measures and the right coordination internationally, we can really make progress and be able to tackle them. In spite of this difficult time, some progress has been made by some countries in electricity access. But to accelerate this progress, the world needs to really put much more resources towards less advanced countries. We need to really be less risk-averse when it comes to investing in developing countries and somewhere somehow realise that things will not be a repeat of the past.

This crisis is an opportunity to change fundamentally and structurally the role of some of the countries in the world economy and to make sure that developing countries are an integral part of the supply chain and are given opportunity to increase the value addition of the products that they are generating in the economy.

Linda Lacina: You mentioned that we're reaching an era where many leaders are going to have to make some really key choices and make some really important decisions. What do you hope that leaders prioritise at this year's Annual Meeting, and also when they go back to their businesses, their organizations, their countries — what should they be thinking about as they go and move towards those big choices?

Makhtar Diop: Now, more than ever, we need to bring the support to the less developed countries. If the more advanced countries are feeling the effect of this crisis, picture what it means for people who were already poor in those countries.

So, we have one big message: that we need to continue providing all the financial aid and support that is needed by developing countries to bring more grant money that will allow us to leverage more private sector to invest in those countries. Let's give also more access to market to those countries, and let's bring investment in the least developed countries that allow a geographical distribution of the supply chain, because there is a possibility to transform structurally economies in the least developed countries. I’m thinking about Africa, I'm thinking about South Asia, or other parts of the world.

Linda Lacina: That was Makhtar Diop. Thanks to him, and thanks so much to you for listening.

A transcript of this episode and my colleagues’ episodes, Radio Davos and the Book Club podcast, is available at wef.ch/podcasts. Our digital content team will be on the ground in Davos all week, and the podcast team will be once again recording from our beautiful booth in the nerve centre, the Congress Centre.

Listen for Meet the Leaders featuring top names from the summit, and do not miss my colleague Robin Pomeroy’s Davos Daily podcast, breaking down the can’t-miss highlights from every big session and every big name.

This episode of Meet the Leader was presented and produced by me, with Gareth Nolan driving studio production.

That’s it for now. I’m Linda Lacina with the World Economic Forum. Have a great day.