Report's interview with Hans Peter Lankes, IFC’s Vice President of Economics and Private Sector Development
How do you assess Azerbaijan’s existing investment environment?
As the largest global development institution focused on the private sector in emerging markets, the International Finance Corporation (IFC) understands firsthand the private sector’s pivotal role in creating opportunities where they are needed most, in generating jobs, in driving innovation, and in changing lives. So, we welcome the progress Azerbaijan is making to improve its business environment and encourage private sector investments.
The reforms Azerbaijan has embraced have not gone unnoticed. In fact, the country is on the list of 10 economies showing the biggest improvement in performance in the last World Bank Group Doing Business Report. Released in October 2018, this report looks at the business climate in 190 economies worldwide. Azerbaijan carried out eight reforms, the highest number by an individual country. This is a very strong foundation on which to build.
What does Azerbaijan need to do to accelerate growth?
More needs to be done beyond the Doing Business reforms, such as improving the judiciary system and creating a level playing field for private companies.
An effective financial sector is key to private sector-led growth. If Azerbaijan embarks on a broad reform program with a strong private sector focus, then a robust financial sector with higher financial intermediation capacity and diversified sources of finance is critical for unleashing productivity growth and reducing fiscal costs. Market diversification, financial inclusion for the underbanked and unbanked, enhancing the credit market infrastructure, and financial disclosures are important for improving financial access for more and more small and medium enterprises (SMEs).
I believe Azerbaijan is on the verge of a new era of reforms. It is not easy to enact reforms like the ones we have seen during the last decade, and we welcome Azerbaijan’s ongoing commitment to its own reform agenda and to creating an even brighter future for its country. Be assured of IFC’s ongoing commitment to support Azerbaijan in further unleashing the power of its private sector.
One of the reasons for your visit to Azerbaijan was to attend a conference that focused on the role of impact investing. Why is that important for IFC and Azerbaijan?
Impact investing seeks to generate measurable positive social, economic, and environmental impact along financial returns. For over 60 years, IFC has been an impact investor. And we are leading an effort to improve the credibility and transparency of the impact investment market in developing countries.
We worked with a group of impact investors and other external stakeholders to develop the Operating Principles for Impact Management, what we call the Impact Principles. These set out the key elements of managing an investment portfolio for impact as well as financial returns. The Principles were launched last April in Washington and currently have over 70 Signatories. Investors who sign onto the Principles signal that they are following a disciplined, consistent, and transparent approach to impact investing. This will build confidence in the market and encourage more funds to flow into impact investments.
A growing number of investors and companies are looking to align their business models and investment strategies to achieve positive outcomes for society. For more and more investors, emerging market investments represent an asset class that can bring diversification and long-term capital-growth opportunities.
SOFAZ is one such investor, so I appreciated the opportunity to join the conference it organized on the timely topic of impact investing. In fact, SOFAZ was the first investor from an emerging market to invest in funds managed by the IFC Asset Management Company. Through this cooperation, SOFAZ can help steward Azerbaijan’s oil proceeds to benefit future generations and support development in Azerbaijan and other emerging markets. I thank SOFAZ for its commitment to our shared vision for private-sector led sustainable development and extend my congratulations on its 20th anniversary.