Driving Growth and Delivering Services – With and Through the Market

OPEC Fund Quarterly: Initially dedicated solely to public sector operations, at the turn of the century the OPEC Fund decided to add private sector and trade finance operations to its portfolio. Why? 

Tareq Alnassar: The OPEC Fund realized that to achieve its vision of creating a world where sustainable development is a reality for all, partner country governments cannot do this alone. To fill that gap, we wanted to create a new financing window for privately or state-owned, yet commercially-run companies in partner countries, enabling the private sector to operate in areas where there were amplified economic and social development gains for the partner countries. The private sector is the engine of growth and job creation, so the OPEC Fund really had to open a dedicated financing window to complement its public sector offering. 

OFQ: What are the main characteristics of the Private Sector Department in your experience? 

TA: The Private Sector Department focuses on providing financing solutions to privately or state-owned, commercially-run entities. We offer a diverse array of financial products, including debt, equity, quasi-equity, risk sharing arrangements and Islamic finance products, making the OPEC Fund an attractive lender to clients. Financing solutions need to be adaptable and innovative to serve the private sector’s needs. 

We focus on sectors closely aligned with the OPEC Fund’s mandate and delivery of the Sustainable Development Goals (SDGs). This includes the financial sector, infrastructure and agribusiness, among others. 

The business landscape changes frequently and has changed substantially in the recent past with a rise in interest rates, soaring inflation and currency fluctuations. We have been working closely with our partners to navigate this dynamic landscape. In alignment with the OPEC Fund Food Security Action Plan, the Private Sector Department supported the agricultural and livestock business in Paraguay, through one of our financial institution partners, Banco Sudameris. 

OFQ: How did our work with the private sector develop? 

TA: The OPEC Fund’s private sector engagement has directly boosted the economies of more than 70 countries globally through its funding channels. We have committed over US$10 billion to over 600 transactions across multiple sectors and geographies. Since the start of our trade finance window in 2006, we have provided over 11,000 unfunded guarantees globally for over US$12 billion. 

OFQ: Where do we want to go from here? 

TA: The Private Sector Department is well-recognized and respected in the market. Now we would like to enhance our pipeline generation capabilities, i.e. structure our own real economy transactions, foster the OPEC Fund's catalytic impact by adding syndications to our offering and further enhance our product offering, for instance with local currency loans. With our recently established syndications function we aim to attract more partners to finance themes such as climate action [or adaptation and mitigation], micro, small and medium-sized enterprises (MSMEs), women-led or women-owned enterprises and food security. 

OFQ: How has the introduction of the Private Sector Department changed the OPEC Fund? 

TA: The Private Sector Department has been instrumental in contributing to the mandate of the OPEC Fund by providing much-needed financing for private sector borrowers in partner countries, which in most cases are not available through traditional commercial banks or the capital markets, complementing the scarce public sector resources in those countries. 

The Private Sector Department has also played a critical role in providing complementary financing in syndications of landmark projects globally. Our efficiency and value added have made us a trusted co-financer of other multilateral development banks (MDBs) and major commercial banks. 

In times of global crises, such as pandemics or financial crises, the private sector has been quick to respond with financial assistance to affected partners. This rapid response capacity underscores the OPEC Fund’s commitment to solidarity and support for its partners in times of need. Following the 2008 financial crises, the OPEC Fund1 invested in the Microfinance Enhancement Facility (MEF) with other partners (IFC, KfW, OeEB) in response to the liquidity challenges faced by microfinance institutions to provide financing to financial institutions, which support microfinance and micro enterprises globally. As of December 2022, MEF had deployed over US$2.9 billion to 312 microfinance institutions in 64 countries. 

Similarly, MDBs including the OPEC Fund established the African Recapitalization Fund to inject equity into local African banks following the 2008 financial crisis to address the capital and liquidity needs of banks. Also, at the onset of the COVID-19 pandemic, we provided financing through Bank of Maldives to local SMEs severely impacted by the pandemic under our COVID-19 response initiative. 

We also assist in the OPEC Fund’s strategic initiatives, while contributing to the sustainability of the OPEC Fund. The private sector is contributing to the operational milestones, representing 30 percent of the resources and more than 40 percent of gross revenue of the OPEC Fund. 

OFQ: What role does the private sector play in the OPEC Fund’s Strategic Framework 2030? 

TA: Supporting the private sector and trade are operational priorities for us. We have deployed this support across several key concerns such as infrastructure and human capacity building, as well as cross-cutting themes including food security and climate action. We aim to be a catalyst for sustainable economic growth with a focus on projects that not only provide financial returns but also have a substantial positive impact on local communities. We have also supported greenfield industries in our beneficiary countries; i.e. the establishment of leasing companies in Sudan and Mauritania to provide access to financial products for this untapped segment. 

Several Private Sector Department projects have won global awards and we have been able to become partners in truly impressive success stories. One outstanding example was the financing of a small leasing company in Mauritania, which the OPEC Fund has supported with equity and loans. The leasing company subsequently evolved into the commercial bank Banque Populaire de Mauritanie, which is now one of the largest banks in Mauritania. 

OFQ: The OPEC Fund has financed projects in more than 125 countries worldwide. Do you see different approaches to the private sector and its role in the national economy among the main regions Africa, Asia and Latin America & the Caribbean? 

TA: Most private sector companies that we work with are focused on solving challenges by providing financial inclusion, building infrastructure and facilitating trade. They create value and employment, generate tax revenue for the government, earn foreign currency through their export activities and act as engines of economic growth. While landscapes and operating environments differ, our approach remains always: Finding solutions for our clients. 

OFQ: Are there sectors where the private sector is particularly well-placed to deliver and – in reverse – do you see activities better served by the public sector? 

TA: The delineation between sectors where the private and public sectors are best suited to lead is crucial for efficient and sustainable development. The private sector, with its agility, innovation and capital, is particularly well-placed in areas where market mechanisms can efficiently drive growth and deliver services. Conversely, the public sector is essential in areas where public goods, equity and long-term societal welfare are the primary concerns. 

The private sector, through financial institutions, is adept at providing a range of financial services, efficiently allocating capital and managing risk. For real economy projects there are cases where a blend of private and public sector resources is required – for example in public-private partnership (PPP) structures. The OPEC Fund has experience in this respect too: In the case of the Central Térmica de Temane power plant in Mozambique the Private Sector Department financed a 450 MW power generating facility, while the Public Sector Department funded the related transmission infrastructure. 

While the private sector is pivotal in driving innovation and efficiency in many areas of the economy, the public sector plays an indispensable role in ensuring access, equity and provision of public goods. The best outcomes often emerge from leveraging the strengths of both segments to complement each other. 

OFQ: Trade is an important part of the Private Sector Department’s offering. How can the OPEC Fund further enhance and expand its activities at a time when global trade is increasingly under threat? 

TA: We see our role as integral in facilitating trade and its importance. Understanding the bottlenecks for global and regional trade in partner countries allows us to offer bespoke solutions, thus boosting trade. To date, we have facilitated over US$12 billion in support for international trade. 

The OPEC Fund is facilitating trade flows through several mechanisms, including direct financing of corporate entities and collaborating with commercial banks and other development finance institutions. The OPEC Fund shares in the risks of various trade finance products. 

The OPEC Fund has also supported its partners in short-term financing either directly or through regional and local commercial banks. We were among the first to finance the African agricultural trader, Export Trading Group (ETC Group), which also supports over 600,000 smallholder farmers in the region. 

We have also partnered with the International Islamic Trade Finance Corporation (ITFC) in financing strategic commodities into and from our beneficiary countries. The European Bank for Reconstruction and Development (EBRD) has been an inspiration for us with its Trade Facilitation Programme and a strong partner for rolling out our own trade financing activities. 

OFQ: What role can the private sector play in addressing global challenges such as climate change? How can we attract and crowd in the private sector? 

TA: We have seen an increased role of the private sector in the financing of renewable energy projects in emerging markets. Private sector financing is also driving the technological advancement required to tackle climate change such as the reduction of the production cost of solar and wind power facilities, the proliferation of e-mobility solutions, driving energy efficiency across sectors, financing electric vehicle battery storage systems and supporting hydrogen-based solutions. 

The private sector has a crucial role in developing local and regional capital markets and providing other forms of innovative financing structures to address climate change and other global development challenges. 

Together with other MDBs and led by the International Finance Corporation (IFC) we co-financed the first commercial utility-scale wind power plant in the Middle East. The 117 MW Tafila wind power plant helped Jordan diversify its energy mix and enabled the country to attract additional investments in the renewable energy sector. In 2023, we financed the first non-state wind farm in Azerbaijan sponsored by ACWA Power of Saudi Arabia. 

OFQ: What are the three main lessons learned in 25 years and what is your outlook for the next 25 years? 

TA: Our main lessons are: Be flexible, listen to your clients and adapt to their needs. Work with partners and try to align requirements as much as possible in order to increase operational efficiency and amplify development impact. 

Our goal is to help bridge the financing gap faced by private sector entities in partner countries, especially in regions where access to traditional banking and capital markets is limited. This involves providing both direct financing and encouraging other investors to contribute through resource mobilization or de-risking. We aim to further expand our geographic reach in Africa and to smaller size economies. 

The world has changed dramatically in recent years, so we need to continue to adapt to the changing business landscape. Risk, be it perceived or actual, is the main constraint to private investment in our partner countries. We need to continue working with our partners on providing solutions to manage these. We foresee our Private Sector Department operations further increasing in relevance, serving as an engine of growth and job creation across our partner countries. 

Supporting microfinance investments globally 

Country: Global 
Type: Equity 
First transaction: 2009 

The Microfinance Enhancement Facility (MEF) was created in 2009 by the International Finance Corporation, KfW Development Bank and the Development Bank of Austria in response to the financial crisis and liquidity challenges faced by microfinance institutions worldwide. 

The OPEC Fund invested US$20 million in 2009, followed by an additional US$20 million in 2014. Between 2009 and 2022, MEF invested US$2.9 billion across 312 microfinance institutions in 64 countries, reaching 740,000 end borrowers – of which 78 percent were women and 69 percent were living in rural areas.