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Punching Above its Weight
Malcolm Bricknell, one of the architects of the OPEC Fund’s private sector operations, remembers the early days, reflects on what has been achieved and outlines the challenges ahead
OPEC Fund Quarterly: Why did the OPEC Fund start working in the private sector and how did the operations begin?
Malcolm Bricknell: When I joined the OPEC Fund in 1999, plans were already fairly advanced. I came from the Gulf Investment Corporation in Kuwait, where I was Vice President. I was running the capital market division and responsible for bond issuances and equity transactions. Assistant Director- General Said Aissi, who was head of operations at the OPEC Fund at that time, assembled a dedicated team to create a private sector window and hired me. His idea was to recruit people from other development finance institutions with similar approaches. He was looking at the International Finance Corporation (IFC), African Development Bank (AfDB) and similar institutions for inspiration and guidance.
OFQ: How does the private sector fit into the OPEC Fund’s development mandate?
MB: It was becoming increasingly clear that if you wanted to do development, you had to think about the private sector. It is the engine of growth, creates jobs, earns foreign currency and leads to knowledge transfer. Clearly, you need the private sector in development and this was also the direction that other development finance institutions (DFIs) were taking.
OFQ: What are some of the challenges for a DFI when setting up private sector operations for the first time?
MB: All these institutions have a mandate, they are not just there for doing business and turning a profit. In public sector operations they offer concessional loans, this means transactions where financing is granted with an interest below normal market rates as a matter of policy.
However, this means that your resources tend to get drained. Either that or you have to put a big chunk of your money into the investment portfolio, so you’re not able to reach the level of operations you want to. Essentially, you’re forced to go back to your member countries for more contributions. Some members are more willing – and able – than others to keep the tap running.
The alternatives are development operations which are basically self-financing and sustainable. That was our idea of private sector engagement. It was one of the criteria from the very beginning that our private sector lending would not be concessional.
OFQ: That was the theory. But how was the reality?
MB: One of the big challenges we faced was that we had the requirement of a so-called Agreement for Encouragement and Protection of Investment (AEPI) to be able to engage in any partner country’s private sector. It means that you will not work in a jurisdiction unless you get the same protection that they’re giving other development finance institutions. The first thing we had to do was to go to our partner countries and secure these agreements. We got a dozen countries fairly quickly — and then it just snowballed.
OFQ: And in terms of available funds?
MB: We had US$250 million allocated for a five-year period. That meant our average ticket size was only about US$5 million. So we were doing quite a lot of credit lines, which are relatively uncomplicated financial sector operations.
OFQ: Sounds pretty straightforward…
MB: Yes, but in reality we faced a number of difficulties. One was finding the right projects in the right countries. The second was execution: Executing a line of credit is relatively simple, but a real economy project can be much more complicated. The third big issue was that before the 2008/09 global financial crisis, commercial banks were very liquid and therefore creating additional value was a real challenge. When the market is flush with cash, why turn to a DFI credit with all its procedures and requirements? For us the development impact of the project was key: Projects would have to include a lot of benefits to make a real difference for all parties involved, not least the people in our partner countries where our investments were designed to support sustainable and resilient development.
OFQ: How did you overcome the initial challenges?
MB: When we started private sector operations, we were going in an entirely new direction. Doing a public sector loan is completely different from a private sector loan. There is a borrower credit risk as well as a country risk. It was a steep learning curve. But luckily we had excellent leadership and a strong, highly motivated and experienced team.
OFQ: What institutional and organizational changes did the introduction of the Private Sector Department bring about?
MB: The OPEC Fund was lucky that we had Mr. Aissi as head of operations at that time. He saw the big picture and understood that a private sector lending officer needed a different approach from a public sector counterpart. It is worth mentioning that the Public Sector Department has always been very supportive of private sector operations, especially in the early days, for example in getting the AEPI framework agreements in place.
OFQ: How did the OPEC Fund progress?
MB: The first transaction that I got involved in was an investment in Mauritania Leasing. We put in US$500,000 as an equity investment for a 10-percent stake and added a US$2.5 million loan to go with it. It was an example of how successful and important the OPEC Fund could be, because Mauritania Leasing was the first private sector leasing company in Mauritania and became incredibly successful. We built up our expertise and working practices as we progressed in executing projects. Out of this we developed our operations manual which was tailored to our goals and requirements.
OFQ: How do you see the impact of the OPEC Fund’s new strategic direction and the tapping of the capital market on its private sector operations?
MB: I’ve always been in favor of the debt program and it has not disappointed. It really put the OPEC Fund on the map of investors around the world. The inaugural bond has raised the institution’s profile, which is important for member and partner countries alike. At the same time, the scrutiny of the rating agencies will have an impact on lending operations as they monitor the portfolio risk. This has to be balanced with the OPEC Fund’s development mandate.
OFQ: Why should an investor, who wants to work in one of the least developed countries (LDC) take out a loan with the OPEC Fund?
MB: First of all, project finance in these countries is going to be quite difficult to get. I don’t know if private banks would do it and if so, perhaps not longer than two or three years. But where are you going to get a tenor of 15 years for a Least Developed Country loan? You’re going to have to work with DFIs like the OPEC Fund. I know a lot of people who say, we love working with the OPEC Fund because we have found you to be a very flexible institution. You’re one of the best institutions to work with. The OPEC Fund has gained a good reputation for being professional, responsive and cooperative.
OFQ: High praise indeed. Building on the success of the past 25 years, what should the OPEC Fund do next in the private sector? Should it be business as usual or do you advocate a more aggressive approach?
MB: I think the OPEC Fund Private Sector Department is punching above its weight and really doing well. You’ve turned being a relatively small institution into a big advantage as it allows you to act flexibly and support partners to bridge gaps in development funding.
Malcolm Bricknell
Malcolm Bricknell worked at the OPEC Fund for International Development from 1999 to 2015 where he was involved in structuring and managing the financing of private sector development projects. In his earlier career, Bricknell worked in corporate finance, arranging and executing different types of debt and equity transactions. Today he is an international liaison manager for the Modern Energy Cooking Services program, an initiative supported by the UK government to accelerate the transition from biomass to clean cooking. Bricknell holds a degree from the London School of Economics and a Master of Business Administration from Manchester Business School.
Banque Populaire de Mauritanie
Country: Mauritania
Type: Financial Institution & Equity
First transaction: 1999
The partnership began in 1999 when the OPEC Fund became a founding shareholder in Mauritanie Leasing, the predecessor to Banque Populaire de Mauritanie (BPM). Following the successful introduction of leasing operations, BPM has since evolved into a universal bank focusing predominantly on SME financing.
To date, the OPEC Fund has approved four lines of credit to BPM for on-lending to SMEs, supporting the development of new businesses and helping to create over 25,000 permanent jobs.