FMO in 2011
When 2011 began it was expected to be the second year of recovery from the global economic crisis of 2008, but the economic outlook for both the short and long term grew more uncertain during the year as problems in the eurozone deepened.
Despite the worsening of the debt crisis in Europe and political wrangling in the US over a deficit reduction plan, the fundamentals of emerging and frontier economies, and the investment climate there, generally remained strong. Some, such as India, showed signs of overheating and were forced to apply the monetary brakes.
Some nervousness came into emerging markets during the second half of 2011 as eurozone problems deepened, the global investment mood became less bullish and concerns intensified over capital flows, commodity prices and possible contagion from developed markets.
Yet this only made FMO more relevant as western commercial banks, struggling with the quality of their portfolios and deleveraging to meet increased capital requirements, reduced their lending in emerging markets.
For 2011 as a whole, FMO can look back on a successful year in which we achieved most of our targets and key strategic objectives in terms of both financial performance and development impact.
It was the third year of our strategy centered on focus sectors. Our focus sectors of Financial institutions, Energy and Housing increased their committed portfolio sizes. We also saw growth in our activities in other sectors. Among the key market trends we observed during 2011 was the increased attention from governments and NGOs to the development impact we create. 2011 was the second in which we used quantitative indicators to detail the social and environmental impact of our projects, enabling us to make more meaningful comparisons in the years to come.
We outperformed on all our development impact targets: new commitments, new commitments in low-income countries, catalyzing more funds and average Economic Development Impact Score (EDIS).
New commitments were overall substantially stronger than in 2010, especially in the Energy sector.
We have a strategic focus on low-income countries, as agreed with the Dutch government. We have also chosen this focus because access to long-term finance is even more limited in low-income countries than in other developing countries. The share of the low-income countries of our total portfolio (excluding government funds) rose again in 2011, to 41%. This was well above our long-term target of 35%, and compares with 31% at the creation of our current strategy in 2008.
Our average EDIS was 66, above our target of 64 that we had set for each year of the current strategy. This was mainly reached through a large number of energy projects contracted in 2011, which on average have high EDIS scores.
Our operational result was above that of 2010, primarily due to higher income from our growing loan portfolio.
We initiated several innovative projects, such as a joint Development Finance Institution (DFI) sector approach in Nigeria and Bangladesh to encourage banks and regulators to create a more sustainable financial sector in their countries. On the social side, we pioneered the introduction of the Consumer Protection Principles by awarding a consumer finance client a margin discount for successfully implementing the principles in its business. We successfully completed feasibility studies on climate change mitigation initiatives.
In November, we organized a conference on boosting investment in sustainable forestry. We are one of the first DFIs to work in that area.
Mobilizing funds for our markets was a strategic focus in 2011. We placed more emphasis on finding opportunities to catalyze funds in which FMO was either joint or sole mandated lead arranger of US $50 million or more. We outperformed our target to mobilize US $500 million through syndicated loans, parallel loans and/or risk-sharing agreements. Together with experienced partners, we are exploring establishing two new investment funds for institutional investors.
Partnership is key to FMO, and last year we further formalized collaboration with German and French DFIs DEG and Proparco. We finalized preparations for establishing a joint office in Johannesburg with DEG in 2012. With both partners we set up a joint facility agreement and signed a memorandum of understanding to create a joint initiative to finance the food supply chain.
We co-led a push for the adoption of a common approach to integrating corporate governance in investments. This culminated in the leaders of 29 DFIs signing the Corporate Governance Development Framework, a set of guidelines to support sustainable economic development in emerging markets, in Washington in September 2011.
The coming year is the last of our 2009-2012 strategic period and we devoted time and effort in 2011 to reviewing our strategy. Our managers embarked on 'Journey 2020', a process to determine where FMO will be in 2020 and contemplate how we will get there. Information gathered will feed into the evolved strategy we will set in 2012.
Throughout this report, you can find case studies that clarify our activities in 2011 and provide context. The cases are not necessarily a representative selection of the portfolio or of new contracts throughout the reporting year. Cases can only be selected if they were contracted, paid out or exited during the reporting year. However, in this report, for the first time we also include some cases that were part of the annual evaluation round. This allows us to show some examples of how projects have developed five years after their start, or at exit.