The International Finance Corp plans to conduct currency swaps in Egypt to help local firms meet their foreign exchange needs, and is considering whether to issue local currency bonds in several Middle Eastern countries to fund investments there.
"In the Middle East the challenge is not the lack of capital but the access to dollars by local banks," IFC chief executive Jin-Yong Cai said in an interview.
"Just like we did in other places globally, we'll come up with an instrument to swap dollars for local currency in Egypt. We need local currency and some other private investors need dollars. It's in a way a hedging for investments."
Some firms are finding it increasingly hard to obtain US dollars for imports, debt repayments and other purposes, after political unrest slashed the country's foreign reserves over the past two years and authorities imposed capital controls.
Cai did not elaborate on how and when the IFC, a unit of the World Bank which invests in developing the private sector in emerging economies, would conduct the swaps.
In other parts of the world, it has provided client companies with flows of hard currency and received local currency in return; the swaps have effectively transformed the companies' hard currency debts into local currency obligations.
Cai, who joined the multilateral lending body last August from Goldman Sachs (GS.N), has just ended his first official visit to the Middle East, where he met officials and private sector executives in Egypt, Jordan, Saudi Arabia and the United Arab Emirates.
He said the IFC needed local currency supplies in Middle Eastern countries to finance its projects, and would use local currency bonds as one way to obtain them.
"We're talking to governments in a few countries where we can issue local currency bonds," he said.
"In many countries there's plenty of money sitting not in use. We will sell local currency bonds and bring more investors into the capital markets. It's one way of mobilizing money into bankable projects," he added, noting that Jordan might be one suitable country for a bond issue.
Last month, the IFC issued a debut 12 billion naira (USD$75 million) Nigerian local currency bond. It also issued its first Chinese yuan-denominated discount note in the offshore yuan market.
The IFC, which has invested billions of dollars in the Middle East and North Africa since a wave of political unrest began in early 2011, sees unemployment and difficulties in mobilizing funds for projects as the main challenges facing governments.
"The region, mainly countries in transition, will not recover or restore its stability unless we start focusing on issues like huge unemployment, the infrastructure gap and economic diversification beyond energy industries," said Cai.
"The region has gone through lots of challenges and we hope very soon this upheaval will settle down and we start focusing on development."
So far during the current fiscal year, which began last July, the IFC has invested USD$1.8 billion in the Middle East and North Africa, Cai said, and it hopes to hit more than USD$2.5 billion by the end of June. This compares to USD$2.2 billion in the previous fiscal year.
"On the medium and long term, we are optimistic on the region for many reasons. The fundamentals are there — the demographics, the middle class is there and a lot of resources."
The IFC, which agreed last month to invest 75.1 million rials (USD$195 million) to bolster the capital base of Bank Muscat BMAO.OM, Oman's largest lender, is looking at other banks in the Middle East for investment, Cai said.
"We want to use those banks given our position as a shareholder to influence them to be able to deliver financial access to small to medium enterprises," he said.
"The financial services industry is a key sector we're looking at because we view our role as a catalyst, and can work together with these banks to be able to multiply every dollar into a partnership and influence."
Among its projects in the past few years, the IFC provided a USD$400 million, seven-year debt facility for Zain-Iraq, a mobile telephone company; arranged USD$450 million of financing for Egypt's Orascom Construction (OCIC.CA); and provided USD$137 million of financing for Jordan's Hikma Pharmaceuticals (HIK.L).
"In this part of the world, money is not an issue. Money is not being channeled to the right projects, or projects are not been structured into bankable projects. New governments understand the issues but the challenge is execution … at least that is what they tell us," Cai said.