The document discusses challenges facing private sector investment in IDA countries like Papua New Guinea and proposes establishing a Private Sector Window (PSW) to provide alternative financing solutions. It then focuses on improving coffee production in Papua New Guinea as an example. A potential solution presented is an IDA/IFC co-investment facility that would involve the IFC originating loans, IDA complementing with additional financing, and private investors crowding in to support coffee farmers through replanting and renovation efforts. This blended financing approach could provide a long term solution to meet investment needs and improve livelihoods.

2. 1
 As you know, the United Nations (UN) have recognized the pivotal role of the private sector in supporting economic
development. The 2015 “UN Third International Conference of Financing for Development” conference in Addis Ababa stressed
the importance of private capital in achieving the ambitious Sustainable Development Goals
 Over the past decade, on their own accounts, the International Development Association (IDA), the International Finance
Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) have supported over $100bn in private sector
investment in IDA countries to create an enabling environment, make complementary investments, provide guarantees, and
directly invest in the private sector
 However, there are still gaps:
– IDA countries face challenges in attracting the private sector
– Poor access to finance stymies growth of the Small and Medium Enterprise (SME) sector
– The absence of developed and viable bond and swap markets to deal with local currency risks prevents some private sector
investments from happening
– Pioneering investments in challenging environments and important sectors such as agribusiness do not happen because of the risks
involved in being a first mover
– The limitations of the private market reinsurance capacity in IDA markets restrict the size of guarantees available for transactions
where they are most needed and at pricing that keeps project costs viable.
 To accelerate support for the private sector in IDA countries and deepen collaboration across the World Bank Group (WBG), the
Management has proposed to establish a Private Sector Window (PSW) that would help IDA work more closely with IFC and
MIGA
Today, we will discuss how we can use the PSW framework to find alternative financing solutions
for coffee farmers in Papua New Guinea

3. 2
CHALLENGE
 Despite recent drops in global
food prices, food security remains
an essential development priority
 Over 900 million people around
the world are undernourished*
OBJECTIVE
 Leverage IDA resources and
private capital alongside IFC
investment and advisory
 Address the global food security
challenge
FOCUS
 Support firms which work with
smallholder supply chains
 Generate increased yields and
productivity, while meeting higher
quality and ESG standards
*Source : IEG World Bank, Growth and Productivity in Agriculture and Agribusiness
A particularly critical area of focus is agribusiness and productivity

4. 3
The majority of Papua New Guinea’s population lives in rural areas, largely
dependent on agriculture for their livelihoods. Coffee and cocoa are the main
cash crops, with half of the country’s total workforce involved in their production,
processing and sale*
Approximately 80%* of the Papua New Guinean population lives in rural areas
with agriculture accounting for about a third of the country’s GDP
However, productivity it low. This is largely due to a lack of replanting, limited
incentives for smallholder farmers, and poor access to markets. Many of the
coffee trees are now more than 40 years old, and farmers are producing far
below their potential yield
Coffee production is the backbone of the rural economy and accounts for 30% of
the total labor force*
*Source : World Bank Online Data Bank, World Development Indicators
Today we will focus on the example of agribusiness and productivity in Papua New Guinea and
explore potential improvements and financing solutions
A large-scale agricultural program is needed to boost the production

5. 4
Papua New Guinea has some of the best coffee in the world but fails to develop its potential. New machines, training for workers
and rejuvenation of coffee gardens will help the country enter the premium coffee market.
Who are the stakeholders that will benefit from an investment in the coffee production of Papua
New Guinea, and how?
Improve the livelihoods of smallholder coffee farmers, and
promote rural development and poverty reduction more
broadly
The project will support improved quality in the coffee
POTENTIAL BENEFITSTAKEHOLDER
Improving coffee production and quality can help the
country’s economy, as well as around 2.5 million people
who depend on this crop for their livelihood
Promote the adoption of certified sustainability practices
Medium to long term attractive returns
Consumers
Farmers
Private investors
Government
Environment

6. 5
 Its important to take a closer look at past experiences, to see how investment in production in different regions have directly led
to poverty reduction
 The table below shows the effect of a 1 percent increase in crop yields on poverty reduction
REGION
PERCENT OF POPULATION IN
POVERTY
NUMBER IN POVERTY
(MILLIONS)
REDUCTION IN NUMBER OF POOR IN
RELATION TO A 1 PERCENT YIELD
INCREASE (%)
East Asia 15 278 0.48
South Asia 40 522 0.48
Sub-Saharan Africa 46 291 0.72
Latin America 16 78 0.10
Middle East and North
Africa
7 21 -
Eastern Europe and Central
Asia
5 24 -
*Source : IEG World Bank, Growth and Productivity in Agriculture and Agribusiness

7. 6
The private sector is small and predominantly informal, with large skills and knowledge gaps
Apart from the weak macroeconomic and regulatory environment, domestic private investment is
constrained by a weak financial sector and large public deficits that soak up available financing
Foreign investors are reluctant to engage in the country:
 Perceived political risks, the small size of markets limiting economies of scale and discouraging
competition;
 Macroeconomic and regulatory uncertainty making business risky
 High transport costs and infrastructure bottlenecks elevating production costs
 Country risks affecting banks’ risk weighted assets that constrain available finance; and
information asymmetries and coordination problems making pioneering investments difficult
The rationales for investments in the coffee production of Papua New Guinea are strong. However,
several challenges explain why Papua New Guinea fail to attract the necessary financial flows

8. 7
As part of MicroMentor, a mentoring program for entrepreneurs of Mercy Corps, I have been advising a coffee farmer from
Papua New Guinea. His testimony illustrates perfectly the financing issues we mentioned on the previous slide:

9. 8
As part of the Private Sector Window, the IDA, IFC, and MIGA can provide the tools to deal with the issues that coffee farmers
are facing in Papua New Guinea
What are the potential financing solutions that the IDA, IFC and MIGA can deliver?
A local
currency
hedging
facility
An SME
guarantee
facility
A co-
investment
facility
A first loss
facility
A
reinsurance
arrangement
A risk
mitigation
facility

10. 9
*Source : For more details, please refer to the Roya Renovation project of the IFC and GAFSP. Information available on GAFSP website
The proposed IDA co-investments will be
blended with IFC and private capital and
will allow commercial investors to take on
additional risk, will help crowd-in private
capital to challenging markets and
sectors, and provide a demonstration
effect to other investors
The project will provide long-term loans to help
coffee farmers of Papua New Guinea replant and
renovate their farms. The project will also provide
these farmers with new coffee varieties that are
resistant and technical support to improve their
agricultural practices
Such facility has been put in place with
success in Nicaragua, providing $18m of
financing to farmers for the renovation of
coffee plantations*
 To improve coffee yields up to 3.4 times*
 To renovate 5,000 hectares of land*
 To benefit 150 coffee farmers and their 1500
employees in Nicaragua over fiver years*
 Involving public & private investors: $12m
from the IFC, $12m from the IDB, $6m from
coffee roasters and retailers Starbucks and
Atlantic*
Flexible and blended
financing
Long term solution Successful experience
A IDA/IFC co-investment facility is the best solution to meet the investment needs of coffee
farmers in Papua New Guinea. Why?

11. 10
2 31
FIRST PILLAR:
IFC
SECOND PILLAR:
IDA
THIRD PILLAR:
PRIVATE INVESTORS
The IFC would originate
loans and equity
investments
IDA would complement
IFC’s financing, with a share
of the investment
Private capital would crowd
in (Roasters and retailers)
$6mofinvestments
How would the IDA/IFC co-investment facility be implemented in Papua New Guinea?
$6mofinvestments
$3mofinvestments
Coffee farmers
$15m of investments collected