World Bank Violates its Own Mandate, Invests in Israeli Based Companies

February 18, 2014 by abirkopty 1 Comment

A few months ago, the International Finance Corporation (IFC), World Bank’s investment arm, made an investment in two Israeli private companies, based in Israel. This violates IFC mandate to operate only in developing countries. 

The International Finance Corporation (IFC) is the arm of the World Bank that funds the private sector in developing countries in an aim to fight poverty, as explained on its website: “IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries.” Furthermore, “IFC’s vision is that people should have the opportunity to escape poverty and improve their lives.” It provides funding in the form of loans and/or equities to companies operating in developing countries. By its mandate it cannot invest in high income countries.

That is particularly the case for Western Europe. Here is the overview of IFC operations in the region:

IFC’s Western Europe operations cover relations with 21 countries including Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Luxembourg, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom, as well as the European Union. Western Europe is an important region for IFC with Western European countries holding 31.88% of IFC capital, representing the largest IFC member if taken as a whole. Given its mandate as part of the World Bank Group, IFC does not invest in Western Europe, but rather supports the investment projects of Western European sponsors in emerging markets. (IFC’s website)

That means that the IFC could still invest in Western European companies for their operations in developing countries but not for their operations in Western Europe. 

Indeed this rule is confirmed by a search for IFC investment projects on the online search tool on the IFC website. The search returns no results for all the countries in Western Europe, with one exception: Israel. In this case, the search shows a capital investment by IFC in Kaiima Bio-Agritech, an Israeli seed-and-breeding technology company.

This investment was confirmed by the Jerusalem Post in a recent article (16.9.2013) highlighting that this was the first ever IFC investment in Israel. This was soon followed by one in another Israeli-based IT company, DiviNetwroks, that provides network operators and internet service providers (ISPs) with cloud-based broadband solutions.

The description of the project on the Kaiima’s Website or on the IFC Website confirms the breach of IFC’s own rules. Kaiima’s mission is to “help feed the world and energize it by introducing new varieties of key agricultural crops, specifically designed for sustainable agriculture, with vastly improved yields.” (Kaiima website). Furthermore, “The Company’s proposed investment plan will be used to support the scale-up of its R&D and commercial activities globally, including developing countries such as China, Kazakhstan and Mexico.” (IFC Website).

Hence, the project which is linked to the IFC funding is aimed at improving the company’s technology (that may be eventually useful for developing countries), and ability to sell its technology to developing countries. But the operations of Kaiima are all based in Israel and there is no mention that any of these new investments will be carried out in developing countries’ factories or labs. This explains why the IFC classifies the investment as an investment in Israel, in clear breach of the IFC mandate in Western Europe.

That mandate is also stated on Israel’s IFC page, “Given its mandate as part of the World Bank Group, IFC does not invest in Western Europe, but rather supports the investment projects of Israeli sponsors in emerging markets.” But in this case there is no Israeli investment in emerging markets. Rather it is an investment in Israel that may (eventually) be used in emerging markets. Following this logic, it can be said that the IFC could also invest in a Volkswagen’s factory in Germany on the account that the cars produced there will be eventually bought and driven in emerging markets.

The case with DiViNetworks, might be less straightforward than the case of Kaiima. The investment of the World Bank in DiviNetworks does not show under search results for Israel (as part of Western Europe) on the IFC’s website, rather it is classified under “WORLD” projects. However in this case too, there is no mention in project documents or on the company’s website of any investments in developing countries but rather only marketing activities in developing countries:

DiviCloud currently has points-of-presence (“PoP”) in 15 global Internet hubs and servers in more than 60 client locations in emerging markets. The Project envisages further expansion of DiviCloud footprint to over 1,000 client locations in the next three years, with the strong focus on emerging market. (IFC Website) The DiViCloud service uses DiViNetworks’ patented technology to increase Internet transmission capacities and free up congested internet connections. With deployment in 21 developing countries, the solutions lower costs and increase internet access for enterprises and consumers…The majority of DiViNetworks’ clients are located in Sub-Saharan Africa, Latin America and South East Asia. (IFC Website).

DiviNetwork’s form of presence in developing countries is unclear, but it is likely to be a presence through foreign distributors to market their products in those countries. Three pieces of information support this impression: 1) The use of the term “client” by both, Divi and IFC; 2) The IFC project does not mention any investment that the company should undertake in developing countries; and 3) “IFC will provide financing essential for the Company’s growth, expansion to new markets and development of new products” (from project description page on IFC’s website).

To summarize, it may be assumed that the main reason why both companies received the money is that they are developing technologies that will be useful to developing countries. That will probably allow a commercial (but not production) expansion in these countries. This expansion is eventual and there is nothing in the investment that makes it look as a necessary condition for the investment to take place. IFC decided to give funding regardless of whether the companies will eventually invest (not sell) in developing countries or not.

Again, let us use Volkswagen as an example of an European multinational company. The company has subsidiaries all around developing countries including production facilities and distributors. But according to its mandate, the IFC should not (and indeed does not) fund Volkswagen for its (technology or other) activities in Germany.

The use of money by an international organization whose goal is to fight global poverty to fund a company in a high income country is already perverse. If that company is in Israel, that adds insult to injury. The World Bank has often said (see for instance coverage by The Guardian) that Israeli restrictions are the major impediment to Palestinian development. So it is really puzzling that its private sector arm dodges its own rules to invest in Israel, to reward Israel for its “good development actions”.

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This article was first published on Oximity. 

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