Asia’s recovery will be built on relief, restructuring and resilience

In the first part of this interview, Nicolas Marquier, Singapore country manager at International Finance Corporation, a member of the World Bank Group that’s focused on private-sector development in less developed countries, talked about the role of the private sector in the post-pandemic recovery in Southeast Asia.

In this second part of our conversation, he speaks about the role of Singapore as a hub for the region, the IFC’s approach to supporting the private sector across the region through the downturn and the long-term implications of an increased government role in the economy and on private sector development.

Unravel: Can you tell us about the importance of Singapore as a hub for investments in the region. In what other ways is a presence in the city-state important?

Nicolas Marquier: Singapore plays an important role in the region in this regard as a hub for financing, with a solid, well-structured capital market that has sufficient depth.

In addition to its role as a financing hub, many companies have their regional headquarters in Singapore and use it as a base to grow in the region and establish their presence in emerging markets around here. There are many sectors in which Singapore excels, be it logistics, supply chain, fintech or financial solutions. A lot of the solutions and best practices have been developed by companies here, and IFC is working with many of them to take their knowledge, solutions and financing to emerging markets.

This is typically done through direct investments. For instance, we invested $120 million in a company called LOGOS recently, a leading property player headquartered in Singapore with assets around the region. We provided debt financing for warehouses in Indonesia constructed in compliance with IFC’s green-building standards. This specific investment was a way for us to increase the availability of green and high-quality logistics infrastructure, while also supporting Indonesia’s rapidly growing e-commerce market.

Singapore is also an office where the World Bank Group comes together. As you know, IFC is a sister organisation of the World Bank and we work closely with them here. The Bank plays an important role not only in financing governments in the wider region, but also providing them with regulatory support and advice. One thing we are doing more systematically is looking at countries and sectors where we can unlock more private-sector solutions and financing by working in synergy.

Unravel: But with so many businesses themselves struggling as a result of prolonged lockdowns and subdued demand, how can the private sector cope? And can you tell us a bit about how IFC has approached this?

Mr Marquier: It is tough. A lot of businesses have or will go bankrupt through this process, and this has important repercussions. Insolvencies are expected to grow by 31% in the region this year, according to Euler Hermes, and to deal with that, we need the right frameworks. A solid insolvency framework helps you recover and resolve distressed assets and companies. That is an important piece that needs to be tackled, and IFC and the World Bank are working together in that regard.

We’re organising our response to the pandemic according to the three Rs – Relief, Restructuring and Resilient recovery. In the first phase, we launched a fast-track facility of $8 billion, which was mostly focused on helping companies impacted by the outbreak, as well as banks that were supporting trade finance at a time when the market was pretty reluctant to do that. We deployed the first $4 billion in less than six months. That was going mostly to existing clients, largely in the financial services sector and in the “real” sector.

Then there’s the restructuring phase, and that’s where the insolvency framework is important. It is about injecting equity or debt into some of our existing companies. In particular, what was different was how quickly the funds were deployed. Addressing insolvency isn’t just about investing equity where needed to prevent viable firms from going under. It’s also about putting together platforms that can go out into the markets, unburden financial institutions by taking off bad debt, and normalising the affected SMEs and individuals to allow them to be bankable again. IFC does this through investments via its Distressed Assets Recovery Program.

Finally, there’s resilient recovery. This is about implementing our strategy of creating new markets and leveraging the private sector as much as possible. We call this working upstream, which means creating projects where there are none. Often, investment banks will come in to support and market projects that are there and are bankable. We see our role as more than that; we need to create opportunities for ourselves and for the private sector to follow after us as well. We’re trying to do this across sectors, trying to open up opportunities in new areas, be it in agribusiness, logistics or health. The focus is on sectors where the private sector can play a part, but isn’t very active.

A theme that cuts through what we are trying to do across sectors is climate. Asia is particularly affected by climate change, and we are pleased to see that the economic recovery is not just about getting the GDP numbers back on track, but it is really about doing things right and trying to build back better. That’s a welcome change.

Unravel: Traditionally speaking, in this part of the world (East and Southeast Asia), we’ve seen small states – not so much politically but from an economic standpoint in terms of providing the necessary infrastructure, frameworks and the like, and while there’s been strong government support, the region’s economies have been driven by private enterprise to a large extent. But with the pandemic, and with strong government intervention across various sectors, we seem to be seeing a shift from the days of small government, at least for now. What could be the long-term implications of this, in your view, on the growth and development of the private sector?

Mr Marquier: I don’t know whether this shift towards big governments will be long-lasting, but in my view, this is a huge opportunity for reforms. Governments, quite rightly, are responding strongly to the crisis and trying to handle the situation. Whether it will last, I cannot tell.

But what is very clear is that at the moment, they have more flexibility with the population to make bold moves that they perhaps couldn’t have made before the pandemic. Some policy moves that would have been rejected outright by people prior to the pandemic could very well be accepted by them today, particularly as everyone realises the urgent need to get economies back on track, improve livelihoods and build back better.

A notable area is climate change adaptation and mitigation efforts, which were already enjoying popular support pre-pandemic. I think there’s an opportunity to go even further. A lot of polluting activities have been cut because of the pandemic, and maybe it is time to think about whether we bring them back or find more sustainable solutions.

Whether these changes stick or not is a political question, and I’m not in a position to answer that. The key, eventually, is to have all three stakeholders—governments, the private sector and the people—on the same page.