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Can You Fight Poverty With a Five-Star Hotel?

The story of how the World Bank’s investment arm hands out billions in loans to wealthy tycoons and giant multinationals in some of the world’s poorest places.

(Photo courtesy of Mövenpick Hotels & Resorts)

Jan. 4: The International Financial Corporation of the World Bank responded to this article. Read its response and our answer.

This story was co-published with Foreign Policy.

Accra is a city of choking red dust where almost no rain falls for three months at a time and clothes hung out on a line dry in 15 minutes. So the new five-star Mövenpick hotel affords a haven of sorts in Ghana’s crowded capital, with manicured lawns, amply watered vegetation, and uniformed waiters gliding poolside on roller skates to offer icy drinks to guests. A high concrete wall rings the grounds, keeping out the city’s overflowing poor who hawk goods in the street by day and the homeless who lie on the sidewalks by night.

The Mövenpick, which opened in 2011, fits the model of a modern international luxury hotel, with 260 rooms, seven floors, and 13,500 square feet of retail space displaying $2,000 Italian handbags and other wares. But it is exceptional in at least one respect: It was financed by a combination of two very different entities: a multibillion-dollar investment company largely controlled by a Saudi prince, and the poverty-fighting World Bank.

The investment company, Kingdom Holding Company, has a market value of $12 billion, and Forbes ranks its principal owner, Prince Alwaleed bin Talal, as the world’s 29th-richest person, estimating his net worth at $18 billion. The World Bank, meanwhile, contributed its part through its International Finance Corporation (IFC), set up back in 1956 to muster cheap loans and other financial support for private businesses that contribute to its planet-improving mandate. “At the World Bank, we have made the world’s most pressing development issue—to reduce global poverty—our mission,” the bank proclaims.

Why, then, did the IFC give a Saudi prince’s company an attractively priced $26 million loan to help build the Mövenpick, a hotel the prince was fully capable of financing himself? The answer is that the IFC’s portfolio of billions of dollars in loans and investments is not in fact primarily targeted at helping the impoverished. At least as important is the goal of making a profit for the World Bank.

I reached this conclusion after traveling to Ghana—in many ways typical of the more than 100 countries where the IFC works—to see firsthand the kinds of problems the World Bank’s lenders are supposed to tackle and whether their efforts are really working on the ground. I pored through thousands of pages of the bank’s publicly available reports and financial statements and talked to dozens of experts familiar with its performance in Ghana and many other countries.

In case after case, the verdict was the same: The IFC likes to work with huge corporations, funding projects these companies could finance themselves. Its partners are billionaires and massive multinationals, from oil giants like ExxonMobil to Grupo Arcor, the huge Argentine candy-maker. Its projects include not only glitzy hotels and high-end shopping malls, but also gritty gold and copper mines and oil pipelines, some of which end up benefiting the very corrupt, authoritarian regimes that the rest of the World Bank is urging to change. Nearly a quarter of the IFC’s paid-in capital from member governments—now standing at $2.4 billion—came from U.S. taxpayers, and every president in the World Bank’s 69-year history has been an American. But the United States has had little complaint with these practices, even when they have become a subject of public controversy.

Not long ago, the World Bank’s internal watchdog sharply criticized the IFC’s approach, saying it gives little more than lip service to the bank’s poverty-fighting mission. The report, a major 2011 review by the bank’s Independent Evaluation Group, found that fewer than half the IFC investments it studied involved fighting poverty. “[M]ost IFC investment projects generate satisfactory returns but do not provide evidence of identifiable opportunities for the poor to participate in, contribute to, or benefit from the economic activities that the project supports,” the report concluded. In fact, it said, only 13 percent of 500 projects studied “had objectives with an explicit focus on poor people,” and even those that did, the report found, had a “limited” impact. The IFC did not dispute the conclusions.

There is certainly need in countries like Ghana, whose per capita GDP ranks in the bottom third of the world, with life expectancy in the bottom 15 percent and infant mortality in the bottom fourth. The IFC committed about $145 million in loans and equity in Ghana just in fiscal year 2012. Yet Takyiwaa Manuh, who advises the Ghanaian government on economic development as a member of the National Development Planning Commission, told me she doesn’t think of the IFC’s investments “as fighting poverty. Just because some people are employed, it is hard to say that is poverty reduction.”

But the policies continue. Why? Tycoons and megacompanies offer relatively low risk and generally assured returns for the IFC, allowing it to reinvest the earnings in more such projects. Only a portion of this money ends up benefiting local workers, and critics contend that the IFC’s investments often work against local development needs.“The IFC’s model itself is a problem,” says Jesse Griffiths, director of the European Network on Debt and Development (Eurodad), a Belgian-based nonprofit. “The IFC undermines democracy with its piecemeal, top-down approach to development that follows the priorities of private companies.”

“We’re not saying we’re perfect,” Rashad Kaldany told me. He is a veteran IFC executive and currently its vice president for global industries. The IFC operates “at the frontier,” he said. “We know that not every project will work. It’s about trying to make a difference to the poor and about achieving financial sustainability”—twin goals that are challenging in combination.

When it comes to luxury hotels like the Mövenpick in downtown Accra, however, the IFC offers no apology for its investments, even making the case for them as an economic boon for poor countries. A January 2012 report from the World Bank says hotels “play a critical role in development as they catalyze tourism and business infrastructure,” noting its partners include such “leading” firms as luxury chains Shangri-La, Hilton, Marriott, InterContinental—and, of course, Mövenpick.

In Accra, Mary-Jean Moyo, the IFC’s in-country manager for Ghana, told me the new hotel fights poverty by creating jobs. To illustrate, she recalled how the Mövenpick’s manager “noticed that a few boys roller-skate on Sundays outside the hotel. The manager decided to hire them to work at the pool. That is development and helping local people.” How many were hired, I asked. Six, Moyo responded.

When I spoke with Stuart Chase, the Mövenpick’s manager, he told me that other kinds of investments besides the new hotel he was clearly proud of would do far more to stimulate Ghana’s economy and reduce poverty. Chase, who has lived and worked in Ghana for years,mentioned the country’s congested and potholed roads, poor electricity system, limited food supplies, and lack of trade schools. “There is no hotel school and no vocational training in the country,” he complained. As a result, all the top staff members among his 300 employees are foreign.

Besides, Accra already has close to a dozen luxury hotels. Before taking over the Mövenpick, Chase managed another nearby five-star hotel owned by Ghana’s Social Security and National Insurance Trust, the country’s pension system. So when the IFC decided to finance Prince Alwaleed’s hotel, it was entering into direct competition with the people it claims it wants to lift out of poverty. Moyo acknowledged to me that the IFC didn’t study the local hotel scene before making this investment, unlike its standard practice. “We knew the company and had another successful investment in Kingdom that made the Ghana deal attractive to us,” she said. The other investment? A $20 million deal in 2010 to help develop five luxury venues in Kenya, complete with heated swimming pools, golf courses, and organized safaris.

U.S. Sen. Patrick Leahy, a Vermont Democrat who sits on the Senate Appropriations subcommittee that has jurisdiction over U.S. participation in the World Bank, called the Ghana loan “not an appropriate use of public funds” when alerted to it by a 2011 Washington Times article. The U.S. Treasury Department, which administers American participation in the World Bank, defended the loan, telling the newspaper that the IFC package replaced funding expected from private banks that pulled out when market conditions soured, putting the entire $103 million project at risk. When I was in Accra in July, however, at least two other major hotel projects were under construction with private financing obtained in the same period. The prince’s representatives didn’t respond to requests for comment.

* * *

Luxury hotels and resorts are hardly the only IFC investments that offer at best limited prospects for serving its poverty-fighting mandate. Founded just a dozen years after the World Bank itself, the IFC has in recent years become its fastest-growing unit. It now has a staff of some 3,400 people in 103 countries and made $15 billion in loan commitments in 2012 across about 580 projects—more than double its 2006 total and a figure that’s projected to grow to about $20 billion in the next few years.

The original notion was that while the World Bank was lending directly to poor countries, the IFC would stimulate the growth of private business, entrepreneurship, and financial markets in some of those same countries by lending to and investing in for-profit corporations. The founders, notably including a General Foods executive named Robert Garner, emphasized that the IFC would participate only in projects for which “sufficient private capital is not available on reasonable terms.”

That concept has become muddied over the years, as well-heeled borrowers with excellent credit have sought to take advantage of the IFC’s relatively attractive loan terms and other investment vehicles, plus, in some cases, the cachet associated with World Bank support. The IFC’s growth got a boost in the early 1980s when it was permitted for the first time to raise money from the global capital markets by issuing bonds. More recently, its growth has accelerated as it has entered new businesses, including trade finance, derivatives, and private equity, sometimes to the annoyance of private banks with which it competes.

Today, the IFC’s booming list of business partners reads like a who’s who of giant multinational corporations: Dow Chemical, DuPont, Mitsubishi, Vodafone, and many more. It has funded fast-food chains like Domino’s Pizza in South Africa and Kentucky Fried Chicken in Jamaica. It invests in upscale shopping malls in Egypt, Ghana, the former Soviet republics, Eastern Europe, and Central Asia. It backs candy-shop chains in Argentina and Bangladesh; breweries with global beer behemoths like SABMiller and with other breweries in the Czech Republic, Laos, Romania, Russia, and Tanzania; and soft-drink distribution for the likes of Coca-Cola, PepsiCo, and their competitors in Cambodia, Ethiopia, Mali, Russia, South Sudan, Uzbekistan, and more.

The criticism of most such investments—from a broad array of academics and watchdog groups as well as local organizations in the poor countries themselves—is that they make little impact on poverty and could just as easily be undertaken without IFC subsidies. In some cases, critics contend, the projects hold back development and exacerbate poverty, not to mention subjecting affected countries to pollution and other ills.

The debate is swirling as the World Bank has a new leader, installed in July: Jim Yong Kim, an American physician who recently stepped down as president of Dartmouth College. The bank declined to make him available to comment for this article, and in his brief tenure so far, he has given little hint of his view of the IFC. In both his statement when he took office in July and on his first overseas visit, to Ghana’s neighbor to the west, Ivory Coast, he did note briefly the importance of the IFC within the World Bank Group and of the private sector to global job creation.

The IFC is also in the middle of a change in leadership. Its former head, Lars Thunell, recently completed his term, and Chinese national Jin-Yong Cai, a Goldman Sachs partner who was in charge of the firm’s Chinese banking operations, succeeded him in October. At that time, Kaldany, who had been serving as the IFC’s acting CEO, stepped back to the post of vice president for global industries.

The IFC’s operations have been the subject not only of outside criticism but of significant parts of 2011’s stinging internal report and other critiques from within the World Bank. The 2011 document, in which the bank’s Independent Evaluation Group examined the IFC’s activities over the previous decade, portrayed a profit-oriented, deal-driven organization that often fails to reach the poor, and at times may even sacrifice the poor, in a drive to earn a healthy return on its investments: “Greater effort is needed in translating the strategic intentions into actions in investment operations and advisory services to enhance IFC’s poverty focus.”

But the IFC’s money-generating strategy has at least one benefit: It sustains the jobs of the people who work for it. The “more money the IFC makes, the more the bank has [available] to invest,” says Griffiths, the director of Eurodad. “Staff is incentivized to make money.”

Francis Kalitsi, a former IFC employee who is now a managing partner at private-equity firm Serengeti Capital in Accra, has a similar view. “To get ahead, you had to book big transactions,” he recalls of his time at the IFC. “The IFC is very profit-focused. The IFC does not address poverty, and its investments rarely touch the poor.”

The IFC sets annual targets for the number, size, and types of deals employees should complete, and it awards performance bonuses for reaching these targets, according to several current and former IFC staffers. “If you don’t reach the target, you don’t get a bonus,” says Alan Moody, a former IFC manager who now works elsewhere at the World Bank. Deals often come to the IFC from private companies, not the other way around. “We choose our projects by identifying key clients and asking them what their needs are,” says the IFC’s Moyo. That means, though, that by following private companies’ priorities, the IFC makes investments that are not necessarily aligned with countries’ own development strategies.

Even if the IFC focused more of its resources on poverty, it doesn’t have a good way to track whether its work has any impact. The 2011 report—which advises that the IFC “needs to think carefully about questions such as who the poor are, where they are located, and how they can be reached”—criticizes theIFCfor lacking metrics for its investments, saying it fails to “[d]efine, monitor, and report poverty outcomes for projects.”

The IFC does not contest these criticisms. Its management responded to the evaluation group’s report by stating, “We broadly agree with [the] report’s lessons and recommendations” and conceded that the “IFC has not been consistent in stating … the anticipated poverty reduction effects of a project.” The IFC notes that it several years ago began using a Development Outcome Tracking System (DOTS) to measure the effectiveness of its projects at spurring economic development and alleviating poverty. This system, however, has drawn snickers from a number of IFC clients. They note that the DOTS ratings rely heavily on self-reporting by the recipient companies and depend to some extent on financial data for the entire firm, often with multiple divisions around the world, rather than focusing on the specific area of the IFC-funded project. Still, Kaldany expresses enthusiasm for the effort, saying it is pathbreaking and getting better.

Meanwhile, there has been little evidence of change on the ground. Everywhere I looked—in Ghana, in nearby West Africa, and globally—the IFC still seems to be giving its mandate to fight poverty short shrift.

In finance, for example, R. Yofi Grant, executive director of Databank, one of Ghana’s largest banks, told me that the IFC’s practice of providing loans at attractive terms to multinational companies “crowds out local banks and private-equity firms by taking the juiciest investments and walking away with a healthy return.”

Grant says that the IFC recently organized a $115 million financing package for global telecom giantVodafone to expand its operations in Ghana, even though six telecom companies already operate in the country. Despite such robust private investment, the IFC’s loan package for Vodafone was its second in two years. “That is not poverty reduction, and these are not frontier investments,” Grant says, referring to the IFC’s refrain that it invests where other financiers might not. “The IFC says all the right things and does all the wrong things.”

* * *

A thousand miles east of Ghana are Cameroon and Chad, which exemplify a major and highly controversial domain of IFC investment, one where the stakes are often higher than with hotels and shopping malls. That domain is energy.

As of the end of 2011, the IFC reported a $2 billion oil-and-gas portfolio, investing with 30 companies in 23 countries and, the IFC boasted, achieving “Award Winning Recognition from the Market.” But critics, including environmentalists and nonprofit groups such as the Bretton Woods Project and Christian Aid, contend that the projects often exacerbate the poverty they are supposed to alleviate. The projects, they say, frequently escalate local conflict and corruption, displace communities, disrupt livelihoods, and contribute to the emission of greenhouse gases and other pollutants.

In 2003, an independent review panel within the World Bank even recommended that the bank, including the IFC, pull out of all oil, natural gas, and coal-mining projects by 2008, saying such loans do not benefit the poor who live where the natural resources are found. But the World Bank’s board overruled these recommendations. The bank ultimately agreed to an approach that is “business as usual with marginal changes,” Emil Salim, the Indonesian officialwho led the bank’s review, told Bloomberg News in 2004. In a conference call with reporters at the time, IFC executive Kaldany said, “There was very broad consensus that we should remain engaged; we do add value.”

The example of Chad and Cameroon, however, offers a more complicated picture. In 2000, the IFC invested roughly $200 million with ExxonMobil, Chevron, and others, along with the governments of Chad and Cameroon, to support the construction of a nearly $4 billion oil-pipeline project that experts estimate will generate more than $5 billion in revenue over the 25-year life of the project from wells mainly in landlocked Chad to a port in Cameroon.

Editor's Note

The World Bank and its unit that makes loans to private businesses, the International Finance Corporation, have raised questions about ProPublica’s ethics in the reporting of this story. Specifically, they have questioned whether the reporter, freelancer Cheryl Strauss Einhorn, properly identified herself as working for ProPublica as she interviewed present or former World Bank staffers in Ghana, where much of the reporting for the article was done. We take such issues very seriously and have looked closely into the Bank’s concerns.

The matter would seem simple. ProPublica’s ethics guidelines state clearly that “we don’t misidentify or misrepresent ourselves to get a story. When we seek an interview, we identify ourselves as ProPublica journalists.” The complication in this case is that Einhorn, an experienced financial journalist who has worked for such outlets as Barron’s magazine and CNBC, is now both a freelance writer and an adjunct professor at the Columbia Business School in New York City. In reporting the story as a freelance for ProPublica, she was also gathering material that could be used in teaching her classes or in academic publishing.

Einhorn’s contacts with World Bank staff at its headquarters in Washington, D.C., seem uncontroversial. Last July 27, she emailed David Theis, a bank communications official: “I am working on a project for Pro Publica about emerging market development and the World Bank, focusing on the private sector model at the International Finance Corporation.” He guided her to other bank staffers.

The World Bank and the IFC have centered their complaints earlier in July, when Einhorn set up interviews in Ghana and then traveled there. In several instances, her emails make no reference to ProPublica, but rather focus entirely on her role at Columbia. “I teach at the Columbia Business School and am planning to travel to Accra on July 18 as part of my research on economic development issues and projects,” she wrote in one typical email.

Einhorn says that when she actually held the interviews, she orally made clear, as our policy requires, that ProPublica was involved and that she hoped to publish her work. At least some of the interviewees say that they did not hear any mention of ProPublica. We can find no written or recorded evidence to show whose memories are correct.

However, three things are clear:

Einhorn was hardly trying to keep her ProPublica connection a secret in Ghana. Emails successfully seeking interviews with top in-country officials of Coca Cola and Newmont Mining, both significant IFC clients, made clear reference to ProPublica.

Einhorn was not misrepresenting or misidentifying herself when she invoked her Columbia connection. She expects her research in Ghana to be useful in her academic role. The worst she can be accused of is having been incomplete in identifying herself – and even then, if her memory is correct, she made the ProPublica connection orally.

In any case, the interviewees didn’t ask or get agreement to make their comments not for quotation. In an era of publish or perish in academe and instant Tweeting from classrooms, it’s hard to imagine that remarks to a professor would be substantially less public than those to a reporter.

-Paul E. Steiger

The two countries are even poorer than Ghana to the west. Per capita income in Chad ranks 193rd in the world, compared with 185th place for Cameroon and 172nd for Ghana. Life expectancy at birth in Chad, at 48.7 years, is the world’s absolute worst, and the country has been ruled for the last two decades by heavy-handed dictator Idriss Déby.

“Conditions were and are a hardship and horrible,” says Peter Rosenblum, co-director of the Human Rights Institute at Columbia University, who argued that the pipeline project should demand protections for the civilian population. The bulk of the oil revenue was supposed to be set aside for food, education, health care, and infrastructure. But in the face of attacks from rebel groups supported by neighboring Sudan, and asserting a need to defend the pipeline, Déby instead channeled substantial chunks into arms purchases, bringing criticism not only from human rights groups but from the World Bank. As critics of the project had warned, the oil bonanza increased the stakes for control of the country and added to the civil strife.

What happened with Chad is not an isolated incident. Despite perennial controversies over energy and mining projects, often the subject of fierce disputes related to everything from their environmental impacts to the extent they boost authoritarian regimes, the IFC continues to invest in them extensively. Just in 2012, the IFC announced investments in mining projects for gold, copper, and diamonds in places like Mongolia, Liberia, and South Africa, as well as investments in oil and gas projects in Colombia, Ivory Coast, the Middle East, and North Africa.

Moreover, as with Chad’s Déby, the IFC continues to lend and invest in countries with heavy-handed rulers such as Syria (Bashar al-Assad) and Venezuela (Hugo Chávez). Kaldany told me there were about a dozen dictatorships, which he wouldn’t name, where the IFC would simply not do business. But then there is a second tier, where he is inclined to work. “It is a tradeoff. We can have a positive influence,” he said, referring to a recent IFC deal in now civil war-torn Syria to fund microfinance. He said the IFC is insisting on increasingly tight financial controls in such countries to ensure that the proceeds from the projects are targeted directly to the poor rather than to sustaining the dictators’ hold on power. He acknowledged that the controls in the Chad case were not nearly tight enough and that the IFC ultimately had to pull out.

The IFC’s critics see two obvious ways to fix it: dramatically overhaul its priorities or sharply reduce its funding and channel those resources toward the type of World Bank projects that more closely align with its anti-poverty mission.

Kaldany said that the IFC is seeking to increase its number of small projects, of under $5 million and tightly targeted on the poor, and to devote more attention to the poorest of the poor countries. In the most recent fiscal year, it generated 105 of the smaller projects, 20 percent of its total deals, although a much smaller percentage of its total dollar outlays. (IFC officials couldn’t immediately provide that number.)

But don’t count on a new direction. Although its new leadership has remained publicly mum, the IFC’s new chief, Cai, has told people he strongly supports its current strategy.

* * *

In Accra, not far from the new Mövenpick, the IFC’s posh offices—sporting a lawn, flowers, and private parking—sit amid a slum, surrounded by an imposing concrete wall topped by coils of barbed wire. The only paved part of the road to the IFC is directly in front of the guarded complex, which has no sign announcing its identity. The rest of the road is a winding, dusty dirt path filled with potholes and surrounded by hovels erected out of battered metal or wood.

Barefoot children sit amid goats and roving chickens, on ground dotted by garbage and litter. Women cook tiny fish strung onto sticks over an open fire, ignoring the near-100-degree temperatures. I approached them one day in July, and some of them said they had lived there for 15 years. When asked whether they knew what the World Bank is, they said no. When told that it fights poverty, many of them laughed.

“We need help, and we know there are places that help,” said one woman who was cooking as two young boys clung to her legs. “But we have never heard of them.”

Cheryl Strauss Einhorn is a financial journalist and adjunct professor at Columbia Business School.

clarence swinney

Jan. 2, 2013, 9:35 a.m.

GOOGLE—EVELYN PRINGLE TWO PART ON HILLARY FOR PRESIDENT.
BLESS HILLARY—MOST ADMIRED IN THE WORLD

Elizabeth Wheaton

Jan. 2, 2013, 10:06 a.m.

Your “editor’s note” is pretty lame.

Your ethics guidelines state unequivocally, “When we seek an interview, we identify ourselves as ProPublica journalists.” Yet you were able to cite only one email in which Einhorn identified herself in her initial contact as reporting for ProPublica; you cite “several” in which she used her connection with Columbia in seeking an interview, only making her ProPublica affiliation known when she was face-to-face with the interviewee.

Einhorn violated your guidelines, period. I would be interested to know what remedy your policy normally calls for under such circumstances.

Building hotels is not simply a matter of creating hotel emplouyees. The author should have done a more sound economic assessment, including an employment multiplier effect.

A hotel needs to be built with local labor (usually), using local materials (usually) and requires a significant amount of goods and services both in development and on-going. Then there is the overall travel and tourism market. Further, your definition that Accra has “a dozen luxury hotels” is woefully inaccurate. Any hotelier will tell you that Moevenpick is not what industry insiders would call a “luxury” brand. It may be so for Ghana, but not usually elsewhere. The majority of hotels in Accra are of average quality, and prices are quite high because there are insufficient quality hotels (until the Holiday Inn was the market leader). When you have insufficient quality hotels, you risk losing out on important travel and tourism business (conference, business meetings, leisure tourists, reasons for increased airlift, etc). Plus, some international companies may choose not to set up a presence in the city because its travel and tourism industry in insufficient for their needs.

At a time when political power continues to be transferered peacefully (for the most part), in a country that is heads above its regional neighbors in stability, tourism is one of the most important sectors to help drive economic growth. If you only have a few mid-scale (on an international scale) hotels in the market, you will not grow the sector.

I have been to Ghana many times and feel that Accra actually needs more high-quality, internationally-branded properties (there is not one single one anywhere else in the country, despite its fabulously beautiful coastline). Training and service levels will eventually filter down, but the author chooses to look only at the short-term benefits (or lack thereof) of applying a band-aid to poverty. That is the problem with most “charities”... they focus too much on immediate results rather than tackeling long-term,solutions (in a profitable way) that continue to attract more investment.

Your “editors excuse” ignores rules of academic research. If she approached the interview subject as an academic, she is bound by academic ethics. That means the subjects statements to the professor are research material and he is a human subject. That means her research methods are subject to scrutiny by the Columbia University Institutional Review Board as is required of all research involving human subjects.

Steigers fallacious claim that “it’s hard to imagine that remarks to a professor would be substantially less public than those to a reporter” boggles the mind. Has ProPublica also excused professors from IRB compliance when they’re researching other matters, or only when the human subject is connected with the World Bank.

Since it’s so difficult for Steiger to imagine the difference between talking to a journalist and talking to a professor, let’s review the Code of Federal Regulations rule on human research by institutions that accept federal money:

http://www.nsf.gov/bfa/dias/policy/docs/45cfr690.pdf

It seems ProPublica’s heroic concern for the rights of every person wears thin when it comes to certain people. The rich are always fair targets, ProPublica contends, no matter how much damage to public discourse might result from unethical attacks against that particular class.

ProPublica further offends against Society of Professional Journalist code of conduct when it “holds for moderation” comments critical of its ethical lapses.

What about investment that directly helps the poor (I mean teaching a man to fish as opposed to giving him a fish), rather than putting money into big wealthy corporations in poor places?
A sponsored project that generated self-supporting industry, local community development and sustainable trade would go much further towards creating an environment of culture, harmony and welcome for tourism than high concrete walls protecting $2000 handbags from desperately poor people with little means to rise above their poverty.
These projects are possible, and being supported in many places around the world, but rarely (never ?) with the help of big banks.

This is an example of where your money goes overseas. Ghana, like most African countries, is only suffering as a result of corruption and greed. Along with Nigeria, 45% of the population lives on $3 or less a day while its natural resources like gold and oil are kept from being developed until the foreign wealthy want to steal them at less than cheap prices that provide enough cash to pay off the national and local government. Local fishermen in Winneba are left unsupported while international boats raid the country’s waters. Any investment in Africa should include money to train the local work force which would be much better off at only $200 a month. Having the country’s population do the dirty work for 3 months while the hotel is built is no gift. It is using. The world should be ashamed.

Many of the countries that the world bank is suppose to help is so poor that they need to start with the basics-not big hotels in partnership with multinationals.  The poor do need immediate results- because they need immediate help/relief.  Once the average citizen in a country has enough to eat, a decent place to call a home, a stable government that offers protection and safety,  opportunities to educate their children, then we can expand to invest in such things as luxury hotels and shopping malls.  Let’s build hospitals, schools, let’s build good irrigation systems so farmer Joe doesn’t stand the risk of losing his crops every time it rains too much or too little.  Let’s build the things that poor people actually need- and can use.  Let’s not focus on opportunities for big banks or multinationals to make profits.  Let’s actually focus on the needs of the poor for once.  Too hard to do?

Maik Dünnbier

Jan. 2, 2013, 5:46 p.m.

Thank you for this work and for this article. I think it is important to make this public and to work hard for changes and improvements.
That the IFC gives money to the alcohol industry, for operations in low and middle income countries is just so bad, alcohol being a major factor in ill-health (HIV, Non-communicable diseases etc), and in preserving and deteriorating poverty.
Big Alcohol is one of the most corrupt and dangerous industries and should not receive such support from the World Bank.

Jawaralal Melvin

Jan. 2, 2013, 8:46 p.m.

Nice story, but it is hardly news.  Well written to good journalistic standards (but hardly top academic standards, from the sources cited), the piece is much too breathless.  The IFC’s “game” has been well known most of its existence to anyone who cared to know.  Certainly the US Treasury and the financial community—as well as the occasional international development muckraker—know all these points.  With the passage of time, new generations of journalists and academics re-discover all of the issues cited.  Nothing new here.  If the writer had documented some outright corruption or negligence on the IFC side (as opposed to the expected bad behavior in the “host” countries), that should have been brought out.  As for the contretemps re ethics, for a Pulitizer Prize winning outfit, PB needs to get serious.  The weasel-wording and defensiveness of the so-called Editor’s Note are astounding.  PB and its Board need to do a much better job than the editor of finding out Who Shot John—and doing something about it.

In Accra, not far from the new Mövenpick, the IFC’s posh offices—sporting a lawn, flowers, and private parking—sit amid a slum, surrounded by an imposing concrete wall topped by coils of barbed wire. The only paved part of the road to the IFC is directly in front of the guarded complex, which has no sign announcing its identity. The rest of the road is a winding, dusty dirt path filled with potholes and surrounded by hovels erected out of battered metal or wood.

“Barefoot children sit amid goats and roving chickens, on ground dotted by garbage and litter. Women cook tiny fish strung onto sticks over an open fire, ignoring the near-100-degree temperatures. I approached them one day in July, and some of them said they had lived there for 15 years. When asked whether they knew what the World Bank is, they said no. When told that it fights poverty, many of them laughed.

““We need help, and we know there are places that help,” said one woman who was cooking as two young boys clung to her legs. “But we have never heard of them.””
....................................
In as much as i agree with the the overall import of the story the attempt to paint Accra as poor is highly disingenuous and symptomatic of western journalists. Muvinpic is located just behind the prestigious Novotel Hotel and across the road to the National Theatre and the offices of the various Gov’t Ministries. Just around the corner is the British Council and other impressive architecture. The road is not dusty nor patched..all access routes are first class roads on asphalt. Anyone who has visited Accra knows that the attempt to paint that part of Accra as located in a dusty slum is highly disingenuous!  As someone who has traveled the world and studied in England i know what first class infrastructure is!!!

Kylie, the only way I can explain these worthless policies is as the economic version of the outdated biological Theory of Recapitulation (“ontogeny recapitulates phylogeny,” you probably heard it phrased, at some point), the idea that fetuses allegedly develop to follow their ancestors’ evolution.

In turn, we have this idea that individual and societal development must work like England.  Individuals start out poor(er) and rise through the ranks with a salary from a rich person…apparently, even when there aren’t any customers to service.

Groups (villages through countries) rise up by developing steam engines, coal power, oil power, analog computers, plastics, semi-conductors, digital computers, and networks, and it damned well better be in that order.  It’s wrong, of course.  We could improve African villages far better by giving them smartphones (and something like the Serval Project to connect them), access to Appropedia, and a few solar panels than all the aid to bring them 1920s irrigation technology.

But, I gather the goal isn’t to make people independent.  It’s to make them consumers.  If we give them 1920s technology today, we can SELL them 1930s technology tomorrow.

clarence swinney

Jan. 3, 2013, 2:19 p.m.

$1T Welfare
Fox news having a ball with that number.
Correct number is $746 Billion
Congressional Research Service has a detailed report.
FY 2008=$563B
FY 2009=$692B
FY 2010=$733B
FY 2011=$746B
+ 33% since Great Recession
Fox does not mention that tax exemptions are almost twice the 746 number.
Republicans have not presented a tax increase since 1990.
Yet! They borrowed $10,000 Billion.
Take good care of fifteen million ultra rich. Shaft seventy million.

For an article with teeth may I suggest someone do a series on the IFC loan in Nicaragua to the two largest sugar producing companies, one a huge multinational, the other owned by the largest company and family in the country.  Where it gets interesting is that the bank gave this loan despite appalling conditions and workers being ill with an incurable (in the context of Nicaragua) disease, Chronic Kidney Disease of unknown etiology.

The disease is shown unequivocally, in peer reviewed journals, to be connected to sugarcane work. The correlation is well established and independent researchers are working on causation. No one outside of the IFC or their CAO arbitration process believes the disease to not be connected most strongly to work in the cane fields.


What is most disturbing is the corruption of a formerly independent community organization that now acts as a mouthpiece for industry. 

A condition for the CAO process had been that no party talk to the media. However, throughout the process the CAO, the company, the bank, and this community organization have repeatedly talked to the media portraying a situation in which all is well.  The only group that has suffered ramifications has been the workers themselves. Speaking with independent media and/or talking to outside independent researchers brings the punishment of losing food stipends, which were gained via the CAO process, or jobs. Even worse is that now the supposed community organization threatens the families of those who are brave enough to speak out as well. 

All of this has been recorded and documented and yet the defense of those involved in the CAO process is to claim critics are paranoid, liars and worse. It’s incredibly unproductive and will not save a single life or ameliorate the basic problem of the disease itself and the work practices that exacerbate it. 

Finally, calling manual sugarcane work “gainful employment” that pays less than $250/month for sequential 7 day work weeks while causing a fatal disease is perverse at best. 

See this video for more info-

http://vimeo.com/51608183

contact: .(JavaScript must be enabled to view this email address) if you would like to help solve this problem.  We need legal researchers, public health specialists, internal medicine experts, environmental researchers to help find the exact physiological mechanism behind the disease and change policy to protect workers. We also need responsible and neutral media to independently verify our concerns.

Development initiatives cannot be mutually exclusive or carried out sequentially. They is a gap in the market for first class hotels catering for sections of the Ghanaian community as well as some tourists demanding such. This development can go alongside other initiatives like improving agriculture, fishing etc.
Is it the best use of the IFC resources? no, but obviously the IFC is also looking for returns on its investment. Exploitative? probably, but they are only milking an industry where Ghanaians entrepreneurs have not ventured in. There are many Ghanaians who can pull resources to build first class hotels such as this, but they would prefer “alternate investments”..such as invest in politics, hoping to generate returns when their preferred political party wins power. I believe its a case of misplaced priorities and you can blame the vultures who feed on this. Capitalism has always been premised on self interest

antony michael goddard

Jan. 4, 2013, 7:30 a.m.

Hotels in New York went sour for bankers after the Dominic Strauss Kahn affaire.

clarence swinney

Jan. 4, 2013, 10:31 a.m.

LOW INCOME ASSISTANCE
——————-FY 2008—-2011 (Billions)
Health————248——-339
Cash Aid———130——145
Food——————59———101
Education——-42———-66
Housing————40———46
soc services—-36———37
employment—-6————6
energy—————-3————6
total——————563———746

Dr. Amos Anyimadu

Jan. 6, 2013, 6:57 a.m.

This does not read like “award winning investigative journalism” to me. Cheryl Strauss Einhorn your condescending Orientalism on Ghana is unacceptable. The slum you refer to is Nima. It has been in existence for over one hundred years. Yes, we are poor. We do not like slums, however, as we say “little is much”. Nima provided, via Professor Keith Hart, the phrase Informal Economy. I live in and study Ghana. I very closely study the World Bank. I know some of the people you mention and have no doubt you have severely twisted what they meant. I am no World Bank lackey - https://soundcloud.com/africanext2/amos-anyimadu-on-the-role-of

Andrew Weeraratne

Jan. 7, 2013, 6:05 p.m.

Your article was fantastic. I admire your courage. It’s about time someone exposes such corruption. Glad IFC chose to respond.  It shows that at least IFC is bit more sensitive than the US government that has turned its entire foreign aid program to a massive corporate welfare program.  Both IFC and the USG aid programs do more damage to this world by turning a handful dictators even more corrupt than they are and reducing the lives of the citizens in those nations to voiceless victims.

Amitava Banerjee

Jan. 7, 2013, 11:40 p.m.

The fight against poverty in developing countries is fought on many fronts.  Some try and help the poor directly. Others try and improve the country’s macro-economic situation to make it attracting to foreign direct investment and so help create jobs to give people the opportunity to improve their lives.

Ms. Einhorn clearly has views on how poverty should be eradicated, but she does not elaborate on them in her article.  However, the title of her piece ” Can You Fight Poverty With a Five-Star Hotel?” gives some indication of her thinking and in answer to the question she posed, my answer is an unequivocal “YES!!”

Ms. Einhorn traces the genesis of the establishment of IFC and states:

“...The original notion was that while the World Bank was lending directly to poor countries, the IFC would stimulate the growth of private business, entrepreneurship, and financial markets in some of those same countries by lending to and investing in for-profit corporations….”

Nothing that she reveals in the article goes to show that IFC has strayed from that mandate.  Ghana, as documented by her, is a poor country.  The hotel was built with private money, not funds from the taxpayers of Ghana. The hotel, hopefully, will make a profit, and looking at IFC’s track record, that seems likely. And it directly provides jobs to 300 people, including 6 poor kids on roller-blades.  It is also likely to provide jobs for hundreds of local engineering and maintaince firms, taxi operators (and automobile repair shops), local food suppliers, laundry operators, tour guides—the multiplier effect that Jomili has alluded to in an earlier post.  What seems to irritate her is that some of jobs, especially at the top, has gone to foreigners, but it does not detract from the fact that thousands of local citizens will see their lives improve, because of this investment.  And if property rights and land reform comes to urban Accra, the people in the slums of Nima are sitting on land whose value is escalating rapidly.

My intention is not to run down those who are working directly with the poor—mainly civil society organizations staffed by Ghanians—who are doing very valuable work on the ground and within their communities to help the poor.  But I want to make the case that an international aid agency, based thousands of miles away in Washington DC, is also making a difference by persuading a firm owned by a Saudi prince, partnering with a German hotel management firm to come to Ghana and provide an opportunity for some poor people to have jobs and acquire new skills.

Andrew Weeraratne

Jan. 8, 2013, 9:40 a.m.

Amitava Banerjee, comments:  “...The original notion was that while the World Bank was lending directly to poor countries, the IFC would stimulate the growth of private business, entrepreneurship, and financial markets in some of those same countries by lending to and investing in for-profit corporations…. Nothing that she reveals in the article goes to show that IFC has strayed from that mandate.”
Banerjee omits a founding mandate of IFC, that Einhorn points out, which is “IFC would participate only in projects for which sufficient private capital is not available on reasonable terms.”

Let me also take the time to add, I was disappointed to read Cheryl Strauss Einhorn comparing Assad to Chavez (who was elected democratically—incidentally no Supreme Court judges appointed by his dad appointed him the President) saying that “Moreover, as with Chad’s Déby, the IFC continues to lend and invest in countries with heavy-handed rulers such as Syria (Bashar al-Assad) and Venezuela (Hugo Chávez).” 

Here Einhorn departs from her journalistic integrity, in an otherwise excellent article, to pander (as to say, I am with all you guys in the industry, after all) to the conventional wisdom often in conflict with reality.  Chavez, may not be perfect, but let’s compare him with his predecessors who ran Venezuela for the benefit of a few families.

This article seems to be the kind of easy, conspiracy-theory reporting that you usually read in mass media writing for uninformed readers. It definitely doesn’t give a nuanced picture of the situation or the impact of IFC’s investments around the world.

Personally, I didn’t understand the value of having a 5-star hotel in a developing country until after I started traveling to undeveloped cities. Then, I understood that the standard of quality for most things is fairly low. Staff are not well-trained in their jobs, paid poorly, have a high turnover, do not make high-quality products, etc. Multinationals like 5-star hotels have strict standards of quality, good training programs, employ hundreds of people, and stimulate the local supply chains. Staff trained at a 5-star hotel can leave and open their own hotel later on, applying those same standards and lessons.

An interesting study would be to compare the development impact of the $7 million in financing from IFC to help build the 5-star Serena Hotel in Kabul (about 400 staff well-trained in their stable jobs) vs. $7 million spent by USAID on any development project in Afghanistan.

Dr, Amos Anyimadu

Jan. 9, 2013, 6:37 a.m.

I would want to return to this conversation by adding some few points on the Movenpick Accra. This may add to the good argument of Amitava Banerjee, especially. The Movenpick in Accra is NOT a new hotel. In fact it is one of the first big hotels in Accra. The full name is the Movenpick Ambassador Hotel because it is a renovation of the Ambassador Hotel. The Ambassador Hotel was a gift to Ghana from the former colonial power Britain on Independence. At its height, in my personal observation, it was posher than the current Movenpick Accra. In the bad days of World Bank imposed Structural Adjustment, it was left to die, helped by bad local management. The attempt to rehabilitate it was long and hard. At some point a group said to be linked to the Palestine Liberation Organisation tried to buy it. The Ambassador Hotel was on the Divestiture List of the Government of Ghana for a very long time. Any private financial firm which may have been interested is likely to have had a lot of opportunity. When the Saudi Prince came in, he obviously appreciated this complex history and insisted, although even the political opposition at the time assured that it was not strictly necessary, that the contract be debated and approved by the Ghana National Parliament. We have had luxury hotels in Ghana for a long time. The question in the title of the article is fundamentally moot. When taken together with the layers of argument in the article it points up, as I have said before, an absolutely unacceptable, condescending Orientalism in the sense of Edward Said. I may return to the arguments concerning, narrowly the IFC. All I want to say now is that in Development we should appreciate “good enough”. As the legendary, world-beating Ghanaian musician Ebo Taylor, who played several gigs at the Arden Hall of Ambassador Hotel has said, Love and Death are on the same avenue. Life is complex. “Little is much”. To end, you may want to view my video recorded last Saturday with the superstar Ghanaian painter Brother Owusu Ankomah and Kofi Kafui Tsikata, Senior Communication Specialist of the World Bank, whose voice would definitely enhance this conversation - http://www.youtube.com/watch?v=TXhwxKoYkJc    Let me end by repeating that I have my own criticism of the World Bank Group - https://soundcloud.com/africanext2/the-world-bank-and-africa

George Paulose

Jan. 9, 2013, 4:36 p.m.

I read the article with great interest and I learned a lot about the so called organizations for the poor and International Development.  The IFC seems to have deviated drasticaly from its original charter, and now it is acting like a “me too” commercial bank.  I hope other investigative reporters will look into similar international agencies and their departure from the original intent.
I have several real experience in this field and any one would like to talk about this please contact me.
George paulose
President AMES International
.(JavaScript must be enabled to view this email address)

Andrew Weeraratne

Jan. 10, 2013, 8:09 a.m.

Can anyone provide a single case study of a nation that the World Bank, IFC, and the IMF, in their history, have helped with a permanent solution to poverty turning the nation to a developed nation? 
It appears that every time these groups get involved with a nation either the economic situation gets worse with a few people taking even a bigger share of the wealth or stays at the same miserable level with the majority left in abject and hellish poverty.  The recent incident of United Nations spreading Cholera in Haiti that never had Cholera before UN decided to help them could stand as a deadly symbol of international bureaucracies (with no vision, and even more, with lack of right leadership) getting involved in trying to help developing nations; Road to hell is paved with good intentions. 
It is either those institutions are run by bureaucrats care more about their compensation and benefits than sharing a vision to help developing nations or they are helpless since the leadership use them only as a show case to keep a well-taxpayer-funded organization going so that they have access to enough funds to funnel to whoever they want to enrich (looking at the examples, it does not look like the common man and woman that they want to enrich).
Either way we can’t blame the employees of these institutions since most have self-interest at heart, which is to make a living; however, we can be assured that organizations run in that manner will not be capable of making any change. Even if these organizations survived another 1000 years, unless they have the right leadership and the right vision, they will only be cost centers, costing hardworking taxpayers (mostly in developed nations) billions of tax dollars while they put temporary measures as a show-off while enriching a few already extremely wealthy (such as owners of 5-star hotels) increasing the income gap even further.  Since increasing income gap is the reason for most of the problems in the world, these organizations eventually add to the instability and consequential terrorism.
Idealistic leaders in developing nations (if there are any) should look to nations such as Singapore or the war ravaged nations who turned around with the help of the “Marshall plan” to use as examples to come out of poverty and become developed nations instead of looking to strategies and aid given by these institutions before they spread symbolic Cholera in poor nations.  As in the case with those nations that made the successful transition from poverty to prosperity, a genuine plan of development will require a comprehensive plan (such as a 5 or 10 year consistent plan) under an uncorrupt system.  I hope the hard working tax payers sooner than later come to realize that they are wasting their tax dollars keeping these expensive international organizations alive and speak out (that is if they can find an avenue to speak out with our Media also being taken over the by the same wealthy groups that benefit from welfare).

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