February 21, 2008
Landing projects financed by multilateral development banks (Part I of II)
By Peter Diekmeyer
International infrastructure projects financed by multilateral development banks such as the World Bank, the Inter-American Development Bank, and the African Development Bank can be a source of lucrative opportunities. In this two part series we look at why and how some Canadian companies are landing international development work, while others are missing the boat.
CBCL, a Canadian consulting engineering firm, got its start in international development projects by doing pre-feasibility work related to expanding Uganda’s fisheries industry. While billions of dollars worth of infrastructure development contracts backed by multilateral development banks are awarded each year, pre-feasibility work generally comprises just a small portion, which too many businesses often overlook.
Suzanne Johnson, CBCL’s international coordinator, says that that is a big mistake. “There are many misconceptions about international development work,” says Johnson. “For example, although the prospect of landing large contracts is clearly enticing, companies can be far more effective if they bid on smaller jobs in fields in which they have a competitive advantage.”
Johnson should know. CBCL has done development work in close to 85 countries, 50 of which involved projects linked to international financial institutions. Johnson’s time at CBCL, as well as her previous experience working overseas with organizations such as the Canadian Armed Forces, the United Nations, the Red Cross and other NGOs has given her substantial insight into how to navigate the international infrastructure development procurement world.
For example, CBCL had previous experience working in African fisheries industry projects in both Tanzania and Eritrea, and thus acquired skills and contacts that it can use in its Uganda initiative. “If you can complete a project more efficiently, then it will often be more profitable for you, even if the dollar amounts are smaller,” says Johnson. “These projects are often very important to the countries in which they take place. But they also can provide substantial opportunities for Canadian companies that are willing to make the effort.”
The developing world: Infrastructure opportunities abound
Francois Pagé, a senior advisor in the executive director’s office at the World Bank agrees. “Canada does very well in landing these types of contracts, particularly in the consulting sector,” says Pagé. “Every year we get the statistics and we are always either fourth of fifth among the G7 nations in terms of the dollar value of contracts landed.”
International development work is big business. According to Pagé, the World Bank lent out close to $26 billion last year, mostly through its subsidiaries, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of that, between $6 billion and $7 billion was stated for infrastructure initiatives such as water projects, urban development, waste disposal systems and transportation.
That said, learning where the opportunities are is not easy. For one, although the development banks lend out money, they don’t actually assign the contracts themselves. That is done by the country government or organization that is borrowing the funds. Companies that are interested in learning more about specific contracts that are tendered for projects backed by the World Bank can check out publications such as UN Development Business and The Development Gateway, where many of these initiatives are listed.
However, according to Pagé, insiders who know the rules have a big advantage. “If you wait until the projects are announced you are probably too late,” says Pagé. “You need to find out which projects could come up that require your company’s products or expertise before they are announced. That way, when they come up for bid, you are ready.”
For World Bank sponsored initiatives, that involves deciding in which countries a firm is best suited to do work and then reading up the World Bank Country Assistance Strategy, which details the types of projects that the Bank will be backing. “You need to have a long-term strategy,” says Pagé. “These contracts almost all go out for competitive bidding so you cannot just walk in there and expect to get an order if you don’t prepare.”
The Inter-American Development Bank, which averages more than US$6 billion per year in total lending, is another key player that companies should watch out for says Laura Dorling, one of its senior counselors. As its name implies, the bank focuses exclusively on Latin American and Caribbean nations, which hold more than half of its shares. “We finance many large infra-structure projects in areas that Canadian companies are strong in such as energy and telecom,” says Dorling.
According to Dorling, the Inter-American Development Bank works with host countries to define their priorities in order to help the country grow economically and socially. Once the projects are identified, then pre-feasibility and feasibility studies, such as environmental assessments and financial forecasts are done. Then there is a tender or bidding process for the overall implementation of the development projects, which is managed by the executing agencies in the borrowing country.
However, Dorling says companies such as CBCL, which get in early, have a leg up, when the larger contracts are competed for. “If you get in while the project parameters are being set up, you will have sufficient lead time to build your team and to prepare the competitive bid that is needed if you want to be awarded work later on.”
Canadian companies missing out?
Despite the wide range of development bank sponsored international infrastructure projects that go out for competitive bidding each year, not many Canadian companies are taking advantage of them says one expert. “Some companies have done well, particularly engineering firms, consultants and companies that specialize in the environmental and water treatment fields” says Marie-Claude Erian, a Sector Advisor (Infrastructure and Environment) at Export Development Canada. “However Canadian companies are letting many opportunities slip away.”
There are many reasons for this. For one, in recent years Canadian construction companies have been reaping the benefits of a very strong domestic economy. Furthermore, infrastructure players that have looked outside Canada’s borders for growth are naturally drawn in by the close proximity of the huge American market, where demand has also been strong. In comparison, other markets can seem quite small.
Other reasons cited by businesses for their reluctance to seek international work are the costs involved with preparing the bid, the lack of access to information regarding what projects are coming up, as well as concerns, particularly among Canadian SMEs, that such projects are too big.
But CBCL’s Johnson remains optimistic. “I can understand why some people would be worried about stepping out and doing work in countries that are outside their normal comfort zone. But for those that do, it can really pay off,” says Johnston. That was especially true in the case of CBCL’s Uganda fisheries project.
As is often the case in large projects, after doing pre-feasibility work on the initiative, CBCL picked up the specialized expertise and formed important relationships with key local partners and eventually the company was also hired to do work on the project’s design, tendering and site supervision. “That’s the way it often evolves,” says Johnston. “You start small by completing contracts either as a technical advisor or study expert. But once you get your foot in the door you can then build from there.”
In Part II we will discuss strategies that Canadian companies are adopting to win international infrastructure projects financed by multilateral development banks.
For more information:
The World Bank
Projects and operations: www.worldbank.org/projects
The Inter-American Development Bank
Project Gateway: http://www.iadb.org/projects/
Procurement information: http://www.iadb.org/procurement
Business semimars: http://www.iadb.org/biz/
|© 2005 Peter Diekmeyer Communications Inc.|