OPEC Fund for International Development

The OPEC Fund for International Development (OFID) is the intergovernmental development finance institution established in 1976 by the Member States of the Organization of the Petroleum Exporting Countries (OPEC). OFID was conceived at the Conference of the Sovereigns and Heads of State of OPEC Member Countries, which was held in Algiers, Algeria, in March 1975. A Solemn Declaration of the Conference “reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment”, and called for measures to strengthen cooperation between these countries.^[1]

OFID’s objective is to reinforce financial cooperation between OPEC Member Countries and other developing countries, by providing financial support to the latter for their socioeconomic development. The institution's central mission is to foster South-South Partnership with fellow developing countries worldwide with the aim of eradicating poverty. ^[2] OFID's headquarters are located in Vienna, Austria. The current Director-General is Suleiman Jasir Al-Herbish of Saudi Arabia.

OFID Logo

OFID headquarters

OFID Headquarters, Vienna, Austria

The OFID Headquarters (located in Vienna's first district, on the Ringstraße) was the residential palace of the Austrian Archduke Wilhelm Franz Karl. Built between 1864 and 1868 to the architectural design of Theophil von Hansen, the palace was sold to the German Order of Knights (Teutonic Order) in 1870 and used as headquarters of the Grand Master, the last of whom was Archduke Eugen. From 1894, it served as the palace of both the Grand and German Masters, acquiring the name, Palais Deutschmeister. In 1938 following the dissolution of the German Order of Knights, the building was seized by National Socialist (Nazi) Germany and, in 1942, it was handed over to the police authorities. Between 1945 and 1975, it served as headquarters of the Vienna police. After an interregnum, the building became the property of OFID.^[3]

History

Following the First OPEC Summit in Algiers, Algeria, in 1975, Member Countries expressed their commitment to assist the developing countries through a collective financial facility. As a result, in 1976, the Finance Ministers of Member Countries met and established the OPEC Special Fund, through which Member Countries would channel aid to developing countries. The OPEC Special Fund started its operations in 1976, with initial resources of about $800 million. By the end of 1977 it had extended 71 loans to 58 developing countries, and had channeled donations from its Member Countries to other development institutions, including the International Monetary Fund (IMF) Trust Fund and the International Fund for Agricultural Development (IFAD).

As a result of its successful performance, member countries decided in 1980 to convert the temporary facility into a permanent legal entity called the OPEC Fund for International Development; it became a permanent international development agency in May 1980.^[4] The latest replenishment of US$1 billion was approved in June 2011 by the institution's supreme authority, the Ministerial Council, as a direct response to the increasing needs of developing countries and the negative impact of the financial crisis on their economies.

Member Countries

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Means

OFID provides financial assistance in a number of ways, with the distribution between the different types of aid changing over time as conditions in recipient countries evolve and needs alter. The methods of funding have included:

Extending concessionary financial assistance in the form of loans for development projects and programs, balance of payments support and trade financing
Financing private-sector activities in developing countries
Providing grants in support of technical assistance, food aid, research and similar activities, and humanitarian emergency relief
Contributing to the resources of other development institutions whose work benefits developing countries
Serving as an agent of OPEC Member Countries in the international financial arena whenever collective action is deemed appropriate

Resources

OFID's resources consist of voluntary contributions made by its member countries and the accumulated reserves derived from the institution's various operations.

Beneficiaries

All developing countries, with the exception of OPEC member countries themselves, are in principle eligible for OFID assistance. The least developed countries, however, are accorded higher priority and have consequently attracted the lion's share of OFID's resources. Over the years, OFID has spread its presence to 134 countries, of which 53 are in Africa, 43 in Asia, 31 in Latin America and the Caribbean, and 7 in Europe. OFID's total approved commitments as at the end of December 2014, stood at US$17,988 million.^[6]

Operations

Focus areas

Agriculture
Education
Energy
Financial Sector
Health
Industry
Infrastructure and Mining
Multi Sectoral and Urban Development
Telecommunications
Transportation
Water Supply and Sanitation

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Public sector operations

Accounting for almost two-thirds of total, cumulative commitments, Public Sector Lending represents the main pillar of OFID’s operations. Through this window, and as of December 31, 2014, an aggregate US$11.842 million had been approved in 1,452 concessional public sector loans to 106 developing countries. In line with OFID’s founding mandate, the lion’s share of these resources has gone to the low-income nations, which continue to receive priority attention, even as the institution has broadened its scope to include more middle-income partners.

All public sector operations are co-financed with the recipient government and frequently with other donors, including the regional development banks, the specialized agencies of the UN, and, in particular, the bilateral and multilateral development agencies of OPEC Member States. In keeping with the principles of the Global Partnership for Effective Development Cooperation, OFID harmonizes its activities with sister and other organizations in order to streamline joint efforts and maximize results. In the interests of sustainability, both capacity building and institution strengthening are integral components of all OFID public sector operations. The projects themselves are demand-driven, based on the strategic priorities of the partner countries. On a cumulative basis, the water-food-energy nexus—supported by the transportation sector—had attracted 76% of all public sector lending as of end-2014.

Also included under the umbrella of the public sector is OFID’s contribution to the Heavily Indebted Poor Countries (HIPC) Initiative. OFID has supported the Initiative since its inception in 1996 and to date has provided US$281 million in debt relief to 26 HIPC countries. ^[8]

Private sector operations

The Private Sector Facility (PSF) represents an additional, complementary means through which OFID can fulfill its core mission of assisting its partner countries in their socioeconomic development. By extending loans and equity investments, quasi-equity instruments and guarantees, the PSF seeks to encourage the growth of productive private enterprise and local capital markets.

The PSF manages risk by partnering with other development finance institution's (DFIs) and commercial banks to support commercially viable, privately-owned enterprises. State-owned institutions may also be eligible, if they are commercially managed as autonomous enterprises or act as a channel of support for local private enterprises. In addition, public-private partnership projects are supported when operated on private enterprise principles. Projects selected are required to have a high developmental value, by promoting productivity, enhancing GDP growth, and supporting job creation and poverty alleviation.

By providing loans to financial intermediaries, the Facility prioritizes support for Micro, Small and Medium enterprises (MSMEs), whose activities drive economic growth and play a key role in employment generation and poverty alleviation. Around half of the Facility’s portfolio supports real economy sectors, such as agribusiness, telecoms and transport. Energy, including renewables, is a key strategic focus. The Facility is expanding its outreach and introducing new instruments to achieve a more balanced portfolio and be more responsive to partner countries’ needs.

By the end of December 2014, US$2,362.3 million had been committed in support of private entities in Africa, Asia, Latin America and Europe.^[9]

Trade Finance Facility

OFID’s Trade Finance Facility (TFF) targets transactions to facilitate import and export activities and to address working capital requirements in developing countries. The general principles guiding the Facility include developmental impact, South-South cooperation and additionality. TFF operations are available to governments, private entities, commercial banks, regional DFIs and any other institution active in an OFID partner country. OFID products include import-, export- and pre-export financing, warehouse receipt financing, SME trade support, working capital financing and unfunded risk participations. Instruments include conventional loans as well as Sharia-compliant financing facilities.

In the past year, there has been a stronger demand in the import of agricultural products such as fertilisers and seeds, prompting OFID to increase its support to exports of strategic food products from partner countries. With the decline in oil prices later in the year, a number of partner countries increased their volumes of imports. This opened up opportunities for the TFF to enhance its activities in this space. The Facility has also been expanding geographically. In addition to maintaining our strong footprint in the low-income countries, larger economies, such as the main trading middle-income countries, have become focus areas for the Facility.

By the end of December 2014, US$2,164.2 million had been approved under this facility.^[10]

Grants

OFID considers grant financing to be an important instrument of development. As such, its grant program supports initiatives aimed at enhancing livelihoods by addressing challenges in areas such as education, energy poverty, food security, public health, water supply and sanitation, which may not be directly funded through other financing windows.

OFID’s grant program includes technical assistance for small-scale social schemes, sponsorship for research and other intellectual pursuits, and emergency relief aid. In addition, OFID has set up special programs that respond to the urgent and unique challenges presented by HIV/AIDS, Palestine and energy poverty. The latter is a particular priority and complements the financing provided through other mechanisms in support of OFID’s Energy for the Poor Initiative.

As of December 31, 2014, OFID had provided some US$598.2m in outright grants across all programs, working with UN agencies and a host of international and national NGOs, among many other partners, to meet the needs of the vulnerable, marginalized and very poor.^[11]

Technical assistance

Since OFID's inception, technical assistance (TA) operations have constituted its core grant activity. TA grants are extended to national and regional development projects that aim at sustainable development and poverty reduction, and that serve the poorest segments of society, particularly those in the Least Developed Countries (LDCs). Women and children, especially, are accorded high priority. TA grants are awarded largely on the basis of the type of project and its expected outcomes, the number of beneficiaries and the recipient country’s socioeconomic situation. As of December 31, 2013, OFID had provided some $573.5 million in outright grants across all programs, working with UN agencies and a host of international and national NGOs, among many other partners, to meet the needs of vulnerable populations.^[12]

Research and similar intellectual activities

This type of assistance focuses on activities that increase South-South and North-South cooperation and enhance capacity-building, including human resource development, particularly in the LDCs. A heavy emphasis is placed on research topics and studies of particular relevance to poorer countries and on the advancement of science and technology. Human capital is enhanced through the sponsorship of seminars, training courses and workshops. ^[13]

Emergency aid

Emergency assistance from OFID is extended to help mitigate the suffering of victims of all kinds of catastrophes around the world, including OFID Member States. In the interests of sustainable development, OFID often follows up emergency assistance with conventional, low-interest loans to aid longer-term reconstruction in devastated regions. Emergency aid is channeled through specialized relief agencies, such as the IFRC, UNHCR, OCHA, and the WFP. ^[14]

Energy poverty

OFID’s special program for Energy Poverty Operations, which was established in June 2011, complements the financing provided through other mechanisms in support of the global Energy for the Poor Initiative, and focuses on the delivery of innovative, small-scale energy solutions, primarily to off-grid, rural communities.^[15]

HIV/AIDS

OFID's HIV/AIDS program was launched in June 2001 with an initial endowment of $15 million, following authorization from the Ministerial Council. Subsequent replenishments have boosted the Account to $80 million. Today, OFID is working with a broad coalition of strategic partners to fight the pandemic in over 90 countries. Interventions cover many areas, including awareness, prevention, testing and counseling, as well as care, treatment, support and vaccine development.^[16]

Palestine Grant Program

OFID has been extending assistance to Palestine since 1979. However, in response to growing and critical need, OFID took steps to intensify its operations in Palestine by setting up a special program in 2002 to accelerate the delivery of assistance. Endowed with its own resources, this program provides support to areas of long-term concern, such as basic infrastructure and essential health and social services. In times of urgent humanitarian need, it also channels emergency assistance to help deliver food, medical supplies and other items.^[17]

Contributions to other organizations

Common Fund for Commodities (CFC)

The Common Fund for Commodities (CFC) is an autonomous intergovernmental financial institution established within the framework of the United Nations. Since 1981 OFID has supported the CFC, having made available a total of US$83.6 million in support of the institution. The First Account of US$37.2 million enabled 38 least developed member countries to complete their subscriptions to the CFC First Account Capital. By the end of 2014, OFID had signed agreements with 37 of these countries.

“Under the Framework of Financial Support” and within the context of the Second Account totalling US$46.4 million, the amount of US$37.9 million has been committed in support of 57 commodity projects in 52 countries; 32 in Africa, 14 in Asia and six in Latin America. Projects eligible for financial support are commodity-focused covering the value chain from production to consumption and benefiting the poor.

International Fund for Agricultural Development (IFAD)

OFID played a significant role in the establishment of IFAD, channeling $861.1 million in contributions from OPEC member countries towards the agency’s initial capital and first replenishment. Since IFAD's creation, OPEC member states have maintained their firm support of the agency, contributing to additional replenishments of its resources. In addition, OFID itself has given a further $20 million as a special contribution from its own resources.

International Monetary Fund (IMF) Trust Fund

Via OFID, financial resources valued at $110 million were transferred by a number of OPEC member states to the IMF-administered Trust Fund which was established in May 1976. Representing profits accruing to seven of these countries from the sale of gold held on their behalf by the IMF, these resources were allocated to provide concessional balance of payments assistance to eligible low-income IMF member countries.

Energy for the Poor Initiative (EPI)

OFID is convinced that human development and energy use are intrinsically linked. Without energy to fuel industry and support business and social services such as hospitals and schools, there can be no economic or social progress. OFID believes that alleviating energy poverty is central to the achievement of the Millennium Development Goals (MDGs), and refers to the Eradication of Energy Poverty as the “9th MDG”.

At the Second Summit of OPEC in Caracas, Venezuela, in September 2000, the Heads of State and Government described poverty as “the biggest environmental tragedy” confronting the world.

In line with this position, the OPEC leaders at their Third Summit in the Kingdom of Saudi Arabia in November 2007, committed in the Riyadh Declaration to continue to align the programs of their aid institutions, including those of OFID, with the objective of achieving sustainable development and eradication of energy poverty in the developing countries.

In June 2008, the Custodian of the Two Holy Mosques, King Abdullah Bin Abdul-Aziz Al Saud of Saudi Arabia announced the Energy for the Poor Initiative and called upon OFID and the World Bank to play a leading role in development of the program.

In May 2009, the same topic was the focus of discussions at the G8 Energy Ministers Meeting in Rome. The meeting concluded with a joint statement from the G8 Energy Ministers, the European Commissioner and the Energy Ministers of several other countries, including OFID Member Countries Algeria, Indonesia, Libya, Nigeria and Saudi Arabia. In the statement, the Ministers pledged their support to initiatives to combat energy poverty, including King Abdullah’s Energy for the Poor Initiative. They also urged OFID and a number of other institutions to prepare strategies and identify financing mechanisms to develop energy networks and integrate energy markets in Africa.

In March 2010, energy poverty was again in the spotlight when in Cancun, Mexico, world energy ministers, from producing and consuming countries, met for the 12th International Energy Forum (IEF). OFID delivered a statement at a special session of the Forum devoted to the “Role of Energy in Fostering Human Development”. The statement highlighted OFID’s efforts toward the alleviation of energy poverty.

In 2010, the UN announced the decision to mark 2012 as the Year of Sustainable Energy for All (SE4ALL), an initiative that launched international efforts to achieve universal energy access by 2030. Various initiatives, most significantly, the 2012 SE4ALL global initiative, brought the world’s attention to the serious issue of energy poverty and the need to tackle this in order to meet the MDGs and eradicate poverty. Due to the significance of the energy-poverty nexus, and in order to maintain the momentum of efforts to tackle this issue, the UN General Assembly also announced a “Decade for Sustainable Energy for All” to run from 2014 to 2024, directing the international community’s attention to meeting this challenge.

Mr. Al-Herbish was appointed as one of the 39 principals in the SE4 All High-level Group. The OFID Director-General is also a member of the SE4All Advisory Board, an elite panel representing business, finance, government and civil society. These appointments were in recognition of OFID’s leading role in the global fight against energy poverty.

OFID was amongst the first institutions to address this urgent issue. As a development finance institution, OFID has been widely recognized as one of the pioneers to champion this theme in the international agenda, fighting energy poverty through the channel of its Energy for the Poor Initiative (EPI), which launched in 2008. In June 2012, the OFID Ministerial Council issued a Ministerial Declaration which states that OFID is committing a minimum of $1 billion to financing the Energy for the Poor Initiative.

OFID’s advocacy was instrumental in highlighting the vital link between energy and development. The institution has supported a number of projects that range from the construction and rehabilitation of power plants and installation of natural gas pipelines, to the construction of wind farms and solar energy systems. As of December 31, 2013, energy operations accounted for almost $3.3 billion, or 21%, of OFID’s cumulative commitments, co-financing operations in 85 countries.