WASHINGTON, D.C., March 25—The International
Finance Corporation (IFC) has recently signed investment agreements providing
a financing package of US$1.75 million to leather tanners G&M Industrial
Co. Ltd. of Mongolia (G&M) to diversify operations to include a US$3.5
million leather garment manufacturing plant with an annual capacity of
80,000 garments. The project will be Mongolia’s first large-scale private
leather garment enterprise. It will also be IFC’s first investment in
Mongolia. As such, it is expected to have an important demonstration effect
and set the stage for similar investments in the future.
G&M will make use of its own high quality goat and sheep leather, a
skilled domestic labor force, and support from European specialists on
technology and marketing. The finished leather garments will be sold initially
to the domestic market as well as to the Russian and Chinese markets, specifically
to Siberia and Inner Mongolia. Exports to western European markets will
be developed progressively.
IFC’s financing package consists of a loan of US$1.45 million for its
own account and an equity investment of US$0.3 million, which will be 14.8%
of G&M’s share capital. The project will be implemented over a two-year
period. In addition to arranging financing, IFC has given substantial assistance
for project structuring and development and for marketing support. G&M
is a joint venture between the Mongolian sponsor, Enkhjing Co. Ltd. (which
will own 78.3% of the equity) and Testorf Trading GmbH, a German company
(which will own 6.9% of the equity). Testorf Trading GmbH is providing
technical assistance to the tannery. Since 1994, the tannery has become
a domestic market leader for high quality goat and sheep leather.
“The project will help to develop Mongolia’s emerging private sector,
and IFC’s financing is likely to be regarded as a positive signal to other
investors and financing institutions,” said IFC Vice President Carol Lee.
“By adding value to Mongolia’s livestock industry, the project promotes
the objectives of Extending IFC’s Reach Initiative. G&M is the kind
of project that IFC would like to encourage under the Initiative’s Small
Enterprise Fund (SEF), which targets small-scale investments in countries
where the scope for private enterprise is limited.”
“Extending IFC’s Reach Initiative” is a three-year pilot program, launched
in 1996, to expand the geographic range of IFC’s activities to developing
countries facing challenging conditions, limited flows of foreign investment,
and constraints to private sector activity. Sixteen countries or clusters
of countries have been selected for this program, including Mongolia, which
is transitioning from a centrally-planned to a market economy. Besides
supporting the country’s nascent private sector, IFC is also providing
substantial assistance to adapt Mongolia’s emerging legal system to the
requirements of international project financing.
A US$40 million SEF was created under Extending IFC’s Reach Initiative
to invest in projects with total costs between US$250,000 to US$5 million.
G&M is one of the first projects approved under the SEF.
IFC, a member of the World Bank Group, is the largest multilateral source
of equity and loan financing for private sector projects in developing