Accessing Finance for Development

1. Accessing Finance for Development Ghana Investment Forum Accra 21st to 23rd May 2007 Nick Rouse

2. - FMFM

3. Frontier Markets Fund Managers –FMFM • A Fund Management Team • Managing transactions for • Emerging Africa Infrastructure Fund; and • GuarantCo • A group of multi nationals fluent in English; French; Dutch and Italian • Based in London

4. - EAIF

5. Emerging Africa Infrastructure Fund - EAIF • First dedicated debt fund for sub-Saharan Africa • Size: US$305 million, refinanced to US$360 million by the end of 2006 • Original sponsor: UK Government – DFID • 3 other European Governments joined (Sweden, Netherland, Swiss) • Debt from three development finance institutions and two private sector international banks • Public/private sector partnership • Donor aid funds leveraged private sector capital for development purposes • First multi-donor initiative by Private Infrastructure Development Group (PIDG)

7. GuarantCo • Aims at addressing failures in domestic markets to supply capital to infrastructure projects in Emerging Markets by: • providing guarantees as credit enhancement of local currency debt • supporting both: • private and municipal sectors to obtain such capital • domestic market to supply such capital

8. GuarantCo Offers • Credit enhancement products such as: • Partial Credit Guarantee to local banks to cover default risk on under-lying debt service • Liquidly guarantee • Bond guarantees • Tenor extension • Principle of risk sharing with local debt providers • Acceptance of certain local currency risks

9. TECHNICAL ASSISTANCE FACILITY - TAF

10. FMFM has access the TAF funding TAF provides grant funding to support the following activities; • Infrastructure development strategies • studies intended to guide governments on options for financing of infrastructure • Policy, regulatory and institutional reforms • advice and training on the design and implementation of specific reforms aimed at facilitating infrastructure financing by the private sector • Pioneering or pilot transactions • support for the design and implementation of particular projects or transactions that are pioneering in some important respect or reflect some measure of innovation • Capacity building • activities aimed at building government capacity and/or the capacity of local capital markets, financial institutions, and/or quasi-public enterprises

11. Infrastructure finance – hierarchy of difficulty Easy • Telecoms • Mining • Agribusiness • Power • Transport • Water Difficult

12. And how this looks in figures? Private participation in infrastructure, in Sub Saharan Africa 1990-2005 Source: Private Participation in Infrastructure Projects Database, World Bank Group

13. Infrastructure finance – Telecoms • Mainly Mobile • Well established model – Celtel worth US$3.4 billion • Operators have a full control on cash flows generation • No failure once EBITDA positive • Less risk than Developed World • No free handsets • Lower churn / competition • Financing issues: • US$ lending -v- local currency cash flows • Short Tenors – repay in five years

14. Infrastructure finance – Power • Creditworthy off-takers • Regulator not always independent or in place (political interference in tariff setting) • Affordability / subsidy availability • Fewer sponsors • Enron departed, leading to other developers retreating from the region • Current Players • Globeleq • Aldwych • Corporate • Local players • Financing issues: • US$ lending -v- local currency denominated tariffs • Long Tenors – repay in fifteen years or more

15. What do Private Investors look for • A clear and transparent legal and regulatory framework • Contracts with an appropriate risk allocation • Credit worthy off-takers • A long term sustainable market structure which: • Allows the private investors to predict cash flows, and returns • Reflects cost recovery tariffs • Stimulates collection discipline

16. What do finance providers look for • Business and policy rationale for concession • Sponsor quality and strategic commitment to business • Mitigation of completion risk • Sustainable cash flows • Incentives for equity to perform • Clear legal frame work • Involvement of domestic players: investors, lenders, commercial participants • Mitigation of environmental impacts • Transparency of procurement process

17. Which leads to a number of challenges for Governments • Transition from Public to Private Sector • Implications for existing legislation • Loan security law • Creation of regulatory framework and body • Resistance from vested interests • Past tariff history of sub-economic pricing • Tariff affordability for poor and compatibility with poverty reduction strategies • Integration of donor aid, multilateral institutions and private sector finance • Tender process versus direct negotiation

18. key success factors for private sector investment in the Infrastructure sector projects • Government • Legal protection of investors • Judiciary / regulatory independence • Transparency • Market • Adequate tariffs (cost recovery) • Customer payment discipline • Financing • Availability of long term financing • Availability of local currency financing

19. Emerging Africa Advisers Team www.emergingafricafund.com