Private Sector Development: Cooperation Opportunities

1. Private Sector Development:Cooperation Opportunities

2. Introduction • OPSM’s commitment to holistic, vertically integrated development to complement growth in its lending and investment activities • OPSM has met its mandates for growth, and is increasingly seeking to enhance its products with better development support • In addition to vertical development integration, OPSM is pursuing syndicated and A/B loans modalities to recycle capital risk and increase lending in Africa

3. OPSM Portfolio Growth (2007-09)

4. 2009 Activities at-a-glance

7. Co-financing Investment Operations • AfDB’s Private Sector now aims to attract capital for co-investment into projects in Africa • OPSM’s Co-Financing Platform includes: • B-Loans with Commercial Banks • African Financing Partnership (AFP) • Parallel Financing • Bilateral Agreements • Asset Sales • Massive potential could be yielded by a first-loss guarantee scheme for OPSM’s portfolio

8. A/B Loan Structure • Commercial Banks can co-finance projects under AfDB’s B-Loan • AfDB acts as Lender-of-Record • Keeps part of the loan (the A-loan) at least 25% of total loan • Sells participations to B-loan participants • B-loan participants benefit from AfDB’s Preferred Creditor Status (“PCS”) as a Multilateral Development Bank which offers: • currency conversion / remittance of interest • Repatriation of principal • Exemption from withholding tax • Deterrent effect on : nationalisation, interference

9. A/B Lending Eligibility • Viable and commercially operated financial institutions • Institutions NOT eligible: • Banks incorporated or with head office in the country where the borrower is incorporated or the project is located • Export credit agencies (ECAs) • Governmental, quasi-governmental, or multilateral agencies • Project sponsors and off-takers • Eligible participants require an investment grade rating • In exceptional cases the AfDB may accept lower-rated or unrated participants

10. African Financing Partnership • The AFP is a collaborative co-financing platform for Private Sector project financing initially among 8 DFIs for Africa. • Each DFI will make its own independent decision on participation while maximizing synergies in co-financing. • Target Operations: complex, large projects in infrastructure, industries with efficiency gains via DFI harmonization. • An MOU has been signed endorsing ‘enhanced collaboration’ by the AFP Partners. • AFP Operational Guidelines are being formalized to create framework for DFI collaboration on project financing. • AFP website is under development

11. Parallel Co-Financing • AfDB Private Sector invites DFIs and other financial institutions to co-finance projects in Africa • AfDB is pleased to lead or to participate in transactions originated by others • Investment and discussions with other DFI’s have included: • China Development Bank • Japan International Cooperation Agency (JICA) • Japan Bank for International Cooperation (JBIC) • The OPEC Fund for International Development (OFID) • Oesterreichische Entwicklungsbank AG (OeEB) Austria • Islamic Development Bank Group • And Others

12. Bilateral Agreements • In order to enhance efficiency of operations, AfDB can consider entering into Bilateral Agreements with DFI’s for co-financing Private Sector projects. • Eligible to partners willing to co-finance similar projects in Africa. • Open to both AFP and non AFP partners who wish to form a closer relationship with AfDB. • Based on applying “commercial syndication practices” to DFIs • Benefits to the Borrower by aligning DFI practices with commercial practices.

13. Sale of Assets • In future AfDB likely to be more involved in partial sales of existing assets due to; • Need to fulfill the mandate of catalysing financing into Africa • Achievement of role in initial project financing - project can be commercially financed following the initial role of the Bank • Financial capacity constraints overall or in specific countries • Sales may be achieved by; • Participation by other commercial parties • DFI interest • Swaps in country/ sector or other exposure between DFI’s and commercial parties

14. First Loss Guarantee • Leveraging the AfDB’s private sector operations portfolio in low income countries to catalyze more private sector development • Two guarantee schemes: • Portfolio guarantee • Performance guarantee

15. PSO Portfolio Risk Profile “Expected Loss” • Portfolio guarantee covers first 10% of losses on ADB’s portfolio of private sector operations (e.g. UA 200 million on a projected PSO portfolio of UA 2 billion) • By taking “first loss” the guarantee dramatically reduces the effective risk of the portfolio and thus enables the ADB to scale up its private sector operations in LICs by 3x-4x. • The “first-loss” concept successfully used by TCX, EAIF Probability of Loss First Loss Guarantee Residual AfDB Risk Size of Loss

16. Portfolio Guarantee to Expand LIC Transactions

17. Performance Guarantee • Guarantee covers payments from public off-taker to a private sector infrastructure project • The performance guarantee would dramatically reduce the effective risk on the project • Lenders thus enabled to finance what appear to be “unbankable” PSOs • IDA has successfully used this scheme Project Company Lenders Public Off-taker $ $ ADF Guarantee

18. Enhanced Private Sector Assistance for Africa

19. Enhanced Private Sector Assistance Initiative • Launched in 2005 • Partnership with the Government of Japan • Three components: • Fund for African Private Sector Assistance (FAPA) • Accelerated Co-financing Facility for Africa (ACFA) • Loan for Non-sovereign Operations (NSL)

20. FAPA Approvals

21. Achievements to-date • Approx $42 million contributed with $26.55 million committed and $8.7 million earmarked for pipeline • 31 projects throughout Africa are receiving support • 62% of approved FAPA grants are linked to other AfDB instruments/projects • 42% of FAPA commitments to LICs, 45% to multinational projects and 13% to MICs

22. Donor & AfDB Support • Japan has contributed $32 million • AfDB Board of Governors has contributed UA 7 million • AfDB Board of Directors has shown continued and growing support for FAPA’s achievements • Indicative commitment from Austria conditional upon Multi-donor conversion

23. FAPA Portfolio at-a-glance

24. Objectives & Targets for 2010 • 20 projects committed to in 2010 for $17 million • Multi-donor conversion complete • Additional donors committed to financial support • FAPA extended beyond original five year term (2006-2010) • Projects with first disbursements before 31 October 2010 will have at least one supervision mission

25. Obstacles & Needs • $8.7 million of FAPA’s $42 million remains uncommitted and un-earmarked for pipeline • If 2010 objective of $17 million in projects is achieved, all available funding will be committed • Further commitments required to meaningfully extend FAPA beyond 2010 • Growth in volume of projects may require further human resources, particularly for supervision • Many FAPA projects are reaching mid-term implementation and require proper supervision

26. African Guarantee Fund

27. Introduction & Background • SMEs are key players for poverty reduction and meeting the MDGs in Africa • They contribute about 60% of GDP and 55% of employment • To fulfill their developmental role SMEs need increased access to finance, particularly bank credit • Strong case for scaling up aid for SME development while increasing its effectiveness • 2009: Africa Commission, appointed by Danish Prime Minister and with AfDB President Kaberuka as a member, recommended establishment of AGF to address this situation • Founding partners: AfDB, Danish Government, and IFC

28. Achievements to-date • Joint preparation process from September 2009 with AfDB as lead partner, involving Oversight Committee, Focal Point, Advisory Panel • Instruments designed: • Guarantees • Partial loan guarantees: guarantees provided to lenders to cover part of the net losses incurred on SME loans. Delivered through a portfolio approach • Portable guarantees: letters of guarantee commitment issued to lenders to raise long-term finance for SMEs. To translate into loan guarantees • Capacity development support • For financial institutions: TA to enhance lenders’ ability to do business with SMEs • For SMEs: TA to improve borrowers’ business management skills

29. Major Thrusts • Expected capital at start-up: USD 40 million • Envisaged capital after 5 years: USD 300 – 500 million • New partners needed to reach this: • Donors for junior/first-loss capital • Development finance institutions for mezzanine capital • Private investors and foundations for senior capital • Initial countries of operation: Cameroun, Ghana, Kenya, Mali, Mozambique, Senegal, Tanzania, Uganda and Zambia. • Gradual roll-out to all African countries

30. Objectives & Targets for 2010 • Registration of company expected in 2nd half 2010 • Set-up of AGF office with CEO and key staff: 2nd half 2010 • First guarantees signed: Before end 2010 • Capital increases and new partners : From 2011 onwards

31. Coming Initiatives

32. Microfinance Capacity Building Trust Fund Background Action Plan Finalization and Board approval of Multi-donor Framework Map interventions for activities after Liberia program is underway First activities in Liberia undertaken and disbursed • July 2009: establishment as a bilateral trust fund in Partnership with the Government of Spain • Oct – Dec 2009: Implementation guidelines, three year business plan and first annual work plan were drafted. UNCDF expressed interest in joining the Fund • Partners designed Liberia intervention program

33. Launch of an Inclusive Financial System - Liberia • Financial inclusion identified as key objective by AfDB & Government of Liberia • LIFS initially designed by UNDP & UNCDF • LIFS II designed to focus on micro and meso level intervention • Will partner with MCBTF • Resource needs valued at USD 30.25 million

34. Migration & Development Initiative Background Objectives Map fund transfers throughout Africa. Disseminate information to citizens of African countries abroad Assist reform of regulatory frameworks Fund and mobilize innovative financial products and intermediaries Promote productive investment in domestic SMEs • Established as a Multi-donor Partnership with the Government of France/Ministry of Migration and Integration and IFAD. • Initial Focus on North and West Africa • Areas of Intervention • Knowledge management of migrant fund flows • Improve regulations related to fund transfers • Develop new and innovative financial products • Promote Investments and Local Development

35. Sustainable Energy Fund for Africa Background Action Plan SEFA operational by end of Q3 2010 Danida Board approval in Q2 2010 Danida appraisal currently underway AfDB Board approval in Q3 2010 SEFA administrative team established by end of Q2 2010 Stakeholder workshop in Q2 2010 • Sustainable Energy identified in 2009 by Africa Commission as key contributor to private sector-led growth in Africa • Initial partnership agreed between Denmark and AfDB • Established to stimulate emerging sustainable energy market in Africa, particularly for SMEs • Production, distribution and consumption of SE • Focus on rural and peri-urban areas • Seeks to leverage additional financing