Private Sector Private Sector Development:Development:Cooperation Cooperation

OpportunitiesOpportunities

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

OPSM Portfolio Growth (2007-09)

2009 Activities at-a-glance

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

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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

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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

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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

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

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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.

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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

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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

PSO Portfolio Risk Profile

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

Size of Loss

“Expected Loss”

Firs

t Los

s

Firs

t Los

s Gu

aran

tee

Guar

ante

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Residual AfDB RiskResidual AfDB Risk

Portfolio Guarantee to Expand LIC

Transactions

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

ProjectCompany

PublicOff-takerLenders $$

ADFGuarantee

Enhanced Private Sector Enhanced Private Sector Assistance for AfricaAssistance for Africa

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)

FAPA Approvals

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

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

FAPA Portfolio at-a-glance

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

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

African Guarantee African Guarantee FundFund

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

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

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

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

Coming InitiativesComing Initiatives

Microfinance Capacity Building Trust Fund

Background 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

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

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

Migration & Development Initiative

Background 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

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

Sustainable Energy Fund for Africa

Background 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

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