AfDB Experience on Value Chain Financing

African Development Bank

Workshop on Enhancing Competitiveness through Value

Chain Financing

Johannesburg November 2012

AfDB Approach to Private Sector Development

Private Sector Projects Eligibility Criteria

Private Sector Financial Instruments

Private Sector Approach to Value Chain Financing

and Specific Case studies

Presentation Outline

AfDB’s Private Sector Department (OPSM)

Mandate: support to private sector development in Regional Member Countries by means of financial and technical assistance to private sector led projects and programs.

Assist African governments to improve the enabling environment for the private sector:

- Improve essential physical infrastructure (e.g. power, ICT, transportation)- Improve “soft infrastructure” (e.g. regulatory and legal frameworks, financial

sector, trade liberalization, BDS)Create catalytic and demonstration effects by assisting entrepreneurs with transactions in:

- Infrastructure (e.g. power, transportation, telecoms, water…)- Industries and Services (e.g. agribusiness, mining, oil & gas…)- Financial Institutions (e.g. banks, MFIs, insurance, leasing)

Private Sector Projects Eligibility Criteria

STRATEGIC ALIGNMENT

• Country’s economic and social priorities

• AfDB Strategic fit

COMMERCIAL VIABILITY

• Market fundamentals• Financial structure• Sponsor’s experience and

financial strength• Rate of Return

DEVELOPMENT OUTCOMES ADDITIONALITY

• Employment and gender effect

• Local content • E & S Impact• Macroeconomic resilience

• Deal structuring• Attracting commercial

investors • Political & Financial risk

mitigation

Private Sector Financial Instruments

Senior Debt

• Adapted maturities (up to 15 years)• Foreign /local currency loans• African Financing Partnership– DFI co-financing platform• A-B Syndication Program– leveraging the AfDB Preferred

Creditor Status

Guarantees• Partial risk guarantee• Partial credit guarantee

Subordinated Loans

• Subordinated , Convertible

Equity• PE funds• Direct, maximum of 25%

Technical Assistance

• Capacity building support for financial institutions • SME Linkages programs

AfDB Approach to Value Chain Finance

Core projects

Direct MSMEs

Indirect MSMEs

Direct Investment - Supporting large projects that promote linkages between commercial players and MSMEs and Smallholder Farmers

Through Intermediaries -Supporting the development of strong financial intermediaries to reach MSMES and agricultural stakeholders

AfDB Multi & Bilateral DFIs

Local FIs PE Funds

MSMES/Smallholder Farmers

EquityLoans/Guarantees/TA

LoCs/TA Equity/TA

Mauritania LeasingMauritania

• 5M USD LOC to retrocede to SMEs

CAL BankGhana

• 15M USD LOC to strengthen the SME finance division RBBD and expand the portfolio

ZANACOZambia

• 8M USD PCGF• 10 MUSD LOC• 0.25 MUSD TA grant to build

capacity for Zanaco, BDSPs, and SME associations

AfDB Support to Financial Institutions- Agriculture/SMEs Linked

Cooperative and Rural Dev. Bank

Tanzania • 8 MUSD Partial Credit Guarantee

Facility (PCGF)• 0.975 MUSD TA Grant : capacity

building (SMEs in agriculture and women-owned SMEs) and development of a credit scoring mechanism for CRDB

Banque de KigaliRwanda

• 15M USD LOC to finance SMEs in agriculture

Guaranty Trust BankNigeria

• 100M USD LOC

Ghana Oil Palm Development CieGhana

Loan: Euro 7 million (extension)Key features:• 300 direct job created• 5,000 ha outgrower scheme• 1,500 farmers

Committed: 2003

SIAT Rubber and Palm Oil PlantationGabon

Loan: Euro 10 millionKey Features:• 6,500 farmers employed• 2,000 ha outgrower scheme• Smallholders provided with extension

servicesCommitted: 2007

Lake Harvest AquacultureZimbabwe

Loan: USD 8 million Key Features:• 920 direct jobs created• Business linkages with local

farmers : USD 10 million/yearCommitted: 2011

Linking Commercial Farms and Smallholder Farmers – AfDB’s investments

Pipeline : several Palm Oil Projects USD 150 million

West Africa • Training of cooperatives• Smallholders provided with inputs, access to

credit, extension services and technical assistance

Pipeline: Integrated sugar project (sugar, cogeneration and biofuel)

USD 50 millionEast Africa

• Outgrower scheme on 3.000 ha (1,500 small and medium sized local farmers)

Agriculture Finance at Work:Ghana Palm Oil Development Company

A EUR 7 million senior loan committed in 2004, to develop the palm plantation, invest in processing facilities and develop a 5,000 ha outgrower scheme

Sustainability: first certified producer of organic palm oil in Africa.

Infrastructure: electrification, water supply, education, road establishment and maintenance.

Gender effect: women represent 30% of the permanent workforce and 80% of contract employees.

Local linkage: 8500 farmers, making it one of the biggest outgrower scheme in West Africa.

Upscaling: Some outgrowers have now emerged as medium-size entrepreneurs operating over 20-ha farm each.

AfDB Private Sector’s strategy for Agriculture

The AfDB Private Sector strategy for Agriculture is to focus on transactions which: Contribute to food security,

Feature transfer of skills and technologies,

Address the needs of local and/or regional markets,

Fosters inclusive growth with local communities through outgrower schemes and SME business linkages

Comply with the highest and most sustainable environmental and social practices.

Agricultural Focused Private Equity Funds

African Agriculture Fund PanAfrican 300 MUSD

• AfDB’s contribution: 40 MUSD• 20% of investments dedicated to SMEs• 14 MUSD TA facility to provide business

development services to SMEs• Anti-land grabbing code of conduct

AgriVie Sub-Saharan Africa 100 MUSD

• AfDB’s contribution: 15 MUSD• Focus on SMEs (12 to 15 transactions)• The key target group is outgrower farmers.

A strategic investee company will provide training and technology transfer to outgrowers farmers.

GroFin Africa Fund PanAfrican 150 MUSD

• AfDB’s contribution: 20 MUSD• Dedicated to SMEs (target of 500)• Target investments: turnover < 5 MUSD,

assets < 3 MUSD 3, less than 100 employees.

Agvance Africa PanAfrican 500 MUSD

• AfDB’s contribution: 100 MUSD• Fund of Funds which will invest in PE and

mezzanine sub-funds targeting SMEs• Embedded TA facility to provide a range of

business development services to SMEs

Getting the Conversation Started

• The AfDB is scaling up its efforts for private sector development and is looking to strengthen its partnership investors, bankers, development partners and others– Align your activities with host government’s long-term economic and

political incentives – SME Linkages and outgrower schemes are the new sustainable

paradigm. – Engagement with host communities, government, regulators and

NGOs to communicate the value that the project brings to the community is critical.

– Investors must be prepared to adopt international best practices to successfully operate in the continent.

– Consultation, compliance, inclusiveness and good CSR are the best risk mitigation tools

Thank you

For further information please visit our website: http://www.afdb.org/en/topics-and-sectors/sectors/private-sector-development/

Contact

Private Sector and Microfinance Department (OPSM) African Development Bank

Indira Campos Investment Officer, Industries and ServicesEmail: i.camposi@afdb.org

Kazuzuhiro NumasawaInvestment Officer Financial Institutions & Microfinance k.numasawa@afdb.org