Mr Tim Turner - Doing Business in Africa

Doing Business in Africa

How can the AfDB help Norwegian investors?

September 2011

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Introduction…

• Historically Africa has been considered one of the riskiest continents for doing business and has therefore attracted a small share of world FDI.

• Despite the crisis, in the last decade many African countries have made significant progress in improving their business climates and investors are taking notice of the significant investment opportunities.

• The purpose of this presentation is to illustrate: – Some of the challenges/opportunities for doing business

in Africa, – How the African Development Bank can assist Norwegian

investors to achieve business success in Africa.

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This presentation is organized in 3 parts…

• Africa – challenges and opportunities

• The AfDB – your preferred business partner

• Operational Results – making things happen

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There are many good reasons why Africa has been left behind…

+ Political instability

+ Weak laws

+ Red tape

+ Corruption

= HIGH RISK

Past Obstacles

Poor infrastructure

Africa’s Energy Footprint

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… but there are good reasons to be optimistic for the future

Natural resources

+ Reduced conflict

+ Better governance

+ Strong growth

+ Untapped markets

= HIGH POTENTIAL

African Mineral DepositsWinds of Change

Solar

Geothermal

HydroAgr-energy

Agriculture

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In the second part of this presentation…

• Africa – challenges and opportunities

• The AfDB – your preferred business partner

• Operational Results

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Being Africa’s own bank gives the AfDB unique comparative advantages

Sources of Comparative Advantage

• Vast Experience – the AfDB has been active across the continent for almost 50 years.

• Broad Knowledge – the AfDB started as a public sector partner but has built a strong private sector team.

• Honest Broker – the AfDB has strong membership support from all 53 African countries.

• Financial Muscle – the AfDB has strong support from the international community reflected in its AAA credit rating.

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As a public institution the Bank has a unique business perspective

AfDB’s Business Perspective

• Public Interest – consider what is best for all stakeholdersi.e. investors, financiers, employees, suppliers, off-takers, governments, local communities, international community.

• Long-term View – consider what is best in the long-termlooking through market cycles, crises.

• Risk Taker – ready to put capital at risk in countries and sectors to lead the way for private investors.

• Development Maximizer Not Profit Maximizer – ready to spend resources to enhance overall development impact.

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Poverty reduction comes from sustainable economic growth and wealth creation

The Economic Growth System

Public Sector(sets the rules,

regulates)

Private Sector(invests, creates

wealth)

Sustainable Economic Growth

and Wealth Creation

Poverty Reduction

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The AfDB addresses private sector development (PSD) at two primary levels

• Assist African governments to improve the business enabling environment:– Improve essential “hardware” (e.g. power, ICT, transportation)– Improve “software” (e.g. regulatory and legal frameworks, financial

sector, trade liberalization, business development services)

• Create strong demonstration effect by assisting entrepreneurs to achieve success with a select number of transactions:– Infrastructure (e.g. power, transportation, telecoms, water)– Industries and Services (e.g. mining, O&G, cement, agribus, hotels)– Financial Intermediation (e.g. banks, MFIs, insurance, leasing)

The AfDB’s Private Sector Development Strategy

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The AfDB can help entrepreneurs with its unique “value-added proposition”

• Project selection track record – low loss rate (<1%)• Local knowledge – experience on the ground• Dialogue with governments – mitigate political risks• Packaging resources – market, concessional, grants, LCY• Reliable – take long-term perspective to market cycles• Scale to handle most transactions – $0.5 to US$500 million• Competitive cost – LIBOR + 2-5% generally• Intrusive – examine all aspects of the projects• Demanding – insist on a fair deal

AfDB’s Unique Value-Added Proposition

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There are 4 main criteria for the Bank’s involvement in a project

Criteria for the Bank’s Involvement in a Project

• Strategic Alignment– Fit with various development priorities

• Commercial Viability– Likelihood of sustainable financial success

• Development Outcomes– Expected economic, environmental and

social benefits• Additionality / Complementarity

– The Bank’s “value added” and synergy with the efforts of other development partners

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Projects with the best strategic fit tend to lie at the public-private interface

Maximizing Strategic Fit(the “sweet spot”)

Public Private

Strategic Fit

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In the last part of this presentation…

• Africa

• AfDB

• Operational Results

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New private sector operations reached USD 2.0 billion in 2010

Financial Intermed.

31%

Industries &

Services27%

Infrastruct43%

2010 Operations by Sector

Middle Income

Countries50%

Low Income

Countries50%

2010 Operations by Location

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The AfDB’s private sector operations cover a broad range of sectors

• Power – hydro, wind, thermal, solar• Transport – ports, roads, airports, rail• Telecoms – fibre cable, satellite, telephony• Oil & Gas – exploration, extraction, refining, pipelines• Mining – extraction, refining, smelting• Manufacturing – cement, fertilizers• Agribusiness – sugar, oils, agro-energy, fishing• Hospitality – hotels• Health & Education – hospitals, schools• Financial sector – banks, insurance, leasing, microfinance

Sector Coverage

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The Bujagali project is an excellent example of a public-private partnership

Bujagali HydroPower Project

• Uganda• Investment USD 1.0 bn• ADB loan USD 110 mn• ADB roles

– Economic analysis– Power & T-lines– ACFA co-financing

• Benefits– Power, jobs– Environmental

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Cabeolica in Cape Verde was the Bank’s first private wind project

Cabeolica Wind Project

• Cape Verde• Investment EUR 65 mn• ADB loan EUR 15 mn• ADB roles

– Long-term lender• Benefits

– 30% increase of power– Renewable

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At 300 MW, Turkana will be Africa’s largest wind energy project

Turkana Wind Project

• Kenya• Investment USD 600 mn• ADB loan USD 100 mn• ADB roles

– Long-term lender– Lead arranger– PRG provider

• Benefits– 10% increase of power– Renewable– Leverage installed hydro

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The Sahanivotry project is the Bank’s first micro-renewable energy project

Sahanivotry Micro-Hydropower Project

• Madagascar• Investment USD 30 mn• ADB loan USD 10 mn• ADB roles

– Long-term lender– Utility rehabilitation

• Benefits– 10% increase of power– Lowest cost power– Power sector reforms

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The Eskom project is the Bank’s largest non-sovereign loan

Eskom Project

• Southern Africa• Investment USD 20 bn• ADB loan USD 500 mn• ADB roles

– Long-term lender– Regional partner

• Benefits– 100% power access– Jobs, growth– Regional expansion

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The PAIDF project is the largest infrastructure equity fund in Africa

Pan-African Infrastructure Development Fund (PAIDF)

• Pan-Africa• Investment USD 1 bn• ADB equity USD 50 mn• ADB roles

– Regional sponsor– Fund mobilization

• Benefits– Regional infrastructure– African pension funds

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Transnet is the Bank’s first large scale syndicated financing

• South Africa• Investment USD 10 bn• ADB loan USD 400 mn• ADB roles

– Anchor financier– Syndication lead

• Benefits– Competitiveness– Tax revenues– Regional integration

Transnet Project

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The Dakar port is part of Senegal’s integrated infrastructure master plan

• Senegal• Investment EUR 210 mn• ADB loan EUR 48 mn• ADB roles

– Anchor financier– Environmental review

• Benefits– Competitiveness– Tax revenues– Regional integration

Dakar Container Port Project

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The Dakar airport is part of Senegal’s integrated infrastructure master plan

• Senegal• Investment EUR 525 mn• ADB loan EUR 70 mn• ADB roles

– Co-lead arranger– Environmental review

• Benefits– Competitiveness– Tax revenues– Regional integration– Safety

Dakar Airport Project

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The Main One cable will connect the West Coast of Africa

Main One Cable Project

• West Africa / South Africa• Investment USD 270 mn• ADB loan USD 60 mn• ADB roles

– Project sponsor– Lead arranger

• Benefits– Broadband access– 50% cost reduction

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O3B will bring affordable satellite connectivity to 3 billion new consumers

O3B Project

• Global / Pan-African• Investment USD 1.2 bn• ADB loan USD 50 mn• ADB roles

– Co-lead arranger– Mezzanine financier

• Benefits– Rural telecommunication– 50% cost reductions

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Nigeria liquefied natural gas is the Bank’s largest Oil & Gas project

• Nigeria• Investment USD 1 bn• ADB loan USD 100 mn• ADB roles

- Political risk mitigation- Environmental Standards

• Benefits– Royalties– Jobs

Nigeria Liquified Natural Gas Project

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The Ambatovy project was an opportunity to scale up public goods

Ambatovy Nickel Project

• Madagascar• Investment USD 3.6 bn• ADB loan USD 150 mn• ADB roles

– Economic analysis– Political risk mitigation

• Benefits– Taxes, royalties, jobs– SME supply chain– Public power 30 MW

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The Debra Midroc cement project will address a huge market constraint

Derba Midroc Cement Project

• Ethiopia• Investment USD 350 mn• ADB loan USD 69 mn• ADB roles

– Lead arranger• Benefits

– Foreign exchange– Taxes, royalties, jobs– SME supply chain

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• Sierra Leone• Investment EUR 250 mn• ADB loan EUR 25 mn• ADB roles

– Long-term lender– Economic analysis

• Benefits– Outgrower enhancement– Renewable energy

Addax Bioenergy is an agribusiness project with high development impact

Addax BioEnergy Project

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The Sheraton hotel is a business enabler in the heart of Kampala

• Uganda• Investment USD 18 mn• ADB loan USD 8 mn• ADB roles

– Long term lender• Benefits

– Taxes, royalties, jobs– SME supply chain

Sheraton Hotel Kampala

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The AfDB’s covers a broad range of operations in the financial sector

• National Banks – Banque de Kigali• Development Finance Institutions – BOAD• Commercial Banks (Equity) – UBA• Commercial Banks (Line of Credit) – Access Bank• Commercial Banks (Subordinated Debt) – Nedbank• Microfinance Banks – Advans Banque Congo• Microfinance Banks – (Programs)• Capital Market Development - TCX• Leasing Companies – Tunisie Leasing• Insurance – Africa Reinsurance

Financial Sector Coverage

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The line of credit to BK will promote small to medium scale enterprises

Banque de Kigali (BK) Project

• Rwanda• ADB LOC USD 8 mn• ADB Sub-debt USD 4 mn• ADB roles

– Technical assistance• Benefits

– SMEs, industry– Jobs, growth– Institutional reforms

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Subregional DFIs like BOAD are considered as development partners

Banque Ouest Africaine de Développement (BOAD)

• Togo (West Africa)• ADB equity EUR 4 mn• ADB loan EUR 40 mn• ADB roles

– Board member– Technical assistance

• Benefits– SMEs– Institutional reforms

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The UBA recapitalization project is a PPP in the financial sector

United Bank for Africa (UBA) Project

• Nigeria• Investment USD 600 mn• ADB equity USD 50 mn• ADB roles

– Assist gov’t plan– Strengthen relationship

• Benefits– Strengthen fin. Sector– International listing– Rural & regional expansion

UBA recruitment notice in The Economist magazine

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The line of credit to Access Bank provides long term financing for SMEs

Access Bank Project

• Nigeria• ADB LOC USD 50 mn• ADB roles

– Technical assistance• Benefits

– SME development– Capacity building

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The Nedbank bond is the Bank’s first marketable subordinated debt facility

Nedbank Subordinated Bond

• South Africa• Investment USD 280 mn• ADB bond USD 140 mn• ADB roles

– Long-term ZAR lender– Strengthen relationship– Knowledge acquisition

• Benefits– Low income housing– Black economic empower’t

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Advans Banque Congo is a successful start-up micro-finance bank

Advans Banque Congo Project

• Rep. of Congo• Investment USD 8 mn• ADB equity USD 2 mn• ADB roles

– Board member• Benefits

– Jobs, micro-enterprises

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Access Bank Tanzania is the AfDB’s first micro-finance program

Access Bank Tanzania Project

• Tanzania• Investment USD 4 mn• ADB equity USD 1 mn• ADB roles

– Board member– LCY lender later– LFS technical partner

• Benefits– Jobs, micro-enterprises– Roll out to other countries

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TCX will pave the way for increased local currency lending

The Currency Exchange (TCX) Project

• Global (Pan-African)• Investment USD 500 mn• ADB equity USD 50 mn• ADB roles

– Swap user– Regional partner

• Benefits– Risk reduction– Capital market development

TCX

ADB ClientBondMarket

USD

USD LCY

LCY

Schematic Flow of Funds at Inception

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Tunisie Leasing was the AfDB’s first leasing project

Tunisie Leasing Project

• Tunisia• ADB LOC USD 8 mn• ADB roles

– Lender• Benefits

– SME financing

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Africa-Re was the AfDB’s first re-insurance project

Africa-Re Project

• Nigeria (Pan-African)• ADB Equity USD 4.7 mn• ADB roles

– Board member– Rating enhancement

• Benefits– Insurance market– Catastrophic risk

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The ICF is the AfDB’s first PS project for the enabling environment

Investment Climate Facility

• Pan-African• Investment USD 500 mn• ADB grant USD 15 mn• ADB roles

– Regional partner– Treasury manager

• Benefits– Enabling environment– Encourage investment

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In summary...

• Although Africa has been left behind for many decades, huge opportunities for long-term investors are opening up.

• The AfDB is scaling up its efforts for private sector development and is looking to strengthen its partnership investors, bankers and “world class” corporations.

• The AfDB can: (i) help Norwegian investors achieve business success in Africa, and (ii) ensure that this commercial success helps Africa achieve sustainable and inclusive development.

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