agri09 day iii - session v - part i - david white - eib

European Investment Bank 1

AgriBusiness Forum 2009

“Empowering the Private Sector to Boost Productivity & Growth in Africa”

Cape Town, South Africa

14-17 June 2009

ACP- IF DepartmentDavid White


Presentation Structure

EIB mandate and activities

The Cotonou Agreement and the Investment

Facility

EIB’s involvement in the agro-industry sector

Types of funding available

Principal instruments

Project requirements


EIB: European Union’s long term

financing institution

Birth: Treaty of Rome, 1958

Shareholders: 27 EU Member States

Subscribed Capital (2009): EUR 232.4bn

Purpose: Policy-driven bank: EIB implements EU policy

Provide long term lending to promote European

objectives* Support of EU Development and Cooperation Policies in Partner Countries


EIB: European Union’s long term

financing institution

Europe still EIB’s main focus – but the Bank now works in nearly 150 other countries, under EU cooperation agreements

Investment in 2008:

EUR 51.5bn inside EU

EUR 6.1bn outside EU

Biggest group of countries are the ACP – African, Caribbean & Pacific countries. EIB working in some of them for over 45 years

In the ACP, the EIB has channelled some EUR 12 billion to investment

EUR 5.5 billion since 2003 (76% to private sector)

Plus EUR 1.8bn in South Africa since 1995


Objectives

Developmental objective measure added-value of

projects from an economical, environmental, social

and governance perspective (Environmental and

Social Impact Assessment Framework – ESIAF)

Complementarities with operations/instruments of

EU, bilateral or multilateral institutions

Play a catalytic role in mobilising local resources

and encouraging foreign lending and investment


EIB lending in ACPs & OCTs


EIB lending in South Africa (1)

Via the Bank’s own resources (since 1995)

In South Africa, EIB senior loans are coupled with a

Community budgetary guarantee (full or political risk only)

Latest mandate: EUR 900* m for the period 2007-2013

* Loans can be extended in local currency (ZAR)


EIB lending in South Africa (2)

Close Cooperation with the European Commission:

Risk Capital Facilities I and II (EUR 55 +50 m)

New Facility (GEFSA)

Focus:

equitable & sustainable economic growth

employment creation, innovation & capacity development

sustainable provision of & equitable access to social services

modernisation of the economy

integration of South Africa into the world economy


The EIB mandate under

Cotonou (1)

Purpose & Priorities

Build up economic infrastructure

Private Sector Development

Support Foreign Direct Investment

Enhance local private sector

Development of local financier setor

Support for commercially viable public enterprises

Encourage public/private partnerships


The EIB mandate under

Cotonou (2)

The IF: a revolving fund

Managed a long commercial principles to be

financially sustainable

Re-flows to be invested in new projects

Terms and conditions flexible but respect market

logic and practice

Risk-sharing instruments and guarantees


Investment Facility – The

constraints

Small markets, hence limited investment opportunities

Limited access to skills and technology

Shortage of finance through local savings/capital

Sometimes weak regulatory and judicial framework, bureacracy

Foreign investors

High risk perception

High cost of information

Hence: insufficient foreign direct investment


Who can benefit?

Private entrepreneurs and commercially-run public

sector enterprises

Investment funds and other financial intermediaries

ACP and international entrepreneurs

Large enterprises and SMEs


Sectors of Intervention

Almost all sectors are eligible – examples:

Industry

Agro – processing, horticulture

Transport (revenue earning)

Infrastructure: e.g. power, telecoms, water supply and sewerage

Mining, quarrying

Tourism

Health and education (revenue earning)

Not eligible:

Real estate

Arms

Drugs and tabacco

Casinos


Agriculture & associated

activities

EIB fully involved

Has financed some 845 investments

In 34 African, Caribbean & Pacific countries

EUR 1.3 billion



activities

Just since 2000

Financing in 28 countries

10 operations funded directly by EIB

343 operations funded through EIB credit lines or

investments in local intermediaries



activities

Some are large scale schemes,

where the EIB has dealt with the promoters to provide DIRECT finance e.g.

EUR 12m for sugar estate improvements in Chad

EUR 12m for shrimp farming in Madagascar

EUR 8m for improving for banana cultivation and packing in Cameroon

EUR 5m for expansion of eucalyptus and pine plantation in Uganda



activities

But vast majority of investments are funded

through lines of credit to local banks, DFIs

Average size is 500 000 Euros but individual credits range from 5m Euros to 30 000 Euros



activities

Promoters of all kinds:

From a cooperative collecting beeswax and

making honey in Ethiopia, to

A Unilever food processing plant in South

Africa



activities

WHAT KIND OF INTERESTS?

Direct production

Commercial horticultre

Flower farms

Shrimp and fishing farms

Oyster hatcheries

Poultry rearing

Banana cultivation

Sugar estate improvements



activities

Packaging & processing

Tea factories, coffee mills

Oil mills, grain millers

Fruit juice processing, bottlers

Bakers, dairies

Frozen & canned foods

Abattoirs, fish processors

Animal feeds



activities

Storage

Grain terminals

Cold stores at production sites & transport terminals

Services

Packaging for third parties

Freight forwarding, logistics

Auction facilities



activities

Associated fields

Tanneries

Sawmills (!Sustainable resource!)

Wood pulp (!Sustainable resource!)

Natural gums, pyrethrum for insecticides

Bagasse-fired generator plants on sugar estates

New Areas?

Bio-fuels from agricultural crops?

Materials for « green » construction?

Algae bio mass?


Project Eligibility

What Kinds of Investments:

New capital investment, expansion or

modernisation

Increasingly important: the sphere of

rationalisation in comsumption of natural

resources, environmental protection


Project requirements

Projects should be:

Technically sound

Financially viable

Show a positive impact on the economy – social and developement impact assessment

Comply with environmental protection requirements

If in public sector, follow open tendering principles (competition to cut costs and protect the consumer)

Significant financial contribution from promoter

Co-financiers (EIB maximum 50% of project cost)


What EIB can offer

Financing for up to 50% of the total investment cost

Up to 70% for certain environment and energy

investments

Long term maturiites to match project needs

Competitive conditions with flexible structures

Flexibility in security packages


Range of financial instruments

available

Senior debt:

EIB’s own resources Investment Facility

Pricing: EIB reference rate.

Security: 1st class or prime-quality security

(with possibility of political risk carve-out).

Currency: EUR, USD, GBP and ZAR.

Pricing: EIB reference rate + mark-up.

Security: guarantee (international or local) or

project security.

Currency: EUR (possibility of other hard or local

currencies).

Junior/subordinated debt:

Pricing: EIB reference rate + mark-up.

Security: project guarantee or other

covenants.


currencies).

Quasi equity:

participating or

conditional loans:

Pricing: variable remuneration as a function of

performance.

Security: usually unsecured or junior status with

covenants.


currencies).

Equity participation: Pricing: dividends / capital gains.

Security: none.

Currency:local currency.

Guarantees: Of loans, bond issues, commercial paper


What EIB can offer

Own Resources

Low cost of « AAA » rating funding benefit

passed on to clients, for:

All major currencies

Long maturities

Catalytic effect on participation of other banking or financial partners


What EIB can offer – Cotonou

Investment Facility

An extended range of flexible financial instruments denominated in EUR, other widely traded currencies

and sometimes local currencies:

Ordinary or senior loans

Junior or subordinated

Quasi-equity (participating, conditional or convertible loans)

Equity (direct or indirect)

Guarentees


Terms and conditions - Loans

Market related terms

In foreign currency

• Rate based on EIB lending rates in Europe, plus

• Markup to cover perceived risks

In local currency (whenever feasible)

• At local market rate if adequate benchmark available, plus

• Markup to cover perceived risks

In some cases, an interest rate subsidy can be granted, if its justification is clearly demonstrable (high environmental benefits, social benefits…)


Terms and conditions – Loans (2)

Security package:

EIB own resources: prime-quality security (with the

possibility of political risk carve-out); sovereign risk

IF: international, local guarentee or project

security or unsecured


Terms and conditions – Quasi-Equity

Examples: convertible bonds, participating loans, conditional loans, etc.

Remuneration may be linked to the financial return of the project, production targets, sales prices obtained, etc.

Normally composed of a low fixed interest rate and a variable component related to the project performance


Terms and conditions - Equity

Normally for non-controlling minority only

Renumerated on the basis of the project performance

Policy: sell as soon as feasible, to make room for private investors

Much equity funding is done by the Bank indirectly, through local funds


Terms and conditions - Guarantees

An obvious alternative to direct lending where there

is no absolute shortage of resources but rather a

lack of capacity to take on risk or time

transformation

Priced to reflect the characteristics of the

underlying operation and the risks insured

Can guarantee fund raising on local markets (bond

issues), lending to the project by others, etc.


Large investments only?

The EIB is a large institution financially, but small in staff structure – keeps costs down!

It cannot handle requests for financing from SMEs directly: would mean a cosiderable increase in bureaucracy and costs

EIB seeks to cooperate with local financial sector (banks, DFIs, leasing companies), to channel funds through them. EIB currently works with almost 100 of them in the ACP

Typically, loans from EUR 50,000 to 5 million


Direct and indirect operations

The EIB has two modes of intervention

Direct financing – for large projects, typically a

project cost of at least EUR 15-20 million with a

minimum financing requirement from the EIB of

EUR 5-10 million

Indirect financing, through financial

intermediaries – any project smaller than the

above limits

EIB aims to have financial intermediaries active

throughout the ACP countries


Indirect operations - details

Global loans = Lines of Credit to:

Local development finance institutions

Local commercial banks

Other local financial intermediaries (leasing

companies, equity houses)

Due diligence, credit risk and

credit decision LOCAL



activities

A very wide range, but REMEMBER, for smaller investments:

Approval is carried out by the local bank or DFI

Within EIB parameters, but according to their judgement on project validity, profitability, security

Much depends upon active cooperation with local financial sector


www.eib.org

Contact

David White, Head of Mission for Southern Africa and Indian Ocean

[email protected]

+27 12 425 0460

agri09 day iii - session v - part i - david white - eib

Documents