Financial and Operational AnalysisFinancial and Operational Analysis May 2005May 2005Financial and Operational AnalysisFinancial and Operational Analysis May 2005May 2005

African Development BankAfrican Development BankAfrican Development BankAfrican Development Bank

2

Highlights 2000 to 2004

2004 Commission for Africa established and UN Millennium Project launched The tenth replenishment of the African Development Fund (ADF) was the highest ever Launched US$ 14.2 billion Rural Water Supply and Sanitation Initiative to accelerate access to safe water for Africa Post conflict country facility (PCCF) established Reaffirmation of ‘AAA’ credit ratings by Fitch, JCR, Moody’s and Standard & Poor’s Highest level of operations and income as well as lowest cost of funds ever achieved in the capital markets

2003 African Ministers Council on Water (AMCOW) appoints Bank Group as host of the African Water Facility Successful execution of business continuity plan and smooth relocation to back up facilities Nigeria creates a Technical Co-operation Fund to promote intra-Africa technical cooperation Upgrade by Standard & Poor's to 'AAA' The largest bond transaction by the Bank - USD 1 billion global

2002 Monterrey Consensus on Financing for Development Ninth replenishment of the ADF New organization structure and Strategic Plan 2003-2007 to enhance selectivity and responsiveness Initiated the establishment of the African Law Institute Championed a donor coordinated initiative to clear arrears owed by Democratic Republic Congo, the bulk of arrears owed to the Bank Group International Financing Review's (IFR) Agency/Supranational Bond of the Year Award received for first global bond (US$ 500 million)

2001 New Partnership for Africa's Development (NEPAD) launched by African Heads of State NEPAD appoints the Bank Group as leader on infrastructure, banking and financial standards First Bank Group Annual meeting outside Africa - Valencia, Spain International Accounting Standard (IAS) 39 adopted by the Bank Unlimited Global Debt Issuance Facility set up to enhance flexibility with respect to capital markets activities First Hong Kong dollar and Singapore dollar bond transactions by the Bank

2000 Millennium Development Goals adopted Creation of the African Union Omar Kabbaj re-elected as President of the Bank Group New financial products, including guarantees and risk management products, approved First guarantee transaction executed (a local currency syndicated loan to MTN-Cameroon) JPY 50 billion bond transaction by the Bank

3

Highlights 1995 to 1999

1999Enhanced Highly Indebted Poor Country Initiative (HIPC) implemented

Established Joint Africa Institute with World Bank and IMF

Developed Bank Group's Vision Statement through broad consultations with all stakeholders

Eight replenishment of ADF

One billion Euro-commercial Paper facility established

1998Fifth General Capital Increase raised authorized capital by 35 % to US$ 34 billion

Project AFRICA, a bankwide initiative to streamline business processes using SAP as platform

First Rand denominated line of credit to Development Bank of South Africa

First Rand denominated bond issue

1997Uganda becomes the first country to qualify for HIPC

New loan products offering clients interest rate and currency choice

South African Rand introduced as a borrowing and lending currency

First Yen structured private placement bond transaction issued by the Bank

1996HIPC Initiative approved

African Heads of State meet to deliberate on the future of the Bank Group

Seventh replenishment of ADF

Financial reforms initiated

FRF 2 billion bond transaction by the Bank

1995New Credit Policy adopted

Accession of Republic of South Africa to Bank membership

Omar Kabbaj elected as President of the Bank Group

Strategic renewal and Institutional reforms initiated

‘AAA’ credit ratings by Fitch, JCR, Moody’s, AA+ by Standard & Poor’s

US$ 400 million subordinated debt issued in Yankee market

4

Table of Contents

I. Bank Group Profile (1995 – 2004)

II. Bank Group Action Plan for the Future

III. ADB Financial Profile

Appendices

ADB Financial Statements

Africa at a Glance

I. Bank Group Profile (1995 – 2004)

6

The Bank Group embodies an effective partnership for the development of Africa

Africa

LibyaMadagascarMalawiMaliMauritaniaMauritiusMoroccoMozambiqueNamibiaNigerNigeriaRwandaS. Tome & PrincipeSenegal SeychellesSierra LeoneSomaliaSouth AfricaSudanSwazilandTanzaniaTogo TunisiaUgandaZambiaZimbabwe

AlgeriaAngolaBeninBotswanaBurkina FasoBurundiCameroonCape VerdeCentral African Rep.ChadComorosCongoCote d’Ivoire D. R. CongoDjiboutiEgyptEquatorial GuineaEritreaEthiopiaGabonGambiaGhanaGuineaGuinea BissauKenyaLesothoLiberia

African Development Bank (ADB)

– Established in 1964

– Subscribed capital - US$ 33.54 billion

– 53 African and 24 non-African countries

African Development Fund (ADF)

– Established in 1972

– Subscriptions - US$ 19.98 billion

– Primarily financed by non-African countries

Nigeria Trust Fund (NTF)

– Established by Nigeria in 1976

– Total assets of US$ 572 million

EuropeAustriaBelgiumDenmarkFinlandFranceGermanyItaly

Netherlands NorwayPortugalSpainSwedenSwitzerlandUK

North & South America

Argentina Brazil

Canada USA

Middle East

Kuwait Saudi Arabia

Asia

ChinaKorea

IndiaJapan

7

Through its three constituent windows, the Bank Group addresses the diverse needs of African countries

African Development Bank

– Up to 20 years maturity including 5-year grace period

– Market-based lending terms

African Development Fund

– Up to 50 years maturity including 10-year grace period

– Service charge of 75 bp and commitment fee of 50 bp starting 120 days after signature

– Grants represent 44% of ADF-X resources

Nigeria Trust Fund

– All African countries are eligible to NTF funding

– Up to 25 years maturity including 5-year grace period

– Interest rate of 2% to 4% and commitment fee of 75 bp starting 120 days after signature

Eligible to ADB funding (13 countries)

Eligible to ADF funding (38 countries)

Eligible to ADB and ADF funding (2 countries)

8

The Bank Group supports critical sectors in all regions of Africa

Agriculture & Rural

Development

18.3%

Finance13.4%

Transport16.6%

Social11.6%

Other2.7%

Multi-sector15.3%

Power Supply9.1%

Water Supply7.5%

Industry5.5%

12.1%14.8%

32.5%

13.8%

23.8%

3.0%

Central Africa East AfricaNorth Africa Southern AfricaWest Africa Multiregional

Over 3,000 cumulative approvals amounting to USD 52 billion as of 31 December 2004

9

Bank Group financial assistance is maintained at a level that ensures high quality operations

In SDR million 2004 APPROVALS IN US$

Bank Group approvals amounted to US$ 4.33 billion

Heavily Indebted Poor Countries (HIPC) approvals amounted to US$ 1.57 billion including US$ 905 million for Democratic Republic of Congo

ADB approvals excluding HIPC amounted to US$ 1.26 billion1

ADF approvals excluding HIPC amounted to US$ 1.49 billion

NTF approvals amounted to US$ 14.4 million

454

86812

945

175

437

5

880

697

188

263

10

746

996

223

812

957

708

301

9

0

500

1 000

1 500

2 000

2 500

3 000

1995 2001 2002 2003 2004

ADB approvals excluding HIPC ADF approvals excluding HIPC

HIPC approvals (ADB) HIPC approvals (ADF)

NTF approvals

540

2 374

2 039

1 766

2 787

10

3.29 3.07 2.972.97 2.92

1.00

3.00

5.00

7.00

9.00

2000 2001 2002 2003 2004

ADB Public Sector Portfolio Risk Rating on a risk scale of 1 (lowest risk) to 10 (highest risk)

Credit policy directs ADB market-based lending to lower risk countries, while ADF concessional resources are directed at the low income countries

Heavily Indebted Poor Countries (HIPC) debt relief effectively guarantees debt service on market-based ADB loans made to low income countries prior to the adoption of the credit policy in 1995

Country ownership, greater selectivity and rigorous project selection have resulted in a high quality portfolio

11

68

9491115

555

751

3.5

3.53.2

4.7

0

200

400

600

800

1000

1200

1995 2001 2002 2003 2004

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Cumulative Approvals Weighted Average Risk Rating

Finance54.9%

Oil & Gas19.1%

Miining5.5%

Infrastructure19.1%

Health0.3%

Manufacturing2.8%

Agribusiness1.4%

Tourism2.8%

Development of competitive private sector across Africa is a strategic priority for the Bank Group

Weighted average risk ratingApprovals in SDR million

Non-sovereign guaranteed lending accounts for 6% of the total ADB portfolio

New private sector strategy leverages the Bank’s experience with sovereign guaranteed operations

Introduction of private sector country profiles, a country by country comprehensive analysis of private sector issues to be included in the Bank’s country strategy

Dedicated portfolio management group to monitor projects

Continue to emphasize financial intermediation, focusing on lines of credit with technical assistance, syndication, leasing and trade finance

Expand infrastructure intervention through public private partnerships, focusing on renewable energy such as hydro, wind, water purification in rural areas

Expand franchising, support to women entrepreneurs, corporate governance and corporate social responsibility

Co-financing with partners to share risk and expertise

Sector Distribution

12

KEY HIGHLIGHTS OF ADF-X

Grant resources more than doubled from 21% under ADF-IX to 44%

To curtail their debt burden 26 countries will receive 100% of assistance in the form of grants instead of loans

Initial allocation of SDR 100 million (US$ 155 million) made to the Bank’s Post-Conflict Country Facility (PCCF), with the possibility of further increases, if need be

Up to 30% of the financial requirements of the Rural Water Supply and Sanitation Initiative will be provided by ADF

Allocation to multinational projects increased from 10% to15% in the context of regional integration and NEPAD

The significant increase in the ADF replenishment level demonstrates support of the donor community to Africa

0.3

0.6

1.1

1.5

2.1

2.5

1.7

2.2

2.6

3.7

0 1 2 3 4

1976 ADF I

1979 ADF II

1982 ADF III

1985 ADF IV

1988 ADF V

1991 ADF VI

1996 ADF VII

1999 ADF VIII

2002 ADF IX

2005 ADF X

ADF Resources (in SDR billion)2

13

Social sector18%

Power supply4%Transport

33%

Industry5%

Finance6%

Water supply6%Agricultural &

Rural development19%

Communication9%

The Bank’s largest shareholder, Nigeria, supports the Bank Group and continent through the Nigeria Trust Fund

NTF has approved 72 projects for US$ 402 million

in 30 countries since 1976

Concessionality of loans extended by reducing

interest rates in 2003 to a minimum of 2%

Participate in the HIPC Trust Fund through 10%

net income allocation

Nigeria created a US$ 25 million technical

cooperation fund in 2004

Sector Distribution

14

Cofinancing and partnership are critical elements of the Bank Group’s strategy

Since inception, 833 projects have benefited

from cofinancing with US$ 74 billion mobilised

from sources other than the Bank Group

In 2004, 31 projects benefited from cofinancing

with US$ 3.1 billion raised from other sources

and implying a leverage of more than 2.3 times

the Bank Group’s resources

Memorandum of Understanding with various

multilateral agencies. 25 technical cooperation

grants managed by the Bank Group

30%

26%17%

8%

13%5% 1%

Multisector Energy SectorPoverty Reduction Water Supply and SanitationInfrastructure Agricultural SectorSocial Sector

Sector Distribution

15

Rural Water Supply and Sanitation Initiative

African Water Facility

The Bank Group champions critical initiatives for the continent

Governance

Post-Conflict Country Facility

HIPC InitiativeInternational Comparison Program

African peer review mechanism

16

The Bank’s governance activities include the promotion of transparency, responsibility and accountability

19 countries already rated by international credit rating agencies while some other countries are in the process

United Nations Development Program (UNDP) and the United States (US) sponsored initiatives facilitate the process

Credit ratings

African Peer Review Mechanism

24 countries have so far acceded to the African Peer Review Mechanism (APRM), a voluntary self monitoring governance mechanism

The Bank Group is an APRM strategic partner in economic and corporate governance and country assessment

II. Bank Group Action Plan for the Future

18

Most African countries will not achieve the Millennium Development Goals if development efforts are not accelerated

Eradicate extreme poverty and hunger

1

A global partnership for development

8

Reduce child mortality

4

Improve

maternal health

5

Ensure environmental

sustainability

7

Achieve universal

primary education

2

Promote gender

equality

and empower women 63

Combat HIV/AIDS,

malaria, and other

diseases

19

The Bank Group is well positioned to scale up its activities to meet Africa’s development challenges

20

The Bank’s comprehensive approach to re-engineering its operations is reflected in the shareholder support for its Action Plan

US$ 80 million increase by 2007 in Bank Group administrative budget to enhance institutional capacity

Number of field offices to be increased from 9 to 25 by 2006

1996 to 1999 2000 to 2004 2005 to 2007

Three-year phased approach to leverage the Bank’s experience with managing corporate growth

Over 400 additional staff including 300 for field offices by 2007

21

Objectives of the Action Plan, a comprehensive time-bound program that consolidates the Bank’s achievements over the last decade

Enhancing development effectiveness by strengthening diagnostic studies and country programming managing for results establishing the Bank as a leading knowledge institution pursuing harmonization and alignment

Strategic positioning through initiatives such as New Partnership for Africa Development (NEPAD) Rural Water Supply and Sanitation Initiative (RWSSI) building strategic partnerships;

Building institutional capacity to deliver mandate by realigning resources to corporate priorities increasing staffing for key activities reinforcing the control framework streamlining business processes.

Accelerated decentralization program and new corporate governance functions 16 offices in 2005-2006 for total of 25 inspection function compliance review anti-fraud and anti-corruption mechanisms.

III. ADB Financial Profile

23

ADB Summary Financial Information

(in SDR million)3 1995 2001 2002 2003 2004 2004 US$ million

Approvals including HIPC 454 987 1,068 746 1,520 2,360

Assets 9,553 8,873 8,197 10,034 10,044 15,598

Subscribed Capital4

15,750 21,491 21,510 21,564 21,597 33,542

Paid in Capital net of CEAS5,6

1,445 1,770 1,803 1,866 1,920 2,982

Reserves before IAS 397,8

Adjustment

604 1,195 1,356 1,480 1,572 2,441

Net Income before IAS 398

Adjustment

69 125 189 178 220 341

24

The Bank’s strong risk bearing capacity is reflected in the growth in its reserves to which more has been added in the past decade than in the first three decades

22011769 104 117 112 124 125 189 178

9191 016

604 710

847

1 195

1 3561 480

1 572

1 114

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Net Income excluding IAS 39 Adjustment Reserves net of CCTA excluding IAS 39

In SDR million

25

010651

13

15

109

10

54

45

106

37

30

10

36

115

15

1995 2001 2002 2003 2004*

DRC Special Account PCCFAllocation to ADF Special Allocation to ADF

Allocation to HIPC Trust Fund Allocation to Special Relief FundAllocation to Technical Assistance Funds* MIC Technical Assistance Fund

In SDR million

The Bank continues to allocate increasing amounts of net income9 to development initiatives to accelerate development

(*) Proposed allocation for 2004

22

57

115

144 HIPC initiative: 23 African countries out of 32 eligible have received US$ 4.2 billion in debt relief

PCCF facilitates the reconstruction efforts of post-conflict countries including arrears clearance. Burundi and Congo benefited in 2004

Increased contribution to the Middle Income Country (MIC) Technical Assistance Trust Fund to enhance competitiveness of operations in Middle Income Countries

10

11

1312

14

263,508 3,767

4,9994,151

2,0213,059

1,373763

1998

1 803

5 492

169

1 866 1 9201 445 1 770

3 5084 151

4 885 4 981

1 250 1 154

737

3 059

10 056

13 24013 248 13 71312 186

0

5 000

10 000

15 000

20 000

25 000

1995 2001 2002 2003 2004

Paid-in Capital (net of CEAS) AAA Callable Capital

AA Callable Capital Other Callable Capital

In SDR million

Strong shareholder support underscores the Bank’s strong financial and operational condition

The Fifth General Capital increase

in 1998 raised authorized capital

base by 35% to US$ 34 billion

Shareholding of non-regional

countries increased form one-third

to 40%

Revised share transfer rules link

subscription to economic capacity

of member countries and curtail

subscription arrears.

15746

21166 21178 21249 21294

27

The Bank has substantially improved its risk15 bearing capacity

1 480 1 572

1 920

1 4451 803

1 8661 770

604

1 3561 195

450469

243

492494

0

1 000

2 000

3 000

4 000

1995 2001 2002 2003 2004

Paid-in capital Reserves before IAS 39 Adjustment Loan Loss Provisions

In SDR million

“…, its financial position has never

been healthier and its risk-bearing

capacity is sufficient enough to meet

expanding operations…”

Japan Credit Rating Agency, 2004

2 292

3 4593 651 3 815

3 942

28

1.16

1.36

1.731.81

2.11

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

1995 2001 2002 2003 2004

Interest Coverage Ratio - Minimum 1.25

The Bank’s ratios are well within conservative interest coverage16 and debt limits

61.6% 61.7%

47.9%51.2%

98.3%

0%

50%

100%

1995 2001 2002 2003 2004

Debt / Usable Capital Statutory Limit 17

29

Liquidity risk addressed by holding sufficient liquid assets to meet future cash requirements for at least one year

Interest rate risk management strategy stabilizes the Bank’s net interest margin

Statutory prohibition on taking foreign exchange risk

Bank wide financial controls and risk management culture lead to effective mitigation of non-core risks

Loan management practices Capital adequacy and provisioning policy18

ADB capital adequacy policy is derived from the

Basle Capital Accord and links its capital requirements to the risk profile of the portfolio

ADB ensures that adequate provisions are made for impaired loans

Market risk Operational risks Operational risks are addressed by periodic

review of internal controls and back-up procedures

Detailed and tested business continuity plan

COSO control framework under implementation

Strict sanctions practices including suspension of loan disbursements to clients in arrears for at least 30 days

No write-off on public sector loans

30

The Bank maintains conservative gearing and leverage ratios

Source: Standard & Poor’s Supranationals Report – October 2004

69%

83%

91%

99%

0%

50%

100%

AfDB AsDB IADB IBRD

Gross Debt / Shareholders' Equity Adjusted + AAA Callable Capital

153%

121%

102%

109%

0%

50%

100%

150%

AfDB AsDB IADB IBRD

Provisions for Losses + Adjusted Shareholders' Equity + AAA Callable Capital / Disbursed loans and Equity Investments and Guarantees

31

The Bank’s portfolio is better diversified than those of other MDBs

99%

170%

219%

140%

0%

50%

100%

150%

200%

250%

AfDB AsDB IADB IBRD

Disbursed Loans and Equity Investments to 5 largest Countries / Shareholders Equity Adjusted

Source: Standard & Poor’s Supranationals Report – October 2004

32

The Bank uses the derivatives market to provide the most attractive funding to its clients

Borrowing portfolio amounted to US$ 8.8 billion as of 31 December 2004

Before Swaps After Swaps

JPY35.90%

GBP1.10%

CAD8.10%

AUD3.00%

USD42.60%

EUR5.94%

HKD0.15%

SEK0.21%

CHF3.00%

JPY8%

USD46%

Others7%

EUR39%

33

-45

-35

-25

-15

-5

5

Jan-04 Mar-04 May-04 Aug-04 Oct-04 Dec-04

AfDB 3.25% Aug 08 IADB 3.375% Mar 08 IFC 3% April 08

The Bank’s effective communication strategy is facilitating investor understanding of its strong credit story

Source: Bloomberg ADB US$ 1 billion Global Bond - 1 August 2008

Sp

rea

d a

ga

ins

t US

D L

ibo

r

34

The Bank is committed to the development of local capital markets

South African Rand (ZAR): Full treasury

operation and third largest lending currency

after US$ and EUR

Communauté Financière Africaine (CFA):

Euro 13 million equivalent guarantee for a

private sector project

Egyptian Pound (EGP): USD 27 million

equivalent in Equity participation in Egypt

Actively preparing to launch benchmark

issues in several local capital markets

35

The Bank nurtures a diversified investor base with presence across capital markets

36

The Bank leverages its AAA credit rating to accelerate economic and social development in Africa

Membership Support

Preferred Creditor Status

Franchise Value

Strong Operational and

Financial Condition

Prudent Financial Policies and Management

Cooperation With Partners

JCRJCRThe ratings reflect the strong support that the African Development Bank (the Bank) draws from its members, particularly the industrialized countries, its solid capital base and sound financial position resulting from prudent operations and conservative risk management, and the “preferred creditor status” that it enjoys

MOODY’sMOODY’s

Indeed, the AfDB’s indicators of risk-adjusted assets are on a par with or compare favourably to those of other Aaa-rated multilateral institutions

S&PS&PIn sum, while Africa remains a challenging environment in which to operate, the bank's management in recent years has greatly strengthened the bank's financial profile. AFDB's capital and liquidity, as well as its qualitative features, place it solidly in the 'AAA' rating category.

FITCHFITCH

Capitalisation is sound at AfDB, ranking among the highest of the MDBs…

37

More information is available at www.afdb.org

Financial and Operational Analysis

Documentation for Debt Programs

Rating Agencies Reports

Financial Products for Borrowers

Exchange Rates

Annual Report

I. ADB Financial Statements

Appendices

39

ADB Statement of Income and Expenses

40

ADB Balance Sheet Highlights

II. Africa at a Glance

Appendices

42

Steady and broad based economic growth across Africa

Africa: Real GDP Growth Rates, 1990-2004 (%)

-1.2

0.9

3.2

5.6

1.3

2.6

3.63.2

3.2 3.4

3.9

3.5

4.45.1

1.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

43

Sound macroeconomic policies are leading to a sharp decline in fiscal deficit

Africa: Fiscal Balance, 1990-2004 (% of GDP)

0.0

-1.4

-3.0

-2.2

-0.5

-2.2

-3.9

-1.5

-4.8

-4.4

-6.6 -6.3

-6.0

-3.6

-0.3

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

44

The era of high inflation rates in Africa is over

(%)

Africa: Inflation, 1990-2004 (%)

28.626.2

7.7

10.0

9.1

10.5

13.5

11.8

9.6

14.2

42.0

16.2

24.5

27.9

30.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

45

Official Development Assistance to Africa is increasing albeit below what is needed to achieve the Millennium Development Goals

Official Development Assistance to Africa , 1990-2003 (US $ billions)

18.9

21.3

23.9 24.7

20.1

15.815.215.617.217.1

22.5

24.6 24.3

20.7

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

46

Population Growth Rates

0 2 4

1985

1990

1995

2001

2002

2003

2004

In %

Africa Developing Countries

Infant Mortality Rates (per 1000)

0 20 40 60 80 100 120

1985

1990

1995

2001

2002

2003

2004

Africa Developing CountriesAdult Illiteracy Rates

0 10 20 30 40 50 60 70

1985199019952001200220032004

In %

Africa

Africa’s key social indicators are below the average for developing countries

47

The Millennium Development Goals

Source: ADB Statistics Division, UNESCO database 2004, UN Population Division, World Bank

Notes and Glossary