November 29, 2018

AfDB Pre-TICAD7 Seminar

By External Representation Office for Asia

Financial Sector Development Department (PIFD)

Mr. Kazuhiro Numasawa

Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

2

Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

3

Overview of Africa’s Economic Growth Trend

Stable Growth around 4%

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Africa’s Regional Growth Trend

East and North Regions Higher than Africa Average

5

Inflation Rate Across Regions

CFA Zone (Pegged with EUR)

6

Impact of FX Rate Move for FDIs in Africa

1 year: 5% moving range1 year: 3% moving range

Sho

rt Term

Kenya (KSH/USD) Mozambique (MZN/USD)

Lon

g Term

5 year: FX moved by 15% Kenya (KSH/USD)

5 year: FX moved by 100% Mozambique (MZN/USD)

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Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

8

The department Lending and

Investment in 2018

In 2018 the projected lending of the department is approximately USD 1,6 Billion and channeled support to priority sectors to support High 5 agenda.

Since 2002, the AfDB has committed approximately USD 10bn to 100+ institutions via well managed and continuously monitored interventions.

211.018%

10.41% 13.0

1%

121.810%

245.221%

478.740%

106.09%

Breakdown by Region (UA M)

Multinational

RDGC

RDGE

RDGN

RDGS

RDGW

RDNG

498.742%

451.838%

235.520%

Regional Classification (UA M)

LIC

MIC

N/A

UA 787 Mil

UA 399Mil

ADB-NSO ADB-SOV

Breakdown By Window

88

394

229

366

26 84Equity

Guarantee

LoC

RPA

Senior Loan

TF-LOC

Financial Sector Department Investments in Africa (2018)

Fig1: Breakdown by Instruments

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Examples of transactions in 2018

1. USD 100 and ZAR 1.3 billion to Industrial Development Corporation (financial closure during AIF on Nov 7, 2018)

2. USD 10 million to Africa Financial Sector Deepening Fund (AFSDF) committed by AfDB (open for other investors before the 1st close)

3. USD 10 million equity investment in Off-Grid Fund along with USD 20 million debt (1st close completed August 2018 with USD 58 million)

4. Equity participation supporting Venture Capital. UA 6 mil (appx USD 9 mln) in Partech Africa Fund under The Boost Africa Initiative (USD 50 mil) in partnership with the EIB to support a new generation of African entrepreneurs.

5. The Launch of the African Domestic Bond Fund: AfDB’sinvestment (USD 25 million) The first enhanced ETF dedicated to African domestic bond markets.

6. The use of the Bank's Partial Credit Guarantee (PCG). PCG to the Senegal for cross-currency swap (USD vs EUR) for a total of EUR 470 million

7. Thematic Line of Credit to Support Sterling Bank in Nigeria to boost its investments in renewable energy and agriculture in rural areas of Nigeria.

8. Trade Finance Line of Credit to Banco Angolano de Investimentos (BAI) for USD 100 Million

9. Risk Participation Agreement to ABSA Bank for USD 250 Million to support its trade finance activities across Africa

The African Financial Markets Initiative (AFMI) – Supported by FAPA (Government of Japan) The African Domestic Bond Fund (ADBF) African Bond Markets Development Index (ABMDI) AfDB/AFMISM Bloomberg® African Bond Index (ABABI)

www.Africanbondmarkets.org The Africa SME Program: support local financial institutions to expand lending to SMEs The Boost Africa Initiative: promote VC/PE supporting local entrepreneurs and technology

companies Making Finance Work for Africa Partnership (MFW4A): Africa’s financial sector knowledge

platform (www.mfw4a.org)

On-Going Initiatives at the Department

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Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

11

Lines of credit

Direct equity investments

Senior & subordinated debt

Partial risk & credit guarantees

Direct equity investments

Co-financing

Africa Financial Markets Initiative (AFMI)

Making Finance Work for Africa (MFW4A)

Technical Assistance Funds:

Africa Digital Financial Inclusion Fund (ADFI)

Migration and Development Fund (MDF) and Microfinance Capacity Building Fund (MCBF)

Sector Strategies and Studies

Non-Lending activitiesFinancial

Intermediation & Inclusion

Debt, guarantees and Equity Investments

Credit enhancementsproducts (PCGs)

Risk Management products (PRCs)

Credit enhancement on structured products

Bond Guarantees Advisory services

The Financial Sector Development Department

Capital MarketDevelopment

Trade Finance

Risk Participation Agreements

Trade Finance Line of Credit

Soft Commodity Finance Facilities

Investment in Financial Institutions (commerical

banks, leasing companies, PEs, etc.

Capital market instruments and advisory to regulators, stock exchanges, market-

linkages, etc.

Risk-Participation (i.e. Risk sharing)

Trade Finance LiquidityCommodity Finance

Market Research, Technical Assitance,

Donor Fund Management etc.

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Investment Opportunities

Africa Financial Sector Deepening Fund (AFSDF)An innovative funding mechanism to support financial institutions across Africa to capitalize their Tier2 capital to enhance

their future growth. (AfDB’s commitment USD 10 million, fund’s target USD 100 million)

Boost Africa FundIs part of the Boost Africa Initiative (co-designed with the EIB) to support the next generation of African entrepreneurs. The

initiative has three components: i) a Fund of Funds investing in a wide range of VC/PE segments; ii) EUR 20M Technical

Assistance Facility; and iii) Innovation Lab.

A layered capital structure fund with EUR 50 M first loss tranche from the EU (IRR caped at 3%) Raised EUR 150 M; target to raise EUR 50.

Off-Grid Energy Fund (Facility for Energy Inclusion)USD 58 million committed by several investors including AfDB (USD 10 million equity) along with Nordic Development Fund,

GEF, Calvert Impact Capital to promote off-grid energy solution providers across Africa by using mobile payment technologies

and home-solar systems.

The African Domestic Bond Fund (ADBF) The first enhanced multinational ETF dedicated to African bond markets.

Initial fund size: 200 M. The AfDB invested USD 25 M., and targets to raise a further USD 175 M.

Co-Investment Opportunities with African Development Bank

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Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

14

NON S0VEREIGN FINANCING PROJECT ELIGIBILITY CRITERIA

Africa-based project

Commercially viable

Development impact: Households benefits, infrastructure, government, macroeconomic resilience, gender and social effects

Strong additionality

Environmentally sound, supports gradual transition to green growth

Sound procurement

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Standard Private Sector Loans

• Eligibility: Private Sector Companiesin all Regional Member Countries(RMCs) and non-sovereignguaranteed public entities RMCs.

• Maturity: up to 15 years including a5year grace period

• Currency: EUR, USD, ZAR, JPY andany African lending currencyapproved by the Bank through thelocal currency loan program

• Pricing: Floating base rate + Lendingmargin

• For ZAR, additional margin to BaseRate to reflect funding cost aboveJIBAR.

• A free option to change the floatingbase rate into fixed base rate

Corporate Loan

Line of Credit

Project Finance

RATIONALE: Reduce clients foreign

exchange risk

Provide long term funding in local currencies

Introduce benchmark issuances and role model transactions

Introduce a new asset class and allow for diversification

Promote domestic capital market development

FUNDING METHODS Domestic bond issue

Cross currency swap

Synthetic Local Currency Loans

GUIDING PRINCIPLES

African Currency fundraising activity is demand driven

Fundraising is on a back-to-back structure

Pricing is based on cost pass through methodology, client benefits from AfDB competitive pricing

The Bank currently has 10 approved African lending currencies:

Egyptian Pounds, Uganda Shilling, Nigerian Naira, Kenyan Shilling,

Zambian Kwacha, Tanzanian Shilling, Ghanaian Cedi, Botswana

Pula, CEMAC region CFA and WAMU region CFA.

AfDB’s Local Currency Loans

NGN

XOF XAF UGX

ZMW

TZS

EGP

KES

BWP

GHS

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Trade Finance

The USD 100mn RPA allowed ADB to shares credit risk (50/50) on a portfolio of trade transactions with Sumitomo Mitsui Banking Corporation (SMBC) Europe (SMBCE).

Exporter Importer

ADB activity

ADB approves limits for issuing banks following SMBCE’s proposals

SMBCE binds ADB through RPA (no transaction approval required)

SMBCE Submits monthly report detailing ADB exposure

Issuing

Banks

1

32

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A/B Loan Syndications – Regional examples

A loan EUR 115m

• Triodos EUR 5.5m B-Loan

• AfDB EUR 20m Sr. Loan / Ekf

Euros 20mm Gtee

• Proparco Eur 50m Sr. Loan

• FMO Eur 35m Sr. Loan)

• PTA Bank EUR 10m Sr. Loan

• DEG EUR 20m Sub Loan

• AfDB EUR 5m Sub Loan

• EADB EUR 5m Sub Loan

• PTA Bank EUR 10m Sub Loan

LAKE TURKANA

EUR 275 Million

A-Loan USD 10mm

B-Loan

• Bank of China USD 150m

• MUFG USD150m

• Caixa Bank USD 100m

• Citi USD 50m

• HSBC USD 100m

• JPMorgan USD 115m

• KFW-Ipex Bank US$100m

• Siemens Financial USD 50m

• StanChart Bank US$150m

USD 965 Million

A-Loan AfDB – ZAR 2.703Bn

B-Loan

• Bank of China USD 90m

• MUFG USD 70m

• SMBC USD 110m

• Mizuho USD 90m

• HSBC USD 50m

ZAR 2.703 BillionUSD 410 Million

Preferred Creditor Status to benefit

commercial lendersCo-financing activities to be further scaled-up and

mainstreamed to improve capital efficiency

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Outline

Outline

1. Africa Overview

2. Recent Investments

3. AfDB’s Financial Sector Development

4. AfDB’s Non-Sovereign Products & Projects

5. Q&A

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Mr. Kazuhiro NumasawaFinancial Sector Development Department

k.numasawa@afdb.org

Thank you