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 Equity Loans/Guarantees/TA LoCs/TA Equity/TA

Mauritania Leasing Mauritania 5M USD LOC to retrocede to SMEs CAL Bank Ghana 15M USD LOC to strengthen the SME finance division RBBD and expand the portfolio ZANACO Zambia 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) MUSD TA Grant : capacity building (SMEs in agriculture and women-owned SMEs) and development of a credit scoring mechanism for CRDB Banque de Kigali Rwanda 15M USD LOC to finance SMEs in agriculture Guaranty Trust Bank Nigeria 100M USD LOC

Ghana Oil Palm Development Cie Ghana 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 Plantation Gabon Loan: Euro 10 million Key Features: 6,500 farmers employed 2,000 ha outgrower scheme Smallholders provided with extension services Committed: 2007 Lake Harvest Aquaculture Zimbabwe Loan: USD 8 million Key Features: 920 direct jobs created Business linkages with local farmers : USD 10 million/year Committed: 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 million East Africa Outgrower scheme on 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: Contact Private Sector and Microfinance Department (OPSM) African Development Bank Indira Campos Investment Officer, Industries and Services Kazuzuhiro Numasawa Investment Officer Financial Institutions & Microfinance