Regional Consultation “Rethinking the Role of National Development Banks” Johannesburg, November 2006 EIB Support to Development Banks in Africa Lena Eriksson- Å shuvud Regional Representation for Southern Africa and Indian Ocean Islands

2 EIB in a nutshell EIB is EU’s Development Bank, owned by the 25 member states. Financing infrastructure and industry. €45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25. Activity in Africa started in 1963 under the Yaoundé convention: LT loans, quasi-equity and equity to both private and public counterparts Cotonou – also guarantees. Direct funding of large infrastructure and industry projects – cofinancing w. local/international institutions Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs. Key objective – assist in development of financial markets for the long term.

3 EIB in a nutshell EIB is EU’s Development Bank, owned by the 25 member states. Financing infrastructure and industry. €45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25. Activity in Africa started in 1963 under the Yaoundé convention: LT loans, quasi-equity and equity to both private and public counterparts Cotonou – also guarantees. Direct funding of large infrastructure and industry projects – cofinancing w. local/international institutions Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs. Key objective – assist in development of financial markets for the long term.

4 EIB Lending to Financial Institutions in Sub-Saharan Africa (million EUR)

5 EIB support to NDBs in Africa: 1970s & 1980s NDBs seen as effective response to financial (and other) market imperfections. Support from multilateral and bilateral development finance agencies. EIB support aimed at two market imperfections: access to finance of SMEs provision of long term financial instruments Loans, equity and quasi-equity

6 Weak performance of NDBs in 1980s:  Weak management, governance problems.  Misguided directed lending policies.  Insufficient credit and risk culture.  Ill equipped to deal with equity operations. Retreat from lending to NDBs since early 1990s.

7 New strategy since turn of century : RDBs and especially commercial banks Achievements: Better quality of firms financed Long term lending increased, especially through RDBs Unresolved problems:  Access to credit of SMEs, especially start-ups  Focus by many commercial banks on short term lending

8 Market imperfection still there  Can be partially addressed by RDBs.  Can suitably designed/reformed NDBs play a useful role?  A few encouraging examples.  EIB is still open to considering support to establishment of NDBs in a number of African countries.

9 Challenges  Case specific intervention – each country has its own challenges.  Setting priorities & clear and realistic definition of tasks.  Technical assistance: useful but no panacea.  Governance and institutional framework - commitment to proper institutions and governance essential.

10 The European Investment Bank will continue to support partners in development that are best equipped to be effective in this work. THANK YOU