1. African Development Bank
Independent Review of the Bank’s Non-Sovereign Portfolio: Preliminary Findings on Private Sector Policy
Rakesh Nangia
Mohamed Manai
OPEV
African Development Bank

2. Overview – Strategic Priorities
Portfolio
Concentrations
Financial
Sustainability
Development Outcomes
Additionality
AAA Credit Rating
Infrastructure,
Industry & Service Sectors
DFI
Partnerships
Intermediary
Support
MSME’s
LIC’s
Fragile States
Financial
Strong
Growth
Equity
Risk Sharing
Instruments
Portfolio
Quality
Political
Risk
Operational
Efficiency
Member
Support
Government
Exposure
Limits
Social
PSO has different strategic priorities, each with underlying sub-categories and business targets
Cautious
Growth
Environment
Risk Rating
Targets
Household 2

3. To What Extent is the PSO Portfolio Aligned to the Strategy’s Five Objectives?
Improving the Investment Climate
Objective fits with “one bank” concept of integrated operations
Macro and Micro levels.
Micro level: corporate governance, audits, etc.
Macro level:
Projects lack universal enforcement of transparency standards
Client demand for improving climate (regulatory reform) is high.
Clients could not think of specific examples of AfDB impact.

4. To What Extent is the PSO Portfolio Aligned to the Strategy’s Five Objectives?
2. Supporting Private Enterprises
Need to define SME’s and require DO monitoring
Interventions through intermediaries and DFI’s have tradeoffs:
Positives: financial additionality, reduced risk exposure
Concerns: loss of control over funds usage, limited ability to
monitor and impact DO, different priorities between PSO
and client financial institutions
Increasing equity fund investments reach SME’s, create high additionality
Strong concerns: far greater risk exposure, need for additional monitoring and management, lack of defined exit strategies, overall coordination
Methodology: PARs, ASRs, XSR, interviews
Extensive references to this objective in origination documents
Need to define SME’s and require DO monitoring to address
differences in funds usage and impact
Interventions through intermediaries and DFI’s have tradeoffs:
Positives: financial additionality, reduced risk exposure
Concerns: loss of control over funds usage, limited ability to
monitor and impact DO, different priorities between PSO
and client financial institutions
Strong growth across all geographies in number of projects, less impactful on volume, limited capacity for impactful infrastructure projects across LIC’s and Fragile States
Increasing equity fund investments reach SME’s, create high additionality
Strong concerns: far greater risk exposure, need for additional monitoring and management, lack of defined exit strategies, overall coordination
Best practices include consistent SME definition, mid-loan corrections, additional monitoring of disbursements and DO
Review and implement best practices on equity fund investing outlined in the Equity Fund Note and this technical report to reduce exposure and maximize impact

5. To What Extent is the PSO Portfolio Aligned to the Strategy’s Five Objectives?
3. Building Competitive Infrastructure
Very high catalytic effect
43% achieved in LIC’s, a strategic priority
Higher risk ratings than overall portfolio
Limited use of TA on infrastructure project
Portfolio strongly aligns to core objective and multiple priorities
Targeted TA utilizing WB Group model can reduce risk exposure, improve outcomes
Methodology: PARs, ASRs, file reviews, interviews
Strategic priority area for PSO
Very high catalytic effect, confirmed by interviews
43% achieved in LIC’s, a strategic priority
Higher risk ratings than overall portfolio,
difficult to complete multiple projects
in LIC’s and Fragile States
Limited use of TA, which can be
very impactful on infrastructure project
success
Portfolio strongly aligns to core objective and multiple priorities
PSO can more strongly assert requirements for DO tracking and other core requirements
Targeted TA utilizing WB Group model can reduce risk exposure, improve outcomes
Clarify internal balance of weighted risk/reward tradeoffs for future infrastructure interventions

6. Approval Stages (1 of 4) Gating stages during the approval process
Approval process stages are similar to benchmarked MDBs, but AfDB’s internal steps are more cumbersome
AfDB has twice as many approval gates as other MDBs
Criteria
AfDB
IFC
EBRD
AFD
IDC
DBSA
Approval duration
11 months
(5 year avg.)
6 months
4 – 6 months
3 - 6 months
Exploratory review
Divisional Management
Combined with concept review
Concept Review /
Preliminary analysis
Departments Review
Senior Management
Opscom
Screening Committee
Head of Business Unit
Opscom equivalent
Country Team
Credit Comm.
OIVP
Stages are termed differently (business development and exploratory, concept, and final/ appraisal reviews)
Governance
Streamline the approval process by combining the review stages. Some options based on best practices at other IFI’s include:
For concept review, combine country review, Opscom secretariat, OIVP and credit committee into one approval meeting instead of individual approval processes
For concept review, delegate authority to OPSM divisional management to approve the decision for appraisal
Combine the exploratory review with the concept review if the structure of approval gates is not reduced
For appraisal stage, combine individual reviews into one approval meeting at Opscom. Country team’s approval of concept should not have to be revisited after appraisal
For Board approvals, allow projects below a certain value and risk level to be approved by either the credit committee or Opscom
Develop the operational processes to test framework agreements concept that EBRD uses on future non-sovereign interventions
Delegate approval authority to levels below board to allow for faster and empowered decision-making and more efficient approval processes

7. Approval Stages (2 of 4) Gating stages during the approval process
Repeating approval steps between Concept Review and Final Review is more detailed than other IFI’s, adds time and administrative requirements
Other IFIs utilize Board notification on smaller projects and finish approval steps within division management/OPSCOMM reviews
Criteria
AfDB
IFC
EBRD
AFD
IDC
DBSA
Final Review/
Project appraisal
Department Review
Departmental Management
Opscom
Project Committee
Head of Business Unit
Opscom equivalent
Country Team
Credit Comm.
OIVP
Credit committee
Secretariat
Final Approval
COO
Board Notification for smaller projects
Board Notification for projects under €10 million
Investment Committee/ Board
Credit Committee/ Executive team/ Board
Board
President
* Stages are termed differently (business development and exploratory, concept, and final/ appraisal reviews)

8. F: Timeline for Submission of Independent PSO Review
Finalize Technical Draft Reports by End Of November
Discuss Draft Consolidated Report by Mid-December
Submit Consolidated Report and Final Technical Reports for Management Response by End of December
Submit Consolidated Report and Final Technical Reports to CODE for Consideration by End of January 2013
(a staff time-recording system to measure transaction costs, an electronic archive system for storing and accessing project documents and correspondence, online databases for portfolio performance data such as credit risk ratings, loan impairment, equity cash flows and valuations…)
These will need to be bespoke for private sector projects; rather than inherited from the Bank's public sector operations. Then, looking further ahead, it should be much easier to prepare future reports on portfolio performance and development impact, and they will benefit from a much more robust evidence base.

9. Thank you