Resourcing the African Development Bank for effective delivery - PowerPoint PPT Presentation

1 Resourcing the African Development Bank for effective delivery Investing in Africa’s Future, Meeting Global Challenges Resourcing the African Development Bank for effective delivery

Regular capital increases have supported the Bank’s mandate 2 GCI-VI 62 291 1963: Initial Helped Africa  capital effectively respond to the financial and USD 356 million economic crisis In USD million Exchange rate as of 31 Dec 2017 15 381 8 075 2017: Authorized 5 739 541 capital 1 588 USD 95.38 billion GCI-I GCI-II GCI-III GCI-IV GCI-V GCI-VI 1976 1979 1981 1987 1998 2010 Resourcing the African Development Bank for effective delivery

Increased demand for African Development Bank resources in an evolving environment 3 Challenging operating Graduation from ADF Amendment to environment credit policy Côte d’Ivoire, Ethiopia, Graduation to ADB Cape Arab spring - Downgrades    Rwanda, Senegal, Verde (2011) Angola (2012), of the Bank’s main clients Congo (2014), Nigeria (2014) Tanzania, Uganda Commodity price slump  Approvals of USD 2.34 Graduation to blend   Depreciation of local  billion Cameroon (2014), Zambia currencies (2014), Kenya (2015), Senegal (2018) Resourcing the African Development Bank for effective delivery

A solid Bank with a strong performance 4 In USD million Bank Operating and Allocable income 800 600 400 200 0 2011 2012 2103 2014 2015 2016 2017 Bank Allocable Income Bank Net operating income Bank Group Net operating income Cost-to-income Ratio Cost-to-equity Ratio 90% 6,20% 5,42% 60% Proven 3,11% 2,63% 2,33% 2,16% efficiency in the 30% management of operations 0% 2011 2012 2013 2014 2015 2016 IFC IBRD EBRD IADB ASDB AFDB AfDB Average of Multilateral Development Banks* Administrative expenses/equity Source : S&P Supranational Report 2017 (*MDBs): IBRD, IFC, AsDB, EBRD and IADB Resourcing the African Development Bank for effective delivery

A Very strong financial profile 5 Strong and stable A critical development support from mandate, a very strong public shareholders policy role, a preferred creditor Sound and solid Preferred creditor financial risk status management policies Prudent governance and management Aaa/AAA/AAA Adequate capital position Adequate Excellent liquidity and earnings capitalization position Strong and stable access Diversified wholesale funding profile and to funding market access Resourcing the African Development Bank for effective delivery

Crowding-in resources through co-financing and Balance sheet optimization 6 EPSA AGTF AFIF USD 4.8 billion EUR 2.2 billion USD 2 billion Japan European Union China Enhanced Private Sector Africa Growing Together Africa Investment Agreement, sovereign Fund, established with Facility, a co-financing co-financing facility with China to partnership with the EU JICA and direct private co-finance projects sector lending facility Syndication and partial Private Sector Credit Exposure Exchange guarantees Agreement Enhancement Facility Increase lending Provide additional capacity by USD 1 billion Crowd-in investments lending headroom for private sector projects in ADF countries Synthetic securitization Sale of loans of loans to external To create additional investors to recycle lending headroom capital for new loans Resourcing the African Development Bank for effective delivery

Positioning the Bank as the leading arranger of Africa’s syndicated co -financing 7 ESKOM AB/ Loan structures to crowd-in private USD 965 million sector investment A-Loan USD 365m (in ZAR) sovereign loan  USD 10m private sector loan  B-Loan Largest syndicated loan in Africa Bank of China USD 150m  BTMU USD 150m  Caixa Bank USD 100m  Citi USD 50m  HSBC USD 100m  JPMorgan USD 115m  Preferred Creditor Status to benefit KFW-Ipex Bank USD 100m  commercial lenders Siemens Financial USD 50m  Standard Chartered Bank USD 150m  Resourcing the African Development Bank for effective delivery

Partial Risk Guarantee, an innovative political risk mitigation instrument 8 PRGs extended by the Bank for Sovereign governments and sovereign-owned entities with the Bank signing a counter-guarantee with the respective governments Risk sharing with private sector To protect private lenders against… Facilitates Confiscation, privatizations Inability to repatriate expropriation, and PPPs or convert currency nationalization and earned in the country deprivation Project benefits from Bank’s safeguards Not honoring Changes in law and contractual obligations force majeure risks No additional contingent liability to the country 8 Resourcing the African Development Bank for effective delivery

Partial Credit Guarantees, to attract financing for Africa’s transformation 9 PCGs extended by AfDB For the benefit of To protect against for  Eligible Regional Member Debt service defaults, including  Private lenders to both private Countries both sector clients and/or  Sovereign owned entities sovereign clients  Private sector project Political risk  Bondholders of both public  sponsors  Availability of foreign and corporate debt exchange and convertibility that meet the Bank’s due into foreign exchange diligence criteria for loans  Expropriation and nationalization  Contractual obligations  Changes in law  Commercial risks such as demand risk, market risks, etc. Resourcing the African Development Bank for effective delivery

The Bank has been taking a greater role in promoting investment in ADF Countries 10 Our Private Sector Strategy Outstanding Private Sector Portfolio in ADF 1. Improving the investment climate Countries (USD million) * 2017 2. Improving access to social and economic infrastructure 2016 3. Promoting enterprise development including SMEs 2015 2014 Private Sector Investment in ADF Countries 2013 2012 2011 More than 458 companies financed • Results and Impact: • 0 500 1000 1500 2000 2500 Accessibility to social infrastructure • * Excluding Blend Financing of SMEs • Government revenues generated • Positive environment and social impact • Job creation • Access to Business and Inadequate medium and Challenges regulatory infrastructure long term environment finance 10 Resourcing the African Development Bank for effective delivery

Threats to the bank’s rating: no protection today against significant shocks 11 Potential Event Rating Impact Downgrade of major AAA shareholders  Negative Outlook  Downgrade Default of the Bank’s largest borrower  Downgrade  If no formal GCI discussions started Significant deterioration of operating with Shareholders environment Fitch Ratio expected to be breached in  Negative Outlook or Downgrade 2019 with the current lending trajectory  Fitch Ratio expected to be breached in 2019  Perception of weakness of the Shareholders support  2018 lending targets reduced to UA 4 billion  No capital increase  No Rating action  Fitch Ratio expected to be breached in 2019  2018 lending targets set to UA 5.5 billion  BUT mitigated by commencement of formal  Start of capital increase negotiations GCI discussions with shareholders (Governors Consultative Committee) Resourcing the African Development Bank for effective delivery

GCI-VII affordability will be addressed 12 Payment terms 94% Callable capital 6% Paid-up capital Longer payment  12-years (2019-2020 to 2030) for Middle Income countries and Non- period vs GCI-VI to regional shareholders reduce annual payment amounts  15-years (2019-2020 to 2033-2034) for ADF-only countries  Issue : Overlapping GCI-VI & GCI-VII payments  Solution : Step up payments for ADF-only countries with payments Affordability to ADF effectively starting in 2023-2024 , notwithstanding, 10% of the first countries instalment will be due during the 2019-2020 period. Resourcing the African Development Bank for effective delivery

Next steps in GCI-VII conversation 13 February 2018 May 2018 Q4 2018 Technical session with the Board of Governors approval of GCC GCC meeting Board of Directors meeting March 2018 Q3 2018 May 2019 Board of Directors request to Board of GCC meeting Board of Governors Governors to convene Governors decision on GCI-VII Consultative Committee (GCC) Resourcing the African Development Bank for effective delivery

We need a stronger African Development Fund 14 7 846 8000 7 000 7000 (in USD million) 6000 5 500 5000 4000 3 495 3 000 2 905 2 812 3000 2 519 2 308 2 243 2 100 2 045 1 750 2000 1 477 1 372 1 000 1000 0 2010 2011 2012 2013 2014 2015 2016 2017 ADF resources committed Eurobond issuance* * Eurobond issuance by: Angola, Cameroon, Ethiopia, Ghana, Cote d’Ivoire, Kenya, Mozambique, Nigeria, Rwanda, Senegal, Tanzania, Zambia Resourcing the African Development Bank for effective delivery

Global constraints call for new sources of financing for ADF 15 14 000 ADF Resources (in USD million) 12 000 12 000 9 359 8 785 • ADF to borrow from Access Market 10 000 international capital 8 063 7 058 markets 6 738 8 000 6 000 3 431 3 565 4 000 Provide additional lending of USD 4-6 billion 2 000 per ADF cycle 0 ADF-VIII ADF-IX ADF-X ADF-11 ADF-12 ADF-13 ADF-14 [1999- [2002- [2005- [2008- [2011- [2014- [2017- 2001] 2004] 2007] 2010] 2013] 2016] 2019] Resourcing the African Development Bank for effective delivery