Interview with Tim Turner, Director, AfDB Private Sector Department - Promoting Growth, Supporting Businesses

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Question: Promoting economic growth, creating a favorable environment and helping develop businesses are the main objectives of the Private Sector Department. What approach has been adopted following the design of the new strategy?

Answer: Implementation of our updated Private Sector Development Strategy (PSD) and Private Sector Operations (PSO) Business Plan largely coincided with the onset of the global financial crisis, which caused extraordinary market volatility and a contraction in liquidity and investment across the continent.

These developments, together with calls by regional member countries (RMCs) for the Bank to play a major countercyclical role, have prompted substantial adjustments in the Bank’s non-sovereign operations, particularly in terms of lending volumes and types of operations.

The implementation of the Bank’s Trade Finance Initiative and Emergency Liquidity Facility in response to the global crisis also led to a large rise in the share of financial sector operations. In spite of these exceptional challenges, progress in PSO has been strong; critical targets for both 2008 and 2009 have been met or exceeded; and the assumptions and objectives of the Business Plan have generally been validated. The first two years of strategy implementation have generated important lessons for reviewing the strategic framework for the Bank’s PSD and for the planning of the next 3-year Business Plan.

Question: here has been some talk of diversifying financial services designed to support Small and Medium Scale Enterprises (SMEs) and strengthen Public-Private Partnership (PPP) approaches. Where are we with this initiative?

Answer: Regarding SMES, in general, the private sector department has been providing finance to SMEs through financial intermediation, i.e. through local financial intermediaries including banks and non-banking financial institutions.

Sometimes these have been lines of credits or guarantees, with guarantees being applied in cases where liquidity is available but where the risk of providing finance to local SMEs has been viewed as high. Often, technical assistance has been provided to these financial institutions to enhance their capabilities to provide finance to SMEs more effectively. Sometimes, projects have been designed in a more holistic manner and include representative business associations that have a referral role, and business development service providers which build capacity of SMEs to provide bankable business plans.

Specific target groups and models have been focused on, including women entrepreneurs and franchising as a successful business model. Some of the projects that can be quoted include: Growth oriented women entrepreneurs programme in Kenya and Cameroon, Franchising project in Egypt, Access Bank Nigeria, Tanzania and Liberia, Advans Bank Congo, Microcred Ivory Coast, GroFin Africa Fund (multi-country SME mezzanine fund), Mauretania leasing, CRDB Tanzania, CAL Bank. Zanaco, Invest Trust, Maghreb leasing, Africinvest, K-Rep Bank, LBDI, Aureos Africa Fund, BCH, ABCH, Banque Mauritanienne de Commerce et d’Industrie.

Given the sheer size of the continent and the enormous needs for SME finance, and for the Bank to effectively enhance inclusive finance in Africa, it has started to engage in other dedicated initiatives. A first important initiative is the Africa Guarantee Fund (AGF). The AGF emanates from the Africa Commission.

The AGF’s purpose is to improve the access of African small and medium-sized enterprises (SMEs) to finance, primarily through granting loan guarantees and portfolio guarantees to African banks lending to SMEs and financing of capacity building activities for the banks doing SME lending and for the SMEs to improve their access to finance.

The establishment of the AGF currently is a joint venture of AfDB, the Danish Ministry of Foreign Affairs, and the Spanish Agency for International Development Cooperation. It is expected that other donors and investors will join at a later stage. AGF will also build capacity of financial institutions to enhance their capacity to lend to SMEs.

The Bank is also considering, still early stage, the establishment of a facility for SME lending and capacity building. The intention is to establish a facility hosted by the Bank, and financed through a mixture of investment funds and grant funds, and which will be used to deepen the financial markets for SME finance, including banking and non-banking finance (leasing, factoring, etc.). As a complement to the AGF, this facility would provide liquidity and seed capital for FIs where this is lacking, as well as capacity building. Initial discussions are taking place with selected member countries to seek interest to establish this facility, based on which the structuring and design will commence.

As part of its aim to expand its operations and meet the growing demand, the Bank has set objectives under its key performance indicators to allow diversification of its financial products. For instance, we aim to have equity investments in the range of 10-20% of our total portfolio and increase the share of local currency lending to more than 10% of total transactions.

In 2009, the Bank introduced the A/B-loan syndication to help mobilize additional resources from investors to fund long term private sector projects.

Question: Women's entrepreneurship is at the heart of activities that were undertaken by the private sector. What is your assessment of the actions?

Answer: The Private Sector Operations launched in 2004 the African Women in Business Initiative (AWIB). It responds to the Private Sector Strategy to acknowledge the role of women entrepreneurs and to call for empowering them through better access to finance.

Question : What was done ?

Answer : To raise awareness, country assessments have been conducted, a documentary film produced and Pan African conferences on AWIB were organized, including the successful First African Women’s Economic Summit in March 2010 in Kenya. Guidelines were developed to enhance countries’ capacity to assess and develop strategies in the field of women entrepreneurship; to address the financing gaps and create an enabling business environment, an innovative program on partial guarantee targeting Growth Oriented Women Entrepreneurs’ (GOWE) has been designed for commercial banks and implemented in Kenya and Cameroon with USD 22 million partial guarantee and USD 2 million capacity building program. Lessons from the initial implementation of Kenya and Cameroon program allow adapting the mechanism to other countries. In Tanzania and in Zambia, institutions has been approved to offer a partial guarantee program where at least 20% of beneficiaries must be women entrepreneurs.

From 2008 to this date, for 33 projects totaling USD 1.816 billion, it is expected that at least 20% of total financing (USD 363 million) will directly support women in Small and Medium Enterprises (SMEs) and 50% will support women microentrepreneurs.

By 2018, at least 94,000 creation of direct jobs for women are expected, of which 4000 women in management; more than 2350 women-owned SMEs should be financed. Those figures are underestimated as not all projects, especially in 2008, included gender disaggregated data.

With regards to GOWE Kenya, and as end of 2009, 198 Women Entrepreneurs 47 Women Entrepreneurs Association leaders, 35 credit officers from banks have been trained.

Question: Energy resources, telecommunications, among other areas, are targeted by the private sector. Have partnerships been established to ensure the development of these sectors?

Answer : The Bank endeavors to build the investor base into energy and ICT sectors in Africa, both by accompanying international industry investors, but also by providing resources to grow the Private Equity sector and importantly to foster local entrepreneurship with support to project preparation and development.  

The African Development Bank’s strategy for Private Sector Operations underlines the need for partnerships, including with external development finance institutions, to enhance the effectiveness and efficiency of financing in Africa.  The Bank’s role is to create a catalytic and demonstration effects by assisting.

In 2009, the Bank together with other bilateral and multilateral Development Finance Institution (DFI) launched the African Finance Partnership (AFP). The AFP is a component of the African Development Bank’s mission to help reduce poverty in Africa by mobilizing resources for private sector development on the continent.  The objective of the African Financing Partnership is to bring together DFI partners with a similar mission so that further results could be delivered with our combined efforts.