INDUSTRIAL DEVELOPMENT CORPORATION (IDC) LOC II


Overview

  • Reference: P-ZA-HA0-003
  • Approval date: 19/05/2010
  • Start date: 26/09/2011
  • Appraisal Date: 23/07/2009
  • Status: OngoingOnGo
  • Implementing Agency: IDC- Private sector
  • Location: Multinational

Description

The project is a LoC of up to USD 200 million to provide long-term funding to IDC to finance projects outside of South Africa. IDC will use the proceeds of the LoC to on-lend to projects in its current lending pipeline or new projects that may arise in the near future. As discussed in further detail below, IDC


Objectives

Improve macroeconomic fundamentals and personal livelihoods by increasing the availability of private finance for sustainable, prod uctive projects


Rationale

Financial additionality The proposed LoC will provide a financial product that is not available from commercial sources on acceptable terms. IDC has approached the ADB for a LoC because it needs long-term hard currency funding to support the expansion of its project finance operations in Africa outside South Africa. IDC has been unable to raise long-term hard currency from commercial sources. The weighted-average tenor of its commercial hard currency facilities is only 2.5 years (see paragraph 2.14). It has relied on DFIs such as the Bank for longer term facilities yet still runs a maturity mismatch in USD (see paragraphs 3.18-19). The LoC will allow IDC to fund its pipeline of long-term development projects (weighted average tenor of 9 years) with appropriate long-term funding. While it is possible that IDC could borrow similar funds at very high costs, this would not be economical. IDC would be forced to delay or withdraw its participation in these project finance transactions or pass through its high borrowing costs to project sponsors, which would impair the commercial viability of these development projects. Therefore, the LoC will significantly reduce financial risks and allow IDC to play a more active role.

Improved development outcomes The Bank is contributing to improved development outcomes through establishment of more comprehensive development outcome targets. As previously discussed, IDC has its Development Scorecard and tracks a number of pertinent development indicators such as job creation and export development. However, the Bank has worked with IDC to define at set of ex-ante targets for additional indicators including jobs for women, intra-African trade and purchases from local suppliers. The LoC will put greater emphasis on these important indicators, and encourage IDC to ensure that they are achieved through reporting requirements.


Benefits

Household benefits The LoC will create household benefits through jobs created by the pipeline projects to be financed. IDC estimates that the pipeline projects will generate roughly 7,000 new permanent jobs. Of these, roughly 25% will be skilled positions. In addition, the sub-projects will generate up to 3,000 temporary jobs during construction and 715 seasonal jobs. This will be a significant source of additional income for households, particularly in rural areas.

Infrastructure Several of the pipeline projects will contribute to better access to infrastructure. In particular, the water project should generate 73 billion liters of drinking water per year, sufficient to supply 1.4 people with clean water. The agribusiness projects will expand irrigated farmland by 8,300 hectares.

Government All of the pipeline projects are expected to generate incremental government revenues in the form of taxes, duties or roy alties. This should improve the fiscal balance and generate resources that can be invested in poverty reduction and development programs. IDC estimates that the pipeline projects will generate more than USD 75 million per year in incremental government revenues.

Macroeconomic resilience The pipeline projects will contribute to macroeconomic resilience through the promotion of regional integration via increased intra-African trade, generation of exports and foreign exchange savings through the reduction of imports. The pipeline projects are expected to generate roughly USD 140 million per year in additional exports, of which USD 4.6 million will be to other African countries. Combined with expected imports from African countries of approximately USD 10 million per year, the total creation of intra-African trade will be close to USD 15 million per year. The pipeline projects are also expected to lead to foreign currency savings of USD 2 million per year.

Environmental effects In some cases, infrastructure and other projects can have potential negative environmental effects that need to be mitigated. IDC recognizes that the projects it finances have an impact on the environment and has implemented since 2005 an environmental management policy to assess and mitigate these impacts. IDC


Key contacts

ANSAH Dennis - OPSD4


Costs

Finance source Amount
ADBUSD 129,692,434
DeltaUSD 129,692,434