The activities of the Private Sector comprise two categories:
- Non-sovereign guaranteed (NSG) lending activities in the area of Financial Intermediation, Industries & Services, PPPs & Infrastructure, and Microfinance;
- Non-lending activities include studies, initiatives and new programs.
Lending activities are directed to privately-owned as well as (in selected cases) publicly-owned beneficiaries.
Assistance to Private Entities
Bank assistance is provided directly to private entities (enterprises financial intermediaries) through term loans, equity participations, quasi-equity investments, guarantees, syndications, underwriting and advisory services. The Bank also extends lines of credit to financial institutions for on lending to export oriented companies and small and medium enterprises (SMEs). The nature, terms and conditions of the Bank's investment in a particular venture are commercially-based and prices on the risks and expected returns of the venture, as well as the characteristics of the corporate entity receiving the investment. The reimbursement period of loans usually does not exceed 12 years, with up to three years grace period. Loans are extended in the main hard currencies (Euro, US dollars, Japanese Yen, British Pound) and now in local currencies.
Bank assistance may be considered for projects to establish, expand, diversify and modernize productive facilities in various sectors including energy, manufacturing, agribusiness, tourism, transportation, infrastructure, extractive industries, as well as in banking and finance and other service industries, as long as the investment is beneficial to the economy of the host country. The Bank does not participate in real estate development projects (except for low-income housing) nor provide direct trade financing. However, the Bank may invest in domestic or regional financial and capital market institutions, which support such activities; or alternatively, extend agency credit lines for such purpose. In selecting projects, the Bank gives consideration to financially and economically viable proposals, which primarily contribute to one or more of the following:
- Generation of foreign exchange earnings and savings
- Job creation, skills; improvements; and enhancement of productivity of capital and labor
- Transfer of technology and acquisition of appropriate scientific equipment
- Forward and backward linkages enhancement.
To be involved in a project, the Bank needs to be satisfied that the project is consistent with the country's economic development objectives, has sufficient comparative advantage and is likely to succeed in a sustainable manner. The Bank will satisfy itself that the project concept, technology, sponsorship and management are sound, that solid market and marketing arrangements exist for the products or services, that the project cost is reasonable and the financing plan is adequate. In making investment decisions, the Bank takes into account the economic circumstances in the country concerned, and the policies of the government as they affect private enterprises.
In addition, projects in which the Bank invests are required to comply with the Bank's Group Environment Assessment Guidelines and the prevailing environmental regulations of the country.
Assistance to Public Entities
The Bank, under its Private Sector Window, can lend under commercial terms to publicly owned entities (financial institutions, utility companies, municipalities, etc.) provided that these entities:
- do not require a sovereign guarantee
- are financially sound and viable
- are autonomously managed.
Recent examples are a US $ 50 million line of credit to the Industrial Development Corporation (IDC) of South Africa, a Yen 5.5 billion line of credit to the National Development Bank of Botswana (NDB) and a US $ 100 million line of credit to the Development Bank of Southern Africa (DBSA).
Non-Lending activities aim at developing the intellectual underpinning of innovative programs to support Private Sector Development.
Grant to PEP Africa Initiative
The Private Enterprise Partnership for Africa (PEP Africa) was established in 2005 to stimulate private sector growth.
PEP Africa is a new initiative led by International Finance Corporation (IFC) with the support of the Private Sector and Microfinance Department (OPSM) of the African Development Bank Group (AfDB) as a regional sponsor and the involvement of many other donors aiming at supporting private sector and SMEs development in sub-Saharan Africa, in an integrated manner. Its overarching objective is to contribute to poverty reduction in a sustained way, by empowering business men and women in the region, building on the achievements of the African Project Development Facility (APDF). APDF came to its end in 2005.
The three main objectives of PEP Africa are: enhancing the enabling business environment, strengthening the growth and competitiveness of SMEs, and stimulating private sector investments. It will assist in particular countries to improve their business environment while supporting enterprise development by building capacity of Business Development Service Providers and Financial Institutions. PEP Africa will constitute one of the Bank’s implementation arms of direct assistance to SMEs to better respond to the needs of the private sector in Africa and in a more cost-effective way.
In line with its Private Sector Development Strategy, the Bank Group will play a more proactive role in this facility; and build strong collaboration networks with other partners in sectors such as infrastructure and ICT; agro-business, extractive industries, African Women Entrepreneurship development and financial markets. In all these areas PEP Africa offers an appropriate implementation instrument on the ground to ensure that the Bank Group is partnering in responsive activities.
AMSCO (African Management Services Company)
AMSCO (African Management Services Company) was established to address the issue of management and management capacity building in private sector companies in Africa, enabling these companies to enter the global market competitively, profitably and in a sustainable manner. To achieve this aim AMSCO provides management and capacity building services to African businesses, particularly Small and Medium Enterprises (SMEs).
The African Training and Management Services (ATMS) Project was launched in 1989. It is a joint initiative of the United Nations Development Programme (UNDP), the International Finance Corporation (IFC) and the African Development Bank Group (ADB), with the support of a group of international private companies and a number of multilateral and bilateral donors.
The ATMS Project is a unique program for assisting the private sector and particularly SMEs. It seeks to develop sustainable, locally managed companies by providing managers for a period of 2-3 years. As an integral part of its services, AMSCO, its operational arm, designs and executes comprehensive training programs for local managers and staff so that they can take over the responsibilities of provided managers and sustain the performance of the enterprise at the end of contract. In carrying out these functions, AMSCO provides grant assistance to selected client companies to cover part of the cost of training and finance a small portion of the cost of internationally recruited management personnel using resources contributed by various donors, including the African Development Fund (ADF). The African Development Bank provided support in the form of a grant to support provision of management service, management development and training activities to SMEs in Africa. Only SMEs are eligible to such grants.
Web site: www.amsco.org
Franchising to support SMEs development In Africa
The development of small and medium enterprises (SMEs) is being acknowledged as a key condition in promoting equitable and sustainable economic development. Indeed, because of their economic weight in African countries, SMEs have a crucial role to play in stimulating growth, generating employment and contributing to poverty alleviation. They represent over 90 % of private business in the continent and contribute to more than 50% of the employment and of GDP in most African countries.
Franchising is widely recognized as one of the most successful ways of doing and strengthening business. In both developed countries and emerging markets, franchising has been effective in ensuring business growth with private ownership and skills transfer. It has generated new incomes and additional jobs, therefore contributing to boosting the host economy and to raising the standards of living of its population. More specifically, for new business/start-ups and SMEs, franchising can be viewed as a mean of nurturing and developing the entrepreneurial talent, promoting good corporate governance and transparency, and attracting the informal sector business to the formal sector, through certain contractual terms used in franchise agreements.
The AfDB carried out a study on Franchising in Africa in 2002 (hereafter called the Study), to identify the key conditions under which the franchising model could be used in promoting SME development. The Study investigated the present level of franchising development in Africa; reviewed the strengths and weaknesses of the franchising sector, including the brand value of existing systems, their capacities and potentials for expansion within or outside the originating countries; and demonstrated the value of franchising development for promoting entrepreneurship, technology transfer and exports, as well as for contributing to the development of SMEs and to the growth of the private sector in general.
The Study also reviewed international best practices in franchising development and underscored the experiences which could be useful for Africa. It examined in particular the role that has been played by international franchisors in developing the franchising industry in Africa. The overall objective of the exercise was to help the Bank to develop a strategy to foster franchising development on the continent as part of the Bank’s strategy towards poverty reduction through generating employment and providing income for the poor. The opportunity was taken to firm up the findings and conclusions of the Study during the “Franchise African Symposium” held in Johannesburg in May 2002 and co-sponsored by AfDB.