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2.1 The proposed transaction envisages extending a LOC to EADB for US$40 million, with a maturity profile of 10 years and a 2 year grace period. The purpose of the LOC is to assist EADB achieve its mandate of promoting economic growth in the EAC member countries by funding a pipeline of country and regional projects from Kenya, Tanzania, Uganda and Rwanda. The pipeline includes projects from the agro and food industries, infrastructure, manufacturing and education sectors, with a medium/long term maturity profile of 7-10 years. The specific LoC related pipeline is part of a broader EADB pipeline which includes the said sectors as well as other pipeline projects in regional infrastructure (roads), energy (micro hydro power-stations) and others benefiting the whole East African region and promoting regional integration. 2.2 This proposed transaction will be AfDB' 8th LOC assistance to EADB. The previous LOC interventions totaled US$162million. The last LOC was the 7th and was approved in 2003, with a maturity profile of 14 years, inclusive of a grace period of 4 years. The LOC is being serviced in semi-annual installments and currently has a balance of US$14.5 million. 2.3 EADB's management has made positive strides in reorganizing the operations of the bank although some key areas still need attention if the bank is to successfully complete its turnaround. In particular, EADB still needs to continue to work on its risk management environment, improve on Board oversight in key areas, strengthen its treasury function and continue to train relevant staff and upgrade the IT infrastructure to successfully restart growing its loan portfolio. The implementation of the TA component which was approved together with the recent equity injection is expected to go a long way in addressing remaining weaknesses within EADB.
To provide a 10 year LOC for USD 35 mln with a 2 to 3 year grace period. In addition to this, the Bank has recently considered and approved a US$24 mln additional equity investment in EADB (US$14 mln "Callable" and US$10 mln "Paid-in") to further strengthen EADB's capital. The new equity was supported by a US$0.9 mln TA package to strengthen EADB's operations. Implementation of the TA package will buttress both the already approved equity injection and this LOC.
Although there are differences among the EAC countries, the financial systems in Kenya, Uganda, Tanzania and Rwanda are generally small, even relative to the size of the member countries' GDP. The banking sector is the dominant supplier of funding to businesses in the region. Although all the three countries have stock exchanges and bond markets, these are relatively small, lack depth and play only a useful support role. Banks largely target their market at the short end of the maturity spectrum, with innovative business models and channels specifically targeted at the poor and the under-served populations. The long term end of the market is severely undersupplied, especially for the small and medium enterprises (SMEs) and other regionally important projects. EADB is one of the few providers of medium to long-term finance, filling a critical funding gap within the region.
The proposed transaction will assist EADB mobilize significant financial resources in the EAC, ultimately contributing to economic development and employment opportunities. The LOC will assist in strengthening regional infrastructure and integration and government revenue growth.
EADB was created in 1967 under the Treaty for East African Cooperation, with EADB as the sub-regional multilateral lender. It is headquartered in Kampala, Uganda with offices in its other paid-up member countries of the EAC. Four members of the EAC, Kenya, Rwanda, Uganda and Tanzania, collectively own 85.9% of EADB's paid-in capital with the fifth member, Burundi still to contribute to EADB's capital. Several Development Finance Institutions (DFIs) own the remainder with AfDB being the largest single DFI equity investor in EADB. EADB's interventions mainly take the form of loans, leases and equity participations and is geographically limited to within its member countries only.
NGANDU Willy Budibunene - PIFD