The AfDB’s Private Sector Operations support African countries through direct lending to private sector enterprise in fields such as oil and gas, mining, manufacturing, agribusiness, health and education.
Our sectors of intervention
Oil and Gas
Africa’s proven oil reserves of 120 billion barrels (valued at US $7.3 trillion) constitute nine per cent of the global reserves. Africa’s oil production of 11 million barrel per day constitutes 13 per cent of the global production. In addition, Africa has 510 trillion cubic feet of gas reserves (valued at US $3 trillion). Moreover, Africa has technically recoverable shale gas resources of 1,042 trillion cubic feet (valued at US $6 trillion).
The majority of African oil and gas reserves is concentrated in six countries, namely Libya, Nigeria, Algeria, Angola, Egypt and Sudan. They account for more than 90 per cent of the proven oil and gas reserves. However, with newer discoveries more numbers are being added to this list. While the continent had only seven producer countries in 1970, the number is expected to rise to 21 by 2015 and further increase to 40 by 2030. Therefore, the oil and gas (O&G) industry has considerable growth potential in the African continent.
AfDB helps to explore the full potential of the O&G industry for the development of the African continent. AfDB’s objectives in the oil and gas industry are to improve access to energy, creation of new infrastructure and value addition to hydrocarbon resources. This includes upstream infrastructure investments in production of oil and gas; midstream/downstream investments in infrastructure (pipelines, storage, etc.), assuring secure and efficient transportation and logistics of energy resources, and investments in augmenting/upgrading refining capacity to improve access to petroleum products, and in increasing local transformation capacity to increase fertilizer and petrochemical output.
Experience and Achievement
The AfDB has a long history with the Extractive Industry in Africa and has been engaged with the sector for over 30 years. In the 1990s, The AfDB shifted its focus from investment in large-scale public sector companies to initiatives which promote private investment through institutional capacity building, policy reforms and direct investments in private sector operations. Since the AfDB’s engagement in the private sector in the 1990s, the Bank’s cumulative investments in the extractive industries sector total roughly US $1.6 billion. The AfDB began to scale-up its non-sovereign operations in 2001 and is currently aiming at total non-sovereign financing operations to exceed US $1.6 billion in 2011. Our current business plan envisages further expansion, with 30 per cent of the Bank’s risk capital allocated to the private sector risk assets class.
Through its involvement, in particular, AfDB promotes the attraction of foreign investments based on transparent, stable and balanced legislation in the sector. It also aims to strengthen local capacity through the support of SME linkages and the building of in-country capacity and local support infrastructure. Furthermore, AfDB helps raise the environmental and social standards in the O&G industry. Adherence to best practice environmental and social standards increases the local acceptance of O&G projects, lowers the risk disruptions and thereby contributes directly to the project’s commercial viability.
The AfDB supports African countries in their efforts to develop the O&G sector through the African Legal Support Facility (ALSF) which main objective is to provide technical assistance to members in order to strengthen their legal expertise and negotiating capacity in matters pertaining natural resources. This includes the financing of an external legal counsel to structure and negotiate on behalf of project’s sponsors.
Africa is endowed with a great variety of abundant mineral resources and recent estimates show that the continent holds most of the world reserves of platinum group metals, phosphates, chromium, manganese, cobalt, gold and bauxite. However, the continent produces only about one tenth of the world’s base metals as most of these resources are exported in their raw form. The vast and diversified mineral endowment of the continent being still largely untapped therefore offers a huge potential for local economies and communities to benefit from these abundant and needed resources all over the world.
Development of mining projects in Africa is however facing challenges due to underdeveloped nature of the capital markets and inadequate infrastructure in Africa. A crucial challenge to the economic and social development of the continent is also to unlock and broaden the impact of private sector involvement in mining on the continent.
In order to face these challenges, the African mining sector needs advice on local mining laws, SME linkages, environmental and social issues, corporate social responsibility, transparency, and help in finance structuring and funding.
The AfDB Private Sector strategy for mining is to focus on transactions with potential for catalytic and demonstrated effect, which:
- have an industrial component, providing local value added and transformation to local minerals
- prioritize the supply to local and/or regional markets
- benefit local governments and economies
- promote transfer of skills and local training
- foster inclusive growth with local businesses and communities through business linkages
- are environmentally and socially sustainable
- are viable, promote corporate social responsibility programs
- adhere to transparency fundamentals
- Maximize the projects’ inclusiveness with the involvement of local stakeholders in the value chain
- Increase local transformation, capture more value-added, strengthen capacity building and transfer of know-how
- Ensure compliance with mining codes, foster greater disclosure and transparency of revenue management.
Agriculture is vital for the development goals of promoting growth and reducing poverty in Africa. Agriculture supports the livelihoods of 80 per cent of the African population, provides employment for about 60 per cent of the economically active population, and for about 70 per cent of the poorest people on the continent. The global financial and food crises have brought agriculture into sharp focus, demonstrating that poverty and food insecurity go hand in hand. Agricultural growth is a proven driver of poverty reduction: When agriculture stimulates growth in Africa, the growth is twice as effective in reducing poverty as growth based in other sectors.
Africa is endowed with large tracts of underutilized arable land, but still imports US $33 billion of food annually. Although, the recent upward trend of food prices has increased interest of the private sector in the agricultural sector, the annual investment requirements are estimated at US $50 billion, mainly to address the need to increase crop and livestock production, to enhance productivity through mechanization and a better use of water and fertilizers, and to tackle the infrastructure bottlenecks affecting the sector.
Our activities in agribusiness include operations in agro-industries, biofuels and forestry. Bank is committed to raising the productivity, revenue and income of smallholder farmers, including women, by facilitating their entry into market oriented farming. To achieve this goal, the Bank will use its instruments to finance transactions which promote inclusive growth and inclusive farming as well as sustainable natural resources management.
The AfDB Private Sector strategy for agriculture is to focus on transactions with potential for catalytic and demonstration effects, which:
- Contribute to food security ;
- Feature transfer of skills and technologies;
- Prioritize the supply to local and/or regional markets;
- Foster inclusive growth with local communities through outgrower schemes and business linkages; and
- Are environmentally and socially sustainable and viable.
ADDAX Bioenergy Project
Addax Bioenergy is developing an integrated bioenergy project in Sierra Leone
AfDB has played a key role with other lenders in ensuring compliance with international environmental and social sustainability standards. AfDB contribution to the project amounts to 25 million euros.
The project will develop a sugarcane plantation of approximately 10,000 ha to supply about 960,000 tons of cane per year. The project is expected to produce 83,000 m3 of fuel ethanol for export; and roughly 100 GWh of electricity from biomass, which will be available for sale to the domestic market.
The AfDB along with partner Development Finance Institutions help catalyze private investment in post-conflict Sierra Leone with this flagship sustainable bioenergy project and will ensure that social and environmental sustainability and food security issues are addressed. The project will have positive development impacts in the country by creating jobs, improving food security and enhancing economic diversification through the development of a new export sector.
The Bank is supporting the private sector’s contribution to health and education in Africa through the participation in the Health in Africa Fund, which aims to mobilize up to US $1 billion in investment and advisory services over five years, following publication of the International Finance Corporation’s 2007 Business of Health in Africa report, which focuses on how to improve people’s lives by partnering with the private sector.
The fund targets commitments between US $100-120 million over two closings. Today’s first closing of US $57 million includes investments from IFC (US $20 million), the African Development Bank (US $20 million), the Gates Foundation (US $7 million), and DEG (US $10 million).
The Health in Africa Fund, managed by Aureos Capital, will invest in small and medium-sized companies in Sub-Saharan Africa, such as health clinics and diagnostic centres, with the goal of helping low-income Africans gain access to affordable, high-quality health services. The fund will be measured not only by fiscal performance, but also by its ability to cultivate businesses serving the poor.
Donald Kaberuka, African Development Bank President, noted: “The Health in Africa Fund is likely to have considerable growth potential despite the global economic slowdown and we are committed to supporting this landmark initiative.”
The fund makes long-term equity and quasi-equity investments in socially responsible and financially sustainable private health companies with the aim of scaling up successful businesses, taking proven business models into new regions, and identifying and investing in areas where there are critical gaps. It will invest in a wide range of companies that deliver health services (clinics, hospitals, diagnostic centres, labs); risk pooling and financing vehicles (health management organizations, insurance companies); distribution and retail organizations (eye clinics, pharmaceutical chains, logistics companies); pharmaceutical and medical-related manufacturing companies; medical education; and providers of medical education.
The fund plans to make about 30 investments, ranging from US $250,000 to US $5 million. Although viable investment opportunities from all parts of Africa will be considered, priority countries include Côte d’Ivoire, Ghana, Kenya, Nigeria, Senegal, Tanzania, and Uganda. Angola, Burundi, Democratic Republic of Congo, Ethiopia, Mozambique, Rwanda, South Africa, and Zambia are expected to follow.