Private Sector Operations Growth
In 2014, the Bank approved a total of UA 1.59 billion to finance 48 new private-sector operations. This was a notable increase of 51.4 percent above the UA 1.05 billion approved in 2013. Fifty-one percent of approvals were for the finance sector. This was lower than the 65.5 percent of total approvals that went to the sector in 2013. A total of 38.8 percent of approvals were for private sector investment in infrastructure, mainly in energy and transport.
The establishment of Africa50 in 2013, and its eventual incorporation in Morocco, in 2014, was a landmark in the Bank’s shift towards mobilizing innovative financing for the development of infrastructure in Africa. The Bank provided UA 86 million to Africa50 as seed money to catalyze additional financing from traditional and non-traditional sources of financing in Africa and abroad.
In its private sector operations, the Bank focuses on three main areas: infrastructure; industries and services including support to agriculture and agribusiness, small and medium enterprises linkages as well as housing; and finance. The latter encompasses corporate loans and equity participations in financial institutions, as well as LOCs for on-lending to small and medium-sized enterprises (SMEs), which form the backbone of many African economies. The Bank also invests in microfinance institutions, thereby extending its outreach to the very small and informal enterprises that traditionally encounter difficulties in accessing credit.
To enhance the relatively poor business enabling environment (BEE) for private sector development in most African countries, the Bank has intensified its support to this area. BEE improvement programs are now an integral part of the Bank’s approach, particularly through technical assistance grants for institutional capacity building provided by the multi-donor Fund for African Private Sector Assistance (FAPA).
While the project loans, in general, were used for accelerating economic growth and reducing poverty, the LOCs aimed at deepening domestic financial markets for on-lending to small and medium enterprises, the core of Africa’s private sector development. The Bank Group’s investments in many sizeable multinational projects and programs predominantly in the form of private equity supported the enhancement of financial institutions and services to boost access to finance through the growth of domestic capital market, economic cooperation and regional integration, thereby also improving the investment climate and job opportunities in the continent.
The sectoral distribution of AfDB private sector approvals in 2013 is reflecting the Bank compliance with its policy of selectivity, prioritizing projects that ensure positive socio-economic impacts to regional member countries (RMCs). Finance attracted the largest share (60.3 percent – mainly in the form of LOCs and equity participation) followed by infrastructure (25.8 percent – comprising transportation and energy); then industry, agriculture and rural development, and housing (13.8 percent). The allocation to finance was considerably increased from its 2012 level, reaching 55 percent of the total private sector approvals, partly because of the new focus of the Bank’s Private Operations on Trade Finance, demonstrating the achievements of the AfDB Trade Finance Program established in February 2013.
The Bank’s investments in industries and agriculture generally target the development of housing, agriculture and agribusiness. An important feature of the Bank’s investments in infrastructure and industries is the creation of developmental linkages with local SMEs to promote their growth and expansion.
In terms of the distribution of private sector operations by country classification in 2013, regional and multinational projects received the highest share (63.1 percent), followed by low-income (ADF-only eligible) countries (36.8 percent), then middle-income countries (MICs, namely those eligible only for ADB resources) with 0.1 percent.
The 2013 allocation to LICs largely exceeded the 2012 level of 33.4 percent demonstrating the results of the Bank’s private sector operations efforts to reach out more and more low-income, post-conflict and fragile countries on the continent. These approvals include fragile states such as Côte d’Ivoire and Niger. Although the share of approved operations directly targeting LICs still seems modest, when regional/multinational operations that benefit LICs are factored in, the figure rises to around 57 percent of approvals. Moreover, the Bank has provided LOCs to African banks and DFIs, engaged in equity participation in regional funds located in MICs, for on-lending to projects in LICs. This minimizes the Bank’s risk exposure, while supporting projects in LICs.
Turning to the regional and multinational private sector operations, the main ones, in terms of their expected development impacts include: (i) Standard Chartered Bank Risk Participation (US $200 million), which will provide significant trade finance support for imports and exports across vital economic sectors including agriculture and food to corporate and financial institution clients in Africa. This is the first time AfDB signed such bilateral risk sharing partnership with a bank. The three-year facility will support trade flows of approximately US $3.6 billion in intermediate and finished goods, raw materials and equipment in Africa. The program aims to support economic growth, foster development of the financial sector and promote regional integration; (ii) OLAM Africa Investment Program (US $80 million), which aims to deepen the integration of OLAM Group’s agricultural value chain by investments in processing of wheat and palm oil in Africa. The program includes five sub-projects in Cameroon, Ghana, Mozambique and Senegal. Ultimately, this program will enhance the regional food supply chain and act as a catalyst to support job creation and improve sustainability of agribusiness sector, thereby enhancing food security in Africa.
With respect to private sector operations in low-income countries (LICs), the three principal approvals in 2013 in terms of loan size were for (i) Lake Turkana Wind Power Project loan (US $150 million), which will add 300 MW to power generation capacity and will benefit Kenya by providing clean and affordable energy that will reduce the overall energy cost to end consumers. Furthermore, the Turkana project, the biggest wind farm in Africa, will allow the landlocked Great Rift Valley region to be connected to the rest of the country through the improved infrastructure linked to the wind farm, including a road, fiber-optic cable and electrification; ii) Maamba Collieries Power Generation Project loan (US $150 million), which will greatly improve access to reliable and affordable electricity supply in Zambia; iii) Indorama Fertilizer Plant Project (US $100 million), which will build and operate a gas to urea fertilizer plant located in Port Harcourt, Nigeria, that will serve worldwide markets. The project will allow Nigeria, which currently relies 80 percent on imported fertilizer, to progressively become self-sufficient and transformed into a major exporter. Ultimately, the project will act as a catalyst to support job creation in the area and achieve the Millenium Development Goal for food sufficiency and cleaner environment.