Transforming African Development Partnerships and Risk Mitigation to Mobilize Private Investment on a New Scale Copyright © IFC, 2016. All rights reserved IFC 2121 Pennsylvania Ave NW, Washington DC, 20433, USA Website: www.ifc.org DISCLAIMER IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives. We foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. This report was commissioned by IFC through its Sub-Saharan Africa department and the Office of the Chief Economist. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC, its partner, or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. 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Transforming African Development Partnerships and Risk Mitigation to Mobilize Private Investment on a New Scale PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE Case Studies Contents CEC Africa Power: Adding Significant Foreword by IFC Executive Vice President Power Capacity in Sierra Leone / 19 and CEO Philippe Le Houérou / 2 Azura-Edo Power Project: Meeting Energy Needs of 14 Million Nigerians with New Template / 20 Executive Summary / 3 Azito Energy: Meeting Africa’s Power Needs / 22 ENDA Inter Arabe: Providing “Starting Joining Public and Private Resources Point” Loans to Entrepreneurs in Tunisia, on a New Scale for Development / 9 Promoting Youth Employment / 24 The New Challenge of the Sustainable Development Goals /9 Ecobank: Bringing Credit to Small Businesses / 26 Opportunities in Rapidly Changing Markets /10 Rawbank: Targeting Women and Small Businesses / 27 Changing Consumption Patterns /11 Scaling Solar: Tapping a Source of Growth Prospects and Challenges /12 Efficient, Cleaner Power across Africa / 30 Bayport: Tapping Bond Markets to Business Prospects in a Shifting Environment /14 Expand Lending / 31 Funding Sources and Impediments /15 Cargill/SIB and Cameroon Agriculture: Securing Agricultural Supply through Loans to Farmers and Coops / 32 Mobilizing Private and Public Al Tadamun Microfinance Foundation: Supporting Women Entrepreneurs in Financing for Africa / 17 North Africa / 34 Finance Solutions /17 Kenya Tea Development Agency: Improving Tea Farmer’s Yields with Better Partnership Financing Tools /21 Fertilizer and Training / 35 Bridge International Academies: Expanding Education That Gets Results / 36 Africa Improved Foods: Nutrition on a Larger Scale in East Africa / 37 GLS Liberia and SME Ventures: Providing Risk Capital and Advice to Entrepreneurs / 38 Tanzania Interoperability Standards: Pioneering Mobile Money / 39 2 TRANSFORMING AFRICAN DEVELOPMENT Foreword The challenge is bold: ending poverty, confronting climate change, ensuring prosperity for all. Facing that task will take trillions in investment, the ingenuity of a generation, and sustained economic growth. None of it will be possible without thriving private enterprise and markets. The role of the private sector is particularly significant in across Sub-Saharan Africa through simplified government Africa—the focus of this report. Africa’s population is expected processes and low pricing. It allows governments to procure to increase to 1.7 billion in 2030. By 2050, the continent will privately funded solar power stations—quickly, transparently, be home to 2.4 billion people—a quarter of the world’s future and at the lowest tariffs possible. Private developers, for population. A growing and rapidly urbanizing Africa requires their part, benefit from an all-in-one package of advice, risk substantially more services and basic infrastructure, including management, finance and insurance. power, ports, roads, and railways. According to the World So far, three countries are on board—Madagascar, Senegal and Bank Group, Africa’s unmet infrastructure investment needs are Zambia—and dozens of top-tier companies are competing for estimated at more than $45 billion annually. the chance to build solar plants in markets they would otherwise Only a robust private sector can create the jobs and deliver not know how to navigate. The program’s first auction, in higher standards of living to an increasingly young African Zambia, resulted this year in the lowest-priced solar power to population. date in Africa, just six cents per kilowatt hour. In a country where only one fifth of the population has access to electricity, Yet obstacles abound. In the poorest and most conflict-prone consumers will now have a new source of affordable, renewable countries, private markets barely exist, slowing development. energy. These markets must be built up and energized, work that will require new types of financial instruments that can attract IFC has a track record of fostering and sustaining private private investment and mitigate risks for investors. enterprise in the most difficult environments. I hope this report will encourage governments, donor partners, and the private This report offers a template for how we can move forward—by sector to collaborate in new ways. showing how investors, governments, local enterprises, donors, and individuals are working together to address investors’ risk Working together, we can accomplish a great deal more. concerns and deliver more investment with positive impact. Philippe Le Houérou Consider just one example. The World Bank Group’s Scaling IFC Executive Vice President and CEO Solar program helps develop large-scale solar power plants August 2016 PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 3 Executive Summary In 2015, countries across the globe signed on to the Sustainable OPPORTUNITIES IN RAPIDLY CHANGING Development Goals of ending poverty, protecting the planet, MARKETS and ensuring shared prosperity through a new sustainable The African continent is susceptible to the short-term economic development agenda. To meet these goals in Africa, investment headwinds that most economies now face, and changing is sorely needed in basic infrastructure, agriculture and rural conditions are causing some opportunities to fade. Trade and development, climate change mitigation and adaptation, health, growth in the region are impacted by the effects of a slowdown and education. in China, while a significant drop in commodity prices and a depreciation of local currencies are creating challenges for Private investments can in many instances take place companies and governments alike. As a net commodity exporter, alongside public and donor investments. Further funding many African countries are deeply affected by falling commodity from international financial institutions, especially those that prices, putting pressure on current account and fiscal balances. focus exclusively on the private sector, can be used to unlock While most African economies continue to grow, the impact of additional capital through blended or pooled financing and risk such global economic trends is raising the cost of doing business mitigation, especially for infrastructure and other investments in Africa, hampering productivity and growth. that support private sector development. Donors and private investors increasingly recognize the benefits of working together. And though near-term regional growth prospects have been revised downward, there are still convincing reasons to invest The timing is right: Africa holds enormous potential for private in Africa, including the existence of a wide range of partners to investors. A continent in transition, it is among the world’s help overcome the financing challenges that come with working fastest growing regions, with a young and growing population in the region. Notable trends include: in rapidly expanding cities, an improving business environment, expanding Internet connectivity, rising incomes, and shifting • In Sub-Saharan Africa, growth slowed to 3.0 percent consumption patterns. Despite recent economic and political in 2015, from 4.5 percent in 2014. Although growth is challenges, these enduring trends have created an abundance of expected to slow further to 2.5 percent in 2016 due to commercial opportunities across the continent, transforming it depressed commodity prices, it is forecasted to rise to an into a market and opportunity that investors cannot afford to average of 4.1 percent in 2017-2018. This indicates an ignore. improvement in some of the region’s largest economies, including Angola, South Africa, and Nigeria. Even before the recent global economic turmoil began, investor • In North Africa, average growth rates in Egypt, Morocco, activity on the continent was constrained by structural obstacles, and Tunisia are also expected to slow in 2016 to 2.4 a lack of risk mitigation mechanisms, and few financing options, percent, from 2.9 percent in 2015. However growth in all of which inhibit the effective distribution and mitigation of both Tunisia and Egypt, the region’s largest economies, is risk associated with large-scale or long-term projects. expected to pick up in 2017. 4 TRANSFORMING AFRICAN DEVELOPMENT • Compared to other developing countries, projected financing, climate finance, local debt and equity instruments, per-capita growth rates are higher for African countries, private equity, and public-private partnerships are being including Ethiopia (6.0 percent), Rwanda (4.6 percent), deployed in Africa in new ways that address risks associated Cote d’Ivoire (4.6 percent), and Tanzania (3.6 percent), with low-income and fragile states. Public funding or support among others (2010-2020 average growth rate). for advisory services aimed at improving the conditions for • Driven by a young population and rapid urbanization, private enterprise or the development impact of investments can household consumption is expected to continue to grow be deployed alongside commercial financing to hasten growth in important sectors including clothing, communications, and encourage shared prosperity. These tools provide innovative energy, financial services, food, health, housing, and paths to securing financing on a scale that can match the scope transport. In North Africa, spending on education will be of business opportunities and help manage risks – both new and particularly critical and is projected to grow. old – in high-growth African markets. • Sub-Saharan Africa alone could productively make use Methods exist to underwrite successful investments in Africa. In of more than $90 billion annually in infrastructure a riskier environment going forward, they are sure to become investment but currently receives less than half that more important. amount. The capital shortage going forward is projected to be particularly acute in Nigeria, Angola, and Kenya, while • Public-Private Partnerships are a strategy for projects investments in energy, transportation, and logistics offer the with the right regulatory framework, sector planning and most potential for both impact and reward. a high quality off-taker of services and goods to provide the comfort level private investors require to participate. • Regional spending to adapt to climate change is expected Development institutions often play a critical role in to be between $5-10 billion per year from public and bringing the private and public sectors together to provide private sources. Rising temperatures and water supply those elements. issues, among other environmental issues, are creating investment opportunities for scaling up low-carbon energy • Co-financing between private investors and development sources and managing water more efficiently. finance institutions draws on the strength of both to build confidence and spread risk beyond private sponsors and So while positive structural trends endure across Africa, they are private commercial banks. offset to varying degrees, and differing by country and region, by • Blended Finance mixes concessional funds—typically from recent cyclical and global economic developments. In suddenly donor partners—with those of commercial development more challenging, less liquid markets, the question, then, for institutions and private investors in a risk-sharing donors, development finance institutions, and private sector arrangement, with aligned incentives that ensure that participants looking to contribute to sustainable growth and development is: what methods can be employed to raise capital and official assistance is leveraged as much as possible with mitigate risks to enable development through the private sector? private capital. • Climate Finance brings together public and private sources MOBILIZING PRIVATE AND PUBLIC FINANCING of financing to support climate-smart investments in SOLUTIONS emerging markets, using a number of channels, including Companies looking to seize still significant opportunities in blended finance, support to local financial institutions, Africa can benefit from additional sources of financing, as well specialist bond issues, and asset management. as tools that crowd in more private sector participants and • Local Capital Markets and Tailored Solutions offer mitigate risk, spreading it among different investor classes and effective ways to access long-term, local-currency finance over longer time frames. Tools such as blended finance, co- and protect economies from capital-flow volatility, and PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 5 reduce their dependency on foreign debt. Local debt and equity markets can be better leveraged by local corporations when large banks or development finance institutions provide risk guarantees or act as anchor investors, expanding access to additional funding instruments as well as new classes of investors. Other currency risks and market volatility can be addressed through tailored solutions and instruments. • Private equity, through the assistance of anchor investors, can support the development of large and specialized funds that are able to invest in a wide variety of enterprises, including small and medium size businesses. Meanwhile, development finance institutions can help global institutional investors take equity in African companies, including through asset management. CASE STUDIES Successful examples of recently financed private sector projects with support from multilaterals, governments, and donors come from across the African Region. CEC Africa Power: The World Bank Group combined its financial and advisory products into a package for Sierra Leone, which is still recovering from a decade-long civil war and a recent Ebola outbreak. The result is a $134 million power generation facility, launched in 2016 in an industrial zone about four kilometers east of Freetown, for development, construction, and operation of a 57 megawatt heavy oil fuel fired power plant sponsored by CEC Africa Investments. Azura-Edo Power Project: The World Bank Group worked with more than a dozen financial institutions, including commercial banks and development finance institutions, to support Azura, a greenfield gas-fired power plant that will provide electricity to an estimated 14 million people in Nigeria. Azura is Nigeria’s first privately-financed independent power project and draws from the country’s reserves of natural gas, a clean-burning transition fuel, to address critical electricity needs and move toward a less carbon-intensive economy. 6 TRANSFORMING AFRICAN DEVELOPMENT Azito 3: Nine development finance institutions teamed up Africa Improved Food Holdings: In a project that addresses to provide the $345 million in long-term finance and effect chronic malnutrition, DSM, a Dutch multinational, established the regulatory reforms necessary to break ground on a 139 a nutritious food processing plant in Rwanda requiring $60 megawatt power plant expansion in Cote d’Ivoire. million in initial investment. This is a project of ambitious scale and risk that needed to be mitigated by reputable sponsors and ENDA Inter Arabe: Tunisia’s leading microfinance institution responsive governments. It required strong purchase, supply and ENDA contributes to developing the local economy and fighting off-taker arrangements for raw materials and final products. poverty by enabling people excluded from the formal financial system to get services suited to their needs. IFC has been Scaling Solar: Scaling Solar draws on the World Bank Group’s supporting ENDA through a comprehensive capacity building expertise to deploy privately funded, grid-connected solar projects program that includes risk management and product strategy to deliver power at stable, competitive tariffs and rapid timelines, and transformation. while investors enjoy structured and standardized projects in a competitive process that lowers risk, costs, and consumer tariffs. Bridge International Academies: An education company Zambia became the first country to join the program and its first teamed with IFC and other development banks and new auction resulted in bids for the lowest priced solar power ever investors to expand its low-cost private school chain out of in the region. Building on South Africa’s program to encourage Kenya into three additional countries, at a cost of $60 million. renewable energy projects, KaXu Solar One was the first large- The partnership provided both regulatory assistance and seed scale concentrated solar power plant with storage to begin investment. operating in any emerging market. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 7 Cargill/SIB and Cameroon Agriculture: An agribusiness Bayport Financial Services: Zambia’s largest microfinance giant Cargill and an Ivoirian bank SIB partnered with IFC lender is a beneficiary of the type of newly functioning securities to provide financing, via a $6 million risk sharing facility, to markets that donors seek to create and support. It was able to cocoa farmers looking for funding methods to purchase better issue its first medium-term note raising 172 million kwacha, vehicles to transport product from farms to coops. Similarly, or about $26.5 million, to expand lending to low and middle- in Cameroon, a joint World Bank-IFC Program helped Banque income borrowers and small businesses. Development finance Internationale du Cameroun pour l’Epargne et le Crédit institutions assisted by providing anchor investments on the participate in an $8.3 million risk sharing facility to help two issue. sorghum producer organizations purchase plants to process sorghum for Guinness Cameroon. GLS Liberia and SME Ventures: A locally-owned logistics company stepped into a void during the Ebola crisis and became Ecobank Transnational: The pan-African bank extended a critical player in the country’s defense against the disease. GLS lending to small businesses in eight African countries with had a fleet and distribution network ready to move shipments particularly difficult economic environments in terms of fragility from the airport to sites across the country, alleviating the and low income levels. The project relied on a $110 million risk impact of the crisis. It was supported by locally-managed sharing facility between Ecobank and two development banks, risk capital with funds from SME Ventures, an IFC program including IFC. designed to address some of the key financial and business challenges that hold back high-potential SMEs in the world’s Rawbank: Founded in 2002, Rawbank was an innovator in most difficult markets. a stagnant market. Embracing technology and the business acumen of a family with business presence in the country since Tanzania Interoperability Standards: Tanzania became 1922, it recently surpassed competitors to become the largest the first country to successfully develop and implement standard bank in the Democratic Republic of Congo. Donors were key business rules for interoperable mobile financial services to IFC’s effort to combine $22 million in lending with advisory transactions. It allows electronic money transactions across services to help Rawbank expand lending. subscribers of different mobile telecom operators. The process was facilitated by IFC and supported by the Bill & Melinda Kenya Tea Development Agency: In 2016 IFC and KTDA, Gates Foundation and Financial Sector Deepening Trust of with the support of a major donor, launched a new 420 million Tanzania Kenyan shilling (about $4.2 million) initiative to improve productivity and business skills of smallholder tea farmers and strengthen KTDA’s biomass fuel supply chain over the next four years. This follows multiple rounds of financing to help the cooperative grow. Al Tadamun Microfinance Foundation: With support of IFC donor-funded advice, Al Tadamun was able to expand its loans exclusively to urban women entrepreneurs through solidarity group lending. It serves a microenterprise segment (low-income women) that is normally excluded from formal financial services due to gender and low incomes. 8 TRANSFORMING AFRICAN DEVELOPMENT PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 9 Joining Public and Private Resources on a New Scale for Development THE NEW CHALLENGE OF SUSTAINABLE Investments by international financial institutions, especially DEVELOPMENT GOALS those that focus exclusively on the private sector, are building In 2015, countries across the globe signed on to the Sustainable on decades of experience to take successful models to a new Development Goals of ending poverty, protecting the planet, and scale. The activities of development finance institutions can be ensuring prosperity for all as part of a new development agenda. used to unlock additional capital through blended or pooled financing and risk mitigation, especially for infrastructure and The sums required to achieve the SDGs are large. The United other investments that support private sector development. Nations estimates the total investment needs of developing countries to be as much as $4.5 trillion per year, while the actual Donors and investors are showing an increasing willingness to investment stands at less than a third of that. Investment is sorely work together. In some cases the goal is to better allocate risk needed in basic infrastructure, agriculture and rural development, so that commercial financing in important projects becomes climate change mitigation and adaptation, health, and education. possible; in others it is to create a project with demonstration effects that encourage other investors to pursue similar projects; During just the first three years of the SDG period (2016- and in still other cases the goal is to expand the reach or value 18), multilateral development banks plan financial support of chain of a business in a way that produces a development impact over $400 billion. But given the scale-up of investment that that would not be possible without donor funding. Donors and is required, multilaterals, donors, and other official aid can’t investors can learn from successful cases and experiences to achieve the SDGs alone. That makes it critical that the direct make cooperation more effective. financial assistance provided by development institutions is used to catalyze, mobilize, and crowd in other sources of funds for Expanding market opportunities have spurred rapid growth development, both public and private. in private enterprises across Africa. While promising, the amounts being directed toward Africa do not yet approach the Funds from varied sources complement one another. Public level of investment required to achieve current development resources are required to mitigate risk, while deeper local ambitions. Development assistance can play a bigger role by financial and capital markets will allow companies to tap the mobilizing financing that can sustain growth and deliver goods pools of savings and capital needed for large, long-term projects. and services. This can only be achieved through significant In Africa and other regions with low-income markets and fragile innovations in financing, particularly by combining the and conflict-affected states, creating a climate conducive to local capacity and resources of the public sector to spur more private and international private investment is more important than ever. investment and increase its impact. 10 TRANSFORMING AFRICAN DEVELOPMENT This report explores a range of projects that are helping to According to the World Bank’s most recent Global Economic unlock private capital to achieve development goals. It draws Prospects report, global growth for 2016 has been revised lessons from successful models, especially those where public downward, to 2.4 percent, a 0.5 percentage point decrease funds and guarantees have made private investment possible. It from projections at the beginning of the year. Emerging looks at initiatives that have been employed across a range of markets and developing economies account for about half of industries and examines how local and international financial this revision, primarily due to declining commodity prices and institutions and capital markets can work hand in hand with depreciating currencies. These have increased uncertainty on official development assistance to support the private sector and the African continent and sharply reduced the liquidity that propel Africa’s next decade of growth and development. allowed companies to expand in recent years. The decline in oil and commodity prices has underscored the need for economic OPPORTUNITIES IN RAPIDLY CHANGING diversification and the export of a wider range of goods and MARKETS services. The time is right for the public and private sectors to seek more opportunities to work together. Africa is already demonstrating In addition to current macroeconomic conditions, Africa faces that it holds enormous potential for private investors. In other long-term challenges that include a lack of electric power, the midst of a downshift in the global economy it remains water, and road infrastructure, all of which impede growth. The a continent in transition and is one of the fastest growing projected population growth in African urban areas highlights continents, with a young and growing population in rapidly the need for the creation of productive jobs, housing, and expanding cities, an improving business environment, broader efficient infrastructure for current and incoming residents. Internet access, rising incomes, and shifting consumption patterns. North Africa, in particular, has large and well The continent also faces significant geopolitical challenges. In developed markets in transition with vibrant demographics, the North Africa region Libya is riven by conflict while Egypt especially in Egypt and Morocco. And growth in several large and Tunisia are experiencing macroeconomic uncertainties economies in Sub-Saharan Africa—Ethiopia, Cote d’Ivoire, along with security concerns. Morocco has witnessed relatively and the Democratic Republic of the Congo—are expected to stronger growth rates and FDI inflows, but the economy is accelerate beginning in 2017. highly dependent on weather related agricultural harvests. Rising violence and conflict in Sub-Saharan Africa are fueling Taken together, these enduring trends have created an bundance increased displacement. Emerging threats in the form of of commercial opportunities across the continent and have given trafficking, piracy, and religious extremism are causing fragility rise to markets that businesses and investors cannot afford to over large parts of the continent, while the risk of pandemics ignore. Despite those opportunities, Africa is susceptible to remains high. the short-term economic headwinds that result from slower worldwide growth and geopolitical risks. Global growth over Yet even before recent international economic turmoil emerged, the next two years is projected to be weaker, led by slowing investor activity in Africa was constrained by structural growth in China, uncertainty in global markets, a stronger US obstacles and a lack of financing options that often inhibited the dollar, and lower commodity prices after a decade-long boom. effective distribution of risk associated with large-scale or long- And dampened demand in both developed and developing term projects. countries is leading to a slowdown in international trade. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 11 CHANGING CONSUMPTION PATTERNS According to proprietary IFC data, food and beverages continue to account for the largest share of household expenditures Nevertheless, for investors the region’s demographics present among African households. But as incomes rise and basic needs significant opportunities. Urbanization is accelerating spending are more easily met, other priorities are emerging. For example, on transportation, from cars and motorcycles to public household spending on health care in Nigeria, the region’s most transport. Young people joining the work force—the median age populous nation, is projected to grow by more than 5.0 percent in Sub-Saharan African is 18—will continue to create demand per year through 2025. Household spending on technology for housing and access to better education, health services, and and transportation is expected to rise by 11.8 percent per year jobs. Connectivity via information technology is becoming a in Ethiopia, the second most populous nation, over the same larger component of household budgets. Education, clothing, period. Spending on housing will top 8.0 percent annually and footwear are dynamic growth sectors in most economies. through 2025 in Mozambique, Ethiopia, and Senegal. In Egypt While conflicts have caused major economic disruptions in and Morocco, household spending on education and transport North Africa, Egypt is showing incremental improvements, will be over 6.0 percent through 2025. Other examples of while demand for education, health services, housing, and surging consumption abound. transport is expected to grow further across this region as well. FIGURE 1: HOUSEHOLD CONSUMPTION PROJECTIONS IN AFRICA, BY COUNTRY AND SECTOR, 2014-2025 SECTOR/ COTE COUNTRY D’IVOIRE DRC EGYPT ETHIOPIA MOROCCO MOZAMBIQUE NIGERIA SENEGAL TANZANIA Share% 2025 Share% 2025 Share% 2025 Share% 2025 Share% 2025 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2014 Share% 2015 Share% 2015 Share% 2015 Share% 2015 Growth% Growth% Growth% Growth% Growth% Growth% Growth% Growth% Growth%   Transport 9.5 8.4 10.3 8.0 2.8 3.4 6.2 4.5 5.2 11.8 3.1 4.7 6.5 6.4 8.0 9.2 7.1 8.6 4.4 11.8 12.8 9.2 5.2 6.4 9.1 11.0 14.0 ICT 9.1 8.4 9.9 9.0 1.1 1.5 5.9 2.9 3.3 12.5 2.1 3.4 5.8 2.9 3.4 9.5 3.5 4.3 4.0 4.5 4.7 8.4 2.0 2.3 8.3 6.4 7.5 Housing 8.7 11.4 12.8 8.2 1.7 2.2 5.1 14.9 15.5 9.5 12.6 15.5 4.4 17.3 17.3 8.5 14.3 16.0 4.5 2.7 2.9 8.3 15.7 18.0 7.0 2.0 2.0 Water supply 7.3 0.9 0.9 7.9 1.2 1.5 4.6 0.6 0.6 5.6 1.5 1.2 4.5 1.4 1.4 8.8 0.8 1.0 3.9 0.3 0.3 6.8 1.9 1.8 7.5 1.6 1.7 Education 7.8 1.5 1.5 6.1 2.9 3.0 6.2 3.2 3.7 12.8 0.5 0.9 6.0 1.6 1.9 8.1 0.3 0.4 3.9 6.1 6.3 8.6 3.0 3.5 9.1 1.6 2.0 Clothing and 6.7 6.3 5.9 6.2 5.8 5.9 4.2 5.7 5.5 7.5 5.8 5.8 5.1 4.9 5.3 8.1 6.2 6.7 3.4 3.2 3.2 7.7 4.3 4.5 6.4 6.4 6.2 Footwear Personal care 7.3 1.2 1.2 6.3 1.4 1.5 4.6 1.3 1.3 7.9 1.6 1.7 5.1 1.1 1.1 8.6 1.3 1.5 3.7 0.5 0.5 7.3 1.8 1.8 8.8 0.1 0.1 Health 7.2 2.0 1.9 5.6 1.8 1.7 5.9 3.3 3.7 6.9 0.3 0.3 5.4 2.3 2.6 7.2 0.4 0.4 5.2 0.3 0.3 6.2 2.3 2.1 7.8 1.4 1.6 Energy 7.6 2.1 2.2 5.8 5.1 5.1 4.2 2.5 2.4 5.3 10.7 8.6 3.1 5.2 4.5 6.2 6.8 6.0 3.5 3.0 3.1 7.9 6.3 6.8 6.9 6.3 6.4 Food and 6.5 47.3 42.7 5.7 69.9 67.9 4.0 47.8 44.6 6.6 52.8 48.3 3.6 42.5 39.0 6.0 47.3 41.2 3.4 62.5 60.8 5.9 48.7 43.5 5.6 54.6 48.6 Beverages Avg Growth rate 7.4 6.1 4.4 7.6 4.3 7.3 3.9 6.7 6.7 2014 - 25 Avg Population 3.2 3.8 3.6 3.8 3.0 3.3 4.1 3.1 3.6 growth 2014 - 25 Population 2014 22 75 90 34 34 27 177 14 52 (millions) Consumption 20.9 14.3 103.9 41.2 51.5 11.7 129.4 8.0 28.1 (US$ bn; 2014) Sources: IFC and World Bank based on Household Surveys. 12 TRANSFORMING AFRICAN DEVELOPMENT GROWTH PROSPECTS AND CHALLENGES countries in the region are projected to sustain growth rates of more than 4.0 percent over the next three years, making it Most countries in Sub-Saharan Africa are expected to see a the second fastest growing region after Asia. In North Africa, gradual pickup in growth over the next two years. Year-over- the average growth rate (excluding Libya) is projected to be year growth for the region slowed to 3.0 percent in 2015. 2.4 percent in 2016, rising to 3.6 percent in 2017-2018. This Though regional growth is expected to slow further to 2.5 is expected to be led by a recovery in Egypt, where growth is percent in 2016, it should rise to an average of 4.1 percent projected to rise to 3.8 percent in 2016 from 3.6 percent in in 2017-2018, according to the most recent World Bank 2015, and to 4.5 percent on average in 2017-2018. Advanced projections. The region’s lowest-income countries are expected economies, by contrast, are expected to grow 1.9 percent a year to continue to enjoy even higher GDP growth in the near term. through 2018. With a few exceptions—South Africa is a prominent one— FIGURE 2: PROJECTED GLOBAL REAL GDP GROWTH (percent) 9.5 6.3 4.8 4.5 4.6 4.4 3.9 3.4 3.6 3.1 3.0 3.1 3.0 2.8 2.8 2.6 2.7 2.4 2.4 2.4 2.5 0.9 0.3 2013 2014 2015 2016 2017 2018 World Sub-Saharan Africa North Africa North Africa (exluding Libya) -1.7 Note: Figures for 2013-2014 are actual. 2015 figure is estimated. 2016-2018 are forecast. Source: World Bank, Global Economic Prospects, June 2016 PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 13 While most African economies continue to grow, global economic damaging infrastructure and institutions, reducing savings, and trends and other factors are weighing on them in various ways. eroding fiscal and external positions. Global financial markets are increasingly volatile, with a Still, per capita GDP in Sub-Saharan Africa has been rising resurgence of risk aversion to investment in emerging markets rapidly since 2000 and is projected to exceed $4,400 in 2020, that is expected to continue through the near term. Investor up nearly 40 percent over the 2010 level. In the North African appetite has diminished across asset classes, as evidenced by region per capita GDP is expected to rise by 12.6 percent over portfolio outflows and reduced foreign direct investment. the 2010 to 2020 period. Compared with other emerging Emerging market currencies, including those across Africa, will economies, projected per capita growth rates in Africa are remain under pressure as the US dollar strengthens; they have higher: Ethiopia is projected to grow at an average annual also suffered from uncertainty stemming from the recent British rate of 6.0 percent over the 2010-2020 period, Rwanda at vote to withdraw from the European Union. Consequently, the 4.6 percent, Cote d’Ivoire at 4.6 percent, and Tanzania at 3.6 abundance of liquidity and low borrowing costs experienced percent. by Africa and other developing regions in recent years has been reversing. From 2010 to 2015, private consumption accounted for almost 60 percent of total economic growth in Africa, a contribution of Furthermore, domestic conditions in many African countries 2.8 percentage points per year on average. As a result, the retail remain difficult compared to the period before the global sector grew more than 10 percent a year over the 2008-2013 financial crisis, with higher fiscal and external deficits and period, more than any other emerging market region. higher levels of debt. There are signs of deterioration in bank balance sheets in many African economies, particularly those The bottom line is that Africa’s economies continue to grow, that rely on commodity exports, with non-performing loans its citizens are becoming wealthier, they have access to more rising and tight domestic conditions pushing down lending disposable income, they are connected to the rest of the world margins. In addition, inflation has begun to inch higher, though more than ever, and they are hungry for the broad variety goods at the moment it remains at historically low levels. Conflicts and and services that businesses can offer. security risks in North Africa have caused major disruptions, FIGURE 3: SUB SAHARAN AFRICA AND NORTH AFRICA, GROSS DOMESTIC PRODUCT (Based on purchasing-power parity (PPP) per capita GDP) (US $) $13,806 $12,869 $12,138 $11,339 $11,543 $10,781 $10,823 $10,956 $4,130 $4,299 $4,473 $3,606 $3,752 $3,817 $3,869 $3,976 2013 2014 2015 2016 2017 2018 2019 2020 Sub-Saharan Africa North Africa Source: IMF 14 TRANSFORMING AFRICAN DEVELOPMENT BUSINESS PROSPECTS IN A SHIFTING And Africa’s thirst for capital remains significant. The continent ENVIRONMENT lags all other global regions in terms of reliable access to electricity, sanitation facilities, water sources, and paved roads. Companies in Africa and from around the world have seized Infrastructure projects across Africa could absorb more than on these opportunities over the past decade, expanding both at $93 billion annually, yet spending on such projects was half that home and regionally. And the region’s potential has inspired a in 2009, according to a 2014 World Bank Group report. The new breed of global private investors looking to tap substantial capital shortage going forward is projected to be particularly opportunities in Africa. Gross capital flows to African nations acute in Nigeria, Angola, and Kenya, and investments in energy, increased from $15 billion in 2005 to $57 billion in 2014 transportation, and logistics offer the most potential for both ($8 billion to North Africa and $49 billion for Sub-Saharan impact and reward, World Bank figures show. In North Africa Africa), according to IFC and Dealogic data. a stronger private sector that can create jobs and opportunities But recent economic headwinds are having an impact. Gross for the youth population will be critical to growth while also capital flows to Africa fell off slightly in 2015, to $51 billion, contributing to broader economic participation and social a decrease of 11 percent from 2014. Flows to Sub-Saharan stability. Africa declined in 2015 to $40 billion, from $49 billion in 2014. Other key sectors where opportunities for investment are not South Africa, with a slight increase in flows last year, was the sufficiently funded include: exception, apparently a flight to perceived quality relative to other regional markets on the part of international investors. • Financial Services: Only about 15 percent of adults in Sub- North Africa was the only emerging market region in the world Saharan Africa had deposit accounts as of 2012, according that saw an increase in gross capital flows in 2015, due to the to World Bank figures. Yet with incomes rising rapidly recovery in flows to Egypt, but the level is still below the 2007 across the continent—and surpassing the critical $1,000 peak before the global financial crisis. level—retail banking in the region is expected to grow at FIGURE 4: GROSS CAPITAL FLOWS TO AFRICA (US $bn) 57 31 51 26 42 41 24 18 31 27 15 23 14 25 14 8 10 19 17 4 15 11 7 14 19 12 13 10 3 18 15 8 5 8 8 8 12 2 4 4 11 8 9 2 6 2 0 1 4 4 3 2 2 3 4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bond Equity Loan Sources: IFC Economics and Industry Research based on Dealogic. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 15 a 15 percent annual rate through the end of this decade. opportunities are expanding for health service providers, The banking sector is more mature and efficient in North pharmaceuticals, and medical technology in order to Africa in general, with better penetration, but banks there create greater access to affordable, quality healthcare. The lag in innovation and competitiveness compared to banks in sector also lacks consolidation, with too many small actors countries with similar per capita income levels. working independently, creating unique opportunities for • Manufacturing and Services: Consumers across Africa companies that can manage change on a large scale. are demanding a greater range of affordable goods and • Climate Change-Related Business: The World Bank services. Construction materials, energy efficient machinery, estimates that annual regional spending to adapt to real estate, retail, and tourism are among the areas where climate change will be between $5 and $10 billion. competitive businesses are likely to thrive in coming Rising temperatures and water supply issues are creating years. In North Africa, Egypt has several established investment opportunities for scaling up low-carbon energy manufacturing companies and Morocco is increasingly sources and managing water more efficiently, including attractive to automobile manufacturers looking for investments in irrigation systems. North Africa is expected locations to establish new factories. to be particularly affected by droughts that reduce • Housing: African cities are growing rapidly, yet the supply agricultural land use. of housing is struggling to keep up. African cities absorb Where can firms looking to fill these and other needs across 40,000 new residents each day, many of whom find Africa—and see a return on their investments—find the needed themselves without housing. In Kenya, for example, there is capital? an estimated two million unit housing shortage; in Nigeria the shortage is estimated at 17 million units. FUNDING SOURCES AND IMPEDIMENTS • Education: Public education systems in many countries face There are numerous sources of funding—including domestic challenges in providing quality education to the poorest and international bank loans, local and international equity children. The World Bank estimates that more than 50 and bond markets, and private equity—for firms looking to million children are out of school in Sub-Saharan Africa. invest in Africa. The problem is that several of these sources Governments have committed to achieve ‘Education for are chronically underdeveloped in Africa, while others are All’ by 2030, but realizing that goal will require creation constrained by recent economic headwinds or the fallout from of additional capacity for 127 million students. In North the global financial crisis of 2007-2008. In North Africa recent Africa, although literacy rates improved in the last 20 bouts of conflict and instability have also deterred investors. years, the quality of education remains a challenge. There is also a significant skills mismatch—critical to sustainable There was a steep drop in bank loans for African infrastructure job creation for the region’s youth population bulge—that projects after 2007, most likely a consequence of new capital education systems must bridge. requirements imposed on commercial banks since the financial • Healthcare: Sub-Saharan Africa bears 24 percent of the crisis. Overall, loans to emerging market infrastructure fell after global burden of disease but only accounts for 1 percent of 2007, slowly recovering through 2014 before turning down again. global health expenditures. In North Africa the burden is Bonds and equity have followed a similar pattern. The recent increasing due to a rise in death and disability due to non- slowdown in capital flows can also be attributed to expectations communicable diseases. The supply of healthcare workers of future interest rate hikes in the US and renewed concerns over and hospital beds remains well short of demand. Investment global growth prospects (Figure 4 and 5). 16 TRANSFORMING AFRICAN DEVELOPMENT Africa’s banking sector remains underdeveloped compared with contribution to Sub-Saharan Africa’s capital needs. The other emerging market regions. The sector lags all other regions Johannesburg Stock Exchange represented 83 percent of total in terms of access, depth, efficiency, and stability, according Sub-Saharan Africa’s market capitalization in 2012, and the to a 2012 World Bank study. While the financial sector has Nigeria Stock Exchange 8 percent, according to World Bank grown and matured in recent years, it is highly concentrated— figures. Outside those two nations, stock market capitalization the three largest banks held 78 percent of bank sector assets in the region remains low at only 10 percent of GDP, a fraction as of 2011—and the focus remains on lending to high-margin of that in emerging markets outside of Africa. Market liquidity corporate businesses, not individuals and small enterprises. In remains a problem region-wide. North Africa the banking sector is more developed than in most Sub-Saharan African countries, but inclusion rates remain low Domestic debt markets, while growing, remain shallow and are and overall competitiveness continues to lag other countries at dominated by government securities, which account for three- similar income levels. fourths of total bond market capitalization. Only South Africa has a deep domestic bond market. Corporate bond markets And regional capital markets—with a few notable exceptions— outside that country remain nonexistent or in an embryonic lack the size and liquidity necessary to make a significant stage. FIGURE 5: GROSS CAPITAL FLOWS TO INFRASTRUCTURE IN AFRICA (US $bn) 8.0 7.8 7.0 6.0 5.7 5.0 4.9 4.5 4.1 4.0 3.0 2.8 2.3 2.4 2.3 2.0 1.3 1.1 1.0 0.8 0.2 0.2 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bond Equity Loan Sources: IFC Economics and Industry Research based on Dealogic. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 17 Mobilizing Private and Public Financing for Africa FINANCE SOLUTIONS FOR AFRICA rapidly changing demographics and its need for investment on a far greater scale than in recent years, commercial finance alone The abundance of opportunities across Sub-Saharan Africa, and cannot underwrite long-term, large-scale projects in Africa with the appetite of institutional investors to take advantage of them, high risks. stand in stark contrast to the limited approaches available to finance projects. Businesses and investors in Africa are searching In addition to being the world’s lowest-income region, Africa has for new methods to underwrite potentially profitable ventures on many fragile and conflict affected states—the region accounts the continent. for half of the globe’s countries defined as such by the World Bank Group. While governance is improving, it is weak in most Increased availability of commercial bank financing and markets. And Africa remains the most difficult region in the funds, along with the slow but steady growth in domestic world in which to do business. Poor perceptions of Africa may capital markets and other sources of commercial financing, are be exaggerated, but all of the above factors contribute to actual encouraging signs. These already play a major role in supporting risks that must be managed and mitigated (Figure 6). the growth of private business in Africa and they will become increasingly critical in coming years. But given the region’s FIGURE 6: EASE OF DOING BUSINESS INDEX (1=most business-friendly regulations) 160 144 143 140 127 128 120 110 111 101 102 100 95 95 85 84 80 60 41 41 40 20 10 11 0 2014 fic sia an a a ia a ld 2015 ric ic ric As or ci be lA er Af Af W Pa h Am rib ra ut th n & nt ra Ca So or th ia Ce ha N As & or Sa & a & N st ic pe b- st Ea er Ea Su ro Am Eu e dl tin id La M Sources: World Bank, WDI Datbase, Doing Business 18 TRANSFORMING AFRICAN DEVELOPMENT Continued from page 17 At the same time, part of the attraction of Africa is the improving climate for business, particularly in Sub-Saharan Africa. In the 2015 and 2016 World Bank Group Doing Business reports, African countries made up 5 of the top 10 most IFC’s Africa Leasing Facility improved global economies for ease of doing Using Leasing to Provide Assets to Businesses business. Included in the top 10 were: Benin (2015 Increased use of leasing is critical to development in many emerging markets, and 2016), Cote d’Ivoire, Democratic Republic Africa among them. In its simplest form leasing is a means of delivering finance, of Congo, Kenya, Mauritania, Senegal (2015 and where one party provides an asset—a car, truck, sewing machines, and heavy machinery are common examples—for use by another party, which can then 2016), Togo, and Uganda. generate cash from its use. Leasing is based on the proposition that income is earned through the use of Certain other countries have made large strides assets rather than from their ownership, and it is often the only source of medium in recent years. Rwanda, for example, has made to long-term financing for small business owners who lack the traditional collateral required to obtain a loan from a commercial bank to buy the assets consistent improvements in its investment climate needed for their operations. to become the second easiest place to do business Between 2008 - 2015 the leasing market in 25 economies in Sub-Saharan Africa in Africa. Within the region in the overall Ease of (excluding Nigeria and South Africa) more than doubled, from $300 million to approximately $800 million. This creates a tremendous opportunity for private Doing Business rankings, Rwanda falls behind only sector development in the region through micro, small, and medium enterprises Mauritius, another country that has consistently that will be able to use leasing to grow their businesses. undertaken reforms to make the country more IFC’s Africa Leasing Facility program, launched in 2008, has established leasing as an innovative and robust financing tool to increase access to finance for the small- hospitable to investors. scale business sector. The second phase of the program, ALF II, launched in 2013, has focused almost exclusively on fragile and conflict-affected states in Sub-Saharan To ensure that large, multi-year investments and Africa, where the need for access to finance is the greatest and where leasing can projects can be undertaken, existing sources of have the biggest impact. finance can be leveraged and supplemented by other Since its inception the Africa Leasing Facility program has provided advice on leasing policy to governments that has led to the enactment of 24 leasing laws, it types of financing and support, including private has trained nearly 20,000 small and medium enterprises, and it has mobilized $57 sector development financing, donor funding, a million in investment capital. mix of public and private financing, and more debt ALF II is primarily supported by the Swiss Secretariat for Economic Affairs. Other donor partners include the UK Government, the Netherlands, Canada, and the and equity instruments that work together to better Swedish International Development Cooperation Agency. The program is active spread risks across parties without misallocating it. in the West Africa Economic and Monetary Union region, Burundi, Chad, Djibouti, Democratic Republic of the Congo, Ethiopia, Guinea, Guinea Bissau, Liberia, Fortunately, there is a combination of strategies and Seychelles, Sierra Leone, and South Sudan. With additional funding the program may expand to other countries in Sub-Saharan Africa. innovations in financing and risk mitigation now being employed in Africa that can provide those PROJECT IMPACT methods. 24 new leasing laws enacted. • 200,000 SMEs trained; $57M in investment capital mobilized. • PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 19 CASE STUDY CEC Africa Power Adding Significant Power Capacity in Sierra Leone With less than 10 percent of the population connected to the power grid, Africa has the lowest level of electricity access among emerging market regions. In Sierra Leone the power sector is particularly problematic due to decades of underinvestment in power generation, transmission, and distribution. T ransmission losses are at 38 percent, among the highest in from the downstream investments by IFC, other development finance Africa. Grid connection rates are low, and there is regular load institutions, and the prospective private investors. shedding and a non-cost recovery tariff scheme. A non-credit At full capacity the plant will increase Sierra Leone’s power generation worthy national power utility company—Electricity Distribution and capacity by more than 50 percent, helping to stimulate economic Supply Authority, or EDSA—had challenges that trapped the country’s growth and job creation. As the first independent power producer in the power sector in a vicious cycle that keeps residents in the dark and country, the project is also expected to trigger additional private sector hinders economic growth. participation in the domestic power sector. To break that cycle the World Bank Group combined its financial and advisory products into a package for the West African nation, which is still recovering from a decade-long civil war and a recent Ebola outbreak. The result is a $134 million power generation facility, launched in 2016 in an industrial zone about four kilometers east of Freetown, the country’s capital. The project covers development, construction, and operation of a 57 megawatt heavy oil fuel fired power plant. It is sponsored by CEC Africa Investments, a private sector pan-African energy company, and Abu Dhabi energy company TCQ Power Limited. Electricity generated by the facility will be sold to the national off-taker EDSA under a 20-year power purchase agreement. Given private investors’ limited risk appetite for projects in fragile and conflict affected states, IFC provided senior debt of up to $30 million and acted as the lead arranger and interest rate swap provider to mobilize up to $100 million in long-term financing from other development finance institutions and donors, including the Emerging Africa Infrastructure Fund, the Netherlands Development Finance Company, the German Investment Corporation, and the Investment Climate Facility for Africa. The World Bank Group’s International Development Association is PROJECT IMPACT AND RISK MITIGANTS providing a partial risk guarantee of up to $40 million, in addition to a $56 million package to rehabilitate and upgrade the national distribution Imapct network. The World Bank Group’s Multilateral Investment Guarantee Increasing power supply in a country with significant power needs by • Agency will provide a political risk guarantee of up to $60 million to cover 50 percent (relative to capacity prior to construction) As the first independent power producer project in Sierra Leone, • equity, shareholder loans, and retained earnings. triggering private sector participation in the country’s power sector With World Bank and MIGA’s provision of upstream advice and Financing Risk Mitigants guarantees for non-commercial risks, the project was able to reduce • Provision of long-term debt by IFC, EAIF, FMO, DEG, and ICF exposure to real investment risks (including operational and off-taker • IFC led due-diligence process on behalf of lenders risks), achieve financial viability not otherwise possible, and benefit • IFC swap, fixing interest rate on senior debt 20 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Azura Edo Meeting the Energy Needs of 14 Million Nigerians with a New Template for Power Projects A weak electricity grid and insufficient power generation cause widespread and regular blackouts in Nigeria, forcing millions of people to rely on costly and polluting diesel generators to keep on lights, refrigerators, and computers. An estimated 42 percent of the 180 million residents lack access to electricity. S olving this perennial power shortage has been arguably the The transaction introduced almost 20 investors, between shareholders biggest development challenge for successive governments in and lenders, with no previous experience in Nigeria to the country’s Nigeria, Africa’s most populous country. Available electricity power sector, many of whom are expected to pursue other opportunities capacity is less than 5 000 megawatts, yet demand is estimated to be in the country. As a result, the Azura project’s documentation and several orders of magnitude higher. financial structure are expected to become a template for future privately-financed power deals in Nigeria, providing a model that could In 2010 the government of Nigeria embarked on a comprehensive save time and cut costs—and attract additional investors. power sector reform to liberalize the electricity sector, increase private participation, and improve efficiency. In support of the reform In addition to delivering much needed electricity to millions of Nigerians, process, the World Bank Group developed the Nigeria Energy Business the Azura project demonstrates the ability of appropriately structured Plan, bringing together the resources of the International Bank of solutions to attract international financing even in the most challenging Reconstruction and Development IFC, and the Multilateral Investment investment environments. Guarantee Agency to attract private investment in the sector. The World Bank Group worked with nearly fifteen financial institutions, PROJECT IMPACT AND RISK MITIGANTS including commercial banks and development finance institutions, Impact to support Azura, a greenfield gas-fired power plant that will provide • Increasing power supply by 459MW megawatts by year 2018, an electricity to an estimated 14 million people in the West African country. increase of 10 percent over current national available generation Azura is Nigeria’s first privately-financed independent power project capacity. • Providing electricity to an estimated additional 14 million residents. and draws from the country’s reserves of natural gas, a clean-burning • Creating a new project document templates for privately financed transition fuel, to address critical electricity needs and move toward a less power projects. carbon-intensive economy. Market/Off-taker Risk Mitigants The new 459 megawatt plant near Benin City, about 300 km east of • A ‘Put-Call Option Agreement’ between the Company and the off- Lagos, is the start of a two-phase project that will ultimately generate taker backstopping the off-taker payments; about 1,000 MW of additional power for the country. Commercial • Credit enhancements through a World Bank Partial Risk Guarantee operation is expected to begin in mid-2018. and the MIGA political risk insurance The approximately $876 million financing package signed in December • World Bank Group participation through multiple instruments, providing comfort to other investors 2015 was a breakthrough for power generation in Nigeria, and received a stamp of approval from the World Bank Group as well as financing Construction / Operational Risk Mitigants partners including Standard Chartered Bank, Siemens Bank, Rand • Standard project finance structure • Fixed-price turn-key EPC contract and O&M contract with Nigerian Merchant Bank, KfW, Proparco, Swedfund, and OPIC, among others. and international entities with strong operational track-record An array of World Bank Group instruments was used to structure the Gas Supply Risk Mitigants financing, including partial risk guarantees from IBRD, as well as political • Strong contractual arrangements with the gas supplier (Seplat – risk insurance cover for equity, swaps, and commercial debt from MIGA. coupled with strong operational track record) and with the off-taker IFC provided $50 million in debt and $30 million in subordinated debt and under the power purchase agreement mobilized $267.5 million of senior debt alongside the Dutch development organization FMO, and an additional $35 million of subordinated debt. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 21 PARTNERSHIP FINANCING TOOLS governments, its financial strength, its willingness to remain through difficult economic conditions, and its financial PUBLIC-PRIVATE PARTNERSHIPS imprimatur, all of which help attract other financiers. PPPs are a tested strategy, especially for large infrastructure projects and other projects involving public services. They can NewGlobe Schools, which runs Africa’s largest network of low- be applied to numerous sectors, from core infrastructure to cost private schools, teamed with development banks and new health, education, and other areas. investors to launch an expansion of its Bridge Academies chain out of Kenya into three additional countries. The partnership Power generation, for example, which is lacking across the provided seed investments and regulatory assistance, and Bridge region, requires large-scale funding, the appropriate regulatory is now on its way to educating one million students from low- framework, sector planning, and a high quality off-taker to income communities at 2,100 schools by 2020 (see case study). provide the comfort level that private investors require to participate. Development institutions often play a critical role in BLENDED FINANCE bringing the private and public sectors together to provide all of Blended finance is an approach that can be used to enable the those elements. private sector to invest where it would not otherwise be possible. The idea is to mix concessional funds—typically from donor In 2012 nine development banks teamed up to provide the long- partners—with those of commercial development institutions term finance, regulatory reform and power purchase agreements and private investors in a risk-sharing arrangement, with aligned necessary to enable a 139 MW natural gas power project to go incentives to make sure official assistance can be leveraged as forward in Cote d’Ivoire. It will increase electricity production much as possible with private capital. at an existing plant by 50 percent with no incremental gas In 2015, IFC agreed to provide a $21.5 million loan and $4.5 consumption. More recently in Sierra Leone, CEC Africa Power million equity investment in Dutch Africa Improved Foods is bringing together funding from multiple sources to support a Holding in Rwanda. This loan comes with support from the power generation project (see case study). donor-funded Global Agriculture Food Security Program, and CO-FINANCING WITH DEVELOPMENT BANKS is intended for the construction and operation of a 45,000 Another approach to mobilizing funds and spreading risk is tons-per-year processing plant in Rwanda for fortified cereals to co-financing. Through it investors can gain a greater level treat child malnutrition. The project will source raw materials of comfort via a lead development bank’s connection with through existing farmer cooperatives in Rwanda and through 22 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Azito Energy Meeting Africa’s Power Needs Despite being blessed with a huge endowment of natural gas reserves, hydro capacity, and other natural resources, Sub-Saharan Africa is massively underpowered. Generation capacity is lower than that of any other world region and is marked by unreliable supplies, high prices, and low rates of access. Some 600 million Africans lack access to electricity, according to a 2015 report by McKinsey & Co.. A nd the gap between supply and demand is growing. Because contracted to off-take and distribute the power produced. And the World new household connections in many countries are not keeping Bank engaged the Cote d’Ivoire government on energy sector reform and pace with population growth, the electrification rate, already financial management. low, is actually declining. At the same time, the high penetration of diesel As part of the expansion, the existing plant was fitted with two heat generators across the continent—with prices three to six times what grid recovery steam generators, a 140MW steam turbine generator, one consumers generally pay—is a strong indication that African businesses steam condenser, and an air-cooled cooling water system. Essentially, and consumers are willing to pay for electricity. McKinsey predicts a the technology makes use of waste heat generated by the existing gas period of rapid electrification for Africa in coming decades. turbines to produce steam to drive another generator, thereby reducing Yet in the immediate aftermath of a long civil war and a contested and the need for additional fuels to increase the plant’s capacity. violent election in Cote d’Ivoire, it seemed all but impossible for a private Those add up to an expanded facility that will generate 50 percent more entity to embark alone on a major power infrastructure project in 2012. The power with no incremental gas consumption. It is expected to reach risks, from political volatility to regulatory and currency risk to a lack of local 2.3 million additional customers and is a successful example of a major expertise, among many others, were too daunting. To enable such a project investment in Cote d’Ivoire following the recent crisis. to go forward, in 2012 nine development finance institutions teamed to Opportunities to replicate the Azito plant’s successful expansion are provide the long-term finance and design regulatory reforms necessary to proliferating across Africa, yet are all but untapped. New private sector break ground on a 139 megawatt power plant expansion in Cote d’Ivoire. power capacity created in 2012-2014 was just 6 percent of annual demand The power plant is located near Azito village in Cote d’Ivoire’s Yopougon for new capacity across Africa. And the continent could absorb $490 district, about six kilometers west of the port of Abidjan. It was initially billion of capital for new power generating capacity over the next 25 years built in 1998 when IDA, the World Bank’s fund for the poorest, provided and an additional $345 billion for transmission and distribution, McKinsey up to $30 million in partial risk guarantees. The IDA guarantees helped reports. mobilize long-term finance substantially beyond prevailing market terms for the country, allowing for the completion of the initial project. Now, the PROJECT IMPACT AND RISK MITIGANTS power plant is majority owned by Globeleq Generation Holdings, a power Impact generation developer focused on emerging markets. Creating power generation capacity for 2.3 additional customers with • An expansion and modernization of the existing Azito plant was no incremental fuel consumption. estimated to cost $430 million and would require financing and technical Financing Risk Mitigants expertise, currency hedges, interest rate swaps, insurance against IFC long-term finance, providing comfort to other investors • political risk, a reliable fuel supply, and end-user purchase agreements. It Strong financial standing of project sponsors • was a large and complex package to pull together, beyond the scope of IFC swap, fixing interest rate on the debt for 15 years • any private investor. Enter IFC. The development bank provided a $125 million anchor Operational Risk Mitigants investment and arranged another $220 million in long-term loans from Project sponsors very experienced in power sector • Experienced international contractors • eight other development banks. World class turbine technology was procured from General Electric, and experienced contractors including Market/Off-Taker Risk Mitigants Hyundai Engineering and Construction were brought in to build, operate, MIGA equity guarantee on the concession contract and political and • and maintain the facility. transfer risk World Bank engagement in sector structural reforms and financial • A reliable supply of natural gas was organized among several regional management producers while the national government and the private utility CIE were PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 23 the government. It was designed with the help of the World Food Program, the food aid branch of the United Nations, which has agreed to buy a significant portion of the final product and distribute it in Southern Sudan, Uganda, Burundi, and other countries (see case study). Financing for agricultural development lends itself to blended finance. An example is agribusiness giant Cargill and Cote d’Ivoire’s Societe Ivoirienne de Banque, which in 2015 were able to partner with IFC to create a truck leasing program in Cote d’Ivoire that provides more reliable vehicles to collect cocoa beans from the field. The development bank guaranteed 50 percent of an up-to-$6 million leasing portfolio through a risk sharing facility with Warehouse Receipts some of that risk assumed by donors through the Global Providing Innovative Inventory Financing to Agricultural Food Support Program (see case study). Farmers A similar approach was used with Ecobank, a pan-African An improved climate for business is essential to ensure rising incomes from commercial activity. IFC, in partnership with the World Bank full-service banking group. IFC supported a project to extend Group Trade and Competitiveness Global Practice, supports numerous Ecobank lending to small businesses in eight African countries programs across Africa to encourage simpler regulation and improved with particularly difficult economic environments in terms of technologies that make it cheaper, faster, and easier to do business. fragility and income levels. The project uses a $110 million This includes programs that assist the private sector in exploring and risk sharing facility between Ecobank and IFC and the UK’s expanding market opportunities in agribusiness. Department for International Development (see case study). A lack of collateral needed to access credit and store crops is a constant problem for farmers across Africa. Without it farmers can’t expand their Where development needs exist, there are opportunities to operations and often must sell crops at times when prices are lowest. use blended finance to expand business. In most African But solutions are emerging through the linking of farmers and other markets, for example, financial institutions have yet to value chain actors. develop a sustainable strategy to address the significant Cote d’Ivoire, Kenya, Malawi and Senegal are piloting an innovative market gap in serving women, creating a missed opportunity method of inventory financing in which loans are made to producers, that also constrains economic growth and private sector suppliers, traders, and processors against goods held as collateral. development. Known as the warehouse receipt system, this method enables thousands of farmers in East and West Africa to access short-term Rawbank in the Democratic Republic of Congo introduced finance against warehouse receipts, or to sell the receipt at a more “Lady’s First” banking, offering specialized services to opportune time. women. IFC provided advice to help establish services and invested in Rawbank with support from the Global SME Finance Facility, a donor facility IFC launched in 2012 to expand lending by development institutions to small businesses in emerging markets (see case study). Continued on page 24 24 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY With funding support from the Government of Japan, IFC— ENDA Inter Arabe through the Trade & Competitiveness Global Practice—is Providing “Starting Point” Loans to assisting the Senegal’s efforts to establish a full-fledged Entrepreneurs in Tunisia While Promoting warehouse receipt system to address the challenges of Youth Employment access to credit and better storage infrastructures in the For the last several years IFC has been supporting the leading microfinance agricultural sector. Starting with rice as the pilot commodity, institution in Tunisia, ENDA, with a comprehensive capacity building a draft legal and regulatory warehouse receipts framework program that includes risk management, institutional strengthening, has been completed, and an assessment of current storage product strategy and transformation. Most notably, IFC helped ENDA capacities and investment requirements to rehabilitate and develop an approach to reduce nonperforming loans following the uprising build new infrastructure that is adapted to the system is in Tunisia; it reviewed ENDA’s product marketing strategy and costs; underway. developed its human resources and MIS strategies; and introduced an IFC is also providing support to the government in its effort advanced risk management framework for the micro-lender. In addition, to create a regulatory authority, and has helped to set up IFC worked with ENDA on developing sharia’h-compliant risk-sharing a steering committee on the system’s implementation products for customers seeking alternatives to conventional microfinance. that brings all the important stakeholders together. The Over this period, IFC has also provided three credit lines to ENDA for a total committee comprises public and private actors including of $16 million equivalent to fund its growth. banks, collateral managers, rice value chain actors, as well as I key ministries. An expected 2,500 beneficiaries comprising n parallel, during the last several years ENDA has been fighting youth farmers, millers, and traders will be introduced to the system unemployment in Tunisia through an entrepreneurship program it to store their goods and access credit within three years of has developed which was funded by Switzerland’s State Secretariat project completion. This support is expected to release a for Economic Affairs Economic Cooperation and Development Division, or minimum of $2.5 million annually in credit to the agricultural SECO. sector. ENDA’s Bidaya program—Bidaya means “starting point” in Arabic—was The warehouse receipt system will help small rural farmers designed to help young Tunisian entrepreneurs develop their business plans in Senegal’s rice sector who are often unable to borrow the and, if needed, help provide financing. Since its 2011 launch, the program has money they need to finance their operations because of lack provided 10,000 Bidaya loans to approximately 8,000 micro-enterprises of conventional loan collateral. Efficient warehouse receipts through 70 of its branches across Tunisia. Among these borrowers, roughly financing will soon enable these farmers to delay sales of 63 percent are under 35 years of age, 42 percent are women, 17 percent have their agricultural products. By using the goods they have in an advanced degree, and 42 percent were unemployed at the time they got storage as collateral, Senegalese farmers will enjoy more their first loan. flexibility in timing the sales of their products, and allow them to get better prices for the crops they grow. To enhance the efficiency of the Bidaya program, ENDA has undertaken the following measures: PROJECT IMPACT • Strengthened its internal capabilities to assist upstream • An expected 2,500 beneficiaries, including farmers entrepreneurship. ENDA managed a specific training program for Bidaya and traders to the system. agents (40 agents were trained) and deployed eight coaching agents to • Expected $2.5 million in credit per year will be released to the agricultural sector. assist them. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 25 SECTORS FINANCED BY BIDAYA PROGRAM • ENDA partnered with Tunisia’s Ministry of Vocational Training and Employment, business centers, the Food and Agriculture 3% 7% Retail Organization of the UN and the International Chamber for Youth Services to promote the Bidaya program, encourage networking among entrepreneurs, and allow for knowledge exchange. Manufacturing 37% 14% Agriculture Building on the success of the Bidaya program, ENDA now plans Handcraft to create “Village Entreprendre” (entrepreneurship villages), which are places dedicated to assist entrepreneurs. The first village called “El Kahina” was launched in 2015 in Tunis with plans to develop 39% 150 sustainable and innovative projects by assisting 200 young entrepreneurs, 60 percent of whom receive free accommodations. The program has had success in creating employment among Tunisia’s Source: IFC Financial Institutions Group youth. ENDA estimates that it has fostered the creation of 5,000 jobs so far in many different industries. Although Bidya loans are essentially • In 2015 ENDA launched the first test of post-entrepreneurship start up loans, a total of TND 25 million ($12.5 million) in loans were assistance. ENDA aims to support Bidaya borrowers after their used to help boost dormant microenterprises. One beneficiary, Essia enterprises are established to ensure the sustainability of their (pictured) is an entrepreneur and found of Pouffy, a unique concept businesses. So far, some 230 Bidaya borrowers have received of Tunisian handcrafted furniture. She started her business with the technical assistance from 11 ENDA coaches and external consultants. support of ENDA’s Bidya program and plans to begin exporting her • In parallel, an assessment of entrepreneur needs (in terms of creations. assistance) was developed and an entrepreneur toolkit was designed. • In partnership with Youth Business International, ENDA tested PROJECT IMPACT & RISK MITIGANTS a mentoring program that gathered volunteers to assist young entrepreneurs. “Entrepreneur clubs” have been set up in some regions Impact to promote networks. Increased access to finance overall for micro-entrepreneurs in Tunisia, • while improving portfolio quality (nearly 1% PAR 30 days). About 10,000 Bidaya start-up loans have been disbursed to nearly • 8,000 micro-enterprises through 70 ENDA branches across the country. An estimated 25 million TND ($12.5 million USD) in loans made to • young entrepreneurs. Fostering the creation of 5,000 jobs, as estimated by the MFI. • Addressing Risk Exposure for MFIs IFC capacity building support to ENDA has resulted in better NPL • management, a strong risk management framework, and helped them strengthen systems and develop new products. For the youth program (Bidaya) in particular, ENDA has limited the • risk of start-ups by investing in its staff to build their capacity and providing support & accompaniment to help young entrepreneurs to succeed. 26 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Ecobank Bringing Credit to Small Businesses Committed to inclusive lending and looking for more customers, a pan-African bank wanted to extend lending to small businesses in eight countries with particularly difficult economic environments in terms of fragility and income levels. The project involved a $110 million public-private risk sharing facility and additional risk mitigation measures. S mall and medium sized enterprises have been poorly served by The lending package Ecobank put together with IFC and the UK’s the banking industry in Sub-Saharan Africa. Fewer than one- Department for International Development in 2015 was designed to in-three medium sized firms in the region have a bank loan or overcome the challenges of lending to smaller businesses with high risk line of credit, according to a World Bank survey; for small firms it is fewer profiles in very poor countries, including Burundi, Chad, Cote d’Ivoire, than one-in-five. Democratic Republic of the Congo, Republic of the Congo, Guinea, Mali and Togo. DFID participated through the Global SME Finance Facility. In fragile and conflict affected states those firms represent the backbone of the economy and provide the bulk of employment, yet they receive The centerpiece of the Ecobank package is a $110 million risk sharing just one-quarter of all loans and credits. Part of the explanation is that facility between IFC and Ecobank, with further risk mitigation provided there is a general lack of knowledge about the creditworthiness of such by DFID, which is available to the eight Ecobank affiliates in the target firms. In addition, FCS countries lack institutional lending capacity, they countries. The European Investment Bank has also committed $100 have poor financial infrastructure, and they generally suffer some level of million to support risk sharing facilities in Africa. macroeconomic instability. The unfortunate result is that banks in those The facility also provides Ecobank affiliates tools to build scale in SME countries have little appetite to lend to SMEs. lending, including advisory services and SME finance training. There is Ecobank Transnational Inc., the largest pan-African bank, with a also a pricing incentive for Ecobank affiliates that achieve 50 percent presence in 36 countries, had been strong in corporate banking since facility utilization within 12 months. its incorporation in 1985, but was also committed to serving small and The new facility means improved access to finance for smaller medium business enterprises and retail customers. enterprises in the eight countries, stronger financial sectors, and better A project to expand SME lending to more economically challenged employment opportunities. For Ecobank it means a broader customer countries in West and Central Africa, however, required the kind of base and – eventually – stronger economies to lend into. assistance that development banks can provide. PROJECT IMPACT AND RISK MITIGANTS Impact • Access to Finance for 10,000 small and medium-sized enterprises in eight countries, including Burundi, Congo, Cote d’Ivoire, DRC, Guinea, Mali, Chad, Togo. Risk Mitigation Mechanisms for SME lending in fragile situations • The IFC Risk Sharing Facility • DFID additional risk mitigation • Ecobank risk management framework and IFC’s bank training support Supervision challenges • IFC’s well-structured supervision model Utilization challenges • IFC’s provision of RSF utilization action plan and targeted RSF training PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 27 CASE STUDY Rawbank Targeting Women and Small Business Founded in 2002, Rawbank was an innovator in a stagnant market. Embracing technology and the business acumen of the Rawji family—a business presence in the country since 1922—it recently surpassed competitors to become the largest bank in the Democratic Republic of Congo, as measured by total assets and deposits. I n 2014 banking penetration in the DRC was estimated at only 2 confronted non-performing loan rates of 16 percent in its SME portfolio percent. A small number of banks had historically controlled most of (compared with less than 1 percent in its higher-end portfolio). the market, mainly lending to government and large corporations. Given the challenges faced by Rawbank and its clients, its progress in The challenging business environment, ranked 184 out of 189 in 2016, expanding credit and financial services to small and medium enterprises meant they primarily lent through referrals and high collateralized credit, is a promising sign for the DRC’s business environment and private sector thereby excluding much of the market. development. IFC projects Rawbank’s SME and female-owned SME As the country began to recover from civil war and macroeconomic portfolios to grow to $103.3 million and $13.8 million, respectively, by stability was restored, Rawbank was faced with increasing competition the end of 2018. This would represent a meaningful impact for a young and recognized the opportunity to target lending to the historically institution established in the wake of civil war. underserved SME market segment. In the most recent World Bank Enterprise Survey, 90 percent of such firms in the DRC reported a lack of access to credit. IFC support through financing and advisory services was key to helping Rawbank reach SMEs. The bank lacked capacity in its risk management and credit operations for targeting SMEs, and needed to develop a better understanding of the lower-end market. Beginning in 2010, using a $7 million IFC Africa Micro, Small and Medium Enterprise Finance Program facility, Rawbank set up its SME lending program, including Lady’s First, a lending program that targeted female-owned businesses. This helped strengthen capacity of potential borrowers, establish rudimentary transaction histories, and, through Lady’s First, build trust with businesswomen. PROJECT IMPACT AND RISK MITIGANTS IFC financed Rawbank a second time in 2013 through an SME Financing Impact Facility, which is funded by the UK’s Department for International • Supporting Rawbank expanding its SME portfolio from $29.4 million Development. Harnessing blended finance, the second IFC loan ($3.3 million for female-owned SMEs) to a projected $103.3 million contained financial incentives, including a 3 percent concessionary ($13.8 million for female-owned SMEs) in 2018. aspect to be triggered if Rawbank expanded its SME and female-owned Financing Risk Mitigants SME portfolios at a higher rate than its overall portfolio. The facility also • Second IFC loan funded through DFID. earmarked 25 percent of a $15 million facility for female-owned firms. • IFC imprimatur attracting additional financing from the French By the end of 2014 Rawbank’s small and medium enterprise portfolio Development Agency. had grown to $29.4 million, with women-owned businesses accounting Operational Risk Mitigants for $3.3 million. In addition, the IFC imprimatur helped the bank attract • Rawbank’s increased transactional history in SME lending since 2010. additional financing from the French Development Agency. This capital • 3 percent concessionary aspect of the IFC loan conditional on infusion, coupled with IFC’s second loan, was important in maintaining Rawbank’s capacity of expanding female owned SME portfolio. Rawbank’s momentum, which had slowed as its natural risk-aversion 28 TRANSFORMING AFRICAN DEVELOPMENT CLIMATE FINANCE investment portfolios. To scale up low-carbon investments, IFC Public and private sources of financing can be used together to supports development of innovative investment structures and support climate-smart investments in emerging markets, using de-risking techniques that meet institutional investors’ needs for a number of channels. For high-risk projects with a big climate risk-adjusted returns, diversification, ticket size, and liquidity. impact, IFC co-invests concessional funding provided by the The IFC Asset Management Company’s Catalyst Fund makes Global Environment Facility, the Climate Investment Funds investments in private equity funds focused on providing capital and bilateral sources such as Canada alongside its own funds. for companies that enable resource efficiency and develop In South Africa the KaXu Solar One power plant became the low-carbon products. Green Bonds are an example of such first large-scale concentrated solar plant with storage to begin investment products. operating in any emerging market. To help this technologically challenging and first-of-its-kind project succeed, innovative CAPITAL MARKETS AND TAILORED SOLUTIONS approaches across several project dimensions were essential, Deep, efficient local capital markets are a particularly effective including blended finance through a Clean Technology Fund way to access long-term, local-currency finance, the foundation concessional loan by IFC (see case study). of a thriving private sector and a key driver of jobs and growth. Sound local capital markets protect economies from capital- Local banks and other financial intermediaries have a role flow volatility and reduce dependency on foreign debt. Beyond to play in supporting climate-smart activities. IFC’s financial local markets, other currency risks and market volatility can be partners are finding success in new climate-smart market addressed through tailored solutions and instruments. segments while their clients reduce risk, lower operating costs, and become more resilient to the impacts of climate change and The development of such markets is a priority for development economic uncertainty. banks. IFC promotes them by issuing non-government local- currency bonds, paving the way for other issuers. In addition Development finance institutions can combine efforts to develop to providing local currency finance to meet the needs of the capital markets with investor interest in supporting projects private sector, development banks can work with governments that are climate friendly. IFC Treasury is a leading issuer of and regulators to promote reforms and policies supporting local green bonds, whose proceeds support investments in renewable capital markets and local currency finance. energy, energy efficiency, and other climate-related areas. IFC works with investors to help them identify, gauge and act IFC has issued bonds in 18 local emerging-market currencies, on climate change risks and improve the resilience of their from Armenian dram and Chinese renminbi to Indian KaXu Solar One South Africa’s KaXu Solar One was the first large-scale concentrated solar power plant with storage to begin operating in any emerging market. Developed, financed, and constructed by private-sector investors and lenders, its 100 MW parabolic trough CSP design has been supplying clean, baseload energy to the country’s grid since February 2015. The project created 4,500 jobs during construction and 80 permanent jobs during operation. It supplies energy to approximately 80,000 homes. Sponsors are Abengoa, IDC, and Kaxu Community Trust. Structured by IFC, Clean Technology Funds offered innovative concessional financing to the project. Blended with IFC funds, it played a critical role in making the project’s financial structure viable for the financiers while keeping the cost of generated energy acceptable to end-consumers. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 29 rupee, Peruvian soles, and Zambian kwacha. Loans, swaps, guarantees, risk-sharing facilities, and other structured products are other methods used to hedge foreign exchange, interest rate, and commodity price exposure. The Efficient Securities Market Institutional Development program in Africa is a partnership between the World Bank Group and the Swedish International Development Cooperation Agency. The program supports the development of well- functioning securities markets in order to improve financing for Efficient Securities Market key sectors such as housing, infrastructure, and microfinance. Institutional Development Developing Well Functioning Stock and Bond With assistance from development institution anchor Markets where None Exist investments, Zambia’s Bayport Financial Services Limited, a Sub-Saharan Africa is experiencing rapidly growing demand for microfinance lender, was able to issue its first medium-term housing, roads, power, and other forms of infrastructure, and a corresponding need for ways to finance them. Governments and note raising 172 million kwacha, or about $26.5 million, in other public institutions in the region are seeking private sector 2014, the first corporate bond issuance in Zambia in five years. solutions, and are increasingly looking to securities markets, as they Proceeds will expand Bayport lending to low and middle- allow countries to mobilize private funds for projects that require local currency financing. income borrowers and small businesses (see case study). IFC The Efficient Securities Market Institutional Development program first developed a constructive dialogue with Zambian capital in Africa, or ESMID, is a partnership between the World Bank Group market regulators through a prior Zambezi bond issuance in and the Swedish International Development Cooperation Agency. ESMID supports the development of well-functioning securities 2013. markets in order to improve financing for key sectors such as housing, infrastructure, and microfinance. Beyond local debt, deploying capital market instruments such In East Africa ESMID is supporting the implementation of a regional as cross-currency swaps can be critical to helping companies capital market to facilitate greater levels of financing for sectors where long-term local currency funds are necessary. Since the manage the risk of market volatility and finance successful launch of the ESMID program in 2007, $1.6 billion has been raised projects. In Senegal, for example, IFC and the Overseas through corporate bonds in East Africa. All countries in the region are now prioritizing infrastructure investment by allocating Private Investment Corporation provided financing for the 53 significant budget resources—$3.5 billion in 2015-16—to the energy, megawatt Cap des Biches power plant with project developer infrastructure, and transport sectors. ContourGlobal, the Government of Senegal, and Senegal’s ESMID’s work has supported many efforts to raise capital through national electricity utility. The project’s innovative financing bond markets. • The Banque Commerciale du Rwanda went back to market in 2011 model was customized to the needs of the private sector with the issuance of a $1 million corporate bond to support its operator to allow ContourGlobal to finance the project with mortgage portfolio. an 18-year IFC swap to Euros of OPIC’s $91 million US dollar • Shelter Afrique successfully raised $35 million in 2010 for various housing projects in Kenya following transaction support from financing. ESMID. • The Kenya Roads Annuity program aims to raise $400 million in The approach reduced the risk of currency movements to local currency, enough to build 10,000 kilometers of new roads. provide stability by ensuring that revenues match debt service • The Kenya Wildlife Service plans to raise $70 million in local obligations. The project will provide electric power to 100,000 currency equivalent to fund conservation-related initiatives, including housing for rangers within national parks. Senegalese. • In Tanzania the National Microfinance Bank proposes to issue a bond equivalent to $150 million in local currency. 30 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Scaling Solar Tapping a Source of Efficient, Cleaner Power across Africa While two-thirds of people in Sub-Saharan Africa lack access to grid-connected electricity, the economics and suitability of the continent for utility-scale solar power have never been better. S olar energy is ideal for the needs of Sub-Saharan Africa. Plants Scaling Solar sets ambitious targets for each phase of engagement to can be constructed quickly and deliver electricity with lower ensure country needs are met in the near term. Committing to achieving long-term price certainty than diesel fired power plants. low-cost sustainable energy within two years of project initiation creates And with high irradiation levels continent-wide, most countries can a tangible win for governments and developers. accommodate utility-scale solar solutions and diversify their energy In 2015 Zambia became the first country to join the program. Facing production toward renewables. Nevertheless, there has not been any daily blackouts due to drought that crippled its hydroelectric generation meaningful, privately funded solar development in the region outside capacity, the government sought to build two large solar plants as part of of South Africa due to a lack of bankable projects in small, idiosyncratic its strategy to generate 600 megawatts from solar in the near future. The markets where high risks and costs discourage financing. program recently completed its first auction and the lowest bid—fixed At the same time, solar projects in Sub-Saharan Africa can deliver the over 25 years—came in at 6.02 cents per kilowatt hour, the cheapest solar financial returns that investors and developers around the world are power to date in the region and well below diesel fired power which can seeking. The keys to attracting the necessary financing for such solar cost upwards of 20 cents. The project is expected to deliver 73 megawatts projects lie in standardizing projects and markets and eliminating of solar power capacity within two years. avoidable layers of risk. Senegal and Madagascar signed up for engagement in early 2016, Scaling Solar was designed with this in mind. The project leverages the agreeing to develop 200 and 40 megawatts of solar capacity respectively, World Bank Group’s expertise to deploy privately funded, grid-connected while Zambia has already committed to a second tender through the solar projects within two years of engagement, and to deliver power program. at stable, competitive tariffs and rapid timelines, while investors enjoy structured and standardized projects in a competitive process that lowers risk, costs, and consumer tariffs. PROJECT IMPACT AND RISK MITIGANTS For a Scaling Solar project to go forward, the host country needs a government champion to lead the project, as well as support in the Impact ministries of energy and finance, the regulator, and the off-taker. Project • Deliver an additional 100 MW of electricity to Zambia within two and bid preparation set the stage for a competitive, transparent tender years (Scaling Solar in Zambia) and awarding process. Developers bidding for a Scaling Solar project Financing Risk Mitigants encounter a fully structured deal, using standardized documents, with • Donor support leveraging substantial private capital via competitive much of the necessary due diligence completed by the World Bank Group. tenders This allows them to focus on their financial models and bid preparation. Operational Risk Mitigants In addition, pre-qualified bidders have access to an array of World Bank • Technology risks allocated to the experienced EPC and O&M Group financing and de-risking instruments that can address remaining contractors uncertainties and ensure a rapid bidding process. The World Bank Group, • Due diligence provided by the World Bank Group including the International Development Association and the Multilateral • World Bank’s support in creating a sustainable regulatory Investment Guarantee Agency, can help address off-taker credit risk and environment provide political risk insurance, respectively; IFC can extend local currency • MIGA’s provision of political risk insurance products project financing as well as foreign currency hedging. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 31 CASE STUDY Bayport Tapping Bond Markets to Expand Lending Capital markets are a traditional source of funds for an expansion of bank lending, yet debt and equity markets are underdeveloped and illiquid in many African countries—if they exist at all. And domestic debt markets are dominated by government securities in Africa. Zambia is no exception: As of 2014 there hadn’t been a Zambian kwacha corporate bond issuance in five years. C ooperation with multilateral development banks enabled Bayport Financial Services to end that dry spell and tap capital markets for the funds it needed to expand lending. IFC first developed a constructive dialogue with Zambian capital market regulators through a Zambezi bond issuance in 2013. The development bank then used its extensive experience with capital markets transactions—both in Zambia and more broadly—to help Bayport plan its own issuance that could be appropriately structured and launched in a timely manner. IFC and African Local Currency Bond Fund, a unit of the German- government owned development finance institution KfW, also made funding commitments: IFC committed to purchase 35 percent of the issue as an anchor investment in the Bayport bond and ALCB Fund promised to buy 13 percent. Those investments were catalytic, as IFC’s Perhaps most important, the credit now available to low and middle- imprimatur enhanced the issuer’s profile and created a comfort level income workers and small businesses in Zambia will encourage for other investors, eventually attracting pension funds and insurance investments in business ventures, small scale agriculture, education, and companies to the transaction. home improvement, and those in turn will generate economic growth Investor interest in the issue was robust enough that Bayport increased and new sources of profits for other private enterprises. the offering by ZMW 21 million, from the initial 150 million planned. In the end, the company was able to issue its first medium-term note, raising ZMW 172 million, or about $26.5 million. Not only did the issue break a PROJECT IMACT AND RISK MITIGANTS long dry spell for the market, it was the largest corporate bond issuance Impact in Zambian history. • Raised $1.6 billion through corporate bond offerings in East Africa In addition to expanding Bayport’s lending base and profit potential • Raised $26.5 million through new bond issues in Zambia to finance and encouraging Bayport’s efforts to strengthen responsible finance microlending. practices, the Bayport bond project helped deepen Zambia’s domestic Financing Risk Mitigants capital market, a critical ingredient to financing the country’s • IFC’s presence in the bond program, providing comfort to investors domestic economy. It also had a positive impact on the private sector • IFC’s sound technical expertise to support structuring of the bond by establishing strong financial practices and demonstrating the program possibilities for tapping capital markets to fund new business ventures in Africa. Operational Risk Mitigants • Competent mid-level management Bayport’s example is expected to encourage other enterprises in the • IFC’s knowledge of Zambian bond market through the issuance of region to pursue bond issuance as a means of broadening their investor Kwacha denominated“Zambezi” bond in 2013 base and lowering their funding costs. • IFC’s strong relationship with the Company’s senior management, its creditors and the arranger (Barclays/ABSA) 32 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Cargill/SIB and Cameroon Agriculture Securing Agricultural Supply through Loans to Farmers and Coops Cote d’Ivoire is among the world’s largest producers of cocoa beans and their export is a mainstay of the West African nation’s economy. Nearly all cocoa production in the country comes from small farmers, many of whom belong to farming cooperatives. Yet logistics has historically been a major challenge for these farmers, as bad roads lead to damaged vehicles, the proper maintenance and repair of which have often proved to be prohibitively expensive. A Risk Sharing Facility was provided to secure agricultural supply through loans to farmers and coops in Cote d’Ivoire, with similar efforts observed in Cameroon. C ooperatives have access to short-term financing through In 2015 Cargill wanted to expand the Coop Academy program in Cote exporters, but the duration of available loans has generally d’Ivoire to improve the coops’ profitability by reducing the burden of prevented them from financing new trucks. The result is that maintaining old trucks. To do so it collaborated in a risk sharing facility— cooperatives need to resort to second and third-hand vehicles which along with IFC, an Ivoirian bank, and the Global Agriculture and Food involve significant maintenance costs. Cocoa collection via existing or Security Program—to add a financing arm to the Coop Academy. With older trucks is the largest component in the cooperatives’ cost structures. access to finance, coops could lease trucks to more easily and efficiently collect beans from the fields. In 2013 agribusiness giant Cargill, a major global purchaser and processor of cocoa, established Cargill Coop Academy, a program to help Cote IFC and Societe Ivoirienne de Banque, Cote d’Ivoire’s fourth largest bank, d’Ivoire cocoa cooperatives better manage their businesses by teaching agreed to equally share the credit risk in a $6 million portfolio of medium- management, governance, finance, auditing, and marketing skills. The term (three-year) truck leases provided by SIB to the coops. Cargill was program is part of a broader Cargill effort, Cargill Cocoa Promise, to the off-taker for the cocoa produced by the coops and made the deal secure a reliable supply of cocoa, much of which is grown by smallholder bankable by arranging to service the coops’ debt from the proceeds of farmers around the world, in order to meet a rising global demand for their cocoa sales, thereby mitigating the credit risk involved. cocoa and chocolate products. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 33 In September 2015, 43 cocoa cooperatives in Cote d’Ivoire took delivery of new trucks at a ceremony in Abidjan. Medium-term financing is now available to 70,000 underserved smallholder farmers through 100 cooperatives. For Cargill that means a stronger cocoa value chain and a more reliable supply of cocoa beans. Similarly, in Cameroon, a joint World Bank-IFC Program was launched in March 2015 to improve the competitiveness of producer organizations of farmers growing cassava, maize, and sorghum. Banque Internationale du Cameroun pour l’Epargne et le Crédit, the third largest bank in the country, is the first partner financial institution to participate in the risk sharing facility, the total size of which is about 5 billion Central African CFA francs, or about $8.3 million. According to the terms of the program, BICEC lends to producer organizations that satisfy certain criteria set by BICEC and IFC, and IFC PROJECT IMPACT RISK MITIGANTS shares the risk up to 50 percent of total project costs. Funding from the Global Agriculture and Food Security Program was also mobilized by Impact IFC as additional risk mitigation. The World Bank provided another $100 Access to 130 new trucks serving to 70,000 farmers in Cote d’Ivoire • million in financing through the International Development Association 90,000 metric tons of cocoa collected by the cooperatives benefiting • to assist producer organizations with capacity building, core public from the leases in Cote d’Ivoire services support, and infrastructure improvements. Reaching minimum 25% female working population given women’s • domination in value chains such as cassava and maize in Cameroon BICEC kicked off the program with two sorghum producer organizations Financing Risk Mitigants in north Cameroon, financing their acquisition of plants to process clean The 4-partite Risk Sharing Facility between Cargill, SIB, IFC and GAFSP • sorghum for Guinness Cameroon. Targeting a sector that banks have Cooperatives’ long track record of serving Cargill’s working capital • historically shied away from, this program allowed smallholder farmers advances to increase and modernize production. Sector-Specific Risk Mitigants Going forward, the hope and expectation is that the public-private • Successful implementation of the sustainable trading margin regime multiparty credit arrangement can be replicated for other crops in Cote for coops following the 2012 Cocoa Sector reforms d’Ivoire, Cameroon, and beyond, providing smallholder farmers across Environmental/Social Risk Mitigants Africa with access to medium-term financing to cut costs and improve • Requirements for coops to certify mitigation of child labor and profitability. traceability risks through the sustainability and supply chain management programs by Cargill 34 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Al Tadamun Microfinance Foundation Supporting Women Entrepreneurs in North Africa With donor support from DANIDA, Japan, and the Middle East and North Africa Transition Fund, IFC is supporting a key microfinance player in Egypt called Al Tadamun Microfinance Foundation. B y providing advisory services to microfinance institutions like Al Tadamun—and specifically by helping them build resilience, diversify their product portfolio, and build their overall institutional capacity—IFC helps these lenders better serve their clients. It also furthers the effort to provide access to financial services to the poorest segments of Egyptian society. Al Tadamun has a 20 year history of helping meet the needs of underprivileged Egyptian women entrepreneurs by serving as a source of finance to establish, sustain and expand projects that generate Al Tadamun exclusively serves female clients in the Greater Cairo area. income for families. In 2013, Al Tadamun entered into a three-year This area has the largest number (7.5 million) of people classified as partnership agreement with IFC, in cooperation with SANAD Fund for poor in Egypt. Micro, Small and Medium Enterprises, to support Al Tadamun to build Tadamun’s branches are all located in the poorest parts of Greater resilience, diversify products, and enhance institutional capacity. The Cairo including Imbaba, Boulaq, El Marg, and Dar El Salam, and serve microfinance institution has ambitions to grow rapidly, and achieve a clientele in need of financing that can support income-generating a larger share of the market for microloans and deeper penetration in activities and reduce overall vulnerability. the communities it serves. Tadamun reaches women like Zeinab (pictured), a 19-year old who As of December 2015, Al Tadamun had more than 66,000 active produces wallets on her own sewing machine. She recived a LE 1,500 borrowers with an average loan balance of $145. It added 5,000 loan (about $200), with ambition to one day own her own workshop more borrowers in the first half of 2016. The average loan balance with more machines and staff. as a percentage of GNI per capita is around 5 percent for Tadamun, well below the regional average of 14.2 percent, an indication that Al Tadamun is reaching poorer clients than those served by other lenders in the region. PROJECT IMPACT Al Tadamun lends exclusively to urban women entrepreneurs through • A fully functional and trained internal audit department solidarity group lending and in doing so serves a microenterprise established, contributing to a professional and fully staffed HR segment (low-income women) that research suggests is doubly function excluded from the formal financial sector as a result of low income • Between 2013-mid 2016, added 30,000 borrowers and gender. World Bank data shows that microenterprises in Egypt • Nearly 160% of outstanding portfolio growth suffer disproportionately from low financial intermediation with only 11.1 percent having loans (compared with 38.2 percent among large enterprises). Evidence from the most recent Investment Climate Assessment for Egypt suggests that women face much greater hurdles than men in accessing finance and are confronted with higher rejection rates. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 35 CASE STUDY Kenya Tea Development Agency Improving Tea Farmer’s Yields with Better Fertilizer and Training Tea is a major cash crop in Kenya, the world’s third largest tea producer. And as the leading provider of foreign exchange, the tea industry is a critical source of employment and economic growth for the East African nation. Over 60 percent of Kenya’s black tea production—or 13 percent of global production – is grown by 560,000 Kenyan smallholder farmers. They are the owners of the Kenya Tea Development Agency Ltd., which operates 67 tea factories. K TDA operates across the entire tea value chain, from the procurement of fertilizer for farmers to the transportation, processing, and marketing of the tea produced. Each factory purchases and processes the tea grown by its member farmers. Tea farmer revenues depend primarily on tea prices, the cost of inputs, and the ability of farmers to maximize yields. KTDA has made substantial efforts to address the first two elements. Yet there is significant potential for further productivity improvements to boost yields. Currently, KTDA smallholder yields average two tons per hectare, lower than the average three tons per hectare achieved by Kenya’s large-scale tea plantations. The main obstacle to better smallholder yields is nutrient management: KTDA’s tea factories apply uniform fertilization across all estates based on soil analyses from the 1950s and 1960s, leaving some tea estates nutrient The new initiative continues an ongoing partnership between IFC depleted and others over-fertilized. Critical micronutrients also have and KTDA that began in 2012 when IFC first invested in the company’s been depleted in some areas, risking long-run yield reduction or quality expansion. In 2016 IFC made another loan of $55 million to finance seven deterioration, or both. small hydropower plants to power KTDA’s tea factories. Concerns have also been raised regarding KTDA’s biomass fuel use for tea The funding from IFC has been made possible by the Government of Japan processing. Along with the rapid expansion of agricultural land for tea through the comprehensive Japan/IFC Trust Fund - Tokyo International cultivation, some of KTDA’s tea factories were found to be using wood Conference on African Development (TICAD) window. This substantial sourced from third-party suppliers, which may be depleting indigenous Japanese government financial support will significantly improve KTDA’s trees in protected forests. Such practices have put those factories at risk risk/return profile, making it more attractive to private investors. of losing their Rainforest Alliance certification and could result in the loss Going forward, more African enterprises with large smallholder of key buyers such as Unilever that demand sustainably produced tea. footprints similar to KTDA are looking to benefit from financial aid and Those risks, both real and perceived, and the resulting low risk-adjusted technology transfer of Japanese expertise in areas including agronomic returns, deterred private investment in Kenya’s tea industry. In response, management, energy efficiency, soil fertility management, and biomass in 2016 IFC and KTDA, with the support of a major donor, launched a fuel use. The result should be a fundamental improvement in the new 420 million Kenyan shilling (about $4.2 million) initiative to improve livelihood of smallholder farmers who provide up to 80 percent of the productivity and business skills of smallholder tea farmers and strengthen food supply in Sub-Saharan Africa. KTDA’s biomass fuel supply chain over the next four years. Through this initiative IFC and KTDA will set up continuous soil and leaf testing for PROJECT IMPACT all member farmers in order to formulate tailored fertilizer blends that 560,000 farmers have access to improved agronomic advice and • can improve soil productivity. In addition, 330,000 farmers will receive tailored soil nutrient solutions financial training to more effectively manage their farms and incomes. 20 percent increase in KTDA average yield per farmer • IFC will also work with KTDA to strengthen its fuel supply chain and ease 330,000 farmers received financial mgmt. training • the company’s transition to renewable energy sources. 36 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY Bridge International Academies Expanding Education That Gets Results Many African nations struggle to provide affordable quality education to the poor in their societies. Limited classroom space, high absentee rates among teachers, hidden fees, and non-standardized curriculums all contribute to create obstacles that low income families often cannot overcome. T hree years ago NewGlobe Schools Inc. wanted to expand Bridge International Academies, which at the time operated 250 low-cost schools in Kenya. The goal was to increase the number of schools, which serve families living on $2 or less a day, to over 400 in Kenya and to replicate the Bridge model in Uganda, Nigeria, and India. The ultimate objective is to provide access to education for 1 million low-income students by 2020 and 10 million by 2025. Today Bridge educates more than 80,000 students in 459 nursery and Bridge Academies’ innovative strategy delivers quality education to children primary schools across multiple countries. Bridge Academy students of poor families at low cost. It leverages data, technology and scale to consistently outperform their peers in public and other low-cost standardize everything from content development and teacher training private schools in reading and math, according to independent testing. to academy construction and billing. Computer tablets provided to Bridge Additionally, the World Bank has launched a rigorous, independent impact Academy teachers allow them to deliver scripted lessons and track lesson evaluation of the Bridge International Academies program in Kenya, which completion and assessment scores. will be the first large-scale, randomized, controlled trial of fee-paying Bridge schools are generally built on greenfield sites located in high density, schools in sub-Saharan Africa. low-income communities where children have to walk no more than 500 In November 2015, Bridge’s first class of students sat for the national meters to the school. Its academies reach operational sustainability after exams in Kenya, and early results are positive. Bridge’s very first academy in just one year, on average. Mukuru Kwa Njenga, which opened in 2009, was one of 19 of its academies The highly standardized and replicable model allows Bridge to charge with a 100 percent pass rate and average scores that exceeded the national students an average of just over $6 per month in fees, making them average in national exams in 2015. Bridge founders Jay Kimmelman affordable to 90 percent of the people in the communities where they and Shannon May were named Social Entrepreneurs of the Year, World operate and encouraging poor families to send both boys and girls to Economic Forum for Africa, in 2014. school to improve their lives and prospects. PROJECT IMPACT AND RISK MITIGANTS With an estimated price tag of $60 million and the additional regulatory Impact hurdles inherent in a cross-border expansion, NewGlobe’s expansion Access to education for 1 million students from low-income • project turned to development banks, including IFC and CDC, the UK’s backgrounds by 2020 development finance institution, for help. IFC made a $10 million preferred Creation of 57,000 teaching jobs by 2020 • equity investment and CDC invested $6 million. The Gates Foundation Financing Risk Mitigants invested $10 million, existing NewGlobe investors put in $15 million and IFC’s provision of highly needed long-term financing to support Bridge’s • new investors another $15 million. A $10 million loan was arranged from early stage expansion the Overseas Private Investment Corporation, the US government’s Operational Risk Mitigants development finance institution. High replicability of Bridge’s business model and success in Kenya • The funds were used primarily for new country expansion (71 percent) and Market and Regulatory Risk Mitigants new schools in Kenya (14 percent), and development of Bridge’s software Action plan initiated by IFC, World Bank and other development • and general operations. IFC and the World Bank helped Bridge understand partners to support Bridge’s cross-border expansion and navigate government policies and regulations in the three new World Bank assistance in understanding and navigating government • markets. regulations in the new markets NGS certification as an examination center for 134 of its schools • PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 37 CASE STUDY Africa Improved Foods Nutrition on a Larger Scale in East Africa In a project that addresses chronic malnutrition, DSM, a Dutch multinational, established a nutritious food processing plant in Rwanda. This project of ambitious scale needed risk mitigation by reputable sponsors and responsive governments. It required strong purchase, supply, and off-taker arrangements for raw materials and final products. I n 2015, IFC agreed to provide a $26 million financing package. It comprised $21.5 million in loans from IFC and mobilized from other sources, and $4.5 million in equity to Africa Improved Foods Holding. The donor-funded Global Agriculture and Food Security Program private sector window provided key support to this project with $8 million of the $26 million financing package intended for the construction and operation of a 45,000 tons-per-year processing plant to produce fortified cereals to treat malnutrition in nearly one million children. This project created a partnership involving several parties: DSM; the UK’s and the Netherlands’ development finance companies CDC and FMO; the World Food Program; the government of Rwanda; and the Clinton Health Access Initiative. It will source raw materials through farmer cooperatives in Rwanda and through the government, thereby providing a stable market for farmers’ produce. The off-taker agreement with WFP, the food aid branch of the United Nations, is a key anchor for the project. The WFP plans to distribute PROJECT IMPACT AND RISK MITIGANTS the product in Southern Sudan, Uganda, and Burundi, among other countries. Rwanda has also agreed to purchase a portion of the output to Impact distribute to the most vulnerable, while the remaining output will be sold Plant capacity of 45,000 tons-per-year to produce fortified cereals to • in the retail market. treat malnutrition in nearly one million children The project aims to develop a suite of nutritious products produced locally for young children and women, based primarily on local Financing Risk Mitigants agricultural products and that suit local eating habits. After Rwanda, a Provision of patient equity capital by GAFSP, IFC, FMO and CDC • similar plant is planned for Ethiopia. Provision of long-term debt by IFC and other financiers • Off-take agreement denominated in US dollars to match currency of • The first phase of the project in Rwanda is expected to cost nearly $60 debt million in capital expenditure and working capital. IFC has played a leading role in the financing and helped to bring in FMO and CDC as Operational Risk Mitigants equity partners. Highly experienced sponsor, contractor and management team • The Clinton Health Access Initiative played a key role in developing this project, especially by bringing the public parties and DSM to the project. Market/Off-Taker Risk Mitigants CHAI has no financial interest in the project but sees this initiative as Guaranteed off-take by UN’s World Food Program and the • important in addressing health issues in Sub-Saharan Africa. Government of Rwanda 38 TRANSFORMING AFRICAN DEVELOPMENT CASE STUDY GLS Liberia and SME Ventures Providing Risk Capital and Technical Assistance to Entrepreneurs As the Ebola epidemic overwhelmed Liberia in 2014, foreign logistics companies largely withdrew from the West African country. But GLS Liberia, a growing, locally-owned logistics company, stepped into the void and became a critical player in the country’s defense against the disease. As urgently needed medical supplies arrived in Liberia, GLS had a fleet and distribution network ready to move shipments from the airport to sites across the country, alleviating the impact of the crisis. G LS owner Peter Malcolm King launched operations in 2012 with in fragile and frontier markets. These firms created more than 9,500 little more than a staff of four and his international logistics direct and indirect jobs in countries where employment opportunities experience, his knowledge of local market needs, and the are particularly scarce. Additionally, 20 percent of these companies were motivation to build a competitive logistics operation in Liberia. women-owned firms and 20 percent of the overall direct jobs created are held by women. But building a company like GLS requires significant funding—in this case for obtaining trucks and other equipment. An investment from SME Based on these promising results, IFC is expanding SME Ventures into Ventures’ locally-managed risk capital fund enabled King to build his fleet additional fragile and frontier markets, with the goal of investing and start operations. GLS is now a leading logistics supplier in Liberia with $500 million in up to 20 funds over the next four years. The expansion more than 40 employees and a roster of local and multinational clients. also provides an opportunity to involve more development partners. Co-investment alongside IFC—such as investments from the Dutch Small and medium-sized enterprises drive employment and economic development bank FMO, Cordaid, and the Lundin Foundation into SME growth in emerging economies and they are particularly important to Ventures’ initial Sub-Saharan African funds—helps unlock additional fragile and conflict-affected economies such as Liberia. But small and capital for high-growth SMEs. Partners are also important to SME medium-sized firms face an enormous need for risk capital—forms of Ventures’ grant program which enables SMEs to obtain the technical loans or equity that involve a higher risk tolerance than bank loans. They assistance needed to achieve their full potential. also face operating challenges such as limited management experience and scarce access to necessary skills and inputs. Even a motivated and In the case of GLS, support from an SME Ventures fund propelled the experienced entrepreneur like King isn’t immune to such problems; firm from startup to an established local incumbent. It has quadrupled a series of civil wars in Liberia created a generation with little or no sales, increased its staff tenfold, and is now expanding its geographic education, hampering his ability to find employees with essential skills footprint. King is in the process of significantly expanding GLS’s fleet and such as financial management. also envisions a role for GLS in other aspects of Liberia’s infrastructure, including air cargo facilities. IFC’s pioneering SME Ventures program was designed to address some of the key financial and business challenges that hold back high-potential PROJECT IMPACT AND RISK MITIGANTS SMEs in the world’s most difficult markets. The program provides a unique combination of risk capital and advice to entrepreneurs. Building Impact on the private equity model in which fund managers carefully select and • Investments of more than $50 million into 70 high-growth cultivate high-potential firms, IFC provides emerging (and often first-time) companies. fund managers with capital to invest and funding to extend technical • Creation of 9,500 jobs, directly and indirectly. assistance to their investee SMEs. The program also engages World Bank • 20% of companies supported are women owned. Group counterparts to assist governments in developing regulatory Financing Risk Mitigants frameworks in which these funds—and future market entrants—can • IFC’s provision of risk capital through the SME Ventures program. operate. SME Ventures now encompasses five funds covering nine fragile • IFC’s presence, providing comfort to potential SME investors and frontier markets—Bangladesh, Burundi, Central African Republic, the (including other development finance institutions). Democratic Republic of the Congo, Liberia, Nepal, the Republic of Congo, Sierra Leone, and Uganda—most of which are countries in which no other Operational Risk Mitigants funds previously existed. SME Ventures’ first phase resulted in more than • IFC’s provision of advice through the SME Ventures program $50 million in investment into more than 70 high-growth companies • World Bank Group’s assistance in developing regulatory frameworks PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 39 CASE STUDY Tanzania Interoperability Standards Pioneering Mobile Money Sub-Saharan Africa has undergone a technological revolution during the past 15 years. Africa has leaped from less than one percent mobile telephone penetration in 2000 to over 70 percent today. Change has been fueled by progressive regulatory measures, supported by advice from the World Bank in at least 40 governments, and substantial investments in rollout of new mobile operations and in regional fiber networks to connect Africa globally. IFC, for example, has financed 32 technology, media, and telecoms projects in 12 African countries, and provided advice to encourage new technologies to flourish. I n 2014, Tanzania became the first country to successfully develop percent. Tanzania is already a leading market for mobile money and and implement standard business rules for interoperable mobile banking. Interoperability standards will help it continue to innovate financial services transactions. Interoperability refers to the and encourage a more accessible financial services industry, which seamless transfer of electronic value stored in mobile wallets between promotes further growth and financial inclusion. different mobile financial service providers as well as mobile wallet-to- bank transfers. Through an interoperable switch, service providers can more effectively reach the unbanked. The lack of interoperable services is an impediment to the expansion of mobile financial services. The process by which the interoperable standards were developed in Tanzania was facilitated by IFC and supported by the Bill & Melinda Gates Foundation and Financial Sector Deepening Trust of Tanzania, which provided $2.8 million funding to develop the Scheme Rules for Mobile Financial Services in Tanzania. Tanzania’s interoperability standards allow registered users at participating mobile financial services providers to receive and send money directly to one another’s wallets under rules developed at the industry level that govern how those payments flow. It is the first phase of a longer term vision of interoperability across the entire mobile financial services ecosystem. Despite the obvious advantages of interoperability, great industry interest, and some ambitious initiatives, success has generally been elusive outside of bank-to-wallet integrations in most markets. IFC played a key role in facilitating development of Tanzania’s interoperable standards. As a party independent of operators and regulators, IFC could facilitate the process for the creation of a domestic PROJECT IMPACT mobile money payments scheme, which enabled industry players to • In September 2014, final agreement was reached for wallet-to-wallet work together in developing common standards. operating rules Based on a Moody’s study across a sample of 51 developed and • The agreement increases access to mobile financial services and emerging countries, a one percent increase in electronic money advances financial inclusion transaction volumes can translate to an average GDP growth of 0.24 40 TRANSFORMING AFRICAN DEVELOPMENT PRIVATE EQUITY investee SMEs. The program also engages World Bank Group Private Equity funds are another financing option gaining counterparts to assist governments in developing regulatory prevalence in Africa. An initial $20 million equity injection from frameworks in which these funds—and future market entrants— IFC in 2007, followed by another $60 million in 2010, were can operate (see case study). made to Helios Investment Partners, an Africa-focused private investment firm. The development bank’s anchor investment The IFC Asset Management Company offers a new way to attracted otherwise hesitant investors, putting Helios on its way expand financing for development and help investors benefit to a capital commitment goal of over $1 billion. Meanwhile, from IFC’s extensive investment experience in developing development finance institutions can also help global institutional countries. Since it was established in 2009, AMC has set up nine investors take equity in African companies. investment funds, with assets approaching $9 billion in 2015, including a number of funds specifically focused on Africa IFC’s pioneering SME Ventures program was designed to address some of the key financial and business challenges that hold back MEETING THE MARKET CHALLENGE high-potential SMEs in the world’s most difficult markets. The Certainly challenges remain to investing in emerging markets program provides a unique combination of risk capital and advice in general, and in Africa in particular. Investors looking at to entrepreneurs. Building on the private equity model in which opportunities in the region must consider political and sovereign fund managers carefully select and cultivate high-potential firms, risk, currency risk, regulatory uncertainty, governance and IFC provides emerging and often first-time fund managers with corruption issues, and a lack of local expertise and suitable capital to invest and funding to extend advisory services to their FIGURE 7: CAPITAL INVESTED THROUGH PRIVATE EQUITY (US $mn) Sub-Saharan Africa Emerging Markets Total 2 500 37 625 40 000 31 972 35 000 39 946 27 900 2 000 29 222 28 805 30 000 25 160 Sub-Saharan Africa Emerging Market Total 25 000 1 500 20 627 20 000 1 000 15 000 10 000 500 5 000 2 329 2 103 1 396 1 041 1 927 1 186 1 115 691 0 0 2008 2009 2010 2011 2012 2013 2014 2015 Note: Includes private equity, private credit, private infrastructure and real assets. Source: EMPEA Industry Statistics, data as of 31 December 2015. PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 41 investment vehicles, among other factors. Even in developing • Providing currency swaps to eliminate foreign exchange economies with mature capital markets and stable political volatility. systems, achieving the investment grade rating that many • Providing structuring and technical expertise to ensure institutional investors require often remains a challenge. bankability. • Improving local policy and regulatory environments. Therein lies the role for development finance institutions, which • Supporting regional governments with project selection and can help mitigate risk and “crowd in” private investment in a preparation. number of ways. • Strengthening domestic capital markets and promoting • Contributing anchor funding to provide the confidence and cross-border investment. creditor status investors require. Even in difficult economic and risk environments, methods exist • Providing institutional investors with new ways to tap to underwrite successful investments in Africa. African markets, such as through IFC Asset Management Company, which provides equity investment alongside IFC. • Providing insurance against political risks such as expropriation and terrorism. FIGURE 8: SUB-SAHARAN AFRICA INVESTMENT BY INDUSTRY, 2015 (US $mn) Technology 6 Health care 16 Basic Materials 21 Telecommunications 31 Industrials 77 Oil & Gas 100 Consumer Services 110 Financials 148 Consumer Goods 241 Utilities 291 0 50 100 150 200 250 300 350 Source: EMPEA Data as of 31 December 2015. 42 TRANSFORMING AFRICAN DEVELOPMENT PARTNERSHIPS AND RISK MITIGATION TO MOBILIZE PRIVATE INVESTMENT ON A NEW SCALE 43 Sources OPPORTUNITIES IN RAPIDLY CHANGING MARKETS World Bank, Global Economic Prospects, June 2016 World Bank, Africa’s Pulse, April 2016 PPIAF, Institutional Investment in Infrastructure in Emerging Markets and Developing Economies, March 2014 FINANCE SOLUTIONS FOR AFRICA McKinsey & Co Brighter Africa: The growth potential of the Sub-Saharan electricity sector, February 2015 Power-technology.com, Azito Power Plant Expansion, Abidjan, Cote d’Ivoire. World Bank, Enterprise Surveys, 2013 Cargill, Global Cargill Cocoa Promise Report, 2014 The Economist, “Private equity in Africa: Unblocking the pipes,” Jan 24, 2015 KPMG: Banking in Sub-Saharan Africa, 2015 Deutsche Bank, Capital Markets in Sub-Saharan Africa, 2013 EMPEA Industry Statistics, Emerging Markets Private Capital Fundraising & Investment Analysis, Industry Statistics 2015 Woman in Dodoma, Tanzania, p. 39, photo by C. Shubert (CCAFS) Project Team REPORT PROJECT MANAGEMENT CONTRIBUTORS Desmond Dodd, Arthur Karlin Betsy Alley, Oualid Ammar, Ejura Audu, Jonas Ayeri, EDITOR Yaa Boakye, Eva Bakonyi, Raffaele Boldracchi, Michel Matt Benjamin Botzung, Florence Boupda, Giuliano Caloia, Vanya Candia, PRIMARY CONTRIBUTORS Brian Casabianca, Yasser Charafi, Omar Chaudry, Silven Lin Shi, Tomoko Suzuki Chikengezha, Dan Croft, Joumana Cobein, Fatou Diop, Jim Emery, Coura Fall, Jamie Ferguson, Britt Gwinner, Bill CONTENT ADVISORS Haworth, David Ivanovic, Tor Jansson, Sylvain Kakou, Emi Regional Kitasako, Mohammed Khaled, Rashmi Kharbanda, Yosuke Mouayed Makhlouf, Oumar Seydi, Vera Songwe Kotsuji, Maria Kozloski, Lisbet Kugler, Josiane Kwenda, Economics and Strategy Matthew Leonard, Douglas Lister, Monish Mahurkar, Ted Haoquan Chu, Frank Douamba, Rapti Goonesekere, Neil Gregory, Jean Pierre Lacombe Dramane Meite, Albena Melin, Biju Mohandas, Bushra Mohammad, Gene Moses, Riham Mustafa, Kalyan N. Financial Institutions Group, and Finance and Markets Alejandro Alvarez de la Campa, Allen Forlemu, Riadh Naouar, Neelamraju, Wawa Nkosi Donald Nzorubara, Nahla El- Aliou Maiga, H. John Wilson Okdah, Jane Onoka, Jordan Pace, Sean Petersen, Cecile Infrastructure and Natural Resources Puiggali, Joe Rebello, Juliette Rose, Yakhara Sembene, Janne Bertrand de la Borde, Linda Munyengeterwa Sevanto, Luba Shara, Zibu Sibanda, Wilfried Tamegnon, Manufacturing, Agribusiness, and Services Wendy Teleki, Richard Warugongo Tracy Washington, Samuel Dzotefe, Aida Kimemia, Mary Jean Moyo Judy Ombura Trade and Competitiveness TEAM SUPPORT David Bridgman, Catherine Masinde, Maiko Miyake Busi Leokane, Yasue Sakuramoto, Jacqueline Santos Treasury Martin Habel Acknowledgment Saran Kebet-Koulibaly IFC 2121 Pennsylvania Ave., N.W. Washington, DC 20433 USA Tel: +1 202 458-9699 Sub-Saharan Africa Hub Offices SENEGAL,  SOUTH AFRICA,  KENYA,  Dakar  Johannesburg Nairobi Rue Aime Cesaire x 14 Fricker Road Delta Center Impasse FN 18 Illovo 2196 Menengai Road Fann Residence P.O. Box 41283 Upper Hill P.O. Box 3296 Craighall 2024 P.O Box 30577-00100 Dakar, Senegal Johannesburg, South Africa Nairobi, Kenya Tel: +221 33 859-7100 Tel: +27 11 731-3000 Tel: +254 20 293-7000/7200 Fax: +221 33 849-7144 Fax: +27 11 268-0074 Fax: +254 20 293-7210 IFC has offices in more than 20 countries across Sub-Saharan Africa. Find contacts on the IFC website. www.ifc.org Stay Connected  www.facebook.com/IFCwbg and www.facebook.com/IFCAfrica www.twitter.com/IFC_org and www.twitter.com/IFCAfrica www.youtube.com/IFCvideocasts www.ifc.org/SocialMediaIndex