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European Investment Bank 1
AgriBusiness Forum 2009
“Empowering the Private Sector to Boost Productivity & Growth in Africa”
Cape Town, South Africa
14-17 June 2009
ACP- IF DepartmentDavid White
European Investment Bank 2
Presentation Structure
EIB mandate and activities
The Cotonou Agreement and the Investment
Facility
EIB’s involvement in the agro-industry sector
Types of funding available
Principal instruments
Project requirements
European Investment Bank 3
EIB: European Union’s long term
financing institution
Birth: Treaty of Rome, 1958
Shareholders: 27 EU Member States
Subscribed Capital (2009): EUR 232.4bn
Purpose: Policy-driven bank: EIB implements EU policy
Provide long term lending to promote European
objectives* Support of EU Development and Cooperation Policies in Partner Countries
European Investment Bank 4
EIB: European Union’s long term
financing institution
Europe still EIB’s main focus – but the Bank now works in nearly 150 other countries, under EU cooperation agreements
Investment in 2008:
EUR 51.5bn inside EU
EUR 6.1bn outside EU
Biggest group of countries are the ACP – African, Caribbean & Pacific countries. EIB working in some of them for over 45 years
In the ACP, the EIB has channelled some EUR 12 billion to investment
EUR 5.5 billion since 2003 (76% to private sector)
Plus EUR 1.8bn in South Africa since 1995
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Objectives
Developmental objective measure added-value of
projects from an economical, environmental, social
and governance perspective (Environmental and
Social Impact Assessment Framework – ESIAF)
Complementarities with operations/instruments of
EU, bilateral or multilateral institutions
Play a catalytic role in mobilising local resources
and encouraging foreign lending and investment
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EIB lending in ACPs & OCTs
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EIB lending in South Africa (1)
Via the Bank’s own resources (since 1995)
In South Africa, EIB senior loans are coupled with a
Community budgetary guarantee (full or political risk only)
Latest mandate: EUR 900* m for the period 2007-2013
* Loans can be extended in local currency (ZAR)
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EIB lending in South Africa (2)
Close Cooperation with the European Commission:
Risk Capital Facilities I and II (EUR 55 +50 m)
New Facility (GEFSA)
Focus:
equitable & sustainable economic growth
employment creation, innovation & capacity development
sustainable provision of & equitable access to social services
modernisation of the economy
integration of South Africa into the world economy
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The EIB mandate under
Cotonou (1)
Purpose & Priorities
Build up economic infrastructure
Private Sector Development
Support Foreign Direct Investment
Enhance local private sector
Development of local financier setor
Support for commercially viable public enterprises
Encourage public/private partnerships
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The EIB mandate under
Cotonou (2)
The IF: a revolving fund
Managed a long commercial principles to be
financially sustainable
Re-flows to be invested in new projects
Terms and conditions flexible but respect market
logic and practice
Risk-sharing instruments and guarantees
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Investment Facility – The
constraints
Small markets, hence limited investment opportunities
Limited access to skills and technology
Shortage of finance through local savings/capital
Sometimes weak regulatory and judicial framework, bureacracy
Foreign investors
High risk perception
High cost of information
Hence: insufficient foreign direct investment
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Who can benefit?
Private entrepreneurs and commercially-run public
sector enterprises
Investment funds and other financial intermediaries
ACP and international entrepreneurs
Large enterprises and SMEs
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Sectors of Intervention
Almost all sectors are eligible – examples:
Industry
Agro – processing, horticulture
Transport (revenue earning)
Infrastructure: e.g. power, telecoms, water supply and sewerage
Mining, quarrying
Tourism
Health and education (revenue earning)
Not eligible:
Real estate
Arms
Drugs and tabacco
Casinos
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Agriculture & associated
activities
EIB fully involved
Has financed some 845 investments
In 34 African, Caribbean & Pacific countries
EUR 1.3 billion
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Agriculture & associated
activities
Just since 2000
Financing in 28 countries
10 operations funded directly by EIB
343 operations funded through EIB credit lines or
investments in local intermediaries
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Agriculture & associated
activities
Some are large scale schemes,
where the EIB has dealt with the promoters to provide DIRECT finance e.g.
EUR 12m for sugar estate improvements in Chad
EUR 12m for shrimp farming in Madagascar
EUR 8m for improving for banana cultivation and packing in Cameroon
EUR 5m for expansion of eucalyptus and pine plantation in Uganda
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Agriculture & associated
activities
But vast majority of investments are funded
through lines of credit to local banks, DFIs
Average size is 500 000 Euros but individual credits range from 5m Euros to 30 000 Euros
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Agriculture & associated
activities
Promoters of all kinds:
From a cooperative collecting beeswax and
making honey in Ethiopia, to
A Unilever food processing plant in South
Africa
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Agriculture & associated
activities
WHAT KIND OF INTERESTS?
Direct production
Commercial horticultre
Flower farms
Shrimp and fishing farms
Oyster hatcheries
Poultry rearing
Banana cultivation
Sugar estate improvements
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Agriculture & associated
activities
Packaging & processing
Tea factories, coffee mills
Oil mills, grain millers
Fruit juice processing, bottlers
Bakers, dairies
Frozen & canned foods
Abattoirs, fish processors
Animal feeds
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Agriculture & associated
activities
Storage
Grain terminals
Cold stores at production sites & transport terminals
Services
Packaging for third parties
Freight forwarding, logistics
Auction facilities
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Agriculture & associated
activities
Associated fields
Tanneries
Sawmills (!Sustainable resource!)
Wood pulp (!Sustainable resource!)
Natural gums, pyrethrum for insecticides
Bagasse-fired generator plants on sugar estates
New Areas?
Bio-fuels from agricultural crops?
Materials for « green » construction?
Algae bio mass?
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Project Eligibility
What Kinds of Investments:
New capital investment, expansion or
modernisation
Increasingly important: the sphere of
rationalisation in comsumption of natural
resources, environmental protection
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Project requirements
Projects should be:
Technically sound
Financially viable
Show a positive impact on the economy – social and developement impact assessment
Comply with environmental protection requirements
If in public sector, follow open tendering principles (competition to cut costs and protect the consumer)
Significant financial contribution from promoter
Co-financiers (EIB maximum 50% of project cost)
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What EIB can offer
Financing for up to 50% of the total investment cost
Up to 70% for certain environment and energy
investments
Long term maturiites to match project needs
Competitive conditions with flexible structures
Flexibility in security packages
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Range of financial instruments
available
Senior debt:
EIB’s own resources Investment Facility
Pricing: EIB reference rate.
Security: 1st class or prime-quality security
(with possibility of political risk carve-out).
Currency: EUR, USD, GBP and ZAR.
Pricing: EIB reference rate + mark-up.
Security: guarantee (international or local) or
project security.
Currency: EUR (possibility of other hard or local
currencies).
Junior/subordinated debt:
Pricing: EIB reference rate + mark-up.
Security: project guarantee or other
covenants.
Currency: EUR (possibility of other hard or local
currencies).
Quasi equity:
participating or
conditional loans:
Pricing: variable remuneration as a function of
performance.
Security: usually unsecured or junior status with
covenants.
Currency: EUR (possibility of other hard or local
currencies).
Equity participation: Pricing: dividends / capital gains.
Security: none.
Currency:local currency.
Guarantees: Of loans, bond issues, commercial paper
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What EIB can offer
Own Resources
Low cost of « AAA » rating funding benefit
passed on to clients, for:
All major currencies
Long maturities
Catalytic effect on participation of other banking or financial partners
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What EIB can offer – Cotonou
Investment Facility
An extended range of flexible financial instruments denominated in EUR, other widely traded currencies
and sometimes local currencies:
Ordinary or senior loans
Junior or subordinated
Quasi-equity (participating, conditional or convertible loans)
Equity (direct or indirect)
Guarentees
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Terms and conditions - Loans
Market related terms
In foreign currency
• Rate based on EIB lending rates in Europe, plus
• Markup to cover perceived risks
In local currency (whenever feasible)
• At local market rate if adequate benchmark available, plus
• Markup to cover perceived risks
In some cases, an interest rate subsidy can be granted, if its justification is clearly demonstrable (high environmental benefits, social benefits…)
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Terms and conditions – Loans (2)
Security package:
EIB own resources: prime-quality security (with the
possibility of political risk carve-out); sovereign risk
IF: international, local guarentee or project
security or unsecured
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Terms and conditions – Quasi-Equity
Examples: convertible bonds, participating loans, conditional loans, etc.
Remuneration may be linked to the financial return of the project, production targets, sales prices obtained, etc.
Normally composed of a low fixed interest rate and a variable component related to the project performance
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Terms and conditions - Equity
Normally for non-controlling minority only
Renumerated on the basis of the project performance
Policy: sell as soon as feasible, to make room for private investors
Much equity funding is done by the Bank indirectly, through local funds
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Terms and conditions - Guarantees
An obvious alternative to direct lending where there
is no absolute shortage of resources but rather a
lack of capacity to take on risk or time
transformation
Priced to reflect the characteristics of the
underlying operation and the risks insured
Can guarantee fund raising on local markets (bond
issues), lending to the project by others, etc.
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Large investments only?
The EIB is a large institution financially, but small in staff structure – keeps costs down!
It cannot handle requests for financing from SMEs directly: would mean a cosiderable increase in bureaucracy and costs
EIB seeks to cooperate with local financial sector (banks, DFIs, leasing companies), to channel funds through them. EIB currently works with almost 100 of them in the ACP
Typically, loans from EUR 50,000 to 5 million
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Direct and indirect operations
The EIB has two modes of intervention
Direct financing – for large projects, typically a
project cost of at least EUR 15-20 million with a
minimum financing requirement from the EIB of
EUR 5-10 million
Indirect financing, through financial
intermediaries – any project smaller than the
above limits
EIB aims to have financial intermediaries active
throughout the ACP countries
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Indirect operations - details
Global loans = Lines of Credit to:
Local development finance institutions
Local commercial banks
Other local financial intermediaries (leasing
companies, equity houses)
Due diligence, credit risk and
credit decision LOCAL
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Agriculture & associated
activities
A very wide range, but REMEMBER, for smaller investments:
Approval is carried out by the local bank or DFI
Within EIB parameters, but according to their judgement on project validity, profitability, security
Much depends upon active cooperation with local financial sector
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www.eib.org
Contact
David White, Head of Mission for Southern Africa and Indian Ocean
d.white@eib.org
+27 12 425 0460