European Investment Bank

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1 European Investment Bank AFRICA,CARIBBEAN & PACIFIC REGION EIB/FEACO/EFCA Conference on EIB Lending Outside the EU C. Collin 28/06/2007

2 EIB LENDING TO THE ACP STATES African, Pacific and Caribbean countries: the oldest mandate given to the EIB Dates back to 1963 (first Yaoundé Convention) Successive Yaoundé and Lomé Conventions up to Lomé IV, 2 nd financial protocol From 2003: the Cotonou Agreement with the Investment Facility, the IF, and lending from own resources A specific mandate to provide loan finance to the Republic of South Africa 40 years experience in supporting the implementation of Europe s development policies.

3 SOUTH AFRICA (1) Specific mandates for the Bank to provide loan finance from its own resources to South Africa, in support of the country s economic development: EUR 300 m for the period EUR 375 m for the period EUR 825 m loan finance for the period EUR 900 m loan finance for the period Cumulative lending by the end of March 2007: EUR m

4 THE EIB MANDATE UNDER COTONOU The objectives Private sector development, through FDIs, local private sector Financial sector Commercialy viable public entities Economic growth Poverty reduction

5 THE EIB MANDATE UNDER COTONOU Financial means European Development Fund (EU Member States budgetary funds) European Commission European Investment Bank Grant aid for longterm development (national and regional programmes, budget support) Investment Facility Risk bearing instruments (loans,equity & guarantees) EUR m EUR m As from 2008 Subsidies for interest rate or TA EUR 187 m EUR 400 m As from 2008 Own resources Senior Loans Up to EUR 1.7 bn As from 2008: Up to EUR 2 bn

6 THE EIB MANDATE UNDER COTONOU Long term financial sustainability of the IF risk pricing Subsidies (limited) available to increase concessionality mainly for infrastructure projects in LDCs, post-conflict and post natural disaster countries, HIPC countries, and projects with substantial and clearly demonstrable environmental or social benefits Developmental objective measure of the added-value of projects from an environmental, social and governance perspective (Development Impact Assessment Framework) Complementarities with operations/ instruments of EU, bilateral or multilateral institutions; Play a catalytic role in mobilising local resources and encouraging foreign lending and investment;

7 COTONOU AGREEMENT Where do we stand? As of 31 May 2007 (4 years after entry into force of the Cotonou agreement): Total approvals under the IF of EUR m 94% of the IF initial capital endowment Total signatures under the IF of EUR m (some 79 projects in over 30 countries and sub-regions) 72% of the IF initial capital endowment IF disbursements : EUR 554 m EUR 108 m earmarked/committed for interest rate subsidies or TA To which should be added : EUR 416 M signed under EIB own resources

8 COTONOU AGREEMENT Where do we stand? 81% of the portfolio concern projects targeting private sector investments; 53 % of the portfolio relates to financial services and support for SMEs; Basic infrastructure accounts for 26% of the portfolio In line with the objectives of the mandate of supporting the private sector

9 COTONOU AGREEMENT Sectoral breakdown COTONOU (INVESTMENT FACILITY AND OWN RESOURCES) : Cumulative signatures (01/04/ /03/2007) Breakdown by sector Services (incl. Tourism) 3% Transport & Telecoms 2% Power & Water 25% Financial services * 47% Industry, Agro-industry and Mining 23% * including financial intermediation through equity funds, agency agreements, global loans,...

10 COTONOU AGREEMENT Regional breakdown COTONOU (INVESTMENT FACILITY AND OWN RESOURCES) : Cumulative signatures (01/04/ /03/2007) Breakdown by region West Africa and Sahel 31% Caribbean and Pacific 14% Central and Eastern Africa 20% Southern Africa and Indian Ocean 20% Regional Africa and ACP States 15%

11 POTENTIAL BENEFICIARIES Private entrepreneurs and commercially viable public sector enterprises ACP and international entrepreneurs Large enterprises and SMEs

12 WHAT EIB CAN OFFER in the ACPs An extended range of flexible financial instruments denominated in EUR, other widely traded currencies or even local currencies : Ordinary or senior loans Junior or subordinated Quasi-equity (participating, conditional or convertible loans) Equity (direct and indirect) Guarantees

13 COTONOU AGREEMENT Financial instruments COTONOU (INVESTMENT FACILITY AND OWN RESOURCES) : Cumulative signatures (01/04/ /03/2007) Breakdown by financial instrument Guarantee 4% Equity and Indirect Equity 12% Global loan 5% Subordinated loan 9% Senior loan 16% Ordinary loan 54%

14 TERMS AND CONDITIONS - LOANS (1) Market-related terms In foreign currency - rate close to EIB rate for loans in Europe, plus - mark-up to cover perceived risks In local currency (whenever feasible) - at local market rate if adequate benchmark available, plus - mark-up to cover perceived risks In some cases, an interest rate subsidy can be granted, if its justification is clearly demonstrable

15 TERMS AND CONDITIONS - LOANS (2) Security package: EIB own resources: 1st class or prime-quality security (with the possibility of political risk carve-out) IF : international, local guarantee or project security or unsecured

16 TERMS AND CONDITIONS QUASI-EQUITY Ex: convertible bonds, participating loans, conditional loans, etc. The remuneration is linked to the financial return of the project. It is normally composed of a fixed interest rate and a variable component related to the project performance

17 TERMS AND CONDITIONS - EQUITY Normally for non-controlling minority only Remunerated on the basis of the project performance Policy: sell as soon as feasible, to make room for private investors

18 TERMS AND CONDITIONS GUARANTEES 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

19 An example Pool of local banks Guarantee 100 % Subrogation Loan CFA countervalue of EUR 21.8 m Pledge on account Commission Bancaire Agreement on the package (Bâle II) Accord de classement Cy ACP EUR m EIB 11.8 DEG 5 Proparco 5 Counter-guarantee 50% Special undertakings EIB : Subsidy Agreement EUR 1.8 m for environmental & social investments Cy ABC Other securities

20 2006 Highlights - Financial sector Strategy: enabling creditworthy financial institutions to grow and developing new financial instruments suitable for local markets Mauritania Banque International d Investissement 25% participation in a newly created bank; partial cession to Société Générale of France at the end of 2006 with a 50% return to the IF; Central Africa BDEAC provision of a line of credit and a facility for the partial guarantee of loans granted by BDEAC IF s catalytic role Pacific lines of credit in favour of local development banks in Palau, Samoa and Tonga for micro and SME financing

21 2006 Highlights - Financial sector Focus on microfinance Access Microfinance Holding equity participation and technical assistance to microfinance holding company for the development of financial institutions in Low income countries (e.g. Mozambique and Madagascar); Africa Business Partners International (BPI) joint venture with IFC Management of funds in Africa (Kenya, Madagascar) focus on lower end of the SME spectrum; combination of equity, quasi-equity and debt instruments offered by IF well suited to BPI specific needs

22 2006 Highlights- Basic infrastructure EIB remains a key player in the provision of basic infrastructure EUR 145 m signed in 2006 Cameroon AES Sonel Electricity Supply financing of Company s post privatisation investment programme through syndicate EIB/IF acted as coordinator for lenders together with IFC; cofinancing with AfDB, BDEAC, DEG, FMO and Proparco Complementarity with other donors Water sector : improved project preparation (water PPF), innovative project design and implementation (local NGOs involvement), blending of EIB/IF loans with grants (EU Water Facility) Support achievement of MDGs by extending coverage to Peri-urban poor areas

23 2006 Highlights Industry, mining and services Provision of LT finance not locally available to private investors Solomon Islands rehabilitation of tropical hard wood plantation in Kolombangara; support to community-based sustainable management of natural resources Mozambique support for the technological conversion of a construction materials plant from asbestos fibre cement to clean fibre cement; co-financing with local bank; IF subsidised loan focuses on environmental decontamination and upgrade. Belize Astrum Travel Helicopter Services; support to tourism development

24 ORGANIGRAMME CONTACTS ACP IF DEPARTMENT MANAGER Martin Curwen Division ACP-IF-2 West Africa & Sahel Guus Heim Division ACP-IF-2 Central & Eastern Africa Flavia Palanza Division ACP-IF-3 Southern Africa & Indian Ocean Serge-Arno Klümper Division ACP-IF-4 Caribbean & Pacific David Crush Division ACP-IF-RBD Resource & Business Development Tassilo Hendus Division ACP-IF-PMP Portfolio Management & Policy Catherine Collin DEAS Development Economics Advisory Service Associate Director and Chief Development Economist D. OTTOLENGHI Project Directorate Director General G. TSINGOU Legal Directorate General Counsel A. QUEREJETA Credit Risk Directorate Director General PL.GILIBERT Non - Operational Directorates Regional Representation Dakar (J. Reversade) Nairobi (C. Cocuzza) Tshwane (D. White) Fort de France (T. Whitehouse) Sydney (J.P. de Jong)

25 Thank you!