Arab Financing Facility for Infrastructure Developing infrastructure for growth and regional integration in Arab countries

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1 AFFI Brochure Arab Financing Facility for Infrastructure Developing infrastructure for growth and regional integration in Arab countries What is AFFI? The Arab Financing Facility for Infrastructure (AFFI) is a partnership between the World Bank, the International Finance Corporation (IFC) and the Islamic Development Bank (IsDB) to foster infrastructure investment in Arab countries for economic growth and regional integration. AFFI was officially launched in April 2011 in Amman, Jordan, where Arab countries, international finance institutions (IFIs) and representatives of the private sector agreed to mobilize support and efforts for infrastructure development in the region to meet the population s needs by delivering affordable high quality infrastructure services and creating economic opportunities, including growth and jobs. A financing facility to meet the regional challenges While economic development in the Middle East and North Africa (MENA) region is constrained by a lack of access to infrastructure, the recent political and economic upheavals throughout the region have demonstrated the severity of this challenge and the need for governments to address this as a priority. AFFI comes as a response to the historical changes underway in the MENA region and offers a platform to promote regional policy dialogue on infrastructure challenges, to catalyze access to public and private finance sources and support sustainable infrastructure projects, in particular Public-Private Partnerships (PPP). The Arab world needs to invest between $75 and 100 million a year in infrastructure to sustain the growth rates achieved in recent years, to boost economic competitiveness and to foster job creation. AFFI can help the region achieve these goals by promoting the development of PPPs in infrastructure projects, offering advisory and technical support to governments and public sector entities and providing both public and private financing. AFFI has been identified by the Group of Eight (G8) as a key instrument of the Deauville Partnership to support Arab infrastructure development and respond to the concerns voiced during the Arab Spring. AFFI eligible sectors and components AFFI targets activities across the spectrum of infrastructure sectors, namely energy, transport and roads, water and waste, information and communication technologies and social infrastructures. The program has four components: - The Arab infrastructure Policy Forum (AIPF) offers a dialogue platform on regional infrastructure issues; - The Technical Advisory Facility (TAF) provides transaction advisory services and grants to prepare PPP projects in infrastructure; - The Public Window provides funding to governments on infrastructure and PPP projects;

2 - The Private Window provides funding to Sharia and non-sharia compliant projects to the private sector. Fact sheet Percentage of GDP* Investments in PPP projects in developing regions as a share of GDP Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia * Both PPI investment and GDP measure in current USdollars. GDP of Middle East and North Africa is preliminary.

3 Source: PPIAF PPI database List of countries eligible for AFFI support: - Algeria - Bahrain - Comoros - Djibouti - Egypt - Iraq - Jordan - Kuwait - Lebanon - Libya - Mauritania - Morocco - Oman - Qatar - Saudi Arabia - Somalia - Sudan - Syria - Tunisia - United Arab Emirates - West Bank and Gaza - Yemen AFFI, a regional platform to support infrastructure projects AFFI supports regional infrastructure projects through a variety of instruments and through its four components (as listed above): AFFI Policy Forum

4 The Middle East and North Africa (MENA) region has low levels of regional economic integration. Inter-country trade within MENA accounts for less than 10 percent of total trade, compared to 24 percent in East Asia and 70 percent in Europe. Intra-region investment flows are limited. Only 10 percent of Gulf country total investment goes to non-gulf countries, and a mere 0.3 percent of Maghreb investment comes from other Maghreb countries. The AFFI policy forum offers a platform for regional policy dialogue between public decision makers, PPP practitioners, representatives of the private sector and IFIs to address the common regional challenges of infrastructure development. The AFFI policy forum meets annually and builds on the work of regional working groups (Arab infrastructure regulatory forum, PPP unit virtual working group). AFFI Technical Assistance Facility Jointly managed by IFC and IsDB, and funded by IBRD, IFC and IsDB, the Technical Assistance Facility (TAF) provides support to governments and public sector entities to increase awareness, assist in building a favorable enabling environment and provide transaction advisory services to help structure PPP projects. TAF targets activities across the spectrum of infrastructure sectors, namely water, power, transportation, and social sectors such as health and education. On a case-by-case basis, TAF is able to finance the activities through its own sources. All TAF activities are executed and/or supervised by staff provided by IFC and IsDB under the guidance of a governing body consisting of senior representatives from IBRD, IFC and IsDB. During the execution of a project, if necessary, TAF members are able to arrange or coordinate additional co-financing from other donor sources to meet the overall funding needs of the project. What type of activities can TAF support? TAF provides support to governments and public sector entities for the following types of activities: Government capacity and awareness-building on best practices and lessons learned on PPPs; Design and implementation of policy, regulatory and institutional reforms; Identification of infrastructure projects and transactions suitable for private sector involvement; Preparation of project feasibility studies as part of transaction advisory; Preparation, tendering and execution of PPP projects through providing transaction advisory support. Eligibility TAF support is open to governments and public sector entities within member countries of the Arab League (as listed above). Activities are considered on a rolling basis and concepts can be submitted to TAF at any time. How to apply for project support? All governments and public sector entities interested in requesting support from the TAF need to contact the TAF managers listed below to discuss potential activities. In order to provide a rapid response, applicants are requested to submit a brief concept note that addresses the following: Description and type of activity/project;

5 How the activity will benefit the government in furthering its PPP agenda; and Proposed deliverables and scope. Public financing IFI lending The public financing window of AFFI will provide public sector support to infrastructure projects, including those with private investor participation. The 2008 financial and economic crisis and the Arab Spring have significantly changed risk perception and have led to a gradual reduction of available private sector capital, including in relation to project financing from commercial banks. Although there are variations at the national and regional level, there is an overwhelmingly low appetite for risk from the private sector in general, and from commercial banks in particular. Long-term private financing is scarcer, more expensive, and focused on high quality projects where risk allocation has been rebalanced to take into account such flight from risk. Governments promoting PPPs have to put additional emphasis on risk/reward balance and might need to provide additional public financing for such projects: the AFFI public window aims at providing governments financing support via IFI loans on a project-by-project basis. Such financial support can be deployed around three key modalities: Financing around PPPs: Many PPPs are part of a larger infrastructure network that needs to be built or upgraded to realize the full potential of the PPP. Current risk aversion means that the private sector will carefully investigate whether such supporting infrastructure can be delivered on time and to a level of quality commensurate with the PPP. Such supporting infrastructure can be financed via the public window of AFFI, enhancing the strength of the project vis-à-vis the private sector. Risk mitigation for PPPs: In an environment with less risk appetite for capital/private loan outlay, the ability to allay government risk becomes very important: Partial Risk Guarantees and MIGA products can support infrastructure projects and areas available via the AFFI public window. Supplementing, where appropriate, limited private financing available by financing public investment in PPPs: Scarcity of private financing and, in particular, commercial bank financing, as well as a the need to keep end-user tariffs low, imply a growing role for public financing for a portion of the PPPs, either via grants and viability gap funds or lending (or equity) from the public sector to PPPs. IBRD financing to the public window can, on a project-by-project basis, provide financing for public financing client countries, enabling maturities to lengthen and lowering the cost of capital in specific cases. Private financing - Arab Infrastructure Investment Vehicle (AIIV) AIIV is a private equity fund that invests in infrastructure projects in the Arab region via mezzanine instruments. The fund is based around both a conventional fund vehicle and a Sharia-compliant fund vehicle. The fund aims to increase the volume of new ventures that can

6 access senior debt by providing access to mezzanine instruments. A fund manager has been selected for the fund and IFC and IsDB have each committed to the fund. AIIV is designed to invest in a diversified portfolio of PPP structured infrastructure projects by providing both greenfield and expansion financing across the MENA region. The AIIV would make mezzanine related investments in power, energy-related services, telecommunication systems and services, transportation, water, sanitation and related services and facilities, as well as in social projects. Given the size of the fund, AIIV is expected to mobilize at least $2 billion in infrastructure spending and create tens of thousands of jobs over the long term. The AIIV will attract foreign direct investments, help spur private sector investment in the region, and increase competitiveness by bringing technical know-how and technology transfer to the host countries. The AIIV will comprise a Sharia-compliant fund and a conventional fund, both to be managed by EMP Arab Infrastructure Investment Advisors (EMP AIA), selected as the preferred bidder to manage the AIIV. Both the conventional and the Sharia-compliant funds will largely focus on providing mezzanine investments with some subordinated financing, as well as equity investments. This product will also distinguish this facility from a typical private equity fund. The fund manager targets an initial closing of $300 million in capital commitments, 40 percent of them Sharia-compliant. The IFC and IsDB, as IFI lead investors of the fund, are investing $50 million each into the fund. The fund contemplates a lifecycle of 12 years and is subject to two one-year extensions, including up to five years of investment period. Contacts and Websites AFFI coordination, AFFI Policy Forum, AFFI Public Window: Raymond Bourdeaux, Lead Infrastructure Specialist, Middle East and North Africa Region, World Bank , rbourdeaux@worldbank.org Irfan Bukhari, IsDB, Manager, Public Private Partnership, Infrastructure Department, Islamic Development Bank , ibukhari@isdb.org Technical Assistance Facility : Managers:

7 Muneer Ferozie, Principal Investment Officer, Advisory Services in Public-Private Partnerships, IFC Tel , mferozie@ifc.org Hasan Mahmud, Senior Investment Officer, Infrastructure Department, Islamic Development Bank Tel , MhMahmud@isdb.org Governing Body: Jonathan Walters, Director, Regional Programs and Partnerships, Middle East and North Africa Region, World Bank jwalters@worldbank.org Laurence Carter, Director, Advisory Services in Public-Private Partnerships, IFC lcarter@ifc.org Dr. Walid Abdelwahad, Infrastructure Director, Islamic Development Bank Private Window: Denis Clarke, Chief Investment Officer, IFC, dclarke@ifc.org Irfan Bukhari, Manager, Public Private Partnership, Infrastructure Department, Islamic Development Bank , ibukhari@isdb.org