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Agri09 day iii - session v - part i - david white - eib
 

Agri09 day iii - session v - part i - david white - eib

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    Agri09 day iii - session v - part i - david white - eib Agri09 day iii - session v - part i - david white - eib Presentation Transcript

    • AgriBusiness Forum 2009 “Empowering the Private Sector to Boost Productivity & Growth in Africa” Cape Town, South AfricaACP- IF DepartmentDavid White 14-17 June 2009European Investment Bank 1
    • 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 requirementsEuropean Investment Bank 2
    • 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 CountriesEuropean Investment Bank 3
    • 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 1995European Investment Bank 4
    • 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 investmentEuropean Investment Bank 5
    • EIB lending in ACPs & OCTsEuropean Investment Bank 6
    • 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)European Investment Bank 7
    • EIB lending in South Africa (2) 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 Close Cooperation with the European Commission:  Risk Capital Facilities I and II (EUR 55 +50 m)  New Facility (GEFSA)European Investment Bank 8
    • 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 partnershipsEuropean Investment Bank 9
    • 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 guaranteesEuropean Investment Bank 10
    • 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 investmentEuropean Investment Bank 11
    • Who can benefit? Private entrepreneurs and commercially-run public sector enterprises Investment funds and other financial intermediaries ACP and international entrepreneurs Large enterprises and SMEsEuropean Investment Bank 12
    • 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  CasinosEuropean Investment Bank 13
    • Agriculture & associated activities EIB fully involved Has financed some 845 investments In 34 African, Caribbean & Pacific countries EUR 1.3 billionEuropean Investment Bank 14
    • 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 intermediariesEuropean Investment Bank 15
    • 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 UgandaEuropean Investment Bank 16
    • 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 EurosEuropean Investment Bank 17
    • 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 AfricaEuropean Investment Bank 18
    • 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 improvementsEuropean Investment Bank 19
    • 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 feedsEuropean Investment Bank 20
    • Agriculture & associated activities Storage  Grain terminals  Cold stores at production sites & transport terminals Services  Packaging for third parties  Freight forwarding, logistics  Auction facilitiesEuropean Investment Bank 21
    • 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?European Investment Bank 22
    • Project Eligibility What Kinds of Investments:  New capital investment, expansion or modernisation  Increasingly important: the sphere of rationalisation in comsumption of natural resources, environmental protectionEuropean Investment Bank 23
    • 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)European Investment Bank 24
    • 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 packagesEuropean Investment Bank 25
    • Range of financial instruments available EIB’s own resources Investment Facility Senior debt: Pricing: EIB reference rate. Pricing: EIB reference rate + mark-up. Security: 1st class or prime-quality security Security: guarantee (international or local) or (with possibility of political risk carve-out). project security. Currency: EUR, USD, GBP and ZAR. Currency: EUR (possibility of other hard or local currencies). Pricing: EIB reference rate + mark-up. Junior/subordinated debt: Security: project guarantee or other covenants. Currency: EUR (possibility of other hard or local currencies). Pricing: variable remuneration as a function of Quasi equity: performance. participating or Security: usually unsecured or junior status with conditional loans: 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 paperEuropean Investment Bank 26
    • 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 partnersEuropean Investment Bank 27
    • 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)  GuarenteesEuropean Investment Bank 28
    • 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…)European Investment Bank 29
    • 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 unsecuredEuropean Investment Bank 30
    • 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 performanceEuropean Investment Bank 31
    • 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 fundsEuropean Investment Bank 32
    • 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.European Investment Bank 33
    • 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 millionEuropean Investment Bank 34
    • 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 countriesEuropean Investment Bank 35
    • 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 LOCALEuropean Investment Bank 36
    • 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 sectorEuropean Investment Bank 37
    • www.eib.org Contact David White, Head of Mission for Southern Africa and Indian Ocean d.white@eib.org +27 12 425 0460European Investment Bank 38