Ms. Irina Astrakhan, World Bank Group


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Ms. Irina Astrakhan, World Bank Group

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Ms. Irina Astrakhan, World Bank Group

  1. 1. Irina Astrakhan, Sector ManagerWorld Bank Group, Africa Finance and Private Sector Development, March 7, 2013, Tel Aviv, Israel
  2. 2. Africa todayopportunities & challenges for the Private Sector
  3. 3. Africa todaySlide adapted from October 2012 Vulnerability, Macro Overview, Portfolio, Risk and Profitability Analysis Presentation by IFC. December 3, 2012
  4. 4. Africa today context.
  5. 5. opportunities and challenges
  6. 6. Africa today - continued robust growth • Africa GDP growth is estimated at 4.6 % in 2012- excluding South Africa, the growth in the region was 5.8% • Increased number of MICsSource: Africa Pulse, Africa Chief Economist Office
  7. 7. • Widespread GDP growth• Large untapped agribusiness and mining potential• Growth does not create enough productive jobs to absorb the 7-10 million young people entering the labor force each year• Lagging financial inclusion and limited term financing for growth• Increased vulnerability to climate change Widespread GDP growth Extractive Investment Potential % Guinea 8 Resource: • $20 Billion in 7 investments in Iron Ore, Bauxite, and related 6 infrastructure 5 4 Uganda 3 Ghana Resource: 2 Resource: • $8-10 billion in oil investment • $8-10 billion in oil • $50 billion in total oil export investment revenue 1 • $40 billion in export revenue Tanzania 0 • Early stage but LNG potential $20+ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 billion investment with $2 billion Cameroon per year in Government revenue Resource: Sub Saharan Africa • $7 billion in Iron Ore and Mozambique Aluminum investment • Mining and related infrastructure: Sub Saharan Africa ex. South Africa $10 billion in Coal • Gas: $70 billion in investment Developing countries average ex. China
  8. 8. Commodity prices are driving growthSource: Africa Pulse
  9. 9. Reduced export diversification andincreased reliance on mining exports SSA Exports to the World 1992-2008 (% of total exports ) SSA depends heavily on its mining industries for export revenues which have increased due to high commodity prices. Manufacturing exports have decreased, further increasing reliance on mining revenues.Source: COMTRADE, 2009
  11. 11. In order to encourage growth and poverty reduction in the longterm, productivity issues must be addressed
  12. 12. High levels of Informality• Bulk of non-agricultural employment informal, and likely to Share of Employment by Sector remain so. 5 5• Private informal sector employment accounts for 70% of the labor force.• Industrial clusters of indigenous 20 micro and small enterprises in Africa are a natural form of agglomeration.• Almost all of them are “survival- level” -- growth based on expansion of quantity of production rather 70 than improvement in quality. Agriculture Private - informal Private - formal Public Source: Household Surveys. The World Bank, 2009
  13. 13. large gap in productivity betweendomestic indigenous and foreign firms• In Africa, domestic indigenous enterprises fall behind foreign firms in terms of productivity.• Foreign firms are often more productive in developing economies.• But productivity gap between domestic and foreign-owned firms is more pronounced in Africa than in Asia.Source: Feng, Mengistae, and Yoshino (2009): Foreign Premium on Productivity among Enterprises in Africa
  14. 14. Challenge: transforming mineral wealth into human capital development and job creation• Restrictive business environment• Poor infrastructure (e.g. power)• Skills shortages• Difficulties accessing finance• Trade & logistics costs• Value chain gaps and weaknesses• Limited public sector organizational capacity The World Bank - AFTFP 2010
  15. 15. Top Constraints faced by African private sector Electricity 26% Finance 20% Informal Practices 10% Tax Rates 9% Political Stability 6.50% Corruption 6% Crime 6% Access to Land 5% Transport 5% Customs 4% 0% 5% 10% 15% 20% 25% 30%Source: World Bank Enterprise Surveys, 2010 Electricity and access to finance are the top constraints faced by enterprises
  16. 16. CORE INFRASTRUCTURE GAP • Core infrastructure gap (energy, telecommunications, transport and water) – Infrastructure gap is estimated at $30 billion per annum, with a cost to GDP growth of 2% per annum • The highest return to growth comes from transport, telecom and power investments – The overall gap hides wide dispersion in performance from 17% of GDP to less than 4% • Economic development gap – Africa has significant undeveloped resources in agriculture and mining – The present state of infrastructure reduces firm-level productivity by at least 40% • Social services gap – Africa has significant needs in the health, education and housing areas • PPPs have the potential to fill these gaps and put Africa on par with its best performers ( the 10% club)
  17. 17. Africa faces the highest trade logistics costs2.8 2.74 2.74 2.732.7 2.49 2.422.42.32.2 LAC ECA EAC MENA SA SSA Source: World Bank Logistics Perception Index, 2010 Landlocked countries such as Zambia, Botswana face even higher trade logistics costs
  18. 18. Access to Credit is low  Half the small enterprises in the Enterprise Surveys identify access to credit as a major constraint, while 34% of large firms voice the same concern.  The region lags behind on penetration of credit products —21 loans per 1,000 adults compared to 185 loans on average in developing countries.Source: CGAP Financial Access, 2009
  20. 20. Example of the impact of market deregulation:The case of Rwanda 350 900 Average transport prices (constant and current) from Mombasa to Kigali Before liberalization After liberalization 800 300 700 250 600 200 US$/TonUS$/Ton 500 150 400 300 100 200 50 100 0 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Years Current transport tariffs (left) Real transport tariffs - GDP deflator (right)
  21. 21. The Growing ICT Revolution120 Mobile Penetration in Africa (%) Use of IT100 Impressive80 growth in access60 to voice. Adoption of ICT Applications in 65% of African40 population covered! Government and Business, average by20 region, 2007 0 South Nigeria Mali Kenya Rwanda High income countries Africa Europe & Central Asia 40.0 Low internet East Asia & Pacific Data Service 15x more penetration internet Middle East 30.0 In SSA users Africa (including North Africa) Mauritius/ South Africa 20.0 Gabon/ Ghana/ Kenya CAR/ DRC/ Guinea-Bissau/… 10.0 0 2 4 6 8 10 ICT performance measure 0.0 Americas Europe LAC SSA (IDA) Internet Users / 100 PCs / 100 Source: Global ICT Unit, The World Bank
  22. 22. M-PESA by Safaricom M-Pesa is one of the most successful examples of mobile money service since its launch in 2007. Has 8.8 million users in Kenya, many of them without access to a bank account. The Financial Sector Deepening Trust in Kenya (co-financed by DFID, World Bank project funds, and Swedish SIDA) provided a matching grant subsidy of 1 million pounds to Safaricom for product development.  The new product allows money transfers across a secure, PIN protected system to those previously ‘unbanked’; a majority of cash recipients are rural women.  On average US$1.96 million is transferred through M-PESA per day, mostly in small amounts averaging US$20 per transaction.
  23. 23. AfricA’s growing tourism sector Tourism’s Contribution to GDP Average contribution of tourism to SSA GDP is 5.9%. In some countries such as Seychelles, Mauritius and Namibia this contribution is large. Tourism constitutes over 10% of total exports (direct & indirect) in more than half of African countries. In 2009, the sector contributed to 10.1 million direct and indirect jobs throughout the region, representing 5.6% of total employment or 1 in every 18 jobs.Tourism: a potential source of job creation and increased earnings for SSA
  25. 25. Easing the business and regulatory environment• Increase provision of infrastructure and delivery of public services.• Streamline cumbersome regulatory procedures to encourage new entrants, operating in the formal sector.• Set up transparent formal market institutions for better enforcement.• Increase financial outreach to mobilize resources for business ventures and risk taking.• Harmonize legal and regulatory standards to enable rapid technological change.• Invest in increasing “business skills” and training for workers.
  26. 26. Using The ICT promise to scale upLeverage ICT enabled solutions for underserved populations and SMEs –e.g. mobile banking, reduced cost of remittances and financial literacy.Source: ITU, Information Society Statistical Profile 2009, Africa, Asia
  27. 27. Public Private Partnerships fordevelopment PPPs potentially bring the efficiency of business to public service. Require effective legal, regulatory and institutional frameworks (PPP units and agencies to regulate public procurements), to catalyze private participation. Systematic cost benefit analyses of public investment projects will be a pre-condition to successful PPPs. Major infrastructure gaps can be filled by PPPs in infrastructure (e.g., Maputo port). Greater need for financial solutions: establish PPP finance facilities (e.g., Nigeria, UEMOA). Other PPPs include SEZs, vocational training, technology adoption (technoparks) and skills development (training and incubators).
  28. 28. Strategic priorities for the WorldBank in Finance and Private SectorDevelopment
  29. 29. Implementing the Africa Region’s Strategy A dynamic private sector that creates productive employment and leads to inclusive growth AFRICA FPD Priorities Job creation & youthemployment through skillsdevelopment & innovation. PPP infrastructure finance Financial Inclusion Agri-business
  30. 30. The World Bank - Africa Region Number of Active Projects by Sector OS, 10 FPD, 39 HD, 96SD, 280 PREM, 28 The World Bank: Africa Region FY 13 Lending by Sector OS FPD 1% 5% HD 23% SDN 55% PREM 16%
  31. 31. •Implement business environment reformsAssist client countries to: • Realize the potential of key industries (agribusiness, tourism, mining) • Develop financial markets and inclusion (payment systems, competition, financial literacy, IT based solutions, rural finance) • Improve resilience (weather insurance and climate smart irrigation) • Evaluate impact of interventions Significant Volume of Lending Examples of recent projects o OHADA (BEE reforms in 16 SSA countries) o Budget Support Operations: Mauritius, Uganda o Growth poles and industry focused projects (Burkina Faso, Niger, Mozambique, Tanzania, Senegal , Guinea Bissau, Ethiopia) o Post conflict (South Sudan, Somaliland, Guinea) o PPP projects (Nigeria, Ghana and Kenya) o Policy- based operations - DPOs (Tanzania, Uganda, Mauritius) Increasing domestic credit to the private sector Innovative products o Crisis response: SME financing (SA, Nigeria, Kenya) & banking supervision o Growth poles and value chains o Impact evaluation schemes (Guinea Bissau) o Agribusiness incubators (Senegal) o Housing finance (Tanzania, Nigeria) o Disaster Risk Finance and Insurance
  32. 32. BUILDING BLOCKS FOR PPPS (1) PPP enabling Laws and Regulations, Procurement Guidelines, (1) Legislative, Institutional & Sector Legislation, Institutional setup, Fiduciary Oversight body, Fiscal commitments Framework and Contingent liability management PPP Enabling Environment (3) Capacity of local (2) Commerciallyfinancial and capital Viable, Governmentmarket, Financial (3) PPP (2) PPP Project Support, Financing Pipeline Infrastructure Plan,instruments and vehicles,Risk mitigation products Transaction Advisory Support
  33. 33. THE WORLD BANK GROUP SUPPORT TO PPPSSTRATEGY INSTRUMENTS Instruments Partnerships Knowledge • Public-Private • Technical Assistance Dialogue • Capacity Building • Partnership Platform • Project Pipeline Preparation • Guidelines, Standards Finance • Early Stage Financing • Construction phase finance • Risk management tools • Environment for long term patient capital • Financial Engineering – customized financial solutions for client needs
  34. 34. THE PPP DEVELOPMENT AGENDA • Concerted efforts by all World Bank-IFC-MIGA units related PPP to develop the enabling environment required to ensure the level of certainty and predictability required for “serious” investors to make credible commitments • The WBG provides financial and technical support to nearly every element of PPPs, including: – strengthening of enabling legal, institutional and regulatory environments – design of and support on specific transactions – the provision of public sector financing at the sovereign and non-sovereign level – valuing of contingent liabilities – private sector debt and equity – key credit enhancements, such as Partial Risk and Credit Guarantees Source: World Bank PPP Day Presentation, December 2010
  35. 35. THE WORLD BANK GROUP PPP EXPERIENCE IN SSA As of 2011, the WBG has extended IFC a total of around $3.8 billion to investments in financing support the financial close of 50 PPP projects PPP transactions in energy, US$ 0.3bil transport, and water, of which: MIGA World Bank •14 independent power plants guarantees loans for more than US$1.3 billion of to private US$ 2.4bil investors financial support US$ 0.4bil •10 rail concessions─ Partial Risk Guarantees approximately US$1.1billion US$ 0.8bil
  36. 36. EXAMPLES OF WBG SUPPORT TO PPPS IN SSA • Power : Bujagali hydroelectric dam (Uganda) and IPPs in Cote d’Ivoire, Kenya and Rwanda and West Africa Gas Pipeline between Nigeria and Ghana. • Toll road: Dakar- Diamniadio Toll Road (Senegal) • Ports concessions in Nigeria (of 24 container terminals), in Monrovia (Freeport) and Sierra Leone (Freetown). • Railways : WB support to PPP projects has been via technical assistance, covering the social costs of labor retrenchment programs and in financing railway infrastructure assets. (e.g. Camrail in Cameroon). • Joint teams are now working on a growing list of agribusiness operations with the aim of attracting increased private investments in agriculture. Such projects are being implemented in Burkina Faso, Cameroon, the Democratic Republic of Congo, Ghana, Guinea Bissau, Nigeria, and Zambia.
  37. 37. AGRIBUSINESS IN SSA • Agriculture and agribusiness together are projected to be a US$ 1 trillion industry in sub-Saharan Africa (SSA) by 2030 (compared to US$ 313 billion in 2010), and they should be at the top of the agenda for economic transformation and development • The challenge is thus threefold: – (1) develop downstream agribusiness activities (such as processing) as well as upstream activities (such as supplying inputs), – (2) develop commercial agriculture, and – (3) support and link smallholders and small enterprises to productive value chains
  38. 38. 3 Stage Model to Agribusiness 1. Production 2. Transformation 3. Commercialization Our Approach • Attract anchor investors • Build on existing situation/reality• Promote aggregation beyond smallholder (stakeholder organization/interventions focusing on market development)• Technology – tech requires upfront costs and expertise, which we can provide, improving viability
  39. 39. Overcoming Constraints• Improving the performance of output markets• Facilitating access to inputs and technology• Enhancing access to land and tenure security• Upgrading infrastructure using public- private partnership where possible• Financing agribusiness• Building skills and entrepreneurship• Ensuring inclusive investments
  40. 40. INSTRUMENTS 1. Facilitate venture capital investments combined with mentorship and technical assistance. 2. Use a targeted matching grant with agribusiness startups and/or lines of credit accompanied by technical assistance. 3. Tailor the PPP model to agribusiness.
  41. 41. Business OpportunitiesDuring Project Preparation During Implementation - the borrowing country, not the World-Limited consulting services for Bank, is responsible for buying orthe World Bank to help design the “procuring” goods and civil works andproject– eg. Conduct feasibility selection consultants.studies, analytical papers etc. - the Implementing Agency that was established during project preparation is-the opportunities vary in size but the main point of contact for companiesare usually below US$ 200,000. on procurement matters. - there are generally contracts for-there are generally no consulting services above US$ 200,000.opportunities for suppliers of - equipment and civil works contracts cangoods and civil works when a be in the millions of dollarsproject is in the Pipeline. - -all contracts require the publication of a request for expression of interest in the UN Development Business and dgMarket websites.
  42. 42.
  43. 43. Business Opportunities Invitations to bid or express interest for contracts under World Bank-financed
  44. 44. THANK YOU!!