Tom butler opening presentation


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Tom butler opening presentation

  1. 1. Investing in Africa – Mining, politics, risk and reward Tom Butler Global Head of Mining IFC Mining Indaba February 1, 2014
  2. 2. IFC, A Member of the World Bank Group IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency Est. 1945 Est. 1960 Est. 1956 Est. 1998 Role To promote institutional, legal and regulatory reform To promote institutional, legal and regulatory reform To promote private sector development To reduce political investment risk Clients Governments of member countries with per capita income between $1,025 and $6,055 Governments of poorest countries with per capita income of less than $1,025 Private companies in member countries Foreign investors in member countries Products • Technical Assistance • Loans • Policy Advice • Technical Assistance • Interest Free Loans • Policy Advice • Equity/Loans • Risk Management • Advisory Services • Political Risk Insurance 2
  3. 3. $510 Million Mining Portfolio (52% equity) 35 Projects in 25 Countries By Product Diamond s and Other Gems 10% Industrial Ores 11% Copper 2% Other Metals 9% By Region Nickel 1% Gold 40% Eastern Middle Europe, East & East Asia, 6% NA, 2% 1% World, 1% Latin America, 18% Iron (Pellets, etc.) 27% Sub Saharan Africa, 72% 3
  4. 4. African Mining – Select IFC Mining Investments Algiers Morocco IFC Hub Offices IFC Country Offices Rabat Egypt Cairo Burkina Faso Dakar Ethiopia Bamako Guinea Ouagadougou Tanzania N’Djamena Addis Abala Lagos Liberia Monrovia Accra Abidjan Bangui Douala Juba Nairobi Kigali Cote d’Ivoire Bujumbura Kinshasa Dar-es-Salaam Zambia Ghana South Africa Lusaka Antananarivo Botswana Johannesburg Cape Town 4 Maputo Mozambique
  5. 5. Africa’s Potential 5
  6. 6. Africa – A New Paradigm? • Sub-Sahara Africa GDP growth averaging 5-6% over last decade • In last 10 years, poverty headcount ratio has declined by almost 10 percentage points to ~48.5 % • FDI flows to Sub-Saharan Africa are projected to increase from $27bn in 2010 to $54bn by 2015 • Wave of excitement from investors Historic GDP Growth : Sub-Saharan Africa* 8 7 6 5 4 3 2 1 0 -1 -2 1980s: 2.6% CAGR 1990s: 2.2% CAGR 2000-2012: 5.5% CAGR *Source: IMF, World Economic Outlook, October 2013 6 2013-2018f: 5.6% CAGR
  7. 7. Africa – IFC Significant Commitment Growth IFC’s investment volume in Sub-Saharan Africa doubled in last 5 years IFC Own Account Commitments in Sub Saharan Africa (All Sectors) FY02-13 $4,000 $3,501 $3,500 120 $3,000 $2,733 $ million 100 $2,428 $2,500 $2,150 $2,000 80 $1,824 $1,379 $1,500 60 $1,390 40 $1,000 $500 140 $700 $252 $405 $445 20 $140 $0 0 2002 2003 2004 2005 2006 IFC Own Account in US$m 2007 7 2008 2009 Project Count 2010 2011 Country Reach 2012 2013
  8. 8. African Mining - Central to Continent’s Present and Future Despite recent commodity price dip, mining still central to Africa’s growth • Mining generates >20% of gov’t revenues • Economic rents average 21% of GDP in resource rich African countries • Exploration in Africa up from $200 million in early 2000 to $1.4 billion in 2010 • Africa has 30% of global mineral reserves • New discoveries have opened up new mining regions / countries • World Bank estimates $87 billion projected investment in 2013-2017 period in main mining countries The Present The Potential Source: Maarten de Wit (2008) in AU and UN paper 2011 8 8
  9. 9. Tackling the Challenges to Mining in Africa 9
  10. 10. Challenges for the Mining Sector in Africa While not unique to Africa, both “Hardware” and “Software” challenges are hampering the sector’s growth “Software” Challenges: “Hardware” challenges: • Political risk • Lack of core infrastructure: • Power • Bureaucracy / government capacity • Rail • Underdeveloped legal / regulatory environment • Roads • Corruption • Ports • Lack of skilled labor force • Social / community issues 10
  11. 11. Infrastructure – The Nature of the Challenge Vast bulk commodity resources locked in by lack of transport infrastructure Lack of power also key issue for sector competitiveness across Africa Iron ore in Mauritania, Guinea, Liberia , Senegal, Cote d’Ivoire • • • • Bauxite in Guinea, Ghana, Nigeria, Cameroon, Sierra Leone • • • • • • Iron ore in R. of Congo, Gabon, CAR, Cameroon Coal in Mozambique, Zimbabwe, South Africa, Botswana, Namibia 11 What is needed? Deep water ports Rail Reliable power Roads What are the issues? Scale of projects Regulatory framework Government capacity Lack of coordination E&S issues Cross-border
  12. 12. “Software” Challenge - Social License to Operate Across the world, communities/stakeholders are more vocal about their demands and more willing to push their claims “South Africa wildcat strikes spread to more mines” “Mining communities ‘not benefiting‘ from the profits” Bench Marks Foundation (South Africa) 12
  13. 13. Making it Work IFC’s Recommendations to Mitigate the “Software” Risks Build strong and sustainable relationships with local communities Effective local stakeholder engagement (including public disclosure of ESIA, etc) will reduce likelihood of undue local expectations and mutual suspicion Incorporate key sustainability principles in operations Sound sustainability practices will reduce risk of unexpected incidents and externalities Transparency / frequent dialogue with government on project economics, timing,etc Establish fair/transparent partnership with government (public disclosure of terms, scenario analysis for revenue sharing, etc) to reduce political risk Develop partnerships with reputable groups / strategic partners (majors, DFIs, etc) Provides “stamp of approval” and support when things 13 go wrong 13
  14. 14. IFC Financing and Advice 14
  15. 15. When Does IFC Invest? IFC in the Project Life Cycle • IFC funds projects in all stages of development Project Finance Project Discovery Value Mature Production Senior Debts and Equivalents Grassroots Exploration Equity Quasi-Equity / Mezzanine Time 15
  16. 16. A Broad Range of Financial Products Equity • • • • • Corporate Typically 5-15% shareholding Long-term investor, typically 6-8 year holding period Not just financial investor, adding to shareholder value Usually no seat on board Mezzanine / Quasi-Equity • • • • Subordinated loans Income participating loans Convertibles Other hybrid instruments • • • • • • Senior Debt (reserve-based lending. corporate finance, project finance) Fixed/floating rates, US$, Euro and local currencies available Commercial rates, repayment tailored to project/company needs Long maturities: 7-12 years, appropriate grace periods Range of security packages suited to project/country Mobilization of funds from other lenders and investors, through financings, syndications (IFC “B” Loan structure), underwritings and guarantees Senior Debts & Equivalents 16
  17. 17. IFC Performance Standards: Helping Clients Manage E&S Risks PS1: Assessment and Management of Social and Environmental Risks and Impacts PS5: Land Acquisition and Involuntary Resettlement PS3: Resource Efficiency and Pollution Prevention PS2: Labor and Working Conditions PS6: Biodiversity PS7: Indigenous Peoples Conservation and Sustainable Management of Living Natural Resources 17 PS4: Community Health, Safety and Security PS8: Cultural Heritage
  18. 18. Going Beyond the Performance Standards IFC’s Advisory Services can help create Positive Impact  IFC’s Advisory Services offerings include:  Community investment strategies  Measuring the impact of community spending (Financial Valuation Tool)  Increasing participation of local businesses in supply chain  Business skills training for local entrepreneurs  Promoting female workforce  Helping local governments manage mining revenues for economic development  Water risk/footprint assessment  Energy efficiency analysis to reduce water, energy and raw materials use  Stakeholder Engagement Guide for Juniors being launched at Indaba. 18
  19. 19. IFC in Africa Mining Infrastructure IFC leverages off its unique capabilities as well as the broader World Bank to support “transformational” mining projects in Africa IFC Power and Transport • Global portfolio of $8.4 bn • $1.3 bn committed and mobilized in FY13 in Africa IFC Mining • Advise on PPP frameworks • Identify strategic investors • Assist on community development/linkages • Sample power deals: Azito (CdI), Thiko (Kenya), Kribi (Cameroon) • Sample transport deals: Lome Port Terminal (Togo), Kenya-Uganda Rail, Dakar Toll Road (Senegal) IFC Advisory Services World Bank Group • Provide capacity building / advice to govts (incl. on fiscal revenue management) • Fund public sector projects IFC Mobilisation • IFC manages over $6 bn in private equity funds • Ability to mobilize other debt pools (incl $3 bn SAFE fund) • Political risk insurance Examples of Mining Infra Projects Nachtigal Hydro Power Project (Cameroon) 19 Comilog Rail Project (Gabon)
  20. 20. Thank You 20