Regional Consultation “Rethinking the Role of National Development Banks” Johannesburg, 22 - 23 November 2006

EIB Support to Development Banks in Africa

Lena Eriksson Å shuvud

Regional Representation for Southern Africa and Indian Ocean Islands

EIB in a nutshell

EIB is EU’s Development Bank, owned by the 25 member states.

Financing infrastructure and industry.

€45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25.

Activity in Africa started in 1963 under the Yaoundé convention:  LT loans, quasi-equity and equity to both private and public counterparts  Cotonou – also guarantees.

 Direct funding of large infrastructure and industry projects cofinancing w. local/international institutions –  Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs.

Key objective term.

– assist in development of financial markets for the long 2

EIB in a nutshell

EIB is EU’s Development Bank, owned by the 25 member states.

Financing infrastructure and industry.

€45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25.

Activity in Africa started in 1963 under the Yaoundé convention:  LT loans, quasi-equity and equity to both private and public counterparts  Cotonou – also guarantees.

 Direct funding of large infrastructure and industry projects cofinancing w. local/international institutions –  Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs.

Key objective term.

– assist in development of financial markets for the long 3

350 300 250 200 150 100 50 0 EIB Lending to Financial Institutions in Sub-Saharan Africa (million EUR)

National Development Banks Regional Development Banks Commercial Banks

1976-1990 1991-1999 2000-2006

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EIB support to NDBs in Africa: 1970s & 1980s

NDBs seen as effective response to financial (and other) market imperfections.

Support from multilateral and bilateral development finance agencies.

EIB support aimed at two market imperfections:  access to finance of SMEs  provision of long term financial instruments Loans, equity and quasi-equity 5

Weak performance of NDBs in 1980s:

 Weak management, governance problems.

 Misguided directed lending policies.

 Insufficient credit and risk culture.

 Ill equipped to deal with equity operations.

Retreat from lending to NDBs since early 1990s.

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New strategy since turn of century : RDBs and especially commercial banks

Achievements:  Better quality of firms financed  Long term through RDBs lending increased, especially Unresolved problems:  Access to credit of SMEs, especially start-ups  Focus by many commercial banks on short term lending 7

Market imperfection still there

 Can be partially addressed by RDBs.

 Can suitably designed/reformed NDBs play a useful role?

 A few encouraging examples.

 EIB is still open to considering support to establishment of NDBs in a number of African countries.

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Challenges

  Case specific intervention has its own challenges.

 Setting priorities & clear and realistic definition of tasks.

Technical panacea.

assistance: – each country useful but no  Governance and institutional framework commitment to proper institutions and governance essential.

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The European Investment Bank will continue to support partners in development that are best equipped to be effective in this work.

THANK YOU

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