Development Bank of Southern Africa Addressing Market Failure in Regional Integration: The Case of Financial Infrastructure in SADC 22 November 2006 3rd Regional Consultation.
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Transcript Development Bank of Southern Africa Addressing Market Failure in Regional Integration: The Case of Financial Infrastructure in SADC 22 November 2006 3rd Regional Consultation.
Development Bank of Southern Africa
Addressing Market Failure in Regional Integration:
The Case of Financial Infrastructure in SADC
22 November 2006
3rd Regional Consultation on “Rethinking the role of national
DFI’s in Africa”
Presented by: Admassu Tadesse, Vice-President
Corporate Strategy, Governance & Communication Cluster
The Problem of Low Regional Integration
Regional Integration has many dimensions, notably two:
Political/governance (political systems, defense, intern’l
relations);
economic (monetary policy, trade, investment, regulations);
The problem of market failure prevails in a number of areas,
classically infrastructure (public goods character); industry,
agriculture and SMME sectors (information gaps &
assymetries);
It is important to note that the problem goes well beyond
market failure, it includes institutional failure and path
dependency (countries get locked into historical patterns and
relationships);
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Some Market & Institutional Failures in Regional Projects
Regional development projects benefiting more than one country often have
difficulty in reaching financial close
Lack of strong sponsors to provide project leadership and management
skills (the anchor problem);
Upfront investment in feasibility studies;
Consensus building and mobilisation of partners;
Lack of institutional capacity of RECs & governments (regulatory, policy etc);
Lack of sufficient financial scope in region to fund large projects
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Regional Integration & the Financial Sector
A key integration sector is the monetary/financial sector:
Promotes stability and macro-economic convergence
Facilitates trade in goods and services
Facilitates convergence towards regional norm
Support emergence of strong regional private sector
companies with ability to compete globally
There is re-newed focus on regional integration at all levels:
this region (AU, NEPAD, SADC & national level) and globally;
SADC’s Regional Indicative Strategic Plan (RISDP) highlights
importance of integration of financial systems
Focus on private sector led growth thus resource mobilization
and allocation across region critical
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Toward an Integrated Financial Sector in the Region
RISDP highlights that
Financial institutions should provide fuller spectrum of services to
both households and firms
Harmonisation of policies and regulatory frameworks at regional level
required
Mobilization of intra-regional savings
Co-ordination of central banking required
Objectives delineated through protocols e.g. Trade Protocol of
2000 and more recent Finance and Investment Protocol (FIP)
Enforcement of FIP expected to
Introduce obligations for closer monetary and financial co-operation
Harmonization designed to afford stronger rights to investors, protect
intellectual property, implement double-tax treaties and introduce
regional competition policy
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Key Features of the Financial Sector in the Region
State
Ownership of
commercial
banks
Foreign
ownership of
commercial
banks
prohibited
Angola
Botswana
Regulation of
interest rates
Fixed
exchange
rate
Government
intervention in
the allocation of
credit
Exchange
controls on
the current
account
Exchange
controls on
the capital
account
Lesotho
Malawi
Mauritius
Mozambique
Namibia
South Africa
Swaziland
Tanzania
Zambia
Zimbabwe
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Emergence of Strong Regionally-based Banks
Country
Namibia
ABSA
FirstRand
Nedcor
Standard
Bank
Botswana
Swaziland
Lesotho
Mozambique
Zimbabwe
Zambia
DRC
Angola
Malawi
Tanzania
Madagascar
Mauritius
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DBSA Approach
Intervention
Goal
Banking & Other Credit Institutions
Interventions
Long term Credit lines in hard & local currency to
bank & non-bank financial institutions
Direct lending in local currency
Aim to
Structure projects to facilitate local bank
extend,
participation
improve
Active use of T/A as well as advisory services to
credit
allocation to promote participation in projects;
Support non-bank institutions e.g. leasing
private
enterprise companies
(allocation of Identify, partner and co-finance with commercial /
investment banks;
capital)
Technical assistance and capacity building;
Ongoing support to national DFIs;
Aim to
extent
financial
services to
households
(mobilization
of capital)
Capital Markets Interventions
Issue long-dated project bonds to develop yield
curve and facilitate investment by institutional
investors
Structure and Invest in private equity funds with
mandate to list investees
Partial credit enhancement to promote further listings;
Advisory and Arranging services
Housing finance should be seen as critical sector Secondary issuing of housing portfolio’s
which if developed will truly impact development of Promote development of local unit trusts and
financial system and economy in general;
mutual funds;
Microfinance shown to be effective at providing
financial services to the poor and should be supported;
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Profile of DBSA Portfolio & Engagement to Date
Focus on allocation of capital to enterprise
Credit Lines have been central instrument
US$ 81 million to 7 DFIs combined with T/A
• EADB, DBZ, PTA, NDC, MDC, DBM
US$ 20 million to commercial banks and non-bank institutions
Mobilization of local currency
Mcel in Mozambique utilizing a guarantee
Celtel Tanzania 5 year Swap with Citibank
Investment in Private Equity funds – US$ 99 million
Bond market – subscription to LHCP issue in Zambia
Total investment to date: US$ 265 million
Project Preparation
15 feasibility studies for NEPAD projects, with capital value of R32 billion of which 2
projects with capital value of R4.4 billion are in the financing stage
‘Softer’ support given to regional integration include
Supported the review of the SADC RISDP to identify and prioritize regional projects
Member of the SADC International Cooperating Partner Forum – optimize donor
support to SADC Regional Integration Agenda
Founder member of the SADC DFI Network – help raise capacity of DFIs and build
capital markets
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Thank You
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