AFRICAN DEVELOPMENT FOUNDATION (ADF)

Nate Fields, CEO Africa Operations Creating the enabling environment for Diaspora-led investments: Prevailing investment opportunities and challenges in Africa Cape Town, South Africa Feb. 06-08, 2008

Overview of USADF

• A U.S. Government foundation • Began field operations in 1984 • Responds to unsolicited proposals from small- and medium-sized businesses in Africa • and other community organizations • Budget from US Congress -- $30 million in FY 2008 • Other funding from strategic partnerships in FY 2008 – $13 million from 10 national governments and 1 MNC (Benin, Botswana, Cape Verde, Ghana, Guinea, Kano State in Nigeria, Mali, Rwanda, Tanzania, Uganda and Zambia).

Unique SME investment model

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Deep experience across many countries / sectors Collaborate with local partners to deliver on the ground technical support on a day-to-day basis

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Unique approach of requiring matching investments from African governments and/or corporations Long history of successful strategic partnerships Strong track record of innovation stronger SME successes

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Exporter / processor linkages

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Outgrower schemes Supply chain linkages to create

ADF’s Strategic Objective # 1: To stimulate economic growth, job creation and higher incomes within low income communities in Africa 1. Enhance growth, profitability and competitiveness of African owned small and medium-sized enterprises 2. Expand production of high-value crops by small-scale farmers, value-added processing of agricultural products, and access to local and global markets 3. Promote SME involvement in extractive industry supply chains, infrastructure development and agricultural value chains 4. Develop community-based solutions to critical social and economic needs of marginalized communities and people

Strategic Objective # 2: Expand local institutional and financial capacities to support and sustain enterprise development investments 1. Build world class business development services organizations services 2. Create renewable pools of local capital -- to fund small businesses and community initiatives 3. Forge strategic partnerships -- with African governments, other donor agencies, private investors and the private sector for joint funding and to significantly scale up programs 4. Document and disseminate information on program experiences, lessons learned, best practices, and successful business models

Tangible Results Across Africa

Impacts on themselves. Our results for 2006 investments include: enterprises and on communities speak for

• 46,533 jobs created • 21,540 women who directly benefited through jobs • $82.3 million gross revenues of USADF-assisted enterprises • $33.8 million value of export sales (2005) • $13 million cash commitment from African governments and corporations

USADF-Guinea Alumina Corp Strategic Partnership

Program Overview

• MOU signed in 2006 • 5 year $10M USD fund to deliver community social and economic benefits • 2 components: SME linkages and community-based development • Widely recognized as a groundbreaking public-private partnership within the extractive industry

USADF-Guinea Alumina Corp Strategic Partnership •

Program Rationale

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“ADF and GAC have agreed to cooperate in a mutual effort to support local communities and promote development of micro, small and medium scale enterprises in and around the bauxite mining zone of GAC in Guinea.

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More specifically, the program will demonstrate an effective partnership and cooperation between ADF, a US public entity and GAC, a multinational private corporation, in the context of poverty alleviation in Guinea, a poor country of West Africa”

USADF-GAC Program Investment Model

SME investments are recycled

• Independent SME Linkages funding account (1:1 ADF and GAC Match) • Work against GAC’s target spending with local suppliers • Funds to be used in two ways:

Enterprise Expansion Loans

and

Capacity Building Grants

SMEs Joint Fund

1 to 1 ADF / GAC match

Assistance

Enterprise Expansion Loans

Working Capital Capital Investments Process Improvements

Capacity Building Grants

Consulting Training / Education Technical Assistance

Recycle Expansion Loans

Construction FOCUS OF SME INVESTMENTS Operations Community Livelihoods Local Consumer Economy Construction:

Fastest opportunity, provide technical assistance to local subs, strengthen national firms but require use of local workers / inputs

Operations:

Invest in new skills and expansion of firms based in Conakry. In other cases, initially insource but spin off to local SMEs over time

Local Consumer Economy:

Build consumer and business-services enterprises in and around the bauxite region

Community Livelihoods:

Deliver local sources of income, generally ag-based, that create employment within the footprint of the mining activities

SME - MNC Linkages Methodology

1. Investment Strategy

 Analyze MNC supply requirements  Survey community priorities  Conduct SME outreach  Prioritize sectors / spend categories  Assess SME capabilities in each sector / spend category  − Define sector strategy:

Link only

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Invest and link

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Insource / spin off later

 Formulate SME Investment and Linkage Roadmap

2. SME Development 3. Link SME to MNC

 SME screening  Supplier training in doing business w/ MNCs  Business plan development  Determine financing need −

Capacity building grant (USADF EDI)

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Pre-commercial expansion loan (USADF EEI)

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Commercial loan / link to financial institution

 Request for Proposal (RFP) response facilitation −

Costing / pricing

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Capacity planning

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Working capital needs

 − Contracting support

Commitments / penalties

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Link to legal assistance

 Execute financing agreements / fund investments  Implement business plans  − Contract implementation

Production planning

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Customer relationship management

4. Ensure SME Performance

 performance − Track enterprise

Quarterly financial reports

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Measure against growth targets

 Track supplier performance −

Self reporting

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MNC reporting

 Intervene as necessary using proven turnaround capability  Facilitate additional market linkages

Requirements Gathering

Construction Schedule Analysis

Sangaredi Alumina Refinery Schedule was analyzed with the following results:

• Number of Projects: ~75 • Number of Sub-Projects: ~188 (across all projects) • Project Phases: Engineering  Procurement  Construction • Construction related activities command the most demand  Commissioning

Construction Work Content

Civil General Electrical Instrumentation Buildings Concrete Piping Equipment Painting Steel Structure Insulation

Projects Involved

58 45 44 33 27 26 25 25 25 23

Sub-Projects Involved

124 75 56 33 80 49 45 47 70 37

Examples of Activities

Area clearing & grubbing, drilling & blasting, surface compaction & leveling, paving, foundation backfilling, ditches, Grounding, area lighting, cabling & wiring, fire alarm, testing Local instruments/panels, cabling trays/piping/cabling, control board equipment, Foundation, plumbing & drainage, electrical, wall & roofing, exterior & interior finish, HVAC, Foundations (piperack, equipment, structure, misc), concrete structures, storage tank oil dike, Pipe fabrication, pipe supports fabrication, pipe supports erection, A/G piping, pipe install, hydrotesting, Equipment install, assembly, Touch-ups painting, lettering/marking, surface coating, tank painting, Platforms/ladders/gratings, equipment steel structures, sub-piperack structure insulation (pipe, powerplant)

SME Capability Assessment

SMEs were methodically assessed using a comprehensive toolkit covering both subjective and quantitative attributes GAC Needs SME List SME Interview Initial Assessment Analysis SME Site Visit USADF SME Assessment Toolkit

SMEs were assessed and scored on the criteria below.

Business Assessment

- Profitability / Social Impact - Marketing / Distribution - Product Strength - Operations - Management / Governance - Financial Management

Entrepreneur Assessment

- Character - Commitment - Competence - Connection to Community

Analysis

Types of ADF Support ADF provides an integrated assistance package that may include • Business appraisals • Business and strategic planning • Financial management and accounting • Product development • Operations improvements • Governance support • Managerial assistance & training • Access to improved technology • technical assistance • Fixed capital • Working capital • Quality assurance • Market studies • Marketing strategies • Market linkages • Business performance measurement • Monitoring and remediation • Evaluation & impact Assessments • Audits

Progress Update : December 2007

FY 2007 Results

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Invested $1M USD in 6 SMEs Sectors include:

• Construction • Security • Food production • Uniforms • Maintenance services –

Projected outputs:

• $2M in wage growth • > $10M in incremental revenue rowth • – –

$1.4M in SME investment Sectors include:

• Construction inputs (blocks / wood) • Professional services (PR, engineering services, consulting) • Maintenance services

Investment Size and Duration

• Enterprise Expansion Investments typically range from $100,000 to $250,000 (may be larger in rare cases) • EEIs are for 5 years, but may extend longer • Operational Assistance Grant (OAG), to improve the capabilities of an enterprise not yet ready for an enterprise expansion investment • OAGs are 50% repayable for up to $100,000 over 1 to 2 years and may be followed by an application for an EEI.

Examples of Export Products From FY 2005 Projects • Frozen and chilled Nile perch • Fresh and processed rock lobster • Dried paprika peppers • Cured vanilla • Beef products • Fresh fruits and vegetables • Solar-powered hearing aids • Citronella tea bags • Tie-dyed textiles • Cattle and ostrich hides • Cashews • Dried pineapple • Sugar • Salt • Traditional African foods • Clothing

Recent Project Examples

• Botswana Khama Rhino Sanctuary – $201,000 for construction of two chalets and a restaurant at this ecotourism facility plus training, TA, and working capital

Recent Project Examples

• Cape Verde Tipografia - $245,000 to enable a printing shop to produce full-color advertising materials, magazines, and newspapers and treat its wastewater effectively. ADF funding helped them obtain a commercial bank loan for a new building and ADF is helping them access a soft loan from another donor for equipment.

Recent Project Examples

• Ghana Ernimich --$248,000 for expanded production of traditional ethnic foods sold to specialized shops and grocery stores in the US under the brand, Nina Foods. ADF will provide working capital, vehicles, market development support (website and implementation of international quality standards), training, and improved management systems

Recent Project Examples • Ghana Integrated Tamale Fruit Co. (ITFC) – 2 projects to help outgrowers establish 200 2-acre plots of organic mangoes with tractor leasing, irrigation systems, farming tools and inputs, and extension services. ITFC will provide land to be owned by the outgrowers and market the produce, but farmers will have the right to sell to other buyers.

Recent Project Examples

• Ghana Woodhouse - $250,000 for the only large-scale, modern manufacturer of furniture for schools in Ghana. The company will buy new equipment, a generator, hardware and software for computer assisted design, and transport vehicles

Recent Project Examples

• Mali Benkadi Laundry -- $249,000 to establish a modern laundry that will employ women with obstetric fistulas. Profits will enable the Benkadi Association to increase medical treatment and its community outreach and education for this medical condition • Namibia Rudro – $268,000 for a leveraged buy out by the employees of a textile company that had been owned by a non-indigenous Namibian

Examples of Project Impact

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Tanzania Mtibwa Sugar scaled up its production through its support for the production of small-scale sugarcane outgrowers. Funded in FY 2002, Mtibwa Sugar has increased its gross export revenues from $1.188 million in FY 2002 to $5.034 million in FY 2005.

Examples of Project Impact

• Uganda’s Kelvin Shaun, a hydrated lime processing business, received a US$250,000 grant in FY 2005 to expand production for import substitution. ADF funding supported construction of new production facilities and the purchase of vehicles, equipment, and inputs. Kelvin Shaun has secured a contract to supply a construction company with 200 metric tons of hydrated lime valued at US$259,500. The company’s net income has increased 17 fold.

• • • • • Examples of Project Impact ADF support enabled Botswana Godisa Technologies to produce low-cost hearing aids for people in developing countries using parts purchased in bulk from a British company. A similar hearing aid in Europe costs 4 times as much.

ADF also supported the design and production of solar chargers for the hearing aid batteries. Godisa won a first-place award for international product design from the Design Institute of South Africa. Between January 2002 and September 2005, Godisa sold over 2,750 hearing aids and chargers.

Godisa is also helping NGOs in other countries begin production of the hearing aids and chargers. Godisa recovers its expenses for helping to establish the other businesses from donor or foreign government funding, but does not accept a franchise fee or royalties as long as the manufacturer 1) is an NGO, 2) hires the disabled, and 3) has a qualified business manager. By early 2006, replications are expected to be underway in Brazil, Jordan, and the Philippines. Donor funds are also being sought for replications in Pakistan, the Dominican Republic, and Mexico.

How ADF Measures Its Performance (1) 1.

Revenue Growth

Cumulative increase in the sales of enterprise development projects over their extrapolated baseline levels during the project period and the 3 years following the grant expiration date 2.

Investment Multiplier

For every dollar disbursed to enterprise development projects that were active or have closed within the past 3 years, the cumulative increase in their gross revenues (sales) over the extrapolated baseline level during the project period and the 3 years following the grant expiration date 3.

Profitability

Percent of active enterprise development projects that have achieved a positive net income before income taxes, depreciation, and CRG contributions in the reporting year by the end of their third year or earlier

How ADF Measures Its Performance (2)

4.

Community Reinvestment

Percent of active enterprise development projects that are current in meeting their cumulative CRG pledges from the end of their third year and onward 5.

Sustainability

Percent of completed enterprise development projects or social development projects that are still operating during the 3 years following expiration of the ADF investment 6.

Partnership Contributions

Funds received from strategic partnerships during the year as a percentage of new ADF obligations for development projects

How ADF Measures Its Performance (3)

7.

Follow-on Financing

Cumulative non-ADF loans, grants, or equity investments received by active and closed projects from the ADF grant start date through the 3 years following the grant expiration date 8.

Overhead Rate

ADF’s non-program costs as a percentage of (USG appropriations + non-USG funding contributions received).

9. Disbursement Efficiency

Median time required between the ADF Country Representative’s receipt of a grant disbursement request from the partner organization and ADF transmittal of the funds