Dr. Rosalind H. Thomas

1
Identifying developing strategies for funds
mobilization investment as an input to The
Southern Africa Productive Capacity Facility
Do we need the APCF?

• Dr. Rosalind H. Thomas
• CEO SADC-DFRC
• SADC Experts Group Meeting
• Johannesburg, South Africa
• 6-8 December 2006

2
The Southern Africa Productive Capacity Facility?
Outline of presentation

• Why Do we need an APCF for Southern Africa?
• Demand for Facility needs to be demonstrated
• What exists in Region to fund activities under
  industrial development?
• Survey of financing options needs to be carried
  out who is doing what?
• Is there a market gap if yes, how should it be
  addressed?
• Feasibility study needs to be done to determine
  if there is a market gap and recommend how to
  address this

3
Do we need ACPF (What is the Demand being
expressed)?

• Symposium identified following -

Reduce post-harvest losses Address water
shortage reduce transaction cost (transport,
etc) Capacity Building, technology acquisition,
packaging marketing, standards tariff
reductions NTBs

• 8 Strategic Sectors
• Agro-Processing
• Harmonization strategies policies statistics
  data
• Minerals Metallic Products
• Increase beneficiation before export
• Leather Leather Products
• Hide production in RSA insufficient to meet local
  demand large unsuitable for domestic
  processing

Establish refining capacity semi production
capacity regional design marketing
feasibility study for world-scale iron unit
plants Electro Arc Furnaces mini mills
foundries steel fabrication. Sub-sectoral
strategies feasibility to assess viability of
beneficiation Quantify value-added minerals
industry inputs Energy (SAPP) transport
vibrant SME sector address trade barriers
Tanning capacity 2.5m/an supply static 2.2 m/an
demand (autos) 2m/an. Need? Mkts with global MN
Tier 1 suppliers Infrastructure Qlty stds
Just-in-Time and J-I-Sequence supply chain rqmts
Cust Relats mgmt Sustainable L-T business
Competitiveness
4
What is the Demand being expressed?

• Symposium .. identified following -

• Strategic Sectors
• Forestry
• Significant natural resources exist
• Potential for manmade resources
• Fisheries
• Chemicals, Petroleum, Pharmaceuticals

Sustainable resource mgmt (environment/ wastage,
etc) exploit Mkts better establish Forum
Inefficient industry location Re-organize
processing harvesting update data - Status
review of regions resources comp advantages
required
Outstanding No information
Outstanding no information
5
What is the Demand being expressed?

• Following identified -

• Strategic Sectors
• Textiles Garments
• Priority sector for SADC
• Measures rqd to improve performance
• Machinery Equipment
• Case-Study RSA Auto industry
• Lead manufacturing sector in economy
• Ranked 18th in world

Coordination competitiveness among Cties in
SADC Resolve over-lapping memberships ITC for
efficient manufacturing Stds harmonization
SMEs industry modernization Skills development
upgrading Industry Networking
Encourage specialization in high volume products/
economies of scale X competitiveness import
low volume products Gradual reduction in M
duties local assembly support. For Region
subsidies not possible need for partnerships
JIT warehousing. Competitiveness? Failure to keep
up with RSA industry stds collapse of industry
in SADC cties small domestic Mkts!
Fundamentals infrastructure, policy measures
ownership manufacturing ROO need to identify
value-chain opportunities segments of
opportunity Feasibility study required
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What is Demand being Expressed?

• Hard Projects?
• Infrastructure development
• Minerals refining beneficiation facilities
• SME investment development
• Soft Projects?
• Feasibility studies Surveys
• Policy research, coordination harmonization
• SME linkages value-chain development
• Standards setting improvement
• Funding for
• Re-capitalization strategies
• Upgraded technology ITC

7
Who is Financing these in the Region?
DBSA IDC MDBs IFIs Private Sector - through
debt financing project financing (PPPs) equity
guarantees

• Hard Projects?
• Infrastructure services
• Minerals refining beneficiation facilities
  Agro-industries, etc
• SME investment development

IDC MDBs IFIs Private Sector - through debt
financing project finance (PPPs) corporate
finance equity guarantees
Important that project sponsors fund their share
through equity
Most NDBs EBG BP/RSA IFC Private Sector
through debt finance equity guarantees but
Med- to Long-Term instruments missing
8
Who is Financing What?
IDC, DBSA other NDFIs, MDBs IFIs Donors/ ICPs
grants possibly recoverable as success fees

• Soft Projects?
• Feasibility studies Surveys
• Policy research, coordination harmonization
• SME linkages value-chain development
• Standards setting improvement

MDBs, Donors/ICP through grants ? Perhaps?
IFC, MDBs, Donors/ICP - ????
Donors/ICP IFC MDBs Govts?
9
Who is in Infrastructure Project Preparation?
Private only
Japan (EPSA)
P/S Banks
INFRACO 20m USD
PPP Private
PPIAF 6m USD/year
PPIAF
IFC
Japan (FAPA)
PPP only
DEVCO 25m USD
ADB - NEPAD IPPF 7m USD
KfW
IPPF
Public PPP
Japan (outside facilities)
Japan
ACGF WB 9m USD
IBRD
Public only
Norway
Norway
EIB lt60 m EUR/2 yrs
EIB
All
IDC
AFD DBSA - NEPAD PPFS 25m ZAR
DBSA
Project financing
Pre- feasibility Studies
Assistance In Deal Making
Enabling Environment
Feasibility Studies
Detailed design
Project Packaging Advisory Services
Project Scoping/ Finding Owner
10
What about Preparation of Industrial
Projects?Whos doing what?
Private only
?
?
Private Banks
PPP Private
IFC
PPP only
?
AfDB?
Public PPP
?
Bilateral DFIs?
Public only
?
?
All
EIB
EIB
IDC
Project Packaging Advisory Services
Assistance In Deal Making
Project Scoping/ Finding Owner
Project financing
Pre- feasibility Studies
Feasibility Studies
Detailed design
Enabling Environment
11
Who is Financing What in the Region?
Private Banks DFIs IFIs corporate finance
debt equity guarantees export credits

• Funding for
• Re-capitalization strategies
• Upgraded technology ITC

Private Banks DFIs IFIs corporate finance
debt equity guaranteed export credits?
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Is there a market gap if yes, how to address
it?

• How do we determine the Gap?
• Feasibility study needs to be done to determine
  if there is a market gap and recommend how to
  address this
• Should take into consideration existing studies
• e.g. Feasibility Study for SADC Project
  Preparation Development Fund
• PPDF also provides for financing of vertically
  integrated industry projects

13
SADC-PPDF Study? Resource Gap Analysis

• Development Finance Needs for PS Development

Variables (per annum) SADC SSA
Required GDP Growth Rates () 6.2 6.8
ICOR 6.1 5.0
Domestic Savings Rate () 19.6 14.9
Required Investment/GDP Rate () 37.8 33.0
Required External Finance ( of GDP) 18.2 18.1
Current ODA Flows ( of GDP) 11.8 8.9
Residual Finance ( of GDP) 6.4 9.2
Source ECA Economic Report on Africa 1999,
Addis Ababa, 1999 Incremental Capital/Output
Ratio
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The SADC Development Fund?

• Council Mandate to COMFI
• DFIs asked to carry out work and report to COMFI
• Phases I Oct 2002 August 2003
• Presentation to COMFI Council PPDF accepted
• Phase II - Oct 2003 August 2005
• Project completed Presented to COMFI August
• Result? In principle acceptance of Modus Operandi
  further work requested
• PPDF provides the third Pillar of emerging DF
  System

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Workings of Development Finance System
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I - Need for a Development Fund?

• Phase I Investigated desirability of SADC
  Development Fund
• Findings
• Adequate financing in market for funding good
  projects
• Problem Need for increased investment not being
  translated into bankable projects no deal flow!
• New vehicle needed for pre-packaging of such
  projects
• Facility - also serve as catalyst to improve
  investment environment
• Conclusive Finding Yes - Need for PPDF!
• Recommendations accepted by COMFI Council
  proceed to Phase II
• Development Fund now called - PPDF!

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II - How will PPDF be structured and how will it
work?

• Phase II Investigate modus operandi of the SADC
  PPDF
• Deliverables
• Window 1 Project preparation and development
  facility
• Window 2 Project finance component
• Pre-screen 3 regional projects for the first
  activities of the PPDF
• Findings of Study
• Key stakeholders see real/urgent need for Window
  1
• Review of 30 models world-wide no appropriate
  off-shelf model
• Phase III Final Design Issues (in progress)

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Phase II findings continued.?

• PPDF Market Niche?
• Primary Role Intermediation between
  public/private partners for development of
  projects to take to market - partake in direct
  financing of selected projects
• Provide Project Advisory Services to Project
  developers Clearing House to identify existing
  facilities TA for project identification and
  feasibility
• Enhance business environment for regional
  projects identify help to remove specific
  barriers to successful conclusion of projects

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Recommended Model for PPDF (Phase II)

• Placement within SADC Framework
• Stand-alone institution - initially as a facility
  hosted by reputable DFI
• Management Contract with Host
• Own governance structure
• Established under SADC legal framework with SADC
  Finance Investment Protocol as founding
  instrument
• Operationally implemented under Subsidiarity
  but aligned with best international practice

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PPDF Operations ..

• Provide Grant funding for project preparation
  development immediately - PPDF (Window 1)
• Project Financing PF (Window 2) deferred to
  later when demand arises
• PPDF Project cycle
• project origination screening
• project evaluation and
• Project marketing, negotiation financing
• Management Information System IT, Business
  Development, Funds Mobilization are imperative
  (hence outsourcing to reputable DFI)

21
How the PPDF would operate.
22
PPDF Financing Model..

• To be financed by Grants (cash transfers/ or in
  kind, i.e. TA)
• Life of the PPDF is 20 years
• US15 million as target to be raised US7.5
  million in first year (4 million earmarked by
  GTZ)
• Contributions ( of total Capital raised)
• SADC Member States 10
• ODA 60
• Others (including private finance) 30

23
PPDF Financing ..

• Host DFI? - recurrent costs management fee of
  1.5 of disbursed funds proposed (NEPAD charges
  differently on similar arrangement with DBSA)
• To re-capitalize fund -- PPDF - operate as
  revolving fund earn success fees on projects
  (minimum of 3 in model on disbursement per
  project)
• Start-up costs assumed at 5 of Capital raised
• Average size of disbursement US1.5 m/project
• Tax rate 0 as SADC institution
• Later, if stand alone institution required -
  Member States to contribute recurrent costs of
  PPDF second staff as and when required

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Pre-Screened Projects for PPDF.

• Three projects pre-screened for first activities
  of PPDF
• Pafuri-Vilankulo Development Corridor, Mozambique
• Namibia-Angola Agro-Industry Project on Okavango
  River
• Mtwara Development Corridor Heavy Duty Ferry
  linking Nkhata Bay Mbamba Bay on Lake
  Nyasa/Malawi

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Conclusions?

• Need to determine the Gap?
• Feasibility study needs to be done as a priority
• Only then can decide what gap is thus focus of
  SA PCF!
• Most likely scenario softer projects but
  needs to coordinate with PPDF
• If needed, could be a facility managed by PPDF
  Fund managers?

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• THANK YOU
• Dr. Ros Thomas (CEO)
• SADC-DFRC
• P. Bag 0034
• Gaborone
• Rthomas_at_sadc-dfrc.org
• Website www.sadc-dfrc.org