Private Sector Guide: Critical Information
What types of private sector projects does the AfDB fund?
The AfDB provides traditional financing for projects that involve the establishment, expansion, diversification, and/or modernization of production facilities in a variety of sectors, including energy, manufacturing, agribusiness, transport, infrastructure, extractive industries, banking and finance, tourism, and other service industries. To date, most of the private sector projects have focused on financial services, manufacturing, and infrastructure.
A complete and detailed overview of the AfDB's Private Sector Window is found at AfDB's Private Sector brochure.
What does the AfDB view as important objectives for private sector projects?
- Employment generation
- Technology transfer and the acquisition of specific skills and knowledge
- Generation of foreign exchange earnings and savings
- Transformation of local raw materials into value-added products
- Development of local financial markets
- Catalyzing Foreign Direct Investment (FDI) to African countries
What criteria are important when the AfDB evaluates a project?
- The project sponsor's company(s) must be incorporated in an African country
- The company must be privately owned and managed
- The Bank's contribution to the total project cost must be at least $4 million; smaller contribution is possible for social projects (health and education) and for financial services. The Bank may contribute up to one-third of total project cost.
- The project sponsor(s) equity must be at least 30 percent of total costs, except for private infrastructure projects (approximately 40 percent).
- The project must be environmentally sound and comply with the AfDB's environmental guidelines (link) and the regulations of the respective country
How does the AfDB promote private sector projects?
- Through policy advice to governments to ameliorate the enabling environment for business
- Through advice to enterprises on the structuring of the project and provision on specific services
- Through a range of financial instruments
Please note that Bank may provide debt financing for up to one third of the total cost of the project and/or an equity investment not exceeding 25 percent of the share capital of any enterprise. The AfDB believes that their association with the project is more important than the monetary contribution. The Bank's association is intended to provide confidence and comfort to other lenders and investors, who would otherwise be reluctant to participate due to perceived risks.
Does the AfDB promote smaller scale projects?
The African Development has recently introduced private sector lines of credit to commercial banks for on-lending to the private sector in their respective countries, particularly for the development of small and medium sized enterprises (SME's). The AfDB also contributes to investment funds that are targeted to SME development and smaller scale infrastructure projects. Finally, the Bank is largely involved in micro finance programs and projects both through public and private operators.
What types of financial instruments are available through the AfDB Private Sector window?
Loans: The AfDB offers hard currency and South African Rand term loans at market interest rates, with a term of 5 to 15 years taking into account a grace period reflecting project implementation and projected cash flow. The fees charged are in line with normal market practice, and the Bank requires various collateral to secure the loan, which is dependent upon a variety of factors.
Equity and Quasi-Equity: The AfDB takes equity investments in a variety of forms, including common shares and preferred stock, with or without participating features. The Bank does not assume any management responsibility and normally develops an exit strategy once the performance goals of the project are realized.
Guarantees: The Bank provides guarantees to cover the payment of principal and interest for loans and debt instruments extended by others, primarily local or foreign financial institutions and commercial firms.
Lines of Credit: The Bank offers lines of credit to private financial institutions for on-lending to small and medium sized enterprises.
Loan Syndications: Syndications may involve the Bank acting as arranger of financing or involve arrangements whereby banks and other financial institutions are offered to participate in a Bank loan with the banks taking the same project risk as the Bank on a pro-rata basis.
Underwriting: The Bank can act as an underwriter of a portion of the securities issued by private sector entities and national or regional investment funds.
What steps do I need to take to have my project reviewed by the AfDB?
Contact the U.S. Commercial Liaison Office, Tunis to get a sense of whether your project could qualify for AfDB financing.
Develop an executive summary of the project, including the project description, the sponsors, cost estimates, financing plan, key technical and environmental features, feasibility indicators, business climate and market prospect, and implementation plan.
Provide this executive summary to the AfDB Commercial Liaison Office who will submit it to the Private Sector Department for an initial review of the project.
If the Bank determines that your project meets their requirements, they will ask you to submit a full proposal, which must include a feasibility study, business plan, and environmental impact assessment/study if it falls in the category that requires this type of study.
