Dr. Rosalind H. Thomas CEO AfDB/ NEPAD Workshop Midrand 29 th March 2006

1. The Emerging Development Finance System of SADC with special focus on the PPDF Dr. Rosalind H. Thomas CEO AfDB/ NEPAD Workshop Midrand 29th March 2006

2. The Development Finance System of SADC Purpose of presentation? • To introduce the SADC-Development Finance System & specifically the PPDF • Background & Establishment • DFI Network • DFRC • Development Fund • Recommendations on PPDF (Phases 1, 2 & 3) • Structure & Workings of the PPDF & • 3 pre-screened projects

3. Background & Establishment • COMFI 1998 - Three EU funded studies - • Development Finance • Establishment of DF System • Roll out began 2000 - DFI MOU • Trust August 2001 (interim arrangement) • DFRC established July 2003 • Development Fund – feasibility study

4. The DFS of SADC – Network’s Role? • DFI Network a virtual reality • Secretariat - DFRC • Aim of Network? • Collaborate on cross-border & in-country financing of projects in SADC • Pool resources to mobilize intra- & extra-regional funds for development projects • Share experiences • Where viable take equity in each other’s institutions • Invest jointly in new structures where necessary • Collaborate on appropriate institutional mechanisms to facilitate cooperation and development finance in SADC

5. SADC-DFRC? • Secretariat of Network • Facilitator & Coordinator of cooperation in Network • Right to identify most critical issues affecting Network members • Right to propose solutions including policy options & regulatory changes • Initiate funds raising strategies, both project oriented & across the board • Institutional strengthening, Capacity building including project-related secondments, mentorship & training programs, knowledge network • Product proposals, partnerships, Technical Assistance • Monitoring of DFIs, peer review & management support Role & Responsibility of DFRC

6. Priority Areas?

7. The SADC Development Fund? • Council Mandate to COMFI to investigate SADC Development Fund • 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 the DF System

8. Workings of Development Finance System

9. I - Is there need for a Development Fund? • Phase I: Investigated desirability of SADC Development Fund • Financial support from KfW • RFP – Sept 02; Bids close – Oct 02; Consultants appted – Dec 02; Inception Report – Feb 03; Final Rpt – May 03; • Presentation to COMFI – June 03; Council Aug 03! • 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!

10. II - How will PPDF be structured and how will it work? • Phase II: Investigate modus operandi of the SADC PPDF • Further support from KfW • RFP – Oct 03; Bids close – Jan 04; Consultants– Jan/Feb 04; Interim Report – May 04; Final Rpt – June 04; • Presentation to COMFI one year later – Aug 05! • 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 • Are Critical Risk Factors that inform recommendations

11. Findings? Resource Gap Analysis… • Development Finance Needs for PS Development Source: ECA “Economic Report on Africa 1999”, Addis Ababa, 1999 * Incremental Capital/Output Ratio

12. 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

13. Findings? Three Institutional Options … • Stand-alone SADC institution, full set of in-house expertise -   […too expensive too slow start] • Stand-alone SADC institution contracting out key skilled expertise -  ? [OK… But slow start & immediate costs] • Stand-alone SADC institution – but in initial stages as a facility hosted by reputable DFI with bulk of technical services provided by Host or (if needed) sourced from skills pool via DFRC -  [… quick start option – cost effective!]

14. 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

15. Recap on Recommendation? … • Stand-alone SADC institution – but in initial stages as a facility hosted by reputable DFI with bulk of technical services provided by Host or (if needed) sourced from skills pool via DFRC *************************************** • In principle approval from COMFI but request for further investigation into outstanding concerns = Phase III

16. PPDF Institutional Framework… • Institutional Structure • CEO/Manager; In-house Development Team & Administration (out-sourced initially to reputable DFI) • Result: Lean, skilled, quick disbursing institution • In-house essential staff only, complemented by technical & policy support from Host DFI (or DFRC and DFI Network)

17. PPDF Organizational Structure ..…

18. PPDF….. • Organizational Structure • Corporate Governance: Non-Executive Board/ Technical Credit Committee; reporting to a SADC Oversight Body (Senior Treasury Officials)

19. Corporate Governance of PPDF ..…

20. 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 • US$15 million as target to be raised – US$7.5 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 = US$1.5 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

24. 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;

25. THANK YOU Dr. Ros Thomas (CEO) SADC-DFRC P. Bag 0034 Gaborone Rthomas@sadc-dfrc.org Website: Still under construction www.sadc-dfrc.org