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Orli Arav Head of Project Finance Frontier Markets Fund Managers

Harith High Level Executive Dialogue Project Development 26 September 2013. Orli Arav Head of Project Finance Frontier Markets Fund Managers. 1. What can we learn from the EAIF pipeline . The EAIF pipeline is split into two categories

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Orli Arav Head of Project Finance Frontier Markets Fund Managers

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  1. Harith High Level Executive Dialogue Project Development 26 September 2013 Orli Arav Head of Project Finance Frontier Markets Fund Managers 1

  2. What can we learn from the EAIF pipeline The EAIF pipeline is split into two categories Projects which are approved by NBC and where some level of due diligence is underway or has been done; Pipeline projects, which are being assessed and prepared for NBC submission. Within these two categories, the projects are further segregated as active, less active or inactive. Currently EAIF has 32 NBC approved projects and 62 projects in the pipeline stage. However out of these 94 projects, only 23 projects are on the active list.

  3. Where do we see project actively being developed in Africa EAIF’s active pipeline is currently focused on 11 countries excluding Pan African Projects and 5 sectors. Of the 11 countries, 3 are new countries for EAIF (Gabon, Zambia and Ethiopia) The pipeline is quite heavily concentrated to power projects, representing 65% of the total potential EAIF exposure. This is not surprising given the acute shortage of power in the continent and further validated by Power being the dominant sector in the EAIF portfolio (41% of total commitments);

  4. EAIF’s overall pipeline vs. active (countries)

  5. EAIF’s overall pipeline vs. active (Sectors)

  6. Private Infrastructure Development Group

  7. The challenges of developing & financing projects in Africa A recent review conducted by McKinsey, for PIDG, found that: The challenges of building infrastructure in sub-Saharan Africa cannot be underestimated; One of the main challenges for private infrastructure projects is the limited availability of affordable capital, in the form of equity, mezzanine or other higher risk debt instruments; Capital for infrastructure projects in sub-Saharan Africa is often perceived as too high risk by international commercial banks and other private investors; This position has been heightened by the reduction in available Capital following the global financial crisis. The impact of this shortage on the infrastructure market led to an 80 per cent. reduction in private participation in infrastructure in DAC I & II countries between 2010 and 2011; In the limited circumstances where Capital is available, it is generally on a short tenor and priced at unaffordable levels for infrastructure projects.

  8. There is a funding gap for “frontier projects” • Our experience shows that many “frontier” projects are commercially viable and would have high developmental impacts. In spite of this, these projects often suffer from a lack of interest and support from lenders in the crucial stage between initial equity and senior debt. • We encounter these “market failures” in EAIF’s current funding activities. “Frontier projects” are those which exhibit some or all of the following characteristics: • lack a major international sponsor; • are located within challenging or extremely challenging environments; • provide a significant contribution to the development of that environment; • suffer from a lack or perceived lack of experienced management/sponsor support; and • display sufficiently robust project economics, taking into account the above factors. • Current products available in the project finance market do not provide an entry role for private sector participation in these frontier projects. This increases the likelihood that many frontier projects, while highly developmental and commercially viable, do not get out of the starting blocks.

  9. Our Proposal – to set up a New PIDG Company - FAIR (Frontier Africa Investment Resources) A new funding product to target the current gap in funding for highly developmental projects; The provision of financial expertise and an early commitment to provide capital to a frontier project will increase its attractiveness to third party investors (equity and debt). This will facilitate the financing of frontier projects and take more of them across the “finishing line”.

  10. Funding from FAIR A new PIDG company which will provide long term capital or a high risk tranche within the overall financing available to frontier projects; The FAIR would take the form of mezzanine capital or quasi-equity; We envisage FAIR, would provide between US$10 million and US$15 million of proposed Capital per project, depending on the size and overall financing structure of the project; The return for each investment would be tailored to the project’s specific needs and characteristics, though risk adjusted returns would be market priced (i.e. not subsidised). In addition, Capital would not include early stage equity or patient equity; Funds from the FAIR will not be injected prior to financial close, but would be approved at an early stage. This is to signal to the market that we believe the project is viable.

  11. Contact details Orli AravHead of Project FinanceFrontier Markets Fund Managers (FMFM)Add: 20 Gresham Street, London, EC2V 7JETel: +44 203 145 8610Email: orli.arav@frontiermarketsfm.com

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