EIB Support to Development Banks in Africa

1. Regional Consultation “Rethinking the Role of National Development Banks”Johannesburg, 22 - 23 November 2006 EIB Support to Development Banks in Africa Lena Eriksson-Åshuvud Regional Representation for Southern Africa and Indian Ocean Islands

2. EIB in a nutshell • EIB is EU’s Development Bank, owned by the 25 member states. Financing infrastructure and industry. • €45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25. • Activity in Africa started in 1963 under the Yaoundé convention: • LT loans, quasi-equity and equity to both private and public counterparts • Cotonou – also guarantees. • Direct funding of large infrastructure and industry projects – cofinancing w. local/international institutions • Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs. • Key objective – assist in development of financial markets for the long term.

3. EIB in a nutshell • EIB is EU’s Development Bank, owned by the 25 member states. Financing infrastructure and industry. • €45 bn of loans signed annually – funded mainly through bond issues – 10% outside EU25. • Activity in Africa started in 1963 under the Yaoundé convention: • LT loans, quasi-equity and equity to both private and public counterparts • Cotonou – also guarantees. • Direct funding of large infrastructure and industry projects – cofinancing w. local/international institutions • Funding to SMEs through financial intermediaries, inlcuding NDBs and RDBs. • Key objective – assist in development of financial markets for the long term.

4. EIB Lending to Financial Institutions inSub-Saharan Africa (million EUR)

5. EIB support to NDBs in Africa: 1970s & 1980s • NDBs seen as effective response to financial • (and other) market imperfections. • Support from multilateral and bilateral development • finance agencies. • EIB support aimed at two market imperfections: • access to finance of SMEs • provision of long term financial instruments • Loans, equity and quasi-equity

6. Weak performance of NDBs in 1980s: • Weak management, governance problems. • Misguided directed lending policies. • Insufficient credit and risk culture. • Ill equipped to deal with equity operations. • Retreat from lending to NDBs since early 1990s.

7. New strategy since turn of century : RDBs and especially commercial banks • Achievements: • Better quality of firms financed • Long term lending increased, especially through RDBs • Unresolved problems: • Access to credit of SMEs, especially start-ups • Focus by many commercial banks on short term lending

8. Market imperfection still there • Can be partially addressed by RDBs. • Can suitably designed/reformed NDBs play a useful role? • A few encouraging examples. • EIB is still open to considering support to establishment of NDBs in a number of African countries.

9. Challenges • Case specific intervention – each country has its own challenges. • Setting priorities & clear and realistic definition of tasks. • Technical assistance: useful but no panacea. • Governance and institutional framework - commitment to proper institutions and governance essential.

10. The European Investment Bankwill continue to support partners in development that are best equipped to be effective in this work. THANK YOU