Dr. Rosalind H. Thomas

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 Networks 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 others
  institutions
• Invest jointly in new structures where necessary
• Collaborate on appropriate institutional
  mechanisms to facilitate cooperation and
  development finance in SADC

5
SADC-DFRC?

• Role Responsibility of 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

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

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
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
• 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

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_at_sadc-dfrc.org
• Website Still under construction
• www.sadc-dfrc.org