SACU REGIONAL CONFERENCECommon Agenda on Regional Integration

Cross Boarder Infrastructure

Mxolisi Notshulwana

29 July 2011

Presentation Outline…..

Three broad objectives that include:

i. Insights into the International Division’s activities in the SADC region;

ii. the context of regional integration, cross-border infrastructure in SADC; and,

iii. to provide some perspectives on the ID Strategy for financing regional infrastructure projects.

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An integrated approach to sustainable infrastructure development

The updated International Division Regional Strategy, approved in February 2008 and still applicable presently, identified the below priority infrastructure and development finance sectors for the region as reflected in the New Partnership for Africa’s Development (NEPAD), and the Regional Indicative Sustainable Development Plan (RISDP).

The same priorities are reflected in the Government of South Africa’s Medium Term Strategic Plan for its International Relations and Cooperation in the region.

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The engagement scope will focus on regional integration of infrastructure development on the continent

The International Division’s primary mandate supports regional infrastructure development on the African continent. Whether it is transport corridors, shared river basins, integrated power pools or inter-connecting ICT networks, infrastructure development in Africa by its very nature requires regional, multi-lateral solutions that extent beyond geographic and political boundaries.The engagement scope of the Division therefore extends beyond investments in single countries to include multi-country projects that cut across the continent in support of regional integration.

Through its operations the International Division will aim to:

• Co-deliver social and economic infrastructure;• Build human and institutional capacity;• Promote broad-based economic growth, job

creation, cooperation, integration and prosperity;• Serve as a centre of excellence for development

financing, effectiveness and good governance; • Engender sustainable development.

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Refining the sector based engagement strategyThe International Division’s engagement in the region is segmented at the sector level as follows:

Sector based engagement

Priority regional infrastructure Power; Transport; Water; ICT

Priority economic development Food, Energy and Water Security; Agribusiness; Forestry & Fishing

Priority social infrastructure Health; Water; Sanitation; Housing

Other regional & domestic infrastructure Tourism; Construction; Mining

The Division has already been pro-actively sourcing projects in support of the refined strategy, particularly in the transport and energy sectors. Current examples include:Projects focusing on the development oftransport corridors

• Beitbridge – Chirundu toll road – Zimbabwe• Kasenga Bridge – DRC, Zambia• Kasumbalesa border post – Zambia• Beitbridge Border post – SA, Zimbabwe• Walvis Bay, Maputo and Dar es Salaam ports

Projects supporting an integrated energylandscape

•Kariba North Bank Hydro extension – Zambia• Ithezi-tezhi power station – Zambia• Zambia-Tanzania-Kenya interconnector - Regional

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Refining the country based engagement strategy

The International Division’s engagement in the region is segmented at the country level as follows:

Country based engagement

Low-income and emerging out of conflict (Maximising strategic development)

Including Angola, DRC, Madagascar, Zimbabwe

Countries with strong bi-lateral & multi- country projects (Maximising regional integration & trade)

Including DRC, Lesotho, Mozambique, Namibia,Tanzania, Zambia, Zimbabwe

Countries with acceleration opportunities (Minimize opportunity costs)

Including Botswana, Lesotho, Namibia, Zambia

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What is regional infrastructure?• Three major issues to be considered:

– Cross border– Regional impact– Embraces the principles of NEPAD

• The objectives of such infrastructure are:– Trade facilitation, cooperation and integration– Economies of scale and scope– Empowerment/indiginization/localisation– Economic growth and poverty alleviation

Total DBSA exposure by division(31 October 2010)

INTERNATIONAL, 19%

SA OPS, 81%

Exposure by CountryZambia has the highest share at 22% and the least is Botswana, Zimbabwe, Congo, & Mauritius excluding Madagascar

Angola, 2.9%Botswana, 0.9%

Congo, 1.1%

Lesotho, 9.3%Malawi, 3.2%

Mauritius, 1.6%

Mozambique, 17.1%

Multi-Regional, 20.9%

Namibia , 8.0%

Swaziland, 3.0%

Tanzania , 8.3%

Zambia, 22.0%

Zimbabwe , 1.6%

Expected Exposure by Country in 2011. This incorporated expected disbursements and runoff during the next 12 months.

Zambia, 35%

Multi-Regional, 14%Mozambique, 14%

Tanzania, 6%

Namibia, 5%

Lesotho, 9%

Malawi, 2% Angola, 6%

Swaziland, 2%

DRC, 1%

Botswana, 1%

Mauritius, 2%

Zimbabwe, 3%

2011 Exposure

Exposure by SectorEnergy has the highest share at 32.6%. Energy has the highest share at 32.6%.

Agriculture, 0.7%

Energy, 3.5%

Entrepreneurial, 11.8%

Fund, 10.2%

Health, 6.3%

Manufacturing, 3.8%

Mining, 32.6%

Residential Facilities, 6.1%

Telecommunications, 9.8%

tourism, 10.6%

Transportation, 0.3% Water, 4.3%

Private Vs PublicActual Portfolio Split

Private, 56%

Public, 44%

Private/Public split by SectorMining & Manufacturing have highest share in the private sector while Energy and Fund have the highest share in the public sector.

Agriculture, 9.1%

Energy, 7.2%

Entrepreneurial, 1.2%

Fund, 8.1%

Health, 11.1%

Manufacturing, 18.2%

Mining, 18.9%

Telecommunications, 15.3%

tourism, 6.1% Transportation, 4.7%

Private

Agriculture, 2.3%

Energy, 65.3%

Fund, 12.0%Health,

0.0%

Residential Facilities, 0.6%

Telecommunications, 7.4%

Transportation, 3.7%

Water, 8.8%

Public

Commercial, Economic & Social Infrastructure ExposureSocial: Education, Water, Health & Residential. Economic: Energy, Transport & ICT.Commercial: Funds, Mining, Manufacturing, Tourism, Agriculture & Entrepreneurial.Economic infrastructure has the highest share (49%) and social has the lowest at 10%

Commercial, 41%

Economic, 49%

Social, 10%

Infrastructure Category

Country Category Portfolio CompositionEmerging from conflict: DRC, Zimbabwe, Angola & MadagascarMiddle Economy: Botswana, Namibia & MauritiusSmall Economy: Zambia, Malawi, Mozambique, Lesotho, Swaziland, Tanzania, SeychellesMulti Regional: Cross border projects.

Emerg_Conflict, 5.6% Mid_Economy,

10.6%

Multi-Regional, 20.9%

Small_Economy, 63.0%

The regional infrastructure gaps……• A recent survey (Africa Infrastructure Country

Diagnostic, 2009) has shown that the investment tag on Africa’s infrastructure agenda is on the order of about 93 billion USD per annum – that is about 15% of Africa’s GDP.

• It is a tall order, and clearly not financeable by fiscal spending and aid alone.

• This presents lots of opportunities for investment and business in Africa.

• In the past decade, many private companies, both domestic and international, have recognized the large investment and business opportunities presented by such gaps.

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Overall price tag of sensible targets US$90bn, split evenly between investment & maintenance

US$bn. paover 10 years

ICT 0.8 1.1 1.9Irrigation 4.1 1.8 5.9

Power 23.2 19.4 42.6

Transport 14.7 9.6 24.3

WSS 7.7 7.3 15.0

Total 50.5 39.2 89.7

Capitalexpenditure

Operating expenditure

Total

Source: AICD, 2009

Region’s development finance requirements have beenre-estimated and are much higher than earlier estimates

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Overall financing gap of US$50bn per year concentrated largely in power

US$bn pa Needs Spending

Cost of targets minus

On-going spendingRelevant

Financing Gaps

Power 42.6 13.8 28.8 28.8

WSS 15 5.9 9.1 9.1

Transport 24.3 17.7 2.6 6.6

ICT 1.9 10 -8.1 0.1

Irrigation 5.9 1 4.9 4.9

Total 89.7 49.5

Source: AICD, 2009

Region’s development finance gaps are high, especially in power, water and irrigation ...with little current spending

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Investing in Infrastructure ……the results!What have others been doing in Infrastructure in theregion? A few examples;

• 2.5 billion USD has been invested in 34 independent power producers, providing some 3 000 MW of new capacity.

• 1.6 billion USD has been invested in 10 toll road concessions (mostly in South Africa).

• And another 1.3 billion USD has been invested in 26 container terminal concessions.

• 500 million USD has been invested in 14 railroad and 4 airport concessions.

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Mombasa

Dar es Salaam

Nacala

Beira

Maputo

LEGEND

0 500 1000km

SUB-EQUATORIAL AFRICA: DEFINING CORRIDOR OPPORTUNITIES

Main Rail Routes - operational

Main Rail Routes - non operational

Main Road Routes

Main River / Lake Routes

Main Centres & Ports

Walvis Bay

Matadi

Pointe-Noire

Lobito

MalangeLuanda

Huambo

NamibeMenongwe

Saldanha

Cape Town Port ElizabethEast London

DurbanRichards Bay

Maputo

Beira

Johannesburg

Kisangani

Ilebo

Kindu

Kampala

Kigoma

BujumburaMwanza

Kisumu

Kigali

DodomaKalemie

Kamina

Kolwezi

Lubumbashi

Tenke

Ndola

Lusaka

Chipata

Kafue

HarareVictoria Falls

Bulawayo

Beitbridge

Pretoria

Nairobi

Mombasa

Dar es Salaam

Kidatu

NacalaBlantyre

Kinshasa

Kikwit

Africonsult / Giersing Rose Mar 2001

Lake transport operated by AMI/TARC, functioning well

Lake tranport by ferry on Lake Tanganyika – ports to be upgraded

Kidatu trans-shipment facility. Changeover from 1067mm gauge to 1000mm gauge (TARC)

Possible new 130km rail link from Kasama to Mpulungu

Tazara Railway system 1067mm

Sena railway line, closed at present. Only regional railway connection to Malawi and Nacala Corridor

Beira Port: the shortest distance by road / rail from Ndola / Lubumbashi by approximately 600km

New Beitbridge to Bulawayo railway (BBR)

Alternative railway routes from Gauteng to Bulawayo: Botswana and BBR routes

Lobito Corridor - Benguela Line, closed at present. Distance to Copper Belt longer than routes to Dar es Salaam and Beira

Road connection between Kafue and Lions Den. Shorter than rail route through Bulawayo by more than 800km

Alternative road route from Botswana to Zambia – new railway under consideration

Gobabis

Luderitz

Mbeya

Lions Den

Lilongwe

Tete

Kariba

Lake Malawi

Lake Tanganyika

Lake Victoria

Windhoek

Gaborone

Trans-Kgalagadi / Walvis Bay Transport & Development Corridor

Maputo Development Corridor

Beira Development Corridor

Sena

Trans-Caprivi Corridor Final surfaced road section now completed

Kasama

Mpulungu

Position of North-South Corridor

Gauteng

New Bridges over Zambezi

Kapiri Mposhi

The International Division engages various intermediaries to facilitate accelerated development in the Region:

Status & direction of key partnerships

Nature of engagement Partnerships / Intermediaries

Strategic SADC, COMESA, AfDB, AFD, KfW

Up-stream support(project preparation)

AfDB, AFD, KfW, JICA, DFID, EIB, Gov of Finland, DFID

Advisory support DFI’s: Fonds de Promotion et de l’exportation – FPI (DRC), Lesotho National Development Cooperation

Advisors: legal and financial advisors

Down-stream support(co-financing)

Tanzania Investment Bank, Afrexim Bank, Shelter Afrique, Namibia Development Bank, Zambian Development Bank, African Financing Partnership

(Note: further details of down-stream intermediary engagements provided in next slide)

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The International Division is pursuing the development of constructive partnerships with strategic development and financing institutions in the region. These include:

Country level intermediary partnerships

Partner Possible engagement model

Tanzania Investment Bank Investigating small equity stake and board seat on TIB, as well as a larger line of credit to the institution

Afrexim Bank Relationship to be enhanced for Afrexim Bank to become trade finance partner to the DBSA

Shelter Afrique R100m line of credit approved and relationship to be enhanced for Shelter Afrique to become the housing finance partner to the DBSA in the region

Namibia Development Bank Investigating possible equity stake and board seat to strengthen existing relationship

Lesotho National Development Cooperation (LNDC)

Engagement model with LNDC being developed, primarily linked to advisory mandates

African Financing Partnership (AFP)

First transaction under AFP arrangement approved (CMH) and further transactions in the pipeline (including N’Djili International Airport rehabilitation – Kinshasa, DRC)

DRC Industrial Development Fund (Fonds de Promotion et de l’exportation – FPI)

MoU signed with FPI, ensuring that DBSA is first point of call for FPI related transactions in DRC

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DBSA’s past investments in the AFD / DBSA Project Preparation and Feasibility Study (PPFS) programme are starting to benefit the Division, with a number of projects funded by the programme reaching investment stage in the short to medium term. These include:

Upstream project preparation linkages with business

Timing Project Country PPFS contribution*

Potential DBSA investment

Short –mediumterm

Kariba North Bank Extension Zambia USD300k USD123m

Ithezi-thezi Power Station Zambia USD300k Approx. USD50m

Namport Walvis Bay development programme Namibia USD300k USD100m

Medium -long term

Kafue Gorge Lower Zambia USD300k USD100m – 200m

Zambia-Tanzania-Kenya interconnector Regional USD300k Approx. USD100m

Lower Orange Hydro Electrical Power Scheme (long-term)

Namibia USD500k USD20m

* DBSA share of PPFS contribution = 50%

As a result of the success of the AFD / DBSA PPFS, the DBSA is in the process of securing participation (financial and administrative) in a number of new project preparation funds. These include:

Preparation Fund Mandate

Tripartite Fund and DFID Fund SADC, EAC and COMESA backed funds for development for in the North-South corridor projects

DBSA / EIB preparation facility Project preparation facility covering Eastern and Southern Africa

SADC Project Preparation Development Fund (PPDF)

SADC Secretariat based preparation fund supported by KfW

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• The International Division understands the need for a pro-active approach to project development and origination. In addition to the substantial efforts made by the Division to source additional project preparation opportunities, as already discussed, the Division is actively engaging in securing lead arranger mandates on strategic infrastructure projects:

• The Division has already secured the following lead arranger mandates:Rehabilitation of the N’Djili International Airport – Kinshasa, DRC ($85m)Metro Europa road development – Angola ($100m)Banco Bai credit line – Angola ($250m)Beitbridge – Harare toll road – Zimbabwe ($1bn)Road construction programme – Zambia ($400m)

• The Division is pursuing the mandate to lead arrange in the following projects:Lesotho Highlands Phase 2 development – Lesotho

• The Division anticipates to identify further investment opportunities at an early stage through its involvement in the following initiatives:

The Energy and Environment Partnership Programme – EUR8m initiative funded by the Government of Finland in support of the development of renewable energy projectsAfrican Agriculture Fund – equity investments in projects along the full agricultural value chain with opportunity for International Division to co-invest in leveraged debt of underlying transactions

Proactive approach in support of obtaining mandated lead arranger roles

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Financing regional infrastructure: challenges • Non or little harmonization of standards, regulatory frameworks, policies,

etc.

• National vs regional priorities and policy contradictions.

• Absence of political and technical champions for key regional programmes.

• Although pockets of strength exist, a generally weak private sector within SADC.

• Generally weak and shallow financial and capital markets.

• Conservative (risk-averse) nature and operations of financiers.

• Financing and co-financing restrictions imposed by donors and financiers.

• Institutional capacity challenges at REC level that inhibit the facilitation of regional infrastructure projects/programmes.