Lessons Learned in Creating the Agriculture Fast Track Fund to Enhance the Bankability of Agriculture Infrastructure Investments in Africa (Dec 2013)

A REVIEW OF LESSONS LEARNED IN CREATING THE AGRICULTURE FAST TRACK FUND: ESTABLISHING A FUND TO ENHANCE

THE BANKABILITY OF AGRICULTURE INFRASTRUCTURE INVESTMENTS IN AFRICA

GREGORY A. VAUT AFT Team Leader

SSG Advisors LLC 182 Main Street, Suite 2E

Burlington, Vermont 05401 USA

December 2013

Lessons Learned in Creating the Agriculture Fast Track Fund SSG Advisors LLC

Author: Gregory A. Vaut, Agriculture, Team Leader Agriculture Fast Track Program

Email: [email protected]

AFT CU: Amadou Ba, Team Leader Agriculture Fast Track Coordinating Unit African Development Bank Avenue du Ghana, 15 Tunis, Tunisia Email: [email protected] www.AFTFund.org

USAID Contract: USAID AID-OAA-M-13-00001

Disclaimer: The opinions expressed by the authors in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government, the African Development Bank, or the Ministries of Foreign Affairs of Denmark and Sweden; nor are they endorsed by them.

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mailto:[email protected]

mailto:[email protected]

http://www.aftfund.org/


TABLE OF CONTENTS

Table of Contents iii

List of Tables v

List of Figures v

List of Acronyms and Abbreviations vi

Executive Summary 1

Introduction and Background 6

I. What were the development hypotheses underlying AFT? 15

A. What were the important hypotheses? 15

B. What have we learned about the validity of these hypotheses? 16

II. Who are the appropriate targets for AFT grants? 20

A. Who were the perceived targets for the AFT initially? 20

B. How should these targets be refined now? 20

III. What are the most important criteria for evaluating a grant application? 26

A. What criteria are relevant for evaluating AFT grant applications? 26

B. What have we learned about the utility of these criteria? 28

IV. What is needed to make an agriculture infrastructure investment “bankable”? 32

A. What is a “bankable” agriculture infrastructure investment project? 34

B. What must an AFT grant do to improve the “bankability” of a grantee’s investment project? 36

C. What were specific lessons from the two pilot grants? 41

V. What might be the impacts of AFT supported investments? 46

A. What impacts were important to donors in designing the AFT? 46

B. How successful is AFT in actually generating the desired impacts? 47

VI. How to ensure a future flow of AFT grant applicants? 52

A. What was the initial plan to reach and attract applicants? 52

B. What should AFT do to ensure a pipeline of high quality applicants? 56

VII. How can the AFT be kept “fast and nimble”? 62

A. What are the potential impediments to speed and agility? 62

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B. What can be done to ensure future speed and agility? 67

Final Recommendations 71

Annex A – Scoring Matrix for Private Sector Grant Applications 77

Annex B – Scoring Matrix for Private Sector Grant Applications 79

Annex C – Typical Scopes of Work for Activities Related to Preparation of a Business Plan 81

Annex C.1: Scope of Work – Finance Specialist 82

Annex C.2: Scope of Work – Agribusiness Analyst 84

Annex C.3: Scope of Work – Food Processing Engineer 86

Annex C.4: Scope of Work – Environmental and Social Impact Assessment Expert 87

Annex D – Contents of AFT Grants Management Manual 88

Annex E – Technical Appraisal Form for Reviewing AFT Grant Applications 90

Annex F: AFT Countries with USAID/DCA Bank Programs (as of Oct. 2013) 92

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LIST OF TABLES

Table 1: Expertise Agreed for Deal Implementation Phase Grantees .........................11

Table 2: Data on Agriculture Investment Projects Identified for the AFT Initial Pipeline .......................................................................................................................23

Table 3: Initial Screening Criteria for Developing the Final AFT Pipeline of 19 Investment Projects ................................................................................................27

Table 4: Types of Grant Funded Activities Commonly Proposed by the First Six AFT Grant Applicants ............................................................................................36

Table 5: Estimated Smallholder Impacts of the First Eight Investments Supported by AFT Grants ...............................................................................................................47

Table 6: Economic Impacts of Pilot Grantee Investments – Key Financial Ratios Projected for Fruiteq SA and Eden Tree Limited ............................................48

Table 7: Gender Impacts of the First Eight Investments Supported by AFT Grants 49

Table 8: Document Drafts and Templates in the Annex of the AFT Grant Management Manual ...............................................................................................66

LIST OF FIGURES

Figure 1: Timeline of SSG’s Execution of AFT Contract Tasks ....................................... 8

Figure 2: AFT Pipeline Identification Process February - October 2013 ....................... 9

Figure 3: Number of Grant Applications with Each Type of Infrastructure Investment.................................................................................................................16

Figure 4: Investment Activities of 14 AFT Grant Applicants Signaling Possible Need for ESIA (Number of Applications) .....................................................................50

Figure 5: Investment Activities of First 8 AFT Grantees Signaling Possible Need for ESIA (Number of Applications) ............................................................................50

Figure 6: Sources of Prospects for Initial AFT Country Assessments .........................53

Figure 7: AFT Project Cycle and Estimated Project Timeline per the AFT Operating Guidelines..................................................................................................................64

Figure 8: Actual AFT Project Cycle Timeline for First Call for Applications (July 15 – August 31, 2013) .....................................................................................................65

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LIST OF ACRONYMS AND ABBREVIATIONS

AECF African Enterprise Challenge Fund

AfDB African Development Bank

AFT Agriculture Fast Track Fund

AGRA Alliance for a Green Revolution in Africa

CAADP Comprehensive Africa Agriculture Development Program

CBFF Congo Basin Forest Fund

CU Coordinating Unit

CV Curriculum Vita

Danida Danish International Development Agency (formerly)

DCA Development Credit Authority of USAID

DFI Development Finance Institution

DFID UKAid Department for International Development

EBITDA Earnings before Interest, Depreciation, and Amortization

ECOWAS Economic Commission of West African States

EOI Express of Interest

ERCU Communications and External Relations Unit of the AfDB

ESIA Environmental and Social Impact Assessment

FAPA Fund for African Private Sector Assistance

G-8 The Group of Eight highly industrialized nations (France, Germany, Italy, United Kingdom, Japan, United States, Canada, and Russia)

GAFSP Global Agriculture and Food Security Program of the IFC

GECL General Counsel and Legal Services Department

GMM Grants Management Manual

HQ Headquarters

IA Infrastructure Africa

ICA Infrastructure Consortium for Africa

IFAD International Fund for Agricultural Development

IFC International Finance Corporation

IRR Internal Rate of Return

k Thousand units (as in $1,000 = $1k)

LOI Letter of Intent

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M Million units (as in $1,000,000 = $1M)

M&E Monitoring and Evaluation

MFI Multilateral Finance Institution

MTF Multilateral Trust Fund within the AfDB

MOU Memorandum of Understanding

NEPAD New Economic Partnership for Africa’s Development (of the African Union)

NMFA Netherlands Ministry of Foreign Affairs

OC Oversight Committee of the AFT (donors plus AfDB representation)

OG Operational Guidelines of the AFT

OIGC Legal Unit of the AfDB

OPSM Private Sector Department of the AfDB

ORMU Operational Resources and Policies Department of the AfDB

ORPF Procurement Unit of the AfDB

ORRU Partnerships and Cooperation Unit of the AfDB

PPP Public-Private Partnership

RfP Request for Proposal

ROE Return on Shareholder Equity

ROI Return on Investment

SADC Southern African Development Community

SSG SSG Advisors, LLC (formerly Strategy Synergies Group)

Sida Swedish International Development Agency (formerly)

SOP Standard Operating Procedure

SOW Scope of Work

SSG SSG Advisors, LLC

STTA Short Term Technical Assistance

TOR Terms of Reference

TRC Technical Review Committee (for review of AFT grant applications)

USAID United States Agency for International Development

WAAIF West Africa Agricultural Investment Fund

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EXECUTIVE SUMMARY

The US and Swedish Governments established the Agriculture Fast Track (AFT) fund in May 2013, under the auspices of the G-8 New Alliance for Food Security and Nutrition (the New Alliance) and in collaboration with the African Development Bank (AfDB). AfDB agreed to manage the fund. Sweden, the US and the AfDB signed the formal agreement establishing the fund on May 9, 2013. In August 2013, the Government of Denmark also joined in supporting the fund. Donor funding commitments to date total $28.8 million (M).

The purpose of the AFT is to boost investment in agriculture infrastructure by offering grants to support public and private agribusiness projects to undertake the feasibility, technical, financial, environmental and social impact studies necessary to attract potential debt and equity financiers. At present, only projects in the first six countries to adhere to the New Alliance (Burkina Faso, Côte d’Ivoire, Ethiopia, Ghana, Mozambique, and Tanzania) are eligible for AFT grants. It is planned that the list of eligible countries will be extended, starting in 2015, once the fund is operating smoothly.

In January 2013, the United States Agency for International Development (USAID) contracted SSG Advisors, LLC (SSG) to support the establishment and launch of the AFT. The SSG contract ran from January 10 – December 31, 2013. During that time, SSG helped establish the AFT Coordinating Unit (CU) within the AfDB and designed its Operational Guidelines (OG), procedures, work plans, budget, and grant management policies. SSG identified a pipeline of 45 investment projects as the first potential grant applicants. SSG teams piloted the AFT grant process by supporting two of those projects to prepare business plans and other collateral materials in order to attract debt and equity financing. The AFT began soliciting grant applications on July 15, 2013 and approved its first grant awards on October 11, 2013. Six grants were awarded and the process of grant implementation began in mid-November.

Through its experience designing and rolling out the AFT, SSG has identified a number of issues and lessons that are relevant to continuing to improve the AFT’s performance and effectiveness, and/or establishing similar funds in the future.

The AFT needs to continue to focus on the problem of generating an adequate flow of good quality future applications. SSG initially screened nearly 300 prospects to identify 45 agriculture infrastructure investment projects (31 private and 14 public) in two months. This gave AFT its first pipeline of grant applicants. Now AFT has no plans for implementing the same kind of aggressive pipeline development process. It expects to rely principally on its website and

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various communications and outreach efforts to generate future flows of grant applicants. It remains to be seen what volume or quality of applications will result. The capacity of the AfDB field offices to support pipeline development, in the absence of strong pressure and first-hand involvement from the AFT CU, is doubtful.

The financial sector will be an important partner for AFT. Financial institutions have responded well to the AFT concept. This has important implications for the future:

• Financial institutions may be one of the best sources of new applicant referrals.

• A number of financial institutions are interested in accessing AFT grantees as a pool of investment opportunities.

• Over time, an AFT grant can represent a mark of quality assurance for grantees in seeking financing.

The AFT should consider establishing an upper limit on the size of investment eligible for AFT grants. The OG established a minimum limit of $1M on investment size; a cap is also needed. The AFT has been asked to consider investments in excess of $100M. At this level, two issues may be present more frequently: that of additionality (is the AFT grant really needed) and the size of grant needed (very large projects may be expected to have project preparation costs significantly greater than $1.5M.

The AFT needs to build synergistic relationships with many other organizations and institutions with related missions. One example involves other stakeholders in infrastructure development in Africa, such as the ICA, NEPAD’s Infrastructure Africa (IA), SADC’s Public-Private Partnership Network, and the Corporate Council on Africa.

AFT should develop a clearer strategy for working with the public sector. It is not yet known how effective the AFT will be in supporting public sector projects, but it is clear that a “one size fits all” grant management process will not work for both. SSG found that, while there is a pool of public sector agriculture infrastructure investment projects that will potentially benefit from the support AFT grants provide, they differ from the private sector in several important ways. Public sector infrastructure projects are typically larger than those in the private sector and take much longer to plan. If a long term goal of the AFT is to better serve the public sector, then more analysis must be undertaken concerning how to best accomplish this. AFT must be clear that it will subsidize the cost of final preparations for obtaining project financing and not the cost of initial project design.

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The grantee selection process is fairly well developed for private sector applicants, but the process needs further refinement for the public sector. The original screening criteria developed for the AFT have successfully identified investment projects with high economic and social impacts and high potential for success. Experience has demonstrated that the criteria are appropriate for private sector investments, but this has not been resolved for public sector projects since no public sector projects have been reviewed to date.

The first round of grants shows that the AFT can have an important impact on investment and beneficiaries. The first AFT grants have leveraged significant investment value: $24.00 of investment for every $1.00 spent on grants. AFT grants offer considerable benefits to smallholders and other beneficiaries (including women). The first eight grants - which totaled $3.9M - are supporting $95.8M in agriculture infrastructure investments, while at the same time benefiting 75,000 smallholder farmers and their families.

In screening grant applications for private sector projects, the AFT must sharpen its ability to evaluate the commercial viability of proposed investments. Commercial banks and investment funds have to be convinced of the profitability and viability of private sector investment projects before they will finance them. This underlines the need to use viability as a key criterion in evaluating AFT grant applicants.

The AFT OC should appeal the requirement that it follow public sector procurement procedures and guidelines for private sector grants. AFT’s private sector grantees should not be required to follow AfDB’s public sector borrower procurement procedures and policies. These procedures are not compatible with normal commercial practice and risk causing confusion and delay.

The procurement procedures required of AFT grantees need to be explained to them in a form understandable by the average private sector grantee, should be shared with them as soon they are informed of the award, and should be annexed to the AFT Grant Agreement. When AFT asks a grantee to sign an agreement covering how the AFT grant will be implemented, the grantee should be handed clearly written descriptions and explanations of all of the regulations, procedures and forms that they will be required to follow in implementing the grant. These materials are still not available. They should also be publicly available on the AFT website. The AfDB has to be transparent in the way it deals with the private sector on these matters and adjust its procedures to be more consistent with good commercial practice. Instructions need to be written simply to avoid error.

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The Operational Guidelines (OG) of the AFT will be a work in progress for the first years of operation and must be periodically reviewed and amended by the OC to improve the program’s efficiency and speed of action. The first year of AFT operation will continually reveal areas of needed improvement and streamlining. The AFT CU cannot negotiate the needed modifications on its own within the AfDB hierarchy. Only continual monitoring and support from the Oversight Committee (OC) can make this happen.

The limited operational authority of the AFT Team Leader is an impediment to quick action. The spending and operational authority of the AFT Coordination Unit (CU) Team Leader must be further clarified and defined in the AFT CU Operational Guidelines (OG) in order to empower the AFT with the flexibility and speed necessary to implement its founders’ vision that the AFT should be fast and nimble. The OC cannot rely on internal AfDB mechanisms to achieve this.

The OC should arrange for a mid-2014 performance assessment of the AFT CU to help identify key areas for revision and improvement in preparation of the 2015 work plan. The AFT CU will be too preoccupied with its day-to-day operations to spend much time trying to analyze its progress. An independent external evaluator will be needed to develop a fully 360º assessment. The AFT founders should continue to influence the development of the fund in the directions they originally sought and help it resist the bureaucratic inertia threatened by its submersion within the AfDB.

The AFT CU needs more accountability and a reporting plan. The OC needs to support the AFT CU to evaluate and report on its performance and use that information to help improve effectiveness and efficiency. AFT needs to establish credibility by showing that its grants actually expand access to financing. So far, issues of monitoring, evaluation and reporting have not been addressed in the OG or in the AFT’s work plan. This needs to be rectified if the AFT is to be sustainable, effective and credible in the long run. Regular, defined, Quarterly Reports from the CU to the OC would be one measure in improving reporting.

Higher priority must be given to staffing the AFT communications function and implementing the Work Plan approved in October 2013. Communications and outreach will be very important functions of the AFT CU. Effective communications will be vital to generating a sufficient volume of high quality grant applications, as well as attracting additional funding for the AFT itself. The AFT needs to prioritize the hiring of a communications manager and implementation of a solid, 360 degree communications plan – one that involves grantee outreach, donor relations, resource mobilization and partnership building. The AFT CU Team

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Leader is presently too busy to manage these functions effectively without skilled support from an experienced communications professional.

The AFT CU needs to populate and screen its planned consultant short-list for AFT grantees to be able to help grantees find the best technical support for grant implementation. The CU does not currently have the capability of truly assisting grantees in finding the kinds of consultant skills they will need. The AfDB consultant database is deficient. Unless some effort is put into creating an AFT short-list AFT could experience serious delays in grant implementation or risk poor performance.

The AFT and its founders should explore the possibility of adopting cost-sharing for some or all of its grants. This could enhance grantee commitment, reduce the temptation to engage in corrupt practices, and mitigate external criticism of subsidies.

Thus far, the AFT offers significant promise with respect to meeting its core goal which is to increase investment in Africa’s agriculture infrastructure. Now that the pilot stage and AFT start-up are completed, the results validate the initial premises and, moreover, demonstrate that the impact on Africa’s agriculture infrastructure investment will be significant. The AFT needs regular monitoring and additional technical support and guidance during at least the next year to ensure that it will achieve its full potential.

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INTRODUCTION AND BACKGROUND

The United States Agency for International Development (USAID) contracted SSG Advisors, LLC (SSG) for the period January-December 2013 to facilitate the establishment of the Agriculture Fast Track Fund (AFT) a project preparation facility to support agriculture infrastructure investment in selected African countries by funding grantees to undertake the feasibility, technical, financial, environmental and social impact assessments and other studies necessary to attract financing. This initiative grew out of discussions undertaken by the G-8 in early 2012 which led to establishing the AFT; to financing the fund through a Multilateral Trust Fund (MTF) set up at the African Development Bank (AfDB); and to establishing a Coordinating Unit (CU) to be established within the AfDB to manage the AFT. The US and Sweden were the first to commit to funding the MFT while Denmark joined the MTF in August, 2013. By the end of 2013, total funding commitments reached $28.8M.1

At the G-8 summit in 2012, participants agreed to establish a New Alliance for Food Security and Nutrition (the New Alliance). During the course of 2012, six countries finalized New Alliance Country Cooperation Framework Agreements for accelerating investment in agriculture: Burkina Faso, Côte d’Ivoire, Ethiopia, Ghana, Mozambique and Tanzania. The G-8 determined that these first six New Alliance member countries would be the target countries for piloting the AFT. The Cooperation Framework Agreements outlined the commitments of each government to increasing investment in agriculture, including specific policy measures to be taken. Donors outlined the funding levels they were committing in support for the investment plans. Local and international companies submitted letters of intent (LOI) regarding their own food security and nutrition related investment plans. The Oversight Committee (OC) of the AFT determined that even though additional countries might join the New Alliance, expansion of the AFT to those countries should be deferred until 2015 to give the fund time to establish itself and its procedures.

In establishing the fund, the AFT founders agreed on a minimal set of criteria to qualify for an AFT grant:

• The applicants may be from the private sector or the public sector.

1 The contributions pledged to date are: USA - $15M, Sweden - $12M and Denmark - $1.8M. It is assumed that in the future the current donors and the AfDB will continue to try to expand the funding of the MTF, by inviting new donors to join and by renewing the pledges of the current donors.

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• The investment must include agriculture infrastructure as a major component.

• The investment sponsors must have material prior experience in a similar undertaking under similar conditions.

• The planned investment must be economically viable (both public and private).

• The minimum size of the investment must be $1M. 2

• The investment must have positive benefits for local smallholders.

• The investment must produce positive food security impacts.

• The investment must not pose any environmental risks.

The AFT founders determined that the fund would make grants of up to $1.5M and that these grants would be used exclusively to cover costs of preparing the investment for obtaining investment.3 AFT grants can support such project preparation activities as:

Feasibility studies Market research Business plan development Environmental/social impact assessments Engineering designs and costing Legal and tax advice Advice on investment structuring and financing

Activities that AFT grants cannot support include:

Actual construction or other capital investment costs (including equipment) Working capital Employee salaries Training, capacity building, or post-investment technical assistance Product or process certifications (e.g., ISO, HACCP, Organic, etc.) which are

not critical for securing initial financing commitments Preliminary research (technical, economic, environmental, social) required to

identify appropriate technical processes, agronomic data, or project impacts (These should be completed by project sponsors before applying for an AFT grant).

USAID asked SSG to perform four principal tasks under its contract:

2 The Working Group initially suggested a minimum investment size of $2M, but it was lowered to $1M during the first country assessments when SSG found that there could be a very large pool of interesting investment projects in the $1M - $2M range. 3 Additional information on AFT and the operation of the grant program can be found at the AFT website at www.AFTFund.org. The grant application process is web-based, through that site.

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1. Support the AFT Working Group of donors and AfDB representatives in designing the AFT and developing its Operational Guidelines;

2. Develop an initial pipeline of investment project from the six target countries that could eventually be eligible for AFT grants;

3. Pilot the AFT model by providing direct assistance to two selected grantees (in lieu of actual grants) to assist them in preparing their investment plans to seek equity and debt financing; and

4. Provide technical assistance to the AfDB in establishing the AFT CU and developing grant related policies and procedures, work plans and budgets, and rolling out the AFT grant program.

The timeline for SSG’s work on the AFT is shown in Figure 1.

Figure 1: Timeline of SSG’s Execution of AFT Contract Tasks

I II III IV V VI VII VIII IX X XI XIISSG contract start (Jan. 10, 2013) Task 1 - Support working groupTask 2 - Pipeline identificationFinal Pipeline approved Formal establishment of AFT (May 9) Task 3 - Deal implementationStart-up of AFT CU 1st Call for Applications Task 4 - TA to AfDB1st AFT grant award announced 1st grant agreement signed SSG contract end (Dec. 31, 2013)

2013

In February/March 2013, under the Pipeline Identification Phase, SSG sent teams of experts to each of the six selected countries for two weeks to identify potential grant applicants. These three person teams reflected a mix of agribusiness, finance and country-specific expertise. The teams employed a variety of methods to reach out to the private and sectors to identify prospects which might evolve into potential grant applicants for the AFT fund. The list of companies submitting LOIs for each county’s New Alliance Cooperation Framework Agreement (see above) served as the first targets for the teams.

SSG identified two hundred eighty-six prospects across the six countries. These prospects were then reviewed and screened, resulting in a total of one hundred ninety-seven investment projects identified as potential grant opportunities for the AFT. In March, the AFT Working Group reviewed and screened the 197 opportunities and

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approved an Initial Pipeline of 45 public and private sector investment projects that were deemed suitable potential grantees. Finally, the Working Group shortlisted a Final Pipeline of 19 projects to kick-off the AFT in April. From this Final Pipeline, the Working group advised SSG to work with two4 investment projects in order to pilot the AFT concept. Simultaneously, SSG started setting up the AFT and developing its grant program procedures. The remaining 17 investment projects in the Final Pipeline were eventually issued invitations to apply to the AFT for grants in mid-July, simultaneously with the establishment of the AFT CU. SSG completed its work with the two pilot grantees in September. In early October, the AFT OC approved six of the applicants for grant awards. The first grant agreements were signed in late November. This process is shown in Figure 2.

Figure 2: AFT Pipeline Identification Process February - October 2013

The country assessments and pipeline identification phase began very early in the AFT development process and yielded some key observations and parameters around which SSG and the Working Group framed the structure of the AFT and its procedures and policies. By the end of that process in late March, the SSG pipeline identification team had identified a several issues and questions:

4 Fruiteq, SA (Burkina Faso) and Eden Tree Limited (Ghana)

Prospects: 286 Opportunities: 197

Initial Pipeline: 45

Final Pipeline: 19

First Call for Applications: 17

First Grants: 6

Deal Implementation: 2

Fruiteq S.A.

Eden Tree Ltd

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1. In order to maximize the usefulness of the AFT to the private sector, the turn-around time on AFT application reviews and grant awards needs to be fast enough to match private sector speed.

2. It wasn’t clear how the future pipeline for the AFT Fund would be sourced after the Initial Pipeline was exhausted.

3. The AFT deal origination strategy would be dependent on the AFT CU’s staffing and budget resources.

4. Financial institutions were obviously going to be important partners for AFT, but what should be the relationship be and how should that relationship be developed?

5. Project preparation work funded by AFT Fund grants must be credible in the eyes of potential lenders/investors, so the finance community would be key stakeholders in the effectiveness of AFT.

6. Initial Pipeline selection stressed finding “shovel ready” investment projects. What should the expected timeframe be in the future between a grant award and implementation of the investment?

7. Having set a minimum size of grant eligible investment, should there be a maximum size of investment for grant eligibility?

8. What was going to be needed to make the AFT useful to the public sector?

On May 8, the Board of Directors of the AfDB approved the creation of the AFT CU and the MFT. On May 9, the President of the AfDB, the Administrator of USAID, and the Swedish Minister for International Development Cooperation signed the formal agreement launching the Fund. 5

In May, SSG also launched the Deal Implementation or pilot phase of its work. The purpose of this phase was to test the AFT concept and gain experience for shaping the AFT grant management procedures. The pilot phase was to mimic the grant program by awarding a package of consulting services to two companies to support them in preparing their investment projects for eventual debt/equity financing, just as eventually the AFT would finance technical consultants for grantees with its grants.

The AFT Working Group selected two companies from the Final Pipeline for the pilot phase: Fruiteq SA (Burkina Faso) and Sao Hill Agriculture (Tanzania). However, the principals of Sao Hill informed SSG that they needed several more months of planning

5 The US, AfDB and Sweden signed the agreement launching the AFT on May 9, 2013 at the Grow Africa Forum as part of the World Economic Forum Meetings in South Africa.

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before they would be ready with their investment plans and declined to participate. The Working Group then nominated Eden Tree Limited (Ghana). These two investment projects were selected because the sizes of their proposed investments were relatively modest and the investment plans were relatively uncomplicated expansions of existing, successful businesses. Both companies had earlier prepared draft business plans, but had failed to gain any traction in initial discussions with potential financiers.

Fruiteq is a small fresh mango exporter with 2013 sales of approximately $500,000. It initially proposed to expand into production individually quick frozen (IQF) mango cubes and dried mangoes and to construct at new plant at an originally estimated cost of $3,500,000.

Eden Tree is a small marketer of fresh produce in the Accra market, with plans to expand its sales of fresh fruits, vegetables and herbs by 300%, requiring the construction of a new collection and packing center, expanding its raw material sourcing, and investments in retail shops at an originally estimated investment cost of $3,000,000.

SSG sent scoping missions of teams of experts to visit the two grantees to examine the proposed investment projects and determine the investment preparation requirements of each company. Following a week of meetings and joint planning with each grantee, SSG formalized MOUs and Scopes of Work for the AFT support to be provided to each company. The topics of the resulting scopes of work covered for each grantee are shown in Table 1:

Table 1: Expertise Agreed for Deal Implementation Phase Grantees

Fruiteq Team Eden Tree TeamAgribusiness Expert Agribusiness ExpertBusiness Analyst Business AnalystFinancing Expert Financing ExpertFood Processing Engineer Food Processing EngineerTax and Legal Expert Horticulture Production and Post-

Harvest Specialist

The MOUs for the Deal Implementation stage were intended to be similar to the Grant Agreements between the AFT and individual grantees that would eventually define AFT grants. Aside from defining the technical work to be done, the MOUs committed the grantees to participating actively in the work of the specialists, contributing their own staff to that work, providing access to company information as needed, and providing some local logistical support. The memoranda, also guaranteed the confidentiality of the company’s information used in this process. SSG had learned during the initial pipeline identification country surveys that the private sector was pre-occupied with this issue.

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In both cases, SSG and the grantees determined that the final output would be a business plan prepared to demonstrate to potential investors and financiers the feasibility and profitability of each company’s strategy and proposed investments. The preparation of these business plans would require the development of financial analyses and pro forma financial projections. They would also require the establishment of reasonably refined estimates of the true investment costs, based on conceptual engineering designs and estimates for new construction and equipment costs.

The SSG teams of experts worked with Fruiteq and Eden Tree over nearly five months to develop and finalize the business plans and related materials. The final business plans were presented to the two companies at the end of September. Fruiteq received both English and French language versions of its business plan.

Eden Tree had its final SSG-prepared business plan reviewed by an expert from the Stanford Graduate Business School’s Institute for Innovation in Developing Economies, who remarked: “I am in awe of the quality and comprehensiveness of the work. I cannot overstate how impressed I am by the weave of industry best practices content with specific initiatives that ETL will undertake. This will be an amazing asset for ETL specifically and for food processing in the Accra market because it sets up ETL to raise the standard.” Two months after completion of the business plan, he wrote: “We are expecting a terms sheet from an experienced private equity investment firm this week, one other is very interested and three others are in play. The business plan and AFT credibility have had a major impact on moving this forward so quickly.”

SSG also worked with the AfDB to identify technical support to AfDB that would be constructive in setting up the AFT CU and launching its operations. Eventually, this program of technical assistance covered four major subject areas:

1. Establishment and staffing of the AFT CU

Finalized the AFT Operational Guidelines (approved by the AFT OC on July 12, 2013)

Prepared Terms of Reference for recruitment of AFT key staff (approved by the AFT OC on July 12, 2013)

Developed the first AFT work plan and budget for the period July 2013-December 2014 (approved by the AFT OC on July 12, 2013)

Developed a revised work plan and budget for the period October 2013 - December 2014 (approved by the AFT OC on Oct. 11, 2013)

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2. Development and roll out of the AFT grant management policies and procedures

Drafted an AFT Grant Management Manual with templates for key documents Developed the grant applications and related documentation for private and

public sector applicants Established grant review procedures, including scoring criteria and review

documentation Prepared a grant agreement template Supported the implementation of the first call for applications and participated

in reviewing grant applications Supported grant start-up Accompanied the AFT CU Team Leader for the first grant signings from the July

15 call and for training the new grantees in AFT procurement and disbursement procedures and policies

3. Develop an AFT communications and outreach program

Designed the AFT logo Drafted a 5 year communications strategy Produced a video for the AFT launch Prepared a 2014 work plan and budget for AFT communications (approved by

the AFT OC on Oct. 11, 2013) Drafted the Terms of Reference for an AFT Communications Manager

(approved by the AFT OC on Oct. 11, 2013) Prepared three press releases (issued in October 2013) Prepared three success stories (issued in October 2013) Drafted an AFT brochure Accompanied the AFT CU Team Leader on visits to Tanzania and Cote d’Ivoire

to hold meetings with key private sector and government contacts to begin to spread the word about the November 1 call for applications round

4. Establish an AFT internet capacity

Established an AFT domain (AFTFund.org) Developed an AFT website at www.AFTFund.org (launched Oct. 12, 2013) Designed and rolled out a web-based application process (launched Nov. 1,

2013) Prepared materials for the website explaining AFT and the application process

and presenting the grantees

The nature of the USAID-funded effort to support the development of the AFT was unique and innovative, in several ways. The AFT Fund itself was being designed at the same time as the pipeline of potential applicants was being developed. The design process was in fact an iterative one, based on a continual effort to incorporate lessons

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learned from the pipeline development phase into the fund design. This lead to the early identification of issues that if only spotted after the grant process had started might have led to long delays and confusion. This “learning by experience” design mode made it natural to want to prepare this report to identify and explore some final lessons learned with the benefit of subsequent hind-sight.

In order to identify the lessons learned, this report asks and answers a series of questions about key AFT issues and documents the process that was followed in identifying answers to those questions.

1. What were the development hypotheses underlying AFT? a. What were the important hypotheses? b. What have we learned about the validity of these hypotheses?

2. Who were the appropriate targets for the AFT? a. Who were the perceived targets for the AFT initially? b. How should these targets be refined now?

3. What are the most important criteria for evaluating a grant application? a. What criteria are relevant for evaluating AFT grant applications b. What have we learned about the utility of these criteria?

4. What is needed to make an agriculture infrastructure investment bankable? a. What is a “bankable” agriculture infrastructure investment project? b. What must an AFT grant do to improve “bankability” and how should

AFT grants be used to achieve this? c. What were specific lessons from the two pilot grants?

5. What might be the impacts of AFT supported investments? a. What impacts were important to donors in designing the AFT? b. How successful is AFT in actually generating the desired impacts?

6. How to ensure a future flow of AFT grant applicants? a. What was the initial plan to reach and attract applicants? b. What should AFT consider in the future to advertise its grant program

and ensure a pipeline of high quality applicants? 7. How can the AFT be kept “fast and nimble”?

a. What are the potential impediments to speed and agility? b. What can be done to ensure future speed and agility?

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I. WHAT WERE THE DEVELOPMENT HYPOTHESES

UNDERLYING AFT?

A number of people contributed to the development of the ideas behind the Agriculture Fast Track fund. Extensive experience in trying to accelerate the pace of economic development in Africa led to some relatively straightforward observations and conclusions, and, in turn, to some innovative thinking about at least one new solution to overcoming one, of perhaps many, barriers.

A. What were the important hypotheses?

The decision to create the AFT derived from several observations:

Accelerating the pace of economic growth in much of Africa depends heavily on the ability to accelerate the growth of the agriculture sector.

Similarly, growth and development in the agriculture sector is a necessary prerequisite for improving food security on the continent.

One of the barriers to accelerating the growth of the agriculture sector is the need for more investment in infrastructure, ranging from roads and bridges to power and water supplies, processing and storage capacity, and market infrastructure.

The amount of capital available for equity and debt financing in Africa appears to exceed the supply of bankable projects, but potential funders perceive many new agricultural investment projects as not “bankable” because of high risk and poor project preparation and presentation.

There are worthy private and public sector agriculture infrastructure investment plans going unfinanced because they are perceived as un-bankable by potential funders.

The difficulty and cost of the good project preparation needed to convince financiers and investors of the “bankability” of agriculture infrastructure investments often exceeds the capabilities of the investment sponsors.

These observations led to the subsequent assumption that if one subsidized the costs of project preparation and helped investment sponsors obtain the needed expertise to complete it, more agriculture infrastructure investments might be judged “bankable” and successfully financed, thus accelerating the pace of growth of the agriculture sector and improving food security.

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B. What have we learned about the validity of these hypotheses?

In translating these hypotheses into the design of the AFT, not much effort went into the question of how to actually define “agriculture infrastructure investment”. The teams identifying the initial project pipeline simply used the concepts of “something gets built” or that there is an investment in a real asset or capital equipment, thus excluding investments that principally financed agricultural production (growing crops or raising livestock).

While, the AFT grant application instructions did not cover in detail the issue of what would constitute an “agriculture infrastructure investment”, applicants were asked to describe the infrastructure components of their proposed investments. Figure 3 shows the types of infrastructure investments included in the investment plans of the fourteen applicants for AFT grants in the first round of applications (July 15 – August 31, 2013).

Figure 3: Number of Grant Applications with Each Type of Infrastructure Investment6

The assumption that supporting project preparation would lead to increased success in financing target projects was the most important issue. SSG learned quite a bit about the validity of this assumption, but it is too early to show proof of concept since none of the early grantees have yet actually secured financing. However, there are important indicators of the value of the concept.

6 Fourteen applications were received from July 15 – August 31, 2013 call for applications

3

6

1

4 5

4

9

11

3

5

0

2

4

6

8

10

12

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SSG found that there is definitely a pool of merit worthy agriculture infrastructure investment projects in the six countries claiming to be unable to find financing. In its first assessment of the six target countries, SSG’s experts identified nearly 300 prospects and screened those down to an initial pipeline of about 45 interesting investment projects that appeared eligible for an AFT grant and likely to benefit from such a grant to finalize investment financing.

Both the private sector and the public sector can benefit from the type of investment preparation grant that the AFT can offer (see discussions below).

Experience with the first two pilot grantees shows that, at least for the private sector, the impact of AFT support on improving the probability of successful financing can be speedy and significant.

• One of the first two AFT grantees had queries from five potential equity investors within two months its AFT-funded business plan was completed.

• The second grantee received initial expressions of interest for debt financing from local banks with which it had no prior business in the course of finalizing its business plan and initial discussions with these banks and in the course of preparing the business plan identified significant sources of equity investment, reducing the total amount of debt that would be required.

SSG’s involvement has covered too short of a timeframe to be able to observe the successful financing of the investments of the first two pilot grantees. Hopefully the AFT CU will be able to monitor and report on grantee progress toward securing financing. It is important that AFT gather such information as early as possible to establish its credibility in increasing access to financing.

If AFT is to accommodate private and public sector applicants together, adjustments to the outreach, application and evaluation processes will need to be considered over time to keep the AFT grant program relevant to both sectors. While grant implementation has not yet been tested for a public sector grant, it is reasonable to expect that adjustments will also have to be made to accommodate the differences between the two sectors in grant implementation. These differences are discussed further, below.

Discussions with potential financiers have shown that they are concerned about the high costs of due diligence for evaluating agriculture sector projects for investment or loans. In discussions with SSG, they have confirmed that the support provided by AFT grants, if correctly executed, could lower the perceived cost of working with AFT grantees by lowering the cost of due diligence through better information.

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Global experience in trying to stimulate agriculture sector financing has shown that most financial institutions not specifically designed to work with agriculture do not understand the sector well and perceive high inherent risk in agriculture investments. To the extent that an AFT grant will lower the perception of risk, it can increase the probability of financing by such institutions. Implicitly, a successful AFT grant could serve as a quality mark for grantees, enhancing their attractiveness to potential financiers over other non-grantee agriculture investment projects.

It is useful to examine the collateral to the fundamental AFT hypothesis concerning improved bankability and increased success in financing. That collateral hypothesis is that the AFT mechanism will lead to more investment in agriculture infrastructure.

What types of “infrastructure” are vital to accelerate the growth of the agriculture sector with positive food security benefits? SSG learned that some involved with AFT (both potential grantees and those helping to operate the fund) have a fairly limited definition of what constitutes the needed infrastructure and are likely focus on major public investment activities such as highway systems, large power generation and distribution schemes, or major dam projects. In the early days of deciding criteria for eligible projects, The AFT Working Group proposed a cap of $30M. During the screening for the AFT Initial Pipeline, The Working Group suggested that the cap be raised to $60M. These large scale infrastructure investments would typically fall beyond a $60M cap for AFT eligibility. However, in preparing the final Operational Guidelines and screening criteria cap was not established. The OC may want to re-examine whether a cap on investment size is needed for evaluating grant eligibility.

While large scale infrastructure investments are important for longer term national economic growth, the real missing infrastructure constraint for agriculture is, in many cases, critical investments in processing, storage, and distribution that facilitate the movement of and adding value to basic agricultural production. In fact, there are estimates that total food availability in Africa could be increased by 20%-30% just by such investments which reduce post-harvest losses. These “market facilitating” investments typically fall below the proposed $60M cap. This class of infrastructure investments has important implications for the AFT which need more thought.

• At present, large-scale infrastructure projects in Africa are principally in the public domain. There is room for much more public-private collaboration on these, but the initiative will tend to always lie with the public sector. If AFT wants to accelerate the development of such large infrastructure projects which impact agriculture, it must learn to deal effectively with the public sector and be prepared to look at larger investment sizes.

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• Market facilitating infrastructure (perhaps with the exception of constructing large public market places) is mostly in the private domain. Decades of development experience in Africa and elsewhere have shown that the public sector is inefficient at designing and promoting such investments and inept at managing them. These are the processing plants, grain storage facilities, cold storage units, and related infrastructure investments that make the flow of agricultural production more efficient in reaching key markets, and increase the value of that output improving the returns to farmers – particularly smallholder farmers. Investments in distribution and sales capacity (including storage) directly improve food access and food security. To the extent the AFT wants to contribute to these efficiency and value improvements, it must be particularly effective in serving the private sector which generates them most effectively.

Market facilitating infrastructure, such as processing facilities (food processing, feed milling), with related warehousing and cold storage, were the most common infrastructure planned by AFT grant applicants to date, as shown in Figure 3 (above).

The AFT CU is not staffed adequately to do much analysis of the conceptual issues in its area of focus. However, during the course of discussions with the Infrastructure Consortium for Africa (ICA) and USAID, SSG learned that ICA will be doing an analysis of the situation with regard to agriculture infrastructure needs on the continent. The AFT needs to follow this analysis and be prepared to incorporate its results through potential modifications of the AFT program to better address those needs.

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II. WHO ARE THE APPROPRIATE TARGETS FOR AFT

GRANTS?

As described earlier, the obvious target for the AFT and its grants would be those who have plans to carry out agriculture infrastructure investments, but are having difficulty attracting the necessary financing. The AFT is not set up to be a long term source of support, so it is reasonable to refine the target pool of applicants down by requiring that their plans be in some advanced stage when they apply and that they already have some reasonable sense of what they face in seeking financing for those plans.

A. Who were the perceived targets for the AFT initially?

The initial target of the AFT was solely private sector investments. However, in the development of the AFT’s Operational Guidelines, its scope expanded to open eligibility for grants to public sector institutions to accommodate the wishes of its host, the AfDB. During the initial country assessments to develop the initial potential grantee pipeline, SSG explored public sector plans for agriculture infrastructure investments which might be suitable for an AFT grant in two of the six target countries (Burkina Faso and Côte d’Ivoire).

There was also an early decision to put a floor of $2M on the size of investment to be considered. However, by the end of the first week of country assessments, the teams had found so many interesting investment projects in the $1M-$2M range that they asked the AFT Working Group to lower the minimum to $1M. Not having a declared maximum cap on eligible investment size, the assessment teams explored projects with an investment size as high as $250M.

The goal of the AFT is to expand access of qualified investments to financing. The AFT Working Group felt, therefore, that suitable grantees would be in the later stages of preparing their investment plans and that an AFT grant would in some sense enable them to travel that “last mile” to seeking actual financing within some reasonable period of time.

B. How should these targets be refined now?

Private sector

Small and medium enterprises with investment projects ranging in value from approximately $1M to $10M seemed often to lack the expertise to find experts

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to prepare well-crafted business plans and investment proposals required to attract the attention of potential financiers.

Such small enterprises also often lacked a very clear picture of how to go about seeking the financing they would need. This led the teams to propose including financial expertise and advisory services in the pool of potential technical support a grantee might request.

Nonetheless, the SSG teams were impressed with the quality of the investment projects they uncovered and the commitments of their sponsors. During the first round of evaluations of grant applications, it turned out that nearly all of those selected for grants were rather well advanced in planning the work they needed.

Larger enterprises may have more capacity (in expertise and capital) to carry out their own project preparation work, but the availability of an AFT grant may accelerate the process and improve the final odds of speeding financing. In many cases where there appears to be a question of additionality on larger projects, the magnitude of the likely development impacts (on smallholder producers and other beneficiaries) may be so great that the development imperative could justify outweighing the additionality concern.

Public sector

The public sector accounts for a large share of agriculture infrastructure investment such as public markets, roads, large dams and irrigation systems. About 30% (fourteen) of the forty five investment projects identified by SSG in the Initial Pipeline were public sector agriculture infrastructure investments or public-private partnerships (PPP). This was the result of surveying public sector opportunities in only two of the six eligible countries covered in the assessment, leaving the clear impression that had a similar effort to identify public sector opportunities in the other four countries, the final total could have been significantly higher.

• Public sector institutions encounter the same issues of lack of experience and expertise to adequately prepare infrastructure investment plans for financing and eventual implementation. 7 This dramatically lengthens the gestation time

7 Most Ministries of Agriculture tend to concentrate staff expertise in technical agriculture areas (agronomy, animal science, etc.) and not on the areas of economic analysis or engineering that those who prepare investments for highway systems or large power projects. This may sometimes contribute to the lack of capacity for broader analyses of agricultural infrastructure investment projects. Ministries of

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for public agriculture infrastructure investments. By bringing together the funding with a process to procure the appropriate mix of expertise, an AFT grant can perhaps shorten this delay.

• At the same time, government institutions in Africa though staffed, sometimes lack adequate budgets for simple travel and basic materials. AFT’s ability include such “running costs” for public sector grantees (excluding salaries) as an eligible use of grant funds can reduce the delay in planning and improve the institution’s capacity to work with outside experts to better design these investments.

• The same resource constraints (human and budget) often impede the public sector’s ability to do the initial design work and complete the pre-feasibility assessments needed to even decide if a project is viable. This work is too preliminary to meet the AFT’s desire to be part of the process of leveraging access to financing for projects. Sometimes donor support is available for this early concept development and feasibility testing work. The AFT review and selection process for public sector grant applications needs to be able to determine at the application stage when such investments are far enough along in the planning process to merit support for the “last mile” effort needed to secure financing and avoid simply subsidizing project development.

• In the course of the initial country assessments to develop the AFT pipeline, SSG encountered four proposed public-private projects with strong public sector backing. While the private sector partners were all large companies, and the question of additionality might be raised in terms of deciding whether or not to provide a subsidy for project preparation to such large companies through an AFT grant, several interesting collateral issues were raised:

The private sector partners felt that the donor funded AFT involvement might provide some increased level of assurance that the public sector partner would in fact deliver on its own co-investment commitments.

The public sector, in asking for AFT support for these projects, underlined their need for outside expertise in structuring PPPs to help the relevant ministry understand and define its commitments and responsibilities and plan effectively.

Planning and Departments of Planning within line ministries may have some of the necessary skills, but experience working on the AFT has shown that the workload in anyone country can often overload the slim human resources available.

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However, there are some important characteristics of the investment planning process and of relevant criteria for judging the merits of investment projects between private sector and public sector investment projects. These are important to designing an AFT grant solicitation, award and management process that meets the donors’ objectives in all regards.

SSG found that the public sector agriculture infrastructure investments were typically much larger than those of the public sector, as shown in Table 2.

Table 2: Data on Agriculture Investment Projects Identified for the AFT Initial Pipeline8

# Average Minimum MaximumPublic Sector (including PPPs) 14 57.2$ 1.2$ 168.0$

Private Sector 31 12.0$ 2.1$ 43.2$

Size of Planned InvestmentProject Sponsorship

In discussions with the government sponsors of these projects, SSG learned that the gestation time needed to plan, finance and start implementation of such infrastructure investments is significantly longer for the public sector. While the private sector may typically spend 12 to 18 months planning and preparing to execute such an investment, the public sector can typically take 2 – 5 years.

The approaches to investment proposal preparation vary between public and private sector sponsors.

• Larger private sector investors have experience using in-house or contracted outside expertise to carry out the project preparation tasks and are concerned about excessive delays in completing assigned work. Even smaller enterprises sometimes have some experience hiring external consultant to help in preparation of business plans.

• Governments, who may lack such expertise and internal budgets to complete work, typically rely on donor or multilateral finance institution (MFI) support (such as the World Bank or the United Nations organizations) to provide consultants to complete the design process. The timeframe for developing the agreements and terms of reference can add years to the investment planning process. Such costs may eventually be rolled into the financing itself,

8 SSG developed the AFT Initial Pipeline of forty-five investment projects from screening data it had gathered on 287 agriculture infrastructure investment projects in the six target countries during the period of Feb. 15 – March 30, 2013.

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so that the governments bear the cost, but they are not necessarily to carry the full project preparation costs as current budget commitments during the investment planning phase.

The approaches of funders and financiers to public sector and private investments may vary materially, in ways that can impact the design and operation of the AFT. In particular, public sector agriculture investments may rely on non-national budget funding from donors or MFIs (e.g., AfDB, World Bank, Islamic Development Bank). Such funders may have a need for substantial amounts of information to reach their decisions, but that information may differ materially from the relatively simple definition of a business plan and pro forma financial projections most often required by private financiers for financing private investments. In the development of the AFT Initial Pipeline, SSG developed an important familiarity with the requirements of those who typically finance private sector agriculture infrastructure projects through numerous conversations with a broad spectrum of financial institutions and the close examination of other related financing mechanisms.9 SSG made no such analysis of the typical requirements of those who finance most public sector agriculture infrastructure projects.

The Ministry of Agriculture of Burkina Faso submitted three proposed investment projects for consideration for the AFT Initial Pipeline. The Ministry presented only brief, two-page information memoranda, lacking any estimate of total investment size, an implementation plan, a management plan for the completed investment, and any estimation of benefits. The Ministry ultimately agreed with SSG that it should seek donor funding of a project design program to map out all of the relevant issues and to bring the planning for these investment projects to a much more advanced stage before applying to the AFT for support in finalizing the plans.

To help address the issue of finding investment projects ready for the last mile of assistance, the AFT grant applications for both sectors were designed to elicit information regarding:

9 Such as the African Enterprise Challenge Fund (AECF) and the Private Sector Window of the Global Agriculture and Food Security Program (GAFSP) of the International Finance Corporation (IFC).

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The status and outcomes of discussions with potential financiers to date;

The timetable for the planned investment (through completion);

In the case of public sector applicants, can the total investment be completed within 24 months of receiving an AFT grant?

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III. WHAT ARE THE MOST IMPORTANT CRITERIA FOR

EVALUATING A GRANT APPLICATION?

Based on guidance from the AfDB and donors, SSG drafted separate sets of scoring criteria to be used in reviewing grant applications related to private sector investments and for reviewing those related to public sector investments. The scoring matrices developed by SSG are shown in the Annexes A and B to this report, including the criteria used to determine scoring and the weighting scheme adopted by the Working Group. The AFT CU tested the private sector scoring matrix in the first call for applications (July 15 – Aug. 30) and found it to be a good tool for evaluating the applications and reaching conclusions about selecting awardees. The application forms were prepared and tested to match the scoring requirements against specific questions on the application.

Following the first round of applications (July 15 – August 31, 2013), SSG surveyed the applicants to identify any needed revisions in the application forms. SSG used this review to revise the application forms used for the November 1 – December 31 call for applications. Generally, the suggested changes received were minor and were addressed by clarifying the instructions and adding examples to show the type of information being requested. Generally, the responders found the application reasonably easy to complete, through thorough.

In the survey of applicants, one applicant wrote: “…it was extremely well put together and organized.”

A. What criteria are relevant for evaluating AFT grant applications?

The AFT Working Group agreed that it was important to evaluate the underlying business/economic viability of the proposed investments in order to select those that merited AFT support. To assess the business viability of a private sector investment plan applying for a grant, the application review criteria assessed the strength of the underlying business model, the relevant experience of the management team, and the presentation of information on target markets and operating plans.

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Other Working Group concerns focused on assessing the planned investments’ social and environmental impacts, including benefits to smallholder farmers, food security impacts, and environmental impacts (including any mitigation measures that might be foreseen). Questions exploring these issues were included in the application form.

In screening the original 287 prospects down to a Final Pipeline, the AFT Working Group settled on seven key criteria which appeared to fit the types of private sector investment projects AFT was reviewing. These criteria are shown in Table 3.

Table 3: Initial Screening Criteria for Developing the Final AFT Pipeline of 19 Investment Projects

The AFT CU attached significant weight to the management and technical experience of the proposed management team, as measured by years of general management experience, industry specific technical experience, and geographically relevant regional experience. The AFT Working Group based the decision to stress management capacity on two findings:

1. The results of a 2012 study by the Commonwealth Development Corporation (CDC), published by the World Bank emphasized the danger of betting on investments put together by incompetent managers.10 The CDC evaluated 170

10 World Bank (2012), Investments in Agribusiness: A Retrospective View of a Development Bank’s Investments in Agribusiness in Africa and East Asia.

•Project implementation readiness < 1 year Maturity •Capital structure/extent of financial

institution interaction Finance

•Extent/applicability of prior experience Management

•Extent/applicability of prior experience Technical

• Identified markets Markets

•Clear impact, direct & indirect Smallholders

•Clear need for AFT support Additionality

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agricultural and agribusiness investments it had supported over 50 years in Africa and Asia. The CDC classified seventy-nine (46%) of the investments as “failures” or “moderate failures” in financial terms. In exploring the causes of these failed investments, CDC determined that 79% of the failures were due to “fatally flawed concepts”11 or “bad management”. Only 21% of the failures were due to “bad luck” from externalities such as market collapses, civil unrest or government policies. SSG’s concluded that one of the best ways for AFT to screen against fatally flawed investment project concepts or the risk of bad management would be to assess the management, technical and regional experience of the investment’s sponsors. Weak experience would indicate an increased risk of bad planning or bad management. This criterion is just as relevant for evaluating and screening public sector investments. This concept was distilled as “no debutantes” in describing the minimum criteria for AFT eligibility.

2. The second finding was that, at least for financing private sector investments, banks and others were unlikely to finance investments that were not patently profitable and reasonably risk free. Therefore, in selecting grantees with high probability of securing financing, it necessary that a project exhibit a high likelihood of profitability and a lack of obvious significant risk. Experienced management is one key risk management measure.

The issue of additionality is important. The donors behind AFT want to feel that the AFT grant is leveraging other resources and not simply replacing funding that a company or government could and would normally provide itself. However, in the first few months, questions arose around some projects where it seemed that an AFT grant would accelerate the development of a project that seemed to have important development impacts, but that might, in time, be financed through other (including internal) means. The donors agreed that the issue of additionality can be weighed against the development impacts of the investment. It may be justifiable to relax the additionality concern if the AFT grant will leverage significant development results.

B. What have we learned about the utility of these criteria?

The AFT Working Group established a minimum score requirement related to a subset of what they considered to be the most important evaluation criteria. All criteria are

11 In CDC’s words, the investment had the wrong location, the wrong crop, or was based on overly optimistic assumptions

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judged on a score of 0 – 5 points. To be considered for a grant, an application must score a minimum of 2 points on each of these key criteria.

Private Sector Applications

1. Viability of the investment - Strength of business model, demand, scaling, differentiation, competition, substitution etc.

2. Management, technical and regional experience - Years of general management experience, industry specific technical experience, and geographically relevant regional experience

3. Smallholder Impact - an average of 2 points or greater on the following three sub criteria

a. The number of smallholder direct and indirect beneficiaries

b. Estimated annual benefit to all smallholder beneficiaries (dollar value of each benefit such as increased earnings, access to markets, access to water, health, sanitation, etc.)

c. Importance of smallholders to the overall success of the investment

4. Food Security - an average of 2 points or greater on the following three sub criteria

a. Food Availability: Impact of the investment on ensuring sufficient quantities of food

b. Food Access: Impact of the investment on having sufficient resources to obtain appropriate foods for a nutritious diet

c. Food Use: Impact of the investment on improving appropriate use based on knowledge of basic nutrition and care, as well as adequate water and sanitation

5. Gender - Importance of women to overall investment, level or degree of positive impact (low, medium, or high), the number of direct and indirect women beneficiaries (expressed as a ratio to total project size/cost), Clear definition of the benefit (increased earnings, access to markets, access to water, health, sanitation, etc.). Participation of women in ownership/management

6. Environment - Degree of environmental impact/risk (include positive and negative impacts); Level of mitigation of negative impacts; Level of positive environmental management aspects (the environment as a beneficiary)

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Public Sector Applications

1. Viability of the investment - Strength of operating plans, business model, demand, scaling, differentiation, competition, substitution etc.

2. Alignment with national priorities and policies - Degree of alignment of the proposed investment with national development policies, sector policies and special initiative

3. Management, technical, and regional experience - Years of general management experience, industry specific technical experience, and geographically relevant regional experience

4. Smallholder Impact

a. The number of smallholder direct and indirect beneficiaries

b. Estimated annual benefit to all smallholder beneficiaries (dollar value of each benefit such as increased earnings, access to markets, access to water, health, sanitation, etc.)

c. Importance of smallholders to the overall success of the investment

5. Food Security

a. Food Availability: Impact of the investment on ensuring sufficient quantities of food

b. Food Access: Impact of the investment on having sufficient resources to obtain appropriate foods for a nutritious diet

c. Food Use: Impact of the investment on improving appropriate use based on knowledge of basic nutrition and care, as well as adequate water and sanitation

6. Gender - Importance of women to overall investment, level or degree of positive impact (low, medium, or high), the number of direct and indirect women beneficiaries (expressed as a ratio to total project size/cost), Clear definition of the benefit (increased earnings, access to markets, access to water, health, sanitation, etc.). Participation of women in ownership/management

7. Environment - Degree of environmental impact/risk (include positive and negative impacts); Level of mitigation of negative impacts; Level of positive environmental management aspects (the environment as a beneficiary)

Twelve applications were received in the July 15 – August 31, 2013 call for applications and the AFT CU used a technical review scoring sheet to evaluate the applications (see Annex E). In this first test of the scoring criteria, there were two important findings:

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The first finding was that the decision to require a minimum score of 2 on a subset of critical criteria worked reasonably effectively to pin point applications to be ruled unacceptable for a grant. In fact, in the screening of the 12 applications, 3 were disqualified because of inadequate scores on smallholder impacts (2 applications) or food security (1). This process confirmed the effectiveness of the scoring matrix.

The second finding was that the reviewers came independently to the conclusion that the same six applications merited grants. It so happened that the six applicants chosen for grants all were scored at 3.5 or higher of the weighted 5 point maximum across all criteria (though this was only observed after the reviews had been completed and initial impression compared and was not actually used as a criterion for the grant award decision).

In a survey of actual applicants following the July round of applications, several respondents indicated that the definitions of “food security” given in the applications were difficult to understand. SSG subsequently modified the application following this survey to address this issue. Some respondents indicated that it was “hard” to answer some questions (e.g., estimating beneficiary impacts). This didn’t seem to be associated with the wording of the question, but rather with the fact that many private sector investors had not given any thought to these issues before tackling the AFT grant application.

The finding with regard to other criteria from reviewing the first applications was that understanding and answering the questions was not an insurmountable problem for this particular group of applicants. The nature of the questions themselves may in the future serve as something of a screen to eliminate applicants who are unprepared and therefore probably at too early of a stage in their planning to merit an AFT grant.

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IV. WHAT IS NEEDED TO MAKE AN AGRICULTURE

INFRASTRUCTURE INVESTMENT “BANKABLE”?

The core development hypothesis underlying the AFT revolves around a perceived market failure with regard to supply and demand in financing agriculture infrastructure investments:

The financial community perceives that there is a surplus of investment funds and a deficit of viable projects to invest in.

Those with investment projects perceive a large supply of “good” investment plans, but a deficit of financiers interested in supporting them.

It seemed that the definitions of what constitute a “viable” project differ between project proponents and potential financiers. The AFT has been challenged to find what can be done to translate viable investment ideas into viable investments: that is, to make these projects “bankable”.

The due diligence that debt or equity financiers conduct in analyzing and selecting investment opportunities for financing or investment is fairly systematic.12 However, sometimes applicants for financing for agriculture infrastructure investments seem not to fully understand what these due diligence analyses are, what they are looking for, and what information they require. Therefore, based on the knowledge that the AFT Working Group had of what potential financiers tend to be looking for, the SSG designed the grant program to specifically support grantees in producing the data and analyses required for the typical due diligence process.

However, this also raises the possibility that along the spectrum of interventions between no support and a full subsidy of such project preparation costs there may be some intermediate measures that could be fruitful. Two that have come to mind are:

1. Additional training for investment proponents to help them understand specifically what potential financiers are looking for

12 While the approach may be reasonably standard, the criteria for evaluating potential debt or equity financing can vary significantly among the types of financial institutions (development finance institutions (DFIs), local commercial banks, impact investors, private equity funds, etc.). Impact investment funds may require and weight more heavily information on social benefits that commercial banks, may not take into consideration in evaluating financing applications. DFIs often have strict requirements regarding environmental and social impact assessments (ESIAs).

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2. Provide cost-sharing grants where the AFT fund and the grantee each cover some pre-determine share of the cost (e.g., 80/20, 50/50, etc.)

Training

The applications for some grantees reflected considerable knowledge of the work their investment projects would require to become bankable; the descriptions of the work proposed under AFT grant funding were clear, detailed, and complete. The cost estimates were based on sound evidence.13 In other cases, the applicants seemed to have only a general idea, requesting support for a “business plan” or a “feasibility study” without any detail or description. In some of these latter cases the grant budget estimates seemed unreasonably low or too high, based on SSG’s own experience. It may be that AFT’s objective of increasing the rate of success in agriculture infrastructure investment projects in getting financed – could be achieved by providing short-courses for entrepreneurs and government departments in investment project preparation and understanding financier due diligence.

This training could be used as a marketing tool to expand the pool of AFT grant applicants, as well as a screening tool to improve the quality of applications and investment projects submitted to the AFT. A collateral training issue is the possibility that more training and sensitization for the financial community might increase their interest in the agriculture infrastructure sector and possibly improve the supply of financing.

Cost-Sharing Grants

Two important reasons that cost-sharing or matching grants are commonly used are to ensure grantee commitment to the funded activity and reduce the risk of corruption by the grantees in procurement of services (on the assumption that if the grantee has their own funds committed, they are less likely to engage in corrupt procurement practices). AfDB’s OPSM based on their own experience expressed concerns about AFT’s decision to provide a 100% subsidy by underwriting all of the costs of project preparation, with no grantee contribution. Requiring co-funding by grantees is also a way to increase the acceptability of providing a subsidy to a grantee such as a large corporation or a government, which already has material economic resources.

13 In five of the six cases where projects were selected for awards, the AFT CU contacted the applicants to review their grant budgets and to understand what work was needed and eligible for AFT funding, and how the applicants had reached their cost estimates.

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Cost-sharing grants can be applied to less financially well-endowed grantees by allowing the grantee cost share to be “in-kind” contributions (such as providing transportation, translation, lodging and other support/services to consultants). However, this can complicate grant accounting and auditing and requires clear rules in advance as to what would constitute an acceptable in-kind contribution. The AfDB actually pointed out that it had very poor results in getting public sector investment sponsors to bear even their own costs in preparing projects and insisted that the AFT include a public institution’s “running costs”14 as eligible costs for AFT subsidies, though the Bank resisted any similar consideration for private sector projects.

The level of cost-sharing could be a sliding scale, depending on the financial resources of the investment sponsor. Large corporations and generally well-funded government offices might be asked to finance up to 50% of the total estimated cost of project preparation. This would allow AFT to tackle much more complex infrastructure investments where the costs of project preparation could otherwise surpass AFT’s grant maximum of $1.5M and/or stretch AFT’s resources to cover more grants. The decision could be left to the TRC or OC (depending on grant size); with recommendations on cost-sharing ratios to be made by the AFT CU at the time of the request for grant approval.

Both of these options, training and some degree of cost-sharing should be examined in the future to see if they could be adapted to make AFT more effective. They could be phased in through a variety of intermediate steps and trials.

A. What is a “bankable” agriculture infrastructure investment project?

It is clear that there is an abundant supply of financing potentially available for agricultural projects for both the public and private sectors. The MFIs and DFIs such as the AfDB, the World Bank, the IFC, and IFAD may not have enough resources for all of the potential agriculture infrastructure needs of Africa, but for the moment, the all admit to being unable to find sufficient “bankable” projects. There is a large number of equity funds (for-profit, impact, and donor funded) interested in working in agriculture in Africa and competing for viable financing opportunities. The commercial banking community in Africa is perhaps the most conservative – the most reluctant to look at financing agriculture infrastructure (medium to long term), though there is anecdotal

14 The AFT’s Operational Guidelines (as revised an approved on Oct. 11, 2013) states: “…for public sector applicants, mainly Governments, resources will be provided for running costs if requested… such as Government staff field allowances for project supervision and fueling vehicles for supervision”.

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evidence that this is gradually changing, as witnessed by the number of agriculture-oriented credit guarantee programs in Africa organized by the USAID Development Credit Authority Office (DCA). New financing programs focused on agriculture are being organized every day.15

Early in the process of starting to work with potential grantees, SSG discovered that sometimes there was confusion on the part particularly smaller, less financially sophisticated applicants over the concept of “due diligence” in financing. While it is the responsibility of the sponsors of an investment to bring sufficient, credible, accurate, and adequately detailed information to those they approach for financing, it is the responsibility of the financing institutions to conduct their own due diligence of the financing application – a thorough review of the information presented and testing of the underlying business assumptions and financial projections. It is the cost of this due diligence, which is a relatively fixed cost for a financier irrespective of investment size that makes it difficult for them to consider smaller projects. Grantees sometimes needed to be shown that the work that the grant would finance would not be the financier’s due diligence process, but what might be required of the investment sponsor to provide the information that the financier would need to launch that due diligence.

A key principal of company valuation involves projecting the size of the cash flow (or EBITDA) from a business, evaluating any risks associated with that cash flow, and showing how this cash flow will grow over time. Both lenders and investors want to see such an analysis when someone presents an investment project for financing (debt or equity). Therefore, one of the most important steps in converting a good investment idea to a bankable investment is to prepare and present credible information that will explain the sources, volumes, growth and risks associated with the cash flow projected from that investment. Documenting this information and developing the data required to estimate it involves converting a feasibility study, a company’s business strategy, and its investment and operating plans into a convincing business plan and presentation.16

The first sixteen grant applications received on August 31 requested support for the same project preparation activities shown in Table 4. Almost all of them included a business plan or feasibility study in their request. Further analysis has shown that these two are often used interchangeably.

15 Economic Community of West African States (ECOWAS) has just allocated $25M for a fund to finance public and private sector agricultural investments of a regional nature. The Business Foundation of the New Partnership for Africa’s Development has just announced efforts to establish a continent-wide agriculture sector financing facility, which may also have a project preparation support component. 16 This presentation may sometime be referred to as an Investment Memorandum and is typically accompanied by the full business plan with associated financial projections.

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Table 4: Types of Grant Funded Activities Commonly Proposed by the First Six AFT Grant Applicants

B. What must an AFT grant do to improve the “bankability” of a grantee’s investment project?

Just about all private sector grantees needed a comprehensive business plan, supported by accurate investment cost estimates and detailed financial projections. This is the key requirement to convince potential lenders and financiers of the viability of their investments and the strength of the business strategies behind them.

Commercial banks and investment funds will have to be convinced of the profitability and viability of private sector investment projects before they will finance them. This underlines the need to use commercial viability as a key criterion in originally screening AFT private sector grant applicants.

Based on SSG’s work with the two pilot grantees, it appears that that some future grantees are going to need to attract additional equity investment before they can seek debt financing. Where medium or long term financing simply isn’t available or is uneconomical,17 attracting equity investors may be the only option. A private sector

17 Commercial interest rates prevailing in Ghana for SME agribusinesses were around 31% during 2013, a level practically impossible given the average profitability of the sector.

Expected Grantee Profiles Proposed Grant Uses

Business plans Basin and seismic survey

Engineering designs & costing Agricultural feasibility study

Market assessments Financial structuring assistance

Land consultations Water rights assessment

Environmental and social impact assessments

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investor looking at a proposed project will need to be convinced that investing in this project will produce financial returns competitive with alternative opportunities for investment (which could be Africa-wide or even global, depending on the investor). Lenders focus less on the ultimate profitability of an investment and more on those aspects of the company’s financing (such as cash flow and earnings before interest, depreciation and amortization - EBITDA) which demonstrate the business’s to repay the loans.

The business plans and related work done under AFT grants for projects planning to seek such financing must directly address these potential financiers’ core issues. The data developed and used must be accurate, credible and transparent. In their due diligence processes, financiers will often examine the core business assumptions and the basic cost and other data to understand its sources, its reasonableness and its accuracy. Discovering sloppy, unbelievable or inaccurate assumptions and data will destroy the credibility of a project.

Assembling a comprehensive business plan for to present to potential financiers is often a multidisciplinary task.

SSG found that consulting teams to prepare business plans for AFT grantees should generally be led by an agribusiness expert with experience in the same industry as the proposed investment. If the investor plans to expand an animal feed business, someone with experience in manufacturing and selling animal feeds is needed. If the investment is in food processing, such as juice production, a business person with relevant experience is needed, knowing something about both manufacturing and sales/distribution. In both of the pilot cases, Fruiteq and Eden Tree, the SSG experts substantially revised the grantees’ original investment plans and business strategies while working with the grantees (Fruiteq and Eden Tree). This proved vital to improving the bankability of the projects, but requires that solid industry expertise be part of the consultant team.

Grantees will often require two types of financial expertise:

• The first is an experienced cost accountant who can source and collate data and construct the needed financial model. This model will need to be detailed enough to produce 10 year pro form projections of profit and loss statements, cash flow estimates and balance sheets, with all of the operating and financing data and assumptions behind them.

• The second area of expertise that many grantees will need (and indeed ask for) is on the investment financing side. SSG learned that many

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businesses are intimidated by investors and bankers and lack the experience of talking to them. If they have planned a $5M investment they assume they are looking for one $5M loan. SSG has demonstrated that a consultant with practical investment financing and banking experience can show a grantee how to break the planned investment into various components which may attract equity (as opposed to hard to find and expensive debt), and spread the debt risk across several lenders, For example:

Long term construction financing, might be partially financed through a mortgage loan on the land and resulting buildings;

Equipment financing might be done though medium term financing with the equipment as collateral or through leasing;

Working capital needs be sources as revolving short term financing on an annual or seasonal basis (e.g., through an overdraft arrangement backed by deposits and cash flow); and

Sales contracts, particularly good export contracts, may be used as collateral for financing as well.

• AFT experience to-date has shown that many applicants lack sufficient equity to support the debt levels they are seeking. The financial expert needs to be able to show the grantee what will be needed to attract not only debt financing, but also additional equity investors. Small business owners may be reluctant to bring in additional equity partners or restructure the operating accounts of the company to be more transparent to satisfy equity investors (e.g., impact investment funds or Islamic banking).

Because of its critical role in the profitability and sustainability of most agriculture-related undertakings, practical expertise in agricultural production may also be required to help the grantee develop and document an effective raw material supply strategy and plan.18

The financial analyses to provide the core projections needed to persuade financiers, will require accurate and reasonably detailed estimates of the

18 Because of the requirement for infrastructure to be a major component of an investment plan to qualify for an AFT grant, agricultural and food processing investments have been more common than agricultural production projects (farming). However, actual crop or livestock production (whether outgrower or own production) is also proving to be an important element of many of the applications to date.

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operating costs and parameters and the investment costs. This often requires that an engineer be included in the team (to plan and cost construction, cost out building a dam, develop operating cost data for a processing plant, etc.). The agribusiness expert and cost accountant need to work closely with the engineer to develop all of the information needed. This model worked very well for the two pilot grants (Fruiteq and Eden Tree). In both cases, the engineer selected had good experience in the main industries (fruit processing and fresh produce handling) and suggested many key refinements to the owners’ investment plans.

Public sector grantees will still need to conduct some kind of economic assessment of the costs and benefits of their proposed investments. The requirements of large-scale funders of major public sector investment projects such as the World Bank or the AfDB are complex, but typically well-defined and publicly available. Consulting teams that are engaged to develop the investment proposals for large public sector projects need to be fully cognizant of these requirements and experienced in meeting them. The AfDB has farm more expertise in identifying and working with this kind of analysis for public investments than it does in working with private sector investments.

Of the first sixteen AFT grant applicants 69% (eleven) requested grant funded services for environmental and social impact assessments (ESIA).19 MFIs such as the AfDB or IFC have detailed ESIA requirements that can require significant level of effort for larger, complex investments. This can be a costly element of project preparation, depending on the environmental complexity of the planned investment and the scale of impact on local populations (e.g., in the case of large-scale agricultural production projects with major irrigation investments). The average cost of a full ESIA (to IFC or AfDB standard) is $100k to $300k, making it difficult to justify this for smaller investments (e.g., below $5M). The level of detail required for an ESIA may depend on who the target financial institutions are (for debt or equity financing). AfDB’s own Private Sector Department (OPSM) estimates that the required ESIAs for project it lends to average about $250,000 and must be funded by the borrower (typically financed under the total AfDB loan). Impact investors generally want to understand environmental and social impacts as well, but may be satisfied with credible, more anecdotal information which is relatively easy to confirm in a subsequent due diligence. AgDevCo, both an investor in and promoter of agricultural projects, has estimated that “full” ESIA’s for its dam and irrigation projects in East Africa have cost $150,000 - $250,000.

19 Including the two pilot grants

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AFT was presented an interesting opportunity in the public sector while engaging in outreach to communicate the November 1 call for applications. A ministry had a donor’s had approved funding for a large infrastructure project subject to one final step: the ministry had to submit an environmental and social impact assessment (ESIA). This study was outside the ministry’s experience and resource constraints and the project was on hold. The ministry was concerned that they would lose the donor funding if the delay continued. They wanted to know if an AFT grant could be used to commission the ESIA in order to satisfy the conditions for the financing. This was an ideal example of a public sector project just needing a little more effort to push it to financing.

In developing the original plans for the AFT, SSG estimated the average size of grant that would be necessary to fund the cost of project preparation work to be about $350,000 per grant. As shown in Table 6 (below), the actual costs of the work done for the two pilot cases did average $380,000. But the cost estimates of the work needed by the next six applicants averaged $530,000 – 50% higher than the original estimate.

The cost of preparation relative to the size of investment of the two pilot grants was high, averaging 12% of the final projected investment cost; while the cost of preparation/investment cost ratio for the next six grantees dropped to about 3.5% (while the planned grant sizes increased, the average size of investment increased significantly). While there is clearly some correlation between the size of investment and the cost of preparation, it is clear that the costs are relatively lumpy and fixed, and that the cost per dollar of investment drops significantly as investment size grows. Effectively, it costs only about twice as much to prepare a $50,000,000 investment as it does to prepare a $5,000,000 investment.

One issue that came up in the selection of grantees from the July 15 – September 30 round of applications, was that the long seven month delay between the March 2013 pipeline development process and the final award of grants in November 2013 meant that some of the best investment projects had moved further along in their own work to develop their plans. This meant that in some cases, work described in the grant applications had already begun by the time that the AFT CU was actually ready to sign the grant agreements (late November). In the future, the AFT grant management procedures need to be revised to make clear that the AFT will not normally reimburse grantees for work performed prior to the signing of the grant award. On the other hand, given the likelihood that various delays will occur in the future, the OG and GMM

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need to retain the flexibility to deal with cases where this is unavoidable due to delays on the part of the AFT.

C. What were specific lessons from the two pilot grants?

The process that was followed for the first two grantees, Fruiteq and Eden Tree, was intentionally as close as possible to what other grantees will follow as AFT grant implementation moves forward, and it is therefore informative to re-examine more closely what SSG did with and on-behalf of these two grantees. However, it is also important to note that the implementation of grants to public sector applicants may follow quite a different path. Therefore, the usefulness of this pilot phase is mostly limited to AFT’s future work with private sector grantees.

The first step was to meet with the two companies; review their plans and investment projects; explore what they had done to that point to search for financing; and then agree on what kinds of support the SSG AFT teams would provide them. These agreements were formalized in Memoranda of Understanding (MOUs) signed by the grantee and SSG, with specific Scopes of Work (SOWs) developed jointly and incorporated into the MOUs. Under the normal AFT grant process, this would actually take place in multiple steps, with the grantee first defining a TOR for potential contractors and then a final contract negotiation between the grantee and the winning contractor. However, there is a great risk that AfDB procurement procedures imposed on AFT grantees may greatly reduce the possibility that these negotiations will result in revisions to the TOR that might benefit the grantee with a better defined final product. So the benefits of the interactive process SSG was able to use with the pilot grantees may be lost due to unnecessarily rigid procurement procedures.

As pointed out earlier, a credible business plan that presents the sponsor’s strategy and plans and demonstrates the outcomes of those plans in financial terms, is the single most important requirement of most private sector grantees in terms of being able to secure financing. Such a business plan must lay out the core assumptions behind the sponsor’s business strategy and their plans to implement the proposed investment. The plan must present pro forma financial projections that reflect in financial terms the outcome of implementing those plans according to the company’s proposed strategy, as presented in the plan. This is what both Fruiteq and Eden Tree requested from the SSG AFT teams of consultants.

The first step is for the investment proponent to be able to articulate their business strategy and the role the investment will play in carrying out that strategy, in a way that will yield quantifiable measures of progress that mean something to potential financiers (e.g., sales, profits, etc.) and that can be shown to be based on reasonable assumptions about the business environment and markets. Clarifying this to the point where one can

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begin to assemble a business plan may take some period of discussion between the consultants and the grantee to arrive at consensus on the optimal plan to present. This is a stage where the experience of the consultants can have a vital impact on helping to clarify and adequately define the proponent’s objectives and plans. The AFT needs to be sure that this inception phase is included in the TORs it approves for future grantees.

Once the business strategy is clarified, developing a business plan will typically require a thorough assessment of the proposed markets and the competitive environment in order to assess the validity of the company’s sales volume, pricing, and revenue projections and its proposed sales and distribution strategy. In the case of agricultural investments, particularly in food processing, an assessment of the raw material supply chain is critical to demonstrating that the company will be able to source the needed quantities/quality of raw material at the cost projected.

Finally, the development of an accurate cost analysis is a requirement for accurate financial projections. This not only means that realistic assumptions about raw material buying costs and finished good selling prices have to be made and explained, but also that all other operating costs have to be identified (labor, utilities, etc.). The same is true for determining a reasonably accurate cost of the proposed investment. Developing accurate operating costs and investment costs will often require the participation of a skilled process engineer with experience in the type of processing proposed, working with an experienced cost accountant.

The business plans for Fruiteq and Eden Tree were written to convince potential financiers (bank, equity investors, or other types of financial institutions) to make a loan to or invest in the described business. These two business plans followed the same basic outline:

A. Business Strategy – A presentation to investors of the sponsor’s business strategy and the role of the new investment in that strategy

B. Market Analysis – A review of the target markets and the competitive environment which demonstrates the reasonableness of the sponsor’s assumptions regarding target markets and market size, products, selling volumes, and selling prices

C. Raw Material Supply Chain Analysis – An analysis of the raw material requirements inherent in the expected sales volumes and product strategy and an assessment of the company’s plans to obtain sufficient raw material, of a specified quality, at a target cost, as will be reflected in the financial projections; also presenting a credible raw material supply management plan and any related investments needed

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D. Sales and Distribution Plan – An assessment of the sponsor’s sales and distribution plan, including staffing and related investments (delivery vehicles, trade marketing expenses, warehousing, etc.), to demonstrate that this plan is credible with regard to meeting the projected sales volumes and to defend the proposed sales pricing that are used in the financial projections

E. Investment Plan – A presentation of what is going to be done for the investment, including construction and equipment costs, that defines the costs and capacities that will used in the financial projections

F. Operating Plan – A presentation of the planned operations of the company and how they will grow over some period, including the finished good output and key operating parameters (labor, utilities, raw material usage, etc.) that will underlie the financial projections

G. Risk Analysis and Risk Management Strategy – Every business has inherent risks related at a minimum to management, raw material, markets and operations. This analysis should identify those risks specific to the proposed investment and explain the sponsor’s risk management strategies and plans to minimize/manage them.

H. Financial Analysis – Explain the basic assumptions underlying the projections, including financing and projected debt service, and then present pro forma projections of profit and loss, cash flows and balance sheets for a ten year period.20 The financial analysis should also present key financial ratios, including:

Gross Margins (as a percent of total revenues)

Profitability (net after-tax profit as a percent of total revenues)

ROI – Return on Investment (10 years)

EBITDA – Earnings before Interest, Taxes, Depreciation, and Amortization

IRR – Internal Rate of Return

ROE – Return on Shareholder Equity (IRR on equity cash flow)

Payback (number of years to pay back the investment from equity cash flow)

The financial analysis section also needs to demonstrate the strength of the financial projections through some sort of sensitivity analysis testing the key

20 In agricultural processing businesses it is usually necessary to do monthly projections of cash flows in order to understand/demonstrate working capital needs for short term financing. Monthly projections are only necessary until the year the operation reaches and plateaus at some maximum output level.

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financial results against adverse changes in certain costs and other assumptions. For Fruiteq and Eden Tree, SSG constructed breakeven analyses to test the impact on EBITDA of:

Declines in projected finished good prices,

Increases in input (raw material) costs, and

Declines in projected sales volumes.

I. Environmental and Social Impact Assessment – An overview of the key environmental issues related to the planned investment and any mitigating measures that are in the plan (with related investments, if any), as well as an assessment of the social impacts (e.g., income, gender, food security, etc.)

The consultant skills required to produce such a business plan are fairly specific, as are the tasks required of the consultants. Generic SOWs similar to those developed for the Fruiteq and Eden Tree assignments are in Annex C. These obviously need to be tailored to fit specific grantees’ needs, but can serve as a starting point.

While technical SOWs can be easily modified to fit public sector investment projects, other needed skills for technical feasibility studies could be quite diverse. In particular the type of cost/benefit analyses typically used for public sector investments fall constitute a separate skill set from those used in assessing the financial viability of a private sector investment. An understanding of the policy process involved in finalizing a public investment and bringing it to financing is also needed.

The AFT CU proposed to develop a short-list of qualified consultants to offer to AFT grantees in the future. This has not advanced very far due to the delay in staffing the CU. It still needs attention. This list should include both individual consultants and consulting firms well qualified in the types of work grantees will required. The AFT CU should obtain professional references for those included in the database regarding similar work before passing these names on to grantees.

SSG examined the AfDB consultant database and, while it is large, it is not clear that it contains many consultants with the skills and experience that may be required by AFT grantees. This needs to be checked more closely. Apparently the AfDB does not record the performance of consultants in its database when they work for the Bank. Also, many of the curriculum vitae (CVs) in the database seem quite old and it is not periodically updated and refreshed. Critical professional references should be obtained before referring any consultants to grantees. As OPSM has supported is borrowers in completing ESIAs in the past, it may be possible to put together a short-list of ESIA experts from them. The AfDB’s the Fund for African Private Sector Assistance (FAPA) may also have a list of consultants it has used in the past for grants that are similar to AFT funded activities.

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Experience with the pilot grantees showed that three skills were particularly important in being able to help: first-hand business experience in their particular industries (fruit processing, fresh produce collection and sales); good engineering skills with relevant experience (fruit processing, fresh produce collection and packing); and an investment finance expert familiar with financing similar enterprises. All three skills stressed practical real-world industry experience.

Extrapolating this experience to working with public sector grantees is difficult. The AFT CU needs more analysis of these issues to prepare for its first public sector grants.

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V. WHAT MIGHT BE THE IMPACTS OF AFT

SUPPORTED INVESTMENTS?

In supporting the AFT, the donors wanted to promote increased investment that would, in turn, lead to improved food security. There were also economic objectives – particularly with respect to benefits to smallholders. In the development of the AFT grant scoring criteria, the AFT Working Group determined that the economic, social and environmental impacts of the proposed investments, including gender, should be considered in determining whether or not an investment project merited a grant.

A. What impacts were important to donors in designing the AFT?

Estimates of the economic impacts of investments rely primarily on the viability of the proposed investment to be measured by financial outcomes. Since the principal goal of the AFT grant is to assist the investment sponsors in securing debt and equity financing, it would be important to select projects which have a high potential to eventually secure financing. In qualifying for AFT grants, both public and private applicants need to demonstrate the value and credibility of the expected economic outcomes of their planned investments. In the case of public sector investments, it is also required that they demonstrate consistency with official national development goals and strategies.

Beyond the simple question of economic viability and impacts, the AFT requires that investments receiving grants demonstrate positive impacts for local smallholder farmers and contribute to food security. AFT also uses assessments of gender impacts and benefits to other beneficiaries beyond smallholders (such as employment creation, families, etc.) though no minimum requirements were established in these areas.

While it is simplistic to say that grant applicants must not show a material negative environmental impact from their planned investments, it proved conversely rather complicated at this generally early stage of investment planning to be able to elicit much useful quantitative information to demonstrate both the lack of negative environmental impacts and the presence and size of positive ones or of meaningful mitigation plans.

It was relatively easy to decide which impacts would be important and which might serve as sine qua non requirements. It proved more challenging to develop a grant application form that would elicit sufficient information to allow the reviewers to quantify and analyze those impacts. Smaller private sector applicants typically have little or no experience in trying to articulate these issues. Public sector and larger private

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sector applicants may have the expertise needed, but their investment project planning may have not yet reached the stage where the data and analyses have been developed when they prepare the AFT grant application.

B. How successful is AFT in actually generating the desired impacts?

The AFT Working Group set no minimum parameters on what type or size of impacts on smallholders might be required or desirable; only the requirement that there be a positive impact. This impact could be income, employment, or food security or possibly others. Table 5 presents the estimated impacts on smallholders of the first eight AFT grants and the size of grants and planned investments. Across the first eight grants, $1.00 of grant unlocked an average of $24.00 in investment and the number of smallholders benefitting appears to be significant.

Table 5: Estimated Smallholder Impacts of the First Eight Investments Supported by AFT Grants21

Private sector projects have direct economic impacts that can be measured by the projected financial results of those projects using such indicators as total and relative

21 The grant size reported for Fruiteq and Eden Tree is the actual cost of the work performed by the SSG AFT teams during April-September, 2013. Six new grantees were selected in the July 15 round of applications, but the names of only two (Darsh Industries and FENACOVICI) had been made public as of the date of this report. Estimates of impacts for the six new grantees were made by the grant applicants themselves as part of the application process and were used as criteria for evaluating applications in the grant review process. These estimates do not include any new employment or other economic effects. An average family size of five people was used to project the total size of impacted families.

Expected Grant Size

Planned Investment

# Smallholders # including

Families Fruiteq SA 425,000$ 4,600,000$ 3,500 17,500

Eden Tree Limited 335,000$ 1,700,000$ 110 550

Darsh Industries 220,850$ 6,739,334$ 3,800 19,000

FENACOVICI 551,990$ 10,818,817$ 10,000 50,000

New Grantee #1 671,814$ 10,838,716$ 2,235 11,175

New Grantee #2 260,000$ 1,850,000$ 400 2,000

New Grantee #3 710,000$ 9,202,206$ 5,000 25,000

New Grantee #4 750,000$ 50,000,000$ 50,000 250,000

Totals 3,924,654$ 95,749,073$ 75,045 375,225

Number of Beneficiaries

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profitability and efficiency of investment (e.g., ROI, ROE). In the case of agricultural processing projects, the direct benefits typically also include the value of raw materials purchased from growers (increased incomes). The AFT donors indicated that they want to see benefits to smallholders, but economic benefits to all suppliers can also be considered relevant.

Indirect impacts are difficult to assess. These can include the impacts on communities of increased incomes from further expenditures (reflows). They may also include benefits to consumers. Employment impacts from new construction and local economic benefits of wage payments to employees can exist, but are difficult to quantify.

With only two grants complete, Fruiteq and Eden Tree, it is unwise to try to over-extrapolate their results to what might be likely for other grantees. But those results are nonetheless instructive. The projected economic impacts of the Fruiteq and Eden Tree investments are shown in Table 6.

Table 6: Economic Impacts of Pilot Grantee Investments – Key Financial Ratios Projected for Fruiteq SA and Eden Tree Limited22

Projection Fruiteq SA Eden Tree Limited

Investment Cost 4,600,000$ 1,700,000$ Annual Sales 7,702,935$ 3,921,243$ Raw Material Purchases 2,130,949$ 1,055,415$ Payback 6.8 years 5.5 yearsEBITDA 2,041,667$ 1,055,415$ ROI 50% 73%IRR 21% 19%ROE 47% 42%

While gender impacts were not an explicit goal of the AFT, an investment project’s impact on gender is nonetheless used to evaluate their application for a grant. This information in assessed in terms of the importance of women in the project sponsor itself (number of women in senior management positions, woman-owned companies) and in terms of beneficiaries (e.g., women smallholders). The estimated gender impacts of the first eight grantees are shown in Table 7.

22 As estimated in pro forma financial projections prepared by SSG as part of the completion of business plans for the two companies, based on investment plans and business strategies provided to SSG by the companies’ management

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Table 7: Gender Impacts of the First Eight Investments Supported by AFT Grants

Employment Impacts

Total Full Time Employees 1,365 Female full-time employees 307 % Female full-time employees 22%

Smallholder Impacts

Total smallholder farmer beneficiaries 125,045 Female smallholder farmer beneficiaries 57,614 % Female smallholder farmer beneficiaries 46%

Gender Parity

Women-owned businesses 2 % Women-owned businesses 25%

Estimating environmental and social impacts from a grant application is difficult unless the applicants are requested to carry out some sort of credible ESIA as part of the application process. This would be expensive, time consuming and unworkable. Nine (64%) of the 14 applicants responding to the AFT’s July 15 call for grant applications included an ESIA as one of the proposed uses for their requested grant. Two-thirds (4) of the six actual awards requested funding for an ESIA.23 Clearly, an awareness of the need to present such information is fairly widespread – as a local legal requirement and/or to satisfy potential investors and lenders. It is not unusual for local authorities to require some kind of environmental assessment in granting the permits required for construction. This should be examined in the AFT CU’s due diligence process of finalizing grant agreements and procurement plans for grantees.

To identify any potential environmental or social red flags, the AFT grant applications ask applicants to identify whether their investments will involve any of a list of potential environmentally or socially problematic activities. Responding affirmatively on any of the activities listed in the application doesn’t demonstrate conclusively that there is an environmental or social issue to be resolved or mitigated, only that the investment activities may raise red flags indicating the advisability of an ESIA on some scale, depending on the targeted financing sources. Figures 4 and 5, respectively, show the results from the fourteen applicants from the July 15 – August 31, 2013 call for applications and the first eight AFT grants awarded.

23 One of the applicants intends to conduct an ESIA but will fund it themselves; the other three requested grant funds to cover the cost of the ESIA.

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Figure 4: Investment Activities of 14 AFT Grant Applicants Signaling Possible Need for ESIA (Number of Applications)24

Figure 5: Investment Activities of First 8 AFT Grantees Signaling Possible

Need for ESIA (Number of Applications)25

4

0 0

1 1

4

0

1

00.5

11.5

22.5

33.5

44.5

24 Applicants from July 15 – August 31, 2013 call for Applications 25 Two pilot grantees plus six grantees selected from the July 15 – August 31, 2013 call for applications

9

3 1

0

5

10

4 4

0

2

4

6

8

10

12

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This analysis shows that at least for the first round of applicants and grantees, issues related to water infrastructure and physical infrastructure involving construction were the most important. These investment projects involved agricultural production requiring expanded irrigation and/or the construction of processing facilities.

Overall, pipeline development process, along with the application and the screening criteria seem to have been successful in producing high quality grantees, in terms of the viability of the investments proposed and the economic and social impacts of those investments.

More effort needs to be put into monitoring and reporting the performance of the AFT – both for the donors and for broader public information. At this early stage, the AFT CU has not developed adequate impact criteria for monitoring and evaluating its own performance. This needs to be addressed. The donors need to work with the AFT to establish a common set of criteria that match the AFT’s program and its capabilities and meet the donors’ needs. They need to help the AFT CU design and put into place an adequate monitoring and information collection system. Reporting needs should go beyond simply reporting the number, size and uses of grants awarded. It should look at other impacts.

Given that the AFT CU plans to issue four successive calls for applications per year, with a target of approximately twenty-five grants annually, quarterly reporting seems appropriate, with an end-of-year report assessing performance annually and to date. These reports would be addressed to the OC and synopses should be posted on the AFT website.

By early 2015, the AFT CU ought to be able to obtain and report the progress on financing of the two pilot grantees, Fruiteq and Eden Tree. Every Quarterly Report should track progress toward financing of every grantee, even if in the early reports, the result is “no progress”. The discipline of tracking this paramount indicator on a regular basis is important to the credibility of AFT. A record of success will support AFT in attracting quality applicants and in attracting finance for its grantees. Over time, the award of an AFT grant could become a mark of quality for grantees as they approach potential financiers familiar with the AFT and its work.

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VI. HOW TO ENSURE A FUTURE FLOW OF AFT

GRANT APPLICANTS?

The questions of how to make potential applicants aware of the existence of AFT grants program and how to encourage them to apply have been a major pre-occupation of those involved in establishing the fund. In the process of starting the AFT, SSG developed a pipeline of potential grant applicants as one of its principal tasks. This required significant effort to reach out to potential applicants and key sources that might be aware of and refer applicants. A total of twelve experts were involved and it required two weeks on the ground in each country for a team of three to be able to come up with the Initial Pipeline. The total cost of this very labor and travel intensive process came to about $770,000. This is not a process that the AFT can repeat on a regular basis as it goes forward because of both its human and budget resource requirements.

A. What was the initial plan to reach and attract applicants?

The donors expected that it could take six months or more to get the AFT established and operating. They were concerned that if they waited until all was in place organizationally and administratively before starting the process of seeking out suitable investment projects to apply for grants, there might be and additional six month wait before AFT would start actually making grants. SSG identified an initial pipeline of forty-five potential applicants by sending skilled teams of local and international experts to each country. The whole pipeline development (including the screening) took about 100 days. This was a costly, labor intensive process that AFT will not be able to repeat on a regular basis in the future.

In the course of these country assessments, SSG learned a number of lessons about how to find suitable investment projects. SSG learned how to utilize existing in-country resources to identify opportunities, but only had about two weeks to plan and prepare before the assessment teams arrived in country. By relying on an effective outreach effort, the three-person country assessment teams achieved an average of twenty-five face-to-face encounters with public and private investors per week. The outreach process pursued by SSG in the initial country assessments is diagrammed in Figure 2.

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Figure 6: Sources of Prospects for Initial AFT Country Assessments

For reaching out to the private sector, the initial country assessment teams found two particularly valuable channels:

1. Financial institutions

Both commercial banks (national and regional) and private equity groups proved to be excellent sources of referrals to agribusinesses that might benefit from AFT grants. While few commercial banks that the assessment teams met with were currently involved in medium or long term financing of agriculture related investments, many of them already provided short term working capital and trade financing for companies in key agricultural sectors, such as cotton, cashews and other exportable crops. Bank managers identified to the SSG teams existing bank clients with whom they already had initial discussions about business expansions and urged the AFT teams to look at those investments for grant support. These examples of bank-referred projects included a raw cashew exporter who wanted to build processing and storage capacity and a produce marketer who wanted to invest to increase its raw material supply chain. National banking organizations were useful in putting the teams in contact with key bank management (often Credit Directors, or heads of agribusiness departments).

Prospects

Initial Referrals

Grow Africa LOI

USAID

Existing networks

Financial Institutions

IFC/AfDB

Commercial banks

Private Equity

Public Entities

Ministries

Other GO’s

Industry & Trade Assns

Apex industry organizations

Exporter organizations

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2. Trade and industry associations

Apex industry and trade associations also proved effective channels for reaching agribusinesses. There are chambers of commerce, industry and/or agriculture in most African capital cities. SSG found that these organizations (at least those that were truly private sector in nature and operation) were usually eager to show value-added to their members by connecting them to the AFT experts. One such well attended meeting might yield 10-15 prospects. More production-focused agricultural organizations were less useful, either because of the small size of the investments contemplated by their members or the lack of a meaningful infrastructure component in their members’ plans.

Reaching out to the public sector took more effort, but also yielded some good opportunities. The difficulty was in reaching the appropriate levels within the various line ministries where one could have a discussion about the details of proposed investment projects). The two most obvious targets were the line ministries (Ministries of Agriculture and related topics like animal resources, irrigation, infrastructure, and fisheries – which may be separate ministries) and Ministries of Planning (which are typically responsible for collating and prioritizing a government’s investment plans and budgets).

In one country, the Ministry of Agriculture, at the request of the local AfDB country field office, took the leadership with regard to AFT and convoked all of the relevant ministries and offices to a roundtable discussion which led eventually to the presentation of 18 public sector investment plans to the AFT team. Some these projects had clearly been on the books for some time, and were backed up with feasibility studies already completed. Unfortunately, many of these investment projects, while interesting in concept, seemed to be at too early a stage of development and the sponsors seemed to be looking for AFT to subsidize their basic design process rather than assistance in the final preparation steps for financing.

There were several important differences between the private sector opportunities and the public sector opportunities identified through these channels:

• In group meetings to introduce the AFT, the teams usually requested a written investment fiche – a two page description of the proposed investment, plus copies of any pre-existing feasibility studies or other descriptive documentation. The response time from a group meeting with agribusinesses to the submission of written investment concepts to the team averaged 24 to 48 hours. The response time for public sector entities from initial meeting to submission of a written concept note averaged 7 to 10 days. The decision-making and approval

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processes in the public sector are typically more complex and time consuming than in a private company.

SSG did not find that this difference in the length of delay in response was particularly highly correlated with the qualitative merits of the investment project. In one country, SSG did experience some reluctance on the part of the private sector to share their plans and projects – particularly if government representatives might access those, but in most cases the private sector was remarkably forthcoming in discussing their plans and needs. In the case of the public sector, the delays often seemed to be bureaucratic delays in getting internal authorizations.

• About 40% of the private sector opportunities identified was in fairly late stages of investment planning, with earlier feasibility studies or business plans already completed, preliminary discussions with potential financiers underway, or other significant progress.

• The majority of the public sector investments reviewed during the pipeline development phase seemed to be at very early conceptual stages – possibly only existing as policy priorities without any material planning having been completed. This is potentially problematic, since the AFT is supposed to be giving grants to cover final stage analyses needed to secure financing, not early stage project design activities. This may be the result of those agencies’ past experience in dealing with institutions like AfDB or the World Bank who play an active role in project design at an early stage in the project design as a matter of course. This is something that AFT is not designed or intended to do. Making this clear to potential public sector applicants will be important to help avoid misunderstandings.26

26 The AfDB’s other private sector grant program, FAPA, actually makes grants to support technical assistance and training which may be key in designing investments which AfDB itself will eventually finance.

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As discussed elsewhere, the gestation time for the development and planning of private sector investments is significantly shorter than for the public sector (1-2 years versus 3-5 years). The public sector seemed more inclined to bring forward new ideas than projects in late-stage planning. AFT needs to determine how to most efficiently access the public sector agriculture infrastructure investment planning process to identify investment projects that are more fully developed and concrete (particularly in terms of public sector budget commitments and fully executed pre-feasibility studies).

B. What should AFT do to ensure a pipeline of high quality applicants?

Early in the AFT development process, SSG and the AFT Working Group began to discuss what kind of internet presence would be useful. There was a general belief that a website would be important to publicize the availability of the grants and calls for applications. Initially, the AfDB agreed to host an AFT webpage on its website and one was launched to coincide with the official establishment of the AFT on May 9. However, no mechanism (AFT CU staff or outside service) was in place to manage and update the information that webpage.

The AFT Working Group knew that the AFT CU would have several important outreach missions:

• It would have to find ways to generate a continual flow of new grant applicants.

• It would have to communicate the results of its work to key communities (including the financial community, national trade and industry associations, etc.) that would generate referrals of potential applicants and goodwill.

• It would need to support AfDB and donor efforts to attract new donors to expand funding for the AFT.

By the time that the AFT CU was in place in mid-July, it had become apparent that more thought would be needed on a better organized and resourced communications and outreach program. No communications staff had been included in the original AFT CU staffing plan or budget. Nor was there a budget provided for print or electronic publication or creation and management of a more effective website. Most importantly, there was no clear communications strategy around which to plan and carryout an effective outreach program.

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Consequently, SSG prepared a draft five year communications strategy for the AFT. It also drafted a shorter term (through Dec. 2014) work plan and budget for the initial implementation of that strategy. This included the creation of a permanent position for an AFT communications manager to both manage the communications programs and the website. The work plan, the budget revisions, and the decision to hire a full-time AFT Communications staff person, were approved at an OC meeting on Oct. 11, 2013. The AFT CU received a budget increase of $280,000 to fund the communications and outreach program (including new staffing).

As work on the actual grant application and grant management procedures advanced, it also became evident that a web-based application process was more desirable than relying on paper or emailed versions of multiple application documents. SSG undertook to design this application process and to have it developed and tested in time for the second round of applications to open on November 1.

The first round of applications (July 15 – August 31) had taken place before this web-based system had been designed and a number of major problems arose in relying on PDF format applications. The fillable PDF application form design was cumbersome and allowed for too many errors. Only after the closing date, did the AFT learn that the AfDB has imposed a mailbox size limit that cause two (of fourteen) applications to be rejected because of size (the application documents and supporting materials).

SSG trained the AFT Team Leader in management of the website content and the use and management of the grant application system and in early December, the AFT hired and “operational assistance” with some internet experience. The AFT CU will need to continue to monitor use of the website to keep its content up-to-date and to ensure that it functions well. While an attractive, informative, user friendly website may help attract applicants to the grants program, a bad website will surely turn some share of potential applicants away.

However, a website alone will likely be insufficient to ensure an adequate flow of high quality applications. There are several other ways that the CU can implement outreach to build its pipeline of interesting applicants. Some of these were outlined in the long term communications strategy and were made possible by the supplemental increase in the AFT operating budget approved on Oct. 11.

This increase included travel funds to allow CU staff to attend key meetings and conferences around Africa to advertise the presence of the grant program. These could be meetings of private equity funds and other segments of the financial community. It could also include agribusiness meetings or conferences and trade shows on infrastructure development and financing. Unfortunately, in the midst of his first outreach trip (to Tanzania and Cote d’Ivoire in November), ORRU (the AfDB office in

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charge of coordination with donors) informed the AFT CU Team Leader that it was against AfDB rules for AfDB staff (i.e., the CU Team Leader) to use donor funds for travel. ORRU had reviewed and approved the AFT OG and participated in the OC meeting which approved the AFT CU travel budget, but never raised any objection to the plan at the time. This kind of ex post complication raised by administrative units in the Bank regarding AFT CU operations are counterproductive and appear obstructive. They demonstrate the need to review the OG and clarify the CU’s operational freedom of action – perhaps in letters of clarification between the Bank and the MFT donors.27

The AfDB Communications and External Relations Unit (ERCU) of the AfDB can offer some professional support to the CU in designing and implementing portions of its outreach and communications program. The commercial economic and business press in the target countries (including regional publications) could be an important channel for reaching potential applicants in both the public and private sectors. This will be one of the key roles of a new AFT CU Communications Manager.

There are low or no-cost social media opportunities for AFT to expand its outreach, as well. SSG assisted AFT in establishing a social media presence with accounts on LinkedIn, Facebook, and Twitter. In addition to the new AFT group in LinkedIn, some of the other relevant opportunities include interest groups such as:

• Africa – All Things Business

• Africa Investment Group

• African Agribusiness – Africa / Agriculture / Trading

• African Farm Network

• African Seed Network

• Venture Capital and Private Equity for Africa

In November, The AFT CU visited Tanzania and Cote d’Ivoire to launch the first two grants (Darsh Industries and FENACOVICI) and make some efforts at outreach to advertise the November 1 call for applications. The AFT CU with SSG developed the initial mission programs for the two country visits, but planned to rely on the local AfDB field offices to make the necessary arrangements (appointments, etc.). The AFT Team

27 A second such complication arose after the AFT approved a grant to AgDevCo. The GECL then ruled that AgDevCo was ineligible since it was a UK based organization not registered in a Bank regional member country, even though the AFT OG state that foreign companies are eligible grantees and GECL had read and approved the OG months before raising this objection. This eventually proved moot since the AgDevCo unit applying for the grant was in fact duly registered in Tanzania.

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Leader confirmed this plan in advance with key contacts in each field office. The planned mission programs included:

1. Formal signing ceremonies for the two grants

2. Training in procurement and payment procedures for all of the grantees

3. Outreach meetings with public and private sector organizations, institutions, and others to advertise the call for applications

4. Plans to brief the three donor missions (US, Sweden and Denmark) and the AfDB Resident Representative

5. A press conference to announce both the grant signings and the call for applications

The AfDB field offices basically failed to perform in both countries. No preliminary arrangements had been confirmed when the team arrived in Tanzania. The procurement staff (supposed to be on hand for training the grantees) was away. None of the donor missions had been informed of the plans and schedule by the field office. Two days before the team was to travel to Cote d’Ivoire, the Abidjan field office contact informed the AFT CU Team Leader that they would be unable to coordinate contacts and scheduling for any meetings outside of the official meetings with the field office itself. In both countries, the AfDB Resident Representative to whom the AfDB had delegated signing authority was not available to attend the signing.

Despite the almost complete lack of support from the AfDB field offices, the team salvaged some of the planned aspects of the Tanzania mission. Uninformed in advance, the US and Danish missions in Dar es Salaam were not able to participate, but the Swedish mission sent two representatives to the signing. The AfDB/Tanzania Resident Representative was not available for either the signing or a briefing during the three days. The grant was signed (only by the grantee) and the grantees were oriented on Bank payments procedures, but the procurement training (planned for one day) was only one hour. The AFT Team used its own contacts to organize some last minute outreach meetings which, while helpful, were not nearly as effective as they would have been with more advance planning. The Swedish mission hosted an end-of-mission debriefing for donors, but the US and Denmark did not attend because of the lack of advance notice. There was no press outreach in Tanzania.

On learning of the resignation of the Abidjan field office from supporting the visit, SSG tasked its local consultant (who had been part of the initial Cote d’Ivoire country assessment team) to step in and set up the desired meetings with the government, donors (only the USA is present in Cote d’Ivoire), and the private sector. The AFT CU agreed to pay to fly a procurement specialist from the AfDB’s Dakar field office to Abidjan to conduct the procurement training for the three new grantees. The US

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mission agreed to support the team’s efforts to disseminate word of the new grants and the new call for applications to its press contacts and the US Ambassador attended the grant signing, but the AfDB was represented by a lower level local field office representative. The Resident Representative, who had been delegated by Bank’s Tunis HQ to sign on behalf of the AfDB, was not in the office.

Overall, the poor performance of the AfDB field offices in supporting this mission was an important lesson for the AFT CU in how little they would be able to rely on the field offices for support in the future. This impacts both the ability to continue to generate an application pipeline, as well as the ability of the limited AFT CU staff to support grant implementation. The planned staffing plan for the AFT CU was developed on the assumption that key support in procurement, payments and other key grant implementation activities would be available from the field offices in a timely and forthcoming manner.

As pointed out earlier, simply continuing to replicate the initial pipeline identification process that SSG designed and implemented at the start of the development of the AFT fund is beyond the means of the AFT CU. However, the OC has proposed expanding the number of countries eligible for the AFT starting in 2015, with first priority going to countries newly admitted to the New Alliance. 28 The admission of a new country to AFT eligibility might justify a one-time effort to carry out a similar intensive outreach program such as SSG implemented during the initial pipeline identification effort. If that is done, some key steps to consider include:

• The AFT CU is understaffed and had planned to rely on the local AfDB country field offices for organizational and logistical support, providing grantees advice and counsel on key outreach contacts, and to making key government contacts. The first effort was extremely disappointing and the AFT CU should now expect to rely principally on its own staff, supported by short-term consultants, to plan and execute in-country missions.

• Senior AfDB management needs to be asked to re-examine the roles of AfDB field offices in supporting the AFT CU and to determine if their performance can be improved.

• At least a month of pre-visit planning and organizing is needed to initiate outreach (prepare and send press releases, direct emails, etc.) and to alert apex

28 As of December 2013, four more countries are qualifying to join the New Alliance: Benin, Malawi, Nigeria, and Senegal. Under the OC’s decision, they would not be declared eligible for the AFT until January 2015, at the earliest.

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organizations for agribusiness, finance, press, etc. to the eventual arrival of the team.

• A press conference should be held immediately on arrival in-country to announce the purpose of the visit and give background on the AFT grant program.

• Meetings should be co-organized with chambers of commerce, industry and/or agriculture, as well as with banking associations to which their members are invited for a presentation on the AFT grants, application process, etc.

• In some cases (such as the Tanzania SAGCOT or the Bagre irrigated perimeter development project in Burkina Faso) there are local parastatal organizations that are attempting to foster agriculture infrastructure investment and that can be particularly helpful in match-making for AFT with potential applicants.

• One-on-one meetings should be scheduled with Directors of Credit and Agribusiness at commercial banks and with key personnel at DFIs and investment funds operating in those countries. These meetings should include any local banks that have loan guarantee programs with USAID’s DCA (see Annex F for a listing of USAID DCA programs in AFT’s six target countries as of October 2013).

• Meetings should be planned and scheduled in advance with key technical departments and planning departments of line ministries responsible for agriculture and related fields (animal resources, fisheries, water and irrigation, etc.), as well as ministries of planning and infrastructure. Public sector outreach may require two meetings: an initial group meeting for a general presentation on the AFT grants, followed by working meetings with each agency - perhaps a week later - to review the expressions of interest (EOIs) prepared in the interim.

• Adequate time (thirty minutes to one hour) should be set aside for one-on-one meetings with individual investment project sponsors who want to discuss their plans.

• A briefing should be scheduled for donors present in the country - both those already supporting the AFT, as well as others involved in supporting agriculture development in the country.

• A minimum of two full weeks is required to conduct such a mission; three weeks would be more effective.

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VII. HOW CAN THE AFT BE KEPT “FAST AND

NIMBLE”?

“Fast and nimble” was an important objective in the early design of the AFT. While the AFT Working Group reasonably successfully internalized a common understanding of this objective, as SSG worked with the AfDB to put the concept into action, a number of issues arose. The Bank is a large institution, mostly experienced in working with public sector entities, with all of the internal procedures, checks and balances, and processes that a large public sector financial bureaucracy might be expected evolve over 50 years. All agreed that it would be necessary to modify some of those processes and procedures to meet the AFT donors’ desire for speed and agility, but the process of identifying which procedures and processes would require modification and what the exact modifications would need to be, took time (and is not yet be complete). There were some pre-existing models within the bank itself in terms of other donor trust fund financed activities such as FAPA and the Congo Basin Forest Fund (CBFF). As the AFT is rolled out and experience is gained in soliciting applications, reviewing them, and awarding and managing grants, it is likely that issues will continue to emerge. Most such issues can be addressed through amendments to the AFT OG approved by the OC.

A. What are the potential impediments to speed and agility?

AFT suffered a setback early in the establishment of the CU. The original plan called for the creation of the CU and its staffing by mid-July. The AfDB immediately seconded a Team Leader to the AFT CU, as its contribution to the initiative. However, Bank regulations prohibited launching a recruitment process for the rest of the planned staff until the funds to cover those costs and salaries were firmly in place. There was a delay by the donors in the initial funding of the MTF until mid-September, so the hiring process was only launched then, with a target of filling the initial positions by mid-November.

The AfDB insisted that the AFT CU follow the time-consuming Bank recruitment and hiring procedures. To short circuit some of this, CU made the decision to post the AFT staff positions as consultant positions without normal long term consultant benefits (and with a Bank imposed two year maximum contract) rather than as full Bank professional staff positions. This limited consulting position made the positions less attractive to high quality candidates.

The AFT CU Team Leader lacks the delegated authority to spend AFT budgets for operating expenses and make key operational decisions and this has proved to be a

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barrier for speed within AFT operations. Weeks can be lost in going through standard AfDB expenditure approval processes for activities such as official travel that are already approved by the OC and budgeted. In effect, decisions of the OC on AFT operations which are not reflected in the original Operational Guidelines carry very little weight within the Bank and are certainly not recognized as having any precedence over normal bank standard operating procedures (SOP). The AFT Team Leader’s ability to reach out to institutions outside the bank and the AFT’s own donors is limited by the Bank’s hierarchical communications requirements.

The working drafts of the AFT OG were circulated among all the relevant administrative offices of the AfDB. They were asked to review and comment on them and their comments were taken into account in future drafts. The Banks’ legal department (GECL) and the department responsible for the management of trust fund accounts and relationships, ORRU, participated in this process. Once all of the comments had been incorporated and all of the departments had signed off on the draft OG, the CU presented it to the OC for review and approval. Nonetheless, since the AFT CU began operating, on several occasions, these departments raised ex post facto objections to several points included in the OG (which they had earlier reviewed and approved), arguing that they violated other AfDB procedures. This has led to confusion and delay in the AFT’s operations that could have been avoided by a more diligent process of review on the part of the Bank and its senior management. There appears to be a tendency on the part of some of these administrative to treat the AFT as a nuisance that can be ignored or forced to wait while they spend their time on the Bank’s own core operations. So far, the donors have not been highly successful in negotiating deviations from the AfDB’s standard operating procedures (SOP) to give AFT the freedom of action it requires to meet the founders’ goal of “fast and nimble”.

There are many relevant examples of how the African Enterprise Challenge Fund’s (AECF) independent (but professional) operational set up differs importantly from AFT’s. Lessons learned from the AECF that are important for the AFT are discussed below.

The Grants Management Manual (GMM) and the grant management processes drafted during the first months were based on experience in designing and managing a variety of other development grant programs, both in the AfDB and in other situations. SSG and the CU Team Leader made every effort to take existing AfDB procedures and documentation as a starting point for the AFT procedures and documents and modify them to meeting AFT’s particular needs. OSAN believed that this would make it easier for the AFT CU to communicate with and work with other key bank departs, such as the General Counsel and Legal Services Department (GECL), the Partnerships and Cooperation Unit (ORRU), the Operational Resources and Policies Department

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(ORMU), and the Procurement and Fiduciary Services Unit (ORPF) – among others. In some cases, this led to the adoption of procedures that may prove more time-consuming than would be optimal.

In the initial planning, OSAN assumed that the AFT CU would need a maximum of two months to launch grant implementation and that in many cases, a shorter period. However, the closest existing operation in AfDB to AFT in structure and purpose, FAPA, has reported that it has on occasion needed two years to launch grant implementation after FAPA announced an award. It appears that the principal reason for FAPA’s experience with such delays was the difficulty that grantees have in developing the procurement plans for utilizing the grants and in following Bank procurement procedures. As part of its strategy to address this, AFT intends to rely on the Bank’s mission-based procurement staff to help train grantees very early in the process of developing the individual grant agreements.

The OG contained the project cycle for the AFT grants process shown in Figure 7.

Figure 7: AFT Project Cycle and Estimated Project Timeline per the AFT Operating Guidelines

The experience from the first round of applications resulted in the following actual project cycle (based on 12 applications received and reviewed):

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Figure 8: Actual AFT Project Cycle Timeline for First Call for Applications (July 15 – August 31, 2013)

Overall, the AFT expected the process from application due date through grant signing to take up to 78 days (assuming no grants >$1M requiring board approval). In fact it took 85 days to just get two of the six grants signed. The final duration to get all six signed may well exceed 130 days.

• The CU screening and appraisal process (two people reviewing 12 applications) moved very quickly and smoothly (10 days actual versus 45 days planned). While the amount of screening may be increase in the future (more questions will be asked of applicants) and the number of applications will presumably increase, this process went more smoothly than originally expected when the OG was drafted.

• The TRC Review and Decision took longer than projected (30 days actual versus 5 days planned), but some of this had to do with this being the first time for the TRC to meet. Delays occurred in being able to find suitable meeting times for such a large committee. Hopefully the process will be more streamlined in the future.

• The OC acted very quickly (4 days actual versus 14 days planned).

• Arranging for signing the grant agreements was significantly delayed (43 days actual versus 14 days planned – for just two of the six grants). The date for the grant signing was delayed because of difficulty in scheduling the trip to meet with the grantees, not because of delays in preparing the grant agreements themselves (by GECL). There were additional delays because of the lack of action on the

(a) Project Origination – Application Due Date - August 31

(b) CU Screening/Appraisal (actual 10 days) -35 days – September 13

(d) OC Review/Decision (actual 4 days) -10 days October 11

(c) TRC Review + Decision (actual 30 days) +25 days October 7

(e) Grant Agreement Signed (actual 43+ days) +29 days #1 on November 20 and #2 on November 29

12 Applications

2 Grants <$500,000

4 Grants $500,000-$1M

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part of the Dar es Salaam and Abidjan AfDB field offices. As of Dec. 15, only 2 of the six grants had been formally awarded and signed because of the lack of donor funding to cover the cost of the other four grants.

Presumably, the duration of the process up to grant signing can be reduced in the future as experience grows and procedures are smoothed out. It will be a year or more before good information on the length of time needed for grant implementation is available for further analysis. However, the complications in executing the first two grant agreements should be avoidable in the future.

It remains to be seen how flexible the Bank’s procurement procedures imposed on the AFT will be when it comes to actually implementing grants. The grant implementation revolves around funding the recruitment and hiring of technical consultants qualified to carry out the kind of work that grantees want and potential financiers require. If this process is too drawn out and complicated, the image of the AFT will suffer. The Banks procedures are complicated and vary significantly from common commercial practice. In Dar es Salaam, the Bank’s two procurement experts were unavailable to provide grantee training has had been planned and advised to the grantees. For Abidjan, the AFT CU had to fly in an AfDB procurement office from Dakar to do the training. This training took two and half days, including working individually with each of the three grantees to help them draft their first procurement actions (this was not done in Tanzania).

SSG worked with the AFT CU to draft a comprehensive GMM, with an annex full of templates to cover a number of needs. The contents of the AFT GMM are given in Annex D. These documents will need to be tested and revised as the AFT gains experience. Where possible, the templates built on existing AfDB documentation and processes. The list of documents annexed to the GMM is shown in Table 8.

Table 8: Document Drafts and Templates in the Annex of the AFT Grant Management Manual

A Eligibility Criteria B Regrets Letter C Application Technical Appraisal Form D Application Technical Review Scoring E Application Ranking Sheet F TRC Grant Brief G TRC/OC Grant Review Meeting Minutes Template H TRC/OC Grant Approval Request I Grant Agreement Template

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J General Procurement Notice Template K Specific Procurement Notice Template L RFP, LOI, ITC and TOR Templates M Grantee Quarterly Reporting Template N Task Manager Quarterly Report Template O Grant Award Notification Template

FAPA further indicated that they are able to process a maximum of 8 awards per year, whereas AFT set a target of around 35 awards per year in its first work plan. After the experience of the July 15 – August 31 call for applications, the AFT CU modified its plan to lower the target to around 17 grants per year (still twice the pace of FAPA).

B. What can be done to ensure future speed and agility?

Interviews with the Alliance for a Green Revolution in Africa (AGRA) driven29 and donor-funded30 AECF yielded some interesting lessons for the AFT. The AECF was launched in 2008; is much larger than the AFT (approximately $170M versus AFT’s 28.8M); and operates multiple sectors (agriculture, financial services, renewable energy, and technologies for adapting to climate change) in twenty-two countries. In contrast to the AFT, the AECF founders chose to hire a professional fund manager, KPMG, to operate the fund instead of placing it within an existing institution like the AfDB. SSG reviewed the AECF application form and process as a model for developing the AFT application forms. AECF also makes grants up to $1.5M, but these may be cost sharing (or reimbursable) and can cover investment expenses, as well as training and TA for project preparation. AGRA has encouraged the fund managers to be more risk-taking in identifying and funding grantees. The AECF referred several of AFT’s initial Tanzanian applicants for AFT grants and is an example of a key institution that AFT should continue to work with and build synergies, building mutually beneficial two-way deal flows. AFT should look much more closely at the AECF model to determine where AFT could improve its own operations and procedures with regard to:

1. Pipeline development

29 AGRA, the Alliance for a Green Revolution in Africa, is a joint initiative of The Rockefeller foundation and Bill & Melinda Gates Foundation, founded in 2006. AGRA is also a major funder of the Injaro managed West Africa Agricultural Investment Fund (WAAIF). 30 AECF is currently supported by The Australian Government Aid Program, the Danish International Development Agency (DANIDA), the UKAid Department for International Development (DFID), the International Fund for Agricultural Development (IFAD), the Netherlands Ministry of Foreign Affairs (NMFA), and the Swedish International Development Cooperation Agency (Sida).

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2. Application review and award criteria

3. Grant finalization procedures

4. Grant implementation procedures

5. Post-grant monitoring and evaluation

The first efforts in grant start-up have revealed a number of issues that risk impeding the speed of the AFT. Grant implementation start-up – the process of moving from grant agreement signing through to the signing of the first contract – risks becoming a source of delay. For private sector grantees this will be a major frustration and may damage the reputation of the AFT as a serious source of support for the sector. FAPA indicated that they had experienced delays of up to two years in implementation start-up. AFT’s goal is to try to execute all the required steps in approximately 6 weeks. There are a number of potential sources of delay that impose themselves:

1. Grantees have to be trained in the AFT (i.e., the AfDB’s) procurement procedures. Though much of the AfDB procurement staff have been decentralized to the field offices, in November 2013, when the AFT tried to organize training for the first grantees, problems arose. In some field offices, the necessary technical experts were unavailable for the AFT, causing potentially weeks of delay. Other field offices didn’t have the correct staff and they had to be flown in from other countries, creating administrative delays for travel and funding approvals (and unexpected expenditures for AFT).

2. The processes for reviewing EOIs and subsequent proposals imposed by the AfDB on the AFT CU are designed for managing procurements by public sector borrowers where the risk of corruption is significant. They typically exceed the requirements of even the most strenuously diligent private sector companies. In other operations, the AfDB recognizes this and permits procurement procedures that “conform to common commercial practice”. However, in establishing the AFT’s OG, the Bank argued that since the AFT granted public monies (the donors’ grants), the AFT would have to abide by the Bank’s public sector procurement guidelines. The first grantee training in Nov. 2013 to 5 private sector grantees demonstrated that the public sector mentality of the procedures and the ultra-bureaucratic processes would be burdensome, would result in delays, and possibly confusion on the part of private sector grantees, potentially resulting in disapproved procurements and delays.

3. The Bank’s procurement guidelines impose certain delays on grantees, which, with additional negotiation between the OC and the Bank, might be somewhat ameliorated. The bank requires a two-step process:

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a. First grantees are required solicit a certain minimum number of Expressions of Interest (EOI) based on publication of a very short announcement, and to develop a shortlist from the EOIs received.

b. Secondly, a formal request for proposals (RfP) is then sent to this short-list. This RfP will contain the detailed TOR for the assignment (prepared by the grantee and reviewed and accepted by the AFT CU).

The AFT OG needs to be amended to clarify the authority of the AFT Team Leader to make operational and spending decisions in line with OC approved work plans and budgets. This may require negotiating some additional variances from Bank SOPs in order to have the appropriate authorities delegated to the AFT CU Team Leader level and that delegation recognized throughout the Bank. The revision should also formally change the title of the head of the CU to Manager instead of Team Leader to give that position more clarity of function within the Bank’s hierarchy.

Some of these delays were essentially unavoidable. However, with hindsight, it is clear that a more detailed planning process, identifying and taking into account all of the relevant requirements, policies and procedures of all of the key players (AfDB and donors) might have led to a smoother implementation. In effect, the AFT CU, through the Bank initiates the request, while each donor has a different internal procedure and timetable for actual disbursements.

The AFT CU has learned the importance of expediency and efficiency in submitting disbursement requests to the donors to ensure a rapid replenishment of the MTF. The donors (at least the first three) now presumably have a better understanding of how their own delays can materially impede the work of the fund.

The training materials that were used to train the first grantees in procurement and disbursement regulations were not adapted for use with AFT private sector grantees. They contained many references to debt (in lieu of grants) and other confusing and/or irrelevant references. The AFT CU needs to revisit all of this and develop training materials that were specifically designed to address the needs of AFT private sector grantees.

In preparing the GMM, SSG had proposed that a simplified explanation of the relevant procurement procedures be prepared and annexed to the grant agreements themselves to make the processes as transparent as possible for grantees. This has not happened.

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The CU should continue to refine the various grant management processes (invitations, review, award, and implementation) to shorten the timeframes and increase efficiency. As the program expands, it will continue to encounter new situations for a number of years and will need to have the flexibility to adapt its processes to meet these in order to avoid turning meritorious projects away, or imposing impractical or unnecessary conditions.

Based on the experience with the first grantees, the AFT CU should bring to the OC recommendations for modifications to the required procurement procedures and other areas that impeded the AFT’s ability to be fast and nimble. The donors should be prepared to explore renegotiating such issues with the AfDB (e.g., allowing the use of procurement procedures conforming to common commercial practice as is done in other AfDB private sector activities).

The OC is the only body capable of setting performance standards for the AFT program and CU, for monitoring the programs performance, and for requiring changes to continually enhance that performance. Speed and agility in soliciting, reviewing, awarding and managing AFT grants should be two important criteria for the OC to monitor. The OC should use its findings from this monitoring process to continually challenge the AFT CU and the AfDB to find new ways to reduce time delays and increase productivity. This means communicating clear expectations and targets regarding performance standards to all in a position to impact performance. It also means that effort must be put into an organized oversight and reporting of performance.

In mid-2014, prior to the preparation of the AFT’s 2015 work plan and budget, the OC should arrange for a performance assessment of the AFT with the goal of identifying key areas for changes and improvement to be addressed in the 2015 work plan.

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FINAL RECOMMENDATIONS

The work that SSG undertook to help design and set-up the AFT Fund and then assist it in its start-up of operations provided many insights as to its strengths and potential weaknesses. SSG has concluded that the AFT Fund can play an effective role in supporting increased agriculture infrastructure investment – a very valuable role. Therefore, SSG offers the following observations and recommendations in the spirit of helping to make the AFT as effective and efficient as possible.

The AFT CU needs to continue to focus on the problem of generating future flows of high quality applications.

Generating a sufficiently large flow of high quality applications is critical to AFT’s success and image. SSG initially screened nearly 300 prospects to identify 45 agriculture infrastructure investment projects (31 private and 14 public) in two months. This gave AFT its first pipeline of grant applicants. A low response rate to future calls for applications could lead to a low average quality of applicant, with long term negative consequences for the AFT’s effectiveness in meeting its objective of leveraging investment financing. Developing this pipeline will take time and an aggressive and consistent program of outreach and communications. Relying passively on a website to attract enough good applications will not work. The AFT CU must be aggressive and creative about this, capitalizing on every opportunity for synergy with other programs and institutions.

The financial sector (investors and lenders) will be an important partner for the AFT.

Financial institutions have responded well to the AFT concept. This has important implications for the future:

• Financial institutions may be one of the best sources of new applicant referrals.

• A number of financial institutions are interested in accessing AFT grantees as a pool of investment opportunities.

• As the number of successful grants grows, an AFT grant can come to represent a mark of quality assurance for grantees in seeking financing.

AFT needs a clearer strategy and plan for dealing with the differences between private and public sector projects that address the differences in type of infrastructure (large scale public versus

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smaller scale private) and the differences in timeframe, political nature and planning processes of the two types of applicants.

The OG and other AFT grant management procedures will need adjusting to accommodate all of the important differences that will arise in type of investment, type of client and type of support needed between public sector and private sector grant applicants. A “one size fits all” grant management process will not work for both. The AFT needs to be sure that it is supporting last mile efforts to make good projects bankable and not simply subsidizing early stage project design work: apparently a particular risk with public sector projects.

AFT needs a better understanding of what types of infrastructure investment are suitable for its grants and more outreach to infrastructure stakeholder organizations.

There should be an upper limit imposed on the size of investment for eligibility for AFT grants. The limits may differ for private sector and public sector grants. The definition of what constitutes an acceptable “agriculture infrastructure investment” may also need further refinement. AFT should collaborate with other infrastructure stakeholder organizations, such as the ICA, NEPAD’s Infrastructure Africa (IA), SADC’s Public-Private Partnership Network, and the Corporate Council on Africa.

Because of its obvious link to success in eventual financing for AFT grantees, the ACT CU must sharpen its ability to evaluate the commercial viability of proposed private sector investment in selecting grantees.

Commercial banks and investment funds have to be convinced of the profitability and viability of private sector investment projects before they will finance them. This underlines the need to use viability as a key criterion in evaluating AFT grant applicants. The present application for solicits useful information, however, effort should be made to develop a more structured process of evaluating this point. It may involve a secondary round of questions for applicants who are short-listed for grants.

The requirement that the AFT follow public sector procurement procedures and guidelines for private sector grants needs to be re-examined.

The AfDB requires private sector grantees to follow essentially the same procurement processes and procedures as its public sector borrowers do. These procedures are not compatible with normal commercial practice. Based

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on experience with implementation of the first six grantees, The OC needs to consider renegotiating this decision with the Bank.

The procurement procedures required of AFT grantees need to be explained to them in a form understandable by the average private sector grantee, should be shared with them as soon they are informed of the award, and should be annexed to the AFT Grant Agreement.

The Bank’s procurement guidelines and processes are complicated for the private sector to understand, particularly for SMEs. They need to be explained very clearly and presented to grantees in writing as soon as possible. They should also be publicly available on the AFT website (not just on the AfDB website). Hands-on training in these procedures is very important and should focus around assisting each grantee in preparing their first procurement actions. Providing simply written instructions is important to making the AFT process transparent and avoiding errors.

The AFT OG will need additional revision in the future to accommodate changes that improve the operational authority of the AFT CU to meet the fast and nimble aspirations of its founders.

The lack of adequate budget expenditure authority on the part of the CU will continue to lead to delays and complications in implementing its plans and programs. The title of Team Leader does not accord the head of the CU sufficient authority and control to make the AFT responsive to grantees needs and donor objectives. The hierarchical processes of the Bank appear to be material barriers to both the AFT’s speed and effectiveness.

The OC needs to support the AFT CU in negotiating amendments to its procedures, such as procurement, which prove burdensome and create delays in grant implementation.

The procedures were imposed on the AFT by the AfDB. In developing the initial OG, SSG made some effort to pre-identify potential conflicts with Bank SOP and to negotiate modifications for the AFT. However, many of the sources of delay have only been identified once the AFT began operating. The AFT CU has no power to appeal these decisions within the bank. Only the OC can initiate a constructive effort to identify and resolve such issues.

In mid-2014, prior to the preparation of the AFT’s 2015 work plan and budget, the OC should arrange for a performance assessment

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of the AFT with the goal of identifying key areas for revision and improvement to be addressed in the 2015 work plan.

The AFT CU will be too preoccupied with its day-to-day operations to spend much time trying to analyze its progress. By taking the lead to orchestrate such an assessment, the AFT founders will be able to continue to influence the development of the fund in the directions they originally sought and help it resist the bureaucratic inertia threatened by its submersion within the AfDB.

The AFT CU should be called on to report quarterly annually on the success rate of AFT grants in securing actual financing and other key performance metrics.

Grantees’ success in securing financing is the ultimate measure of the AFT’s success or failure and deserves to be monitored and reported. We should expect that the outcomes of the financing efforts of the first two pilot grantees (Fruiteq and Eden Tree) will be evident by then and possibly one or more of the first grantees. The AFT needs to develop an appropriate set of metrics and begin immediately with Quarterly Reporting on these metrics to the OC. The metrics could be finalized and data collection begun in the first quarter of 2014, with the first quarterly report issued on April 1 (nine months after the establishment of the AFT CU). Annual reports should also be prepared. Performance assessments should be publicly available on the AFT website.

More analysis is needed to determine how best to accommodate public sector grant applications in the AFT fund without sacrificing its core traits.

The present AFT program seems fairly well designed to service private sector applicants, but may not work as well for public sector applicants. Some systematic way needs to be put in place to measure the AFT’s effectiveness with the public sector and compare it in meaningful ways to its work with the private sector. Such analysis will inform needed revisions in AFT grant-related procedures for outreach, application, evaluation, and grant management processes to more effectively serve public sector applicants – or lead to the conclusion that the AFT mechanism is not appropriate for the public sector.

The AFT CU needs to develop a set of metrics that it can monitor and report on and which may not necessarily be based only the AfDB’s own systems.

The donors should consider providing some short-term technical assistance (STTA) from an expert in monitoring and evaluation (M&E), knowledgeable in

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the three donors’ own M&E systems and indicators, to help design a practical data collection and reporting system that matches the AFT CU’s resources (human and financial). The relevance of AfDB M&E systems (including its log frames) to the AFT has not been carefully examined so far.

The AFT CU should monitor the plans of ICA to study the situation of agriculture infrastructure in Africa.

The AFT CU should work with ICA to stay abreast of ICA’s efforts regarding agriculture infrastructure. The AFT CU and OC should be prepared to address relevant findings from the ICA analysis by revisions in the AFT’s program and procedures to perhaps better address the problems of agriculture infrastructure financing identified by the ICA. This may also be a potential avenue for finding more effective ways of supporting larger scale public sector agriculture infrastructure plans and projects.

The AFT CU needs to populate and screen its planned consultant short-list for AFT grantees to be able to help grantees find the best technical support for grant implementation.

The CU does not currently have the capability of truly assisting grantees in finding the kinds of consultant skills they will need. The AfDB consultant database is deficient. Unless some effort is put into creating an AFT short-list AFT could experience serious delays in grant implementation or risk poor performance.

Priority should be given to staffing of the AFT CU Communications Team Leader position and to implementation of the 2014 communications work plan and long-term strategy.

This is critical to ensuring an adequate flow of high quality applicants in the future. It is also important for expanding the resource base of the AFT by attracting new donors. Without and effective communications and outreach program, the AFT website will quickly grow outdated and have a negative influence on the program’s reputation and effectiveness. It will take several years of concerted effort for the AFT’s visibility to reach the necessary level.

After AFT has some experience in grant implementation, it should re-examine the possibility of adopting a cost-sharing approach for its grants.

AFT is already receiving grants from applicants who have some capacity to fund their own work and don’t require a 100% subsidy to be able to move forward. Cost-sharing or matching grants are an effective way to improve grantee

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commitment, reduce some temptation for corrupt practices, and reduce external criticism of unnecessary subsidies. For all of these reasons, the AFT and its founders should in 2014 return to the question of requiring cost-sharing (by the recipient) in some or all of its grants.

The AFT is a good idea that offers significant promise of success in meeting its core goal of increasing the volume of agriculture infrastructure investment in Africa. Its approach is now proven and its impacts are significant. It will need some additional technical support and guidance over the next one to two years to ensure that can achieve its full potential.

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ANNEX A – SCORING MATRIX FOR PRIVATE SECTOR GRANT APPLICATIONS

Very Negative Negative Neutral Positive Very PositiveBottom Line

Scoring Dimension Weight

Sub Weight Attributes/Factors for consideration

Sections on the application form that addresses this dimension

1 2 3 4 5

Viability of the Investment 15%

Strength of: business model, demand, scaling, differentiation, competition, substitution etc.

III (Investment Summary)(business plan if attached)IV (Investment Objectives)V (Investment Components) VI (Information on Planned Investment Financing) Sec A (Proposed Structure for Financing Planned Investment)

No semblance of a business plan or any idea of what the competition is doing

Some kind of concept note exists describing the investment, its purpose and the major investment components

Good start to a complete business plan, but many holes remain and financial model may need updating

The major business plan components have been completed

Robust business plan that has been thoroughly researched and developed.

Stage of Financing 7%Level of interaction/interest with financiers, depth of previous experience raising similar types of capital

VI (Information on Planned Investment Financing)Sec A (Proposed Structure for Financing Planned Investment)Sec B (Applying Institution's Financing Experience)Sec C (Status of Financing for Planned Investment)

No formal relationships with financiers

Discussions with financiers have begun

Serious discussions with financiers with whom there is a pre-existing relationship

Have applied for funding and understands the gaps in the application

Conditional LOI from a financial institution with the 'condition' being an investment preparation aspect that the AFT can potentially provide

Additionality 7%Degree of impact the fund has on either achieving financing, or speeding up the process

VI (Information on Planned Investment Financing)Sec A (Proposed Structure for Financing Planned Investment) Sec B (Applying Institution's Financing Experience)Sec C (Status of Financing for Planned Investment)

Well-financed project. Any AFT grant funds would likely be a subsidy for investments already made

Nearly certain to move forward with, or without the AFT grant money

The availability of grant funded project preparation work is not critical to the ability to obtain financing, but would probably accelerate that ability

The availability of grant funded project preparation work is important, but not critical to the ability and timing of obtaining financing

Project would not be financed without additional project development work that will require an AFT grant

Management, technical, &

regional experience

20%Years of general management experience, industry specific technical experience, and geographically relevant regional experience

VII (Management Structure and Profiles)VIII (Applicant's Past Experience Related to This Investment)

No general management exp.No industry specific technical exp.No regional/geographical experience and/or no management team has been identified

A management team is proposed, but has <5 years of experience in each of the three experience categories (management, technical, & regional) or is lacking experience in one of the three experience categories

The proposed management team has at least: 10 years of general management experience, 5 years technical, and 5 years regional experience

The proposed management team has 10-15 years experience across each of the three experience categories

The proposed management team has >15 years experience across each of the three experience categories

Target Markets 10%Market size, fragmentation (customer/competition/supplier), regulatory environment, growth rates, maturity

IX (Target Market for Output from This Investment) Final market is undefinedHas a concept of what the target market is, but no material research

Has identified and researched the target market, but hasn't developed a market entry strategy or plan

Has identified and researched the target market, and has a preliminary market entry strategy, but no detailed sales/distribution plan

Has a thorough understanding of the target market and a concrete market entry, sales and distribution plan to move products there

Criteria for Scoring

Busin

ess

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Very Negative Negative Neutral Positive Very PositiveBottom Line

Scoring Dimension Weight

Sub Weight Attributes/Factors for consideration

Sections on the application form that addresses this dimension

1 2 3 4 5

Smallholder Impact 12% Scored in sub criteria

Smallholder Impact 1 4%

The number of smallholder direct and indirect beneficiaries

XII (Development Impact) Sec A (Smallholder Farmer Benefits)Sec B (Benefits to Other Beneficiaries)

0 1-50 50-100 100-500 >500


Estimated annual benefit to all smallholder beneficiaries (dollar value of each benefit such as increased earnings, access to markets, access to water, health, sanitation, etc.)


≤1% of total investment cost ≤5% of total investment cost ≤10% of total investment cost ≤15% of total investment cost >15% of total investment cost


Importance of smallholders to the overall success of the investment


Smallholder benefit is unclear or nonexistent. Smallholders are not important to the success of the investment

Smallholders are indirect beneficiaries of the investment, and they are not important to its overall success

Smallholders are direct beneficiaries of the investment, however they are not important to its overall success

Smallholders are direct beneficiaries of the investment. They are a central part of the investment, and have a significant contribution to its overall success

Smallholders are direct beneficiaries of the project. They are a central part of the investment, and their involvement is absolutely necessary for the success of the investment

Food Security 15% Scored in sub criteria

Food Security 1 5%Food Availability: Impact of the investment on ensuring sufficient quantities of food available on a consistent basis

XII (Development Impact) Question #1 (Food Availability)

Project does not support or contribute to this main element of food security

Project indirectly supports or contributes to this main element of food security with a modest impact

Project indirectly supports or contributes to this main element of food security with a significant impact

Project directly supports or contributes to this main element of food security with a modest impact

Project directly supports or contributes to this main element of food security with a significant impact

Food Security 2 5%Food Access: Impact of the investment on having sufficient resources to obtain appropriate foods for a nutritious diet

XII (Development Impact) Question #2 (Food Access)






Food Security 3 5%

Food Use: Impact of the investment on improving appropriate use based on knowledge of basic nutrition and care, as well as adequate water and sanitation

XII (Development Impact) Question #3 (Food Uses)






Gender Component 4%

Importance of women to overall investment, level or degree of positive impact (low, medium, or high), the number of women direct and indirect beneficiaries (expressed as a ratio to total project size/cost), Clear definition of the benefit (increased earnings, access to markets, access to water, health, sanitation, etc.) participation of women in ownership/management.

XII (Development Impact)Sec D (Gender Impacts)

Benefits to women are unclear or negligible

There is a benefit to women, however the degree of the benefit and the number of beneficiaries is low

There is a clear benefit to women beneficiaries. They may or may not be a part of management or employees.

There is a clear well defined benefit to women. They are a central part of the investment. The degree of the benefit and number of beneficiaries is significant.

There is a clear well defined benefit to women. They are a central part of the investment, and are included in management and direct beneficiaries.

Envi

ronm

enta

l

Environmental Impact

10%

Degree of environmental impact/risk (include positive and negative impacts)Level of mitigation of negative impactsLevel of positive environmental management aspects (the environment as a beneficiary)

XII (Development Impact)Sec E (Environmental/Social Impact) Sec F (Positive Environmental Impact)

Represents a substantial risk to the environment with no defined mitigation plan, or mitigation is not practical within the investment

Represents a substantial risk to the environment but there is a defined mitigation plan

No measurable positive or negative impact on the environment

A positive environmental impact is indicated or implied, but not measured or quantified

Substantial, clear and demonstrable positive environmental impact

Socia

lCriteria for Scoring

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ANNEX B – SCORING MATRIX FOR PRIVATE SECTOR GRANT APPLICATIONS

Very Negative Negative Neutral Positive Very PositiveBottom

LineScoring

Dimension WeightSub

Weight Attributes/Factors for considerationSections on the application form

that addresses this dimension1 2 3 4 5

Viability of the Investment 15%

Strength of: operating plans, business model, demand, scaling, differentiation, competition, substitution etc.

III (Information on Planned Investment)(business plan if available)IV (Information on Planned Investment Financing)Sec A (Proposed Structure for Financing Planned Investment)

No semblance of an operating plan for the investment once completed

Some kind of concept note exists describing the investment, its purpose, the major investment components, and future plans

Good start to a complete business plan or operational strategy, but many holes remain and financial model may need updating

The major business plan or operating strategy components have been completed

Robust business plan and long term operating plan that has been thoroughly researched and developed.

Stage of Financing 7%Level of interaction/interest with financiers, availability of budget for this investment

IV (Information on Planned Investment Financing)Sec A (Proposed Structure for Financing Planned Investment)Sec B (Status of Financing for Planned Investment)

No formal discussions with financiers; no government budget commitment for the project

Discussions with financiers have started, but only at a preliminary level and/or the project appears in an approved government budget

A written proposal has been submitted to potential funders and/or the relevant ministry has approved funds in its current budget to start the investment

Have formally applied for investment financing and understands the gaps in the application and the government has formally obligated funds for implementation of this investment.

Conditional Letter of Intent received from a financial institution with the 'condition' being an investment preparation aspect that the AFT can potentially provide and the government has formally obligated funds for implementation of this investment.

Additionality 7% 4%Degree of impact the fund has on either achieving financing, or speeding up the process

IV (Information on Planned Investment Financing)Sec A (Proposed Structure for Financing Planned Investment)Sec B (Status of Financing for Planned Investment)

Well-financed project. Any AFT grant funds would likely be a subsidy for investments already made

Nearly certain to move forward with, or without the AFT grant money

The availability of grant funded project preparation work is not critical to the ability to obtain financing, but would probably accelerate that ability

The availability of grant funded project preparation work is important, but not critical to the ability and timing of obtaining financing

Project would not be financed without additional project development work that will require an AFT grant

Alignment with national priorities

and policies10%

Degree of alignment of the proposed investment with national development policies, sector policies and special initiative

II (Country's development agenda and sector brief)

The project is not linked with national and sector development policies. The project doesn't match with national priority

The project corresponds to a need but doesn't match national and sector development agenda

Some aspects of alignment with national and sector policies but needs to be strengthened

The investment will contribute to the national development agenda and to the implementation of sector policies

Project very well aligned with the country's development agenda and sector priorities and will contribute directly to official development goals


regional experience

10%

Years of general management experience, industry specific technical experience, and geographically relevant regional experience

V (Management Structure and Profiles)VI (Applicant's Past Experience Related to This Investment and Lessons Learned from Past Experiences)

Entity responsible for this investment has: 1) no relevant management experience; 2) no relevant technical experience; and 3) no investment management team has been identified

Entity responsible for this investment meets only one of these criteria: 1) has relevant management experience; 2) has relevant industry specific technical experience; or 3) a qualified investment management team has been identified

Entity responsible for this investment meets only two of these criteria: 1) has relevant management experience; 2) has relevant industry specific technical experience; or 3) a qualified investment management team has been identified

Entity responsible for this investment meets all three of these criteria: 1) has relevant management experience; 2) has relevant industry specific technical experience; or 3) a qualified investment management team has been identified

Entity responsible for this investment meets all three of these criteria at a very high level: 1) has relevant management experience; 2) has relevant industry specific technical experience; or 3) a qualified investment management team has been identified

Risk and mitigation measures

10% Operational, social, political technical risk and mitigation measure for theses risks

VII Risks and risks mitigation planThe project includes many risks and but no semblance of a mitigation plan

The project includes a lot of risks but there is a preliminary mitigation plan (or risks study to be carried out)

Some risks are clearly identified and some appropriate mitigation measures proposed

Project risks are fully assessed and mitigation plan is partly prepared.

Project risks are very well assessed and a mitigation plan is already proposed

Criteria for Scoring

Proj

ect V

iabi

lity

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Very Negative Negative Neutral Positive Very PositiveBottom

LineScoring

Dimension WeightSub

Weight Attributes/Factors for considerationSections on the application form

that addresses this dimension1 2 3 4 5

Smallholder Impact 12% Scored in sub criteria

Smallholder Impact 1

4% The number of smallholder direct and indirect beneficiaries

X (Development Impact) Sec A (Smallholder Farmer Benefits) Sec B (Benefits to Other Beneficiaries)

0 1-50 50-100 100-500 >500




≤1% of total investment cost ≤5% of total investment cost ≤10% of total investment cost ≤15% of total investment cost >15% of total investment cost




Smallholder benefit is unclear or nonexistent. Smallholders are not important to the success of the investment

Smallholders are indirect beneficiaries of the investment, and they are not important to its overall success

Smallholders are direct beneficiaries of the investment, however they are not important to its overall success

Smallholders are direct beneficiaries of the investment. They are a central part of the investment, and have a significant contribution to its overall success

Smallholders are direct beneficiaries of the project. They are a central part of the investment, and their involvement is absolutely necessary for the success of the investment

Food Security 15% Scored in sub criteria

Food Security 1 5%

Food Availability: Impact of the investment on ensuring sufficient quantities of food available on a consistent basis

X (Development Impact)Sec C (Food Security Impact)1. (Food Availability)






Food Security 2 5%Food Access: Impact of the investment on having sufficient resources to obtain appropriate foods for a nutritious diet

X (Development Impact)Sec C (Food Security Impact)2. (Food Access)






Food Security 3 5%


X (Development Impact)Sec C (Food Security Impact)3. (Food Uses)






Gender Component

4% 4%


X (Development Impact)Sec D (Gender Impacts)

Benefits to women are unclear or negligible

There is a benefit to women, however the degree of the benefit and the number of beneficiaries is low

There is a clear benefit to women beneficiaries. They may or may not be a part of management or employees.

There is a clear well defined benefit to women. They are a central part of the investment. The degree of the benefit and number of beneficiaries is significant.

There is a clear well defined benefit to women. They are a central part of the investment, and are included in management and direct beneficiaries.

Envi

ronm

ent

Environmental Impact 10%

Degree of environmental impact/risk (include positive and negative impacts)Level of mitigation of negative impactsLevel of positive environmental management aspects (the environment as a beneficiary)

X (Development Impact)Sec E (Environmental/Social Impact)Sec F (Positive Environmental Aspect)

Represents a substantial risk to the environment with no defined mitigation plan, or mitigation is not practical within the investment

Represents a substantial risk to the environment but there is a defined mitigation plan

No measurable positive or negative impact on the environment

A positive environmental impact is indicated or implied, but not measured or quantified

Substantial, clear and demonstrable positive environmental impact

Socia

lCriteria for Scoring

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ANNEX C – TYPICAL SCOPES OF WORK FOR

ACTIVITIES RELATED TO PREPARATION OF A BUSINESS

PLAN

1. Annex C.1: Scope of Work – Finance Specialist

2. Annex C.2: Scope of Work – Agribusiness Analyst

3. Annex C.3: Scope of Work – Food Processing Engineer

4. Annex C.4: Scope of Work – Environmental and Social Impact Assessment Expert

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Annex C.1: Scope of Work – Finance Specialist

Scope of Work

The Finance Specialist will work with grantees and other consultants to help prepare a business plan reflecting the grantee’s business strategy and investment plan, and their projected financial impacts. The Finance Specialist will also advise the grantee on structuring their needed financing and on meeting the requirements of potential lenders/investors.

The Finance Specialist will:

1. Obtain accurate data, particularly in regards to operating costs and production parameters, in order to prepare a cost analysis that reflects the grantee’s actual plans;

2. Build a financial model that can produce all the financial data for the financial section in the business plan, such as P&L, Cash flow, ROI, net profit, EBITDA and sensibility/ risk analyses;

3. Prepare a sensitivity analysis showing the impact of various levels of sales volumes, operating costs and interest rates, for inclusion in the business plan;

4. Write the financial section in the business plan, discussing the assumptions in the financial model and the projected results (including the risk analysis). The business plan will look at possible capital structures;

5. Approach appropriate equity investors, commercial banks and other financial institutions with the grantee to gauge their interest, get them involved in the project at an early stage, and obtain a clear overview of all the information they require to make a rapid decision;

6. Advise the grantee on how to best structure the investment financing, including equity investment and both short-term and long-term debt, and a strategy for seeking that financing.

Qualifications

1. 10+ years of professional experience in the financing of commercial agro-industry and agri-business investments;

2. Prior experience in the preparation of financial models and pro forma financial projections

3. 4+ years of investment financing experience in Africa (preferably in one or more of the six AFT target countries);

4. Demonstrated experience in negotiating investment financing from two of the following four sources:

a. The African Development Bank b. The International Finance Corporation c. African commercial banks

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d. Private equity or impact investment funds operating in Africa

5. Experience advising agribusiness entrepreneurs on the financial structuring of investments and in negotiating with financiers;

6. Computer literacy and ability to use standard Microsoft applications, including Microsoft Excel for developing financial models;

7. Demonstrated ability to work as part of a team;

8. Graduate degree in a relevant field;

9. Ability to communicate effectively in written and verbal English and/ or French with a working knowledge of the other language

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Annex C.2: Scope of Work – Agribusiness Analyst

Scope of Work

The Agribusiness Analyst will work with grantees and other consultants to provide leadership in preparing a business plan reflecting the grantee’s business strategy and investment plan, and their projected financial impacts.

The Agribusiness Analyst will:

1. Support the Food Processing Engineer with the design of the planned investment:

a. Provide the requirements for the factory design in terms of production volumes per product over the next years, months of production, storage and sales etc.;

b. Work with the engineer to develop operating cost parameters;

c. Support the engineer in selection of equipment and machinery;

d. Review the work of the engineer to ensure that the design meets the requirements of the company and all parameters needed for the business plan and business model are available, such as investment costs (construction, equipment and other), maintenance costs, labor utilization, energy usage etc.;

e. Develop alternative construction scenarios with the engineer if the initial outcomes result in problems for the business plan; for example if the maintenance cost or investment cost are too high, if investment needs to be spread out over a longer period of time, etc.

2. With the support of the Finance Specialist, write a business plan of sufficient quality as required by potential investors and financiers. The business plan will contain an introduction, executive summary, proposed business strategy, description of the products, a marketing plan including market information, an operational plan, an environmental and social impact (depending on investors’ requirements), estimated impacts for the country and project beneficiaries, risk analyses and financial projections.

3. Work with the Financial Expert to build a financial model that can produce all the financial projections needed for the financial analysis of the company’s plans and prepare the finance analysis section of the business plan.

Qualifications

1. 15+ years of professional agribusiness experience in the private sector, including at least 4 years of relevant experience in Africa

2. 4+ years of professional experience in the preparation of business plans for commercial businesses;

3. 2+ years of business analysis/planning experience in Africa (preferably in one or more of the six AFT target countries)

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4. Computer literacy and ability to use standard Microsoft applications, including Microsoft Excel for developing financial models

5. Demonstrated ability to work as part of a team

6. Graduate degree in Agribusiness, Agricultural Economics (with farm business management concentration), Business Management, Accounting or a related field,

7. Ability to communicate effectively in written and verbal English and/or French with a working knowledge of the other language

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Annex C.3: Scope of Work – Food Processing Engineer

Scope of Work

The Engineer will work with grantees and other consultants to:

1. Develop a detailed design and related building and equipment specifications for construction and equipping of the proposed investment;

2. Obtain pro forma quotations from potential equipment and machinery suppliers and advise on selection and support for vendor negotiations for the proposed investment;

3. Develop process flow diagrams scaled for appropriate volumes for the planned production or processing;

4. Develop a timeline for major investment activities from planning through start-up;

5. Develop a detailed capital investment budget for the proposed investment;

6. Develop operating and investment costs (including plant staffing) and technical input regarding development of the business plan and financial projections reflecting the above information.

Qualifications

1. 15+ years professional private sector experience in the design and construction of similar operations

2. 2+ prior experience on relevant engineering work in Africa

3. University degree in engineering

4. Professional credential as a licensed engineer

5. Computer literacy and ability to use standard Microsoft applications, including Microsoft Excel for developing financial models and technical drawing software for engineering layout and design work

2. Demonstrated ability to work as part of a team


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Annex C.4: Scope of Work – Environmental and Social Impact Assessment Expert

Scope of Work

The role of the Environmental/Social Impact Assessment (ESIA) Specialist will be to conduct an ESIA of the grantee’s proposed investment, designed to meet the requirements of the grantee’s target financiers (lenders and investors). The ESIA Specialist will also provide summary information regarding the ESIA to the Agribusiness Specialist for inclusion in the Business Plan.

The ESIA Specialist will:

1. Work with grantees to plan and conduct ESIAs of their proposed investment projects;

2. Ensure that all requirements of likely lenders and investors are met and satisfied;

3. Prepare a detailed written report for targeted financiers, tailored to their due diligence requirements.

4. Provide the required written input for preparation of the business plan;

5. When necessary, provide advice and technical support to company management to develop a detailed plan to mitigate potential negative environmental and social effects of a proposed project and assisting in drafting that plan.

Qualifications

1. 10+ years of professional experience conducting environmental/social impact assessments of agriculture and food industry projects

6. Demonstrated Environmental and Social Impact Assessment experience in at least one of the six target AFT countries with knowledge of country specific requirements and laws

7. Experience completing an Environmental/Social Impact Assessment for a commercial investment project in Africa as part of meeting financing requirements

8. A strong record of environmental compliance and mitigation efforts in the international context (particularly in Africa)

9. Knowledge of current international best practices and the specific requirements of multilateral finance institutions (e.g., AfDB, IFC, Islamic Development Bank, World Bank, etc.) and bilateral development agencies


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ANNEX D – CONTENTS OF AFT GRANTS

MANAGEMENT MANUAL

Contents

List of Tables

List of Acronyms

I. Introduction

A. AFT Activity Overview

B. Grants Manual Purpose and Limitations

II. Roles and Responsibilities

A. Coordination Unit

1. Team Leader 2. Procurement Consultant 3. Finance and Agro-Industry Consultant 4. Communication Consultant 5. Operations Assistant

B. Grant Approval Bodies

1. Technical Review Committee 2. Oversight Committee 3. AfDB Board of Directors

C. Task Team Leaders

III. Types of Grantees and Grants

A. Types of Grantees

B. Uses of Grants

IV. Soliciting Grant Applications

A. Preparing and Updating the Request for Applications

B. Publishing the Request for Applications

C. Collecting the Grant Applications

V. Grant Application Technical Review

A. Evaluation Criteria

B. Application Technical Review

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1. Step 1: Concept Note Review 2. Step 2: Full Application Review 3. Step 3: Technical Review Committee Brief

C. Application Approval

1. Technical Review Committee 2. Oversight Committee 3. AfDB Board of Directors

D. Application Finalization Process

VI. Grant Agreement Development and Execution

A. Drafting and Customizing the Grant Agreement

1. Drafting the Grant Agreement 2. Understanding the Grant Agreement

B. Negotiating the Grant Agreement Terms

C. Executing the Grant Agreement

VII. Grant Management and Administration

A. Appointment and Induction of Task Team Leader

B. Training and Orienting Grantees (Launching Missions)

C. Grantee Procurement of Consulting Services

D. Grantee Monitoring

1. Grantee Quarterly Reports 2. Site Visits

E. Grant Disbursements

1. Direct Payment 2. Special Account

F. Grant Audits

G. Grant Disputes, Suspension and Termination

1. Grant Disputes 2. Grant Suspension and Termination

VIII. Project Post-Completion Report

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ANNEX E – TECHNICAL APPRAISAL FORM FOR REVIEWING AFT

GRANT APPLICATIONS

Scoring Section

Scoring Dimension Attributes for Consideration Score Weight Weighted

Score

Busin

ess

Viability of the Investment

Strength of: business model, demand, scaling, differentiation, competition, substitution etc.

0 15% 0

Stage of Financing

Level of interaction/interest with financiers, depth of previous experience raising similar types of capital

0 7% 0

Additionality Degree of impact the fund has on either achieving financing, or speeding up the process

0 7% 0


regional experience

Years of general management experience, industry specific technical experience, and geographically relevant regional experience

0 20% 0

Target Markets

Market size, fragmentation (customer/competition/supplier), regulatory environment, growth rates, maturity

0 10% 0

Soci

al

Smallholder Impact Scored in sub criteria


The number of smallholder direct and indirect beneficiaries 0 4% 0



0 4% 0



0 4% 0

Food Security Scored in sub criteria

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Scoring Section

Scoring Dimension Attributes for Consideration Score Weight Weighted

Score

Food Security 1

Food Availability: Impact of the investment on ensuring sufficient quantities of food available on a consistent basis

0 5% 0

Food Security 2 Food Access: Impact of the investment on having sufficient resources to obtain appropriate foods for a nutritious diet

0 5% 0

Food Security 3


0 5% 0

Gender Component


0 4% 0

Envi

ronm

enta

l

Environmental Impact

Degree of environmental impact/risk (include positive and negative impacts) Level of mitigation of negative impacts Level of positive environmental management aspects (the environment as a beneficiary)

0 10% 0

Total Score By Reviewer 0

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ANNEX F: AFT COUNTRIES WITH USAID/DCA BANK PROGRAMS (AS OF OCT. 2013)

Country Partner Name Contact Name Contact Email Maximum Cumulative

Disbursements

Lending Still Available Primary Target Sector Code

Secondary Target Sector

Codes

Qualifying Borrower Definition (i.e. target

value chains)

Maximum Loan Size

Guarantee Start Date

Guarantee End Date

East Africa Root Capital Inc. - Africa Brandon Boyle [email protected]

$25,000,000 $25,000,000 Agri Micro, SME Sub-Saharan African agribusiness sectors tied to domestic and regional food security and nutritional priorities of USAID

$1,000,000 9/28/2012 9/28/2019

Ethiopia Bank of Abyssinia Gossaye Yohannes

[email protected] $4,280,000 $2,844,591 SME Manufacturing, trade, services, agriculture

$200,000 9/26/2008 9/26/2015

Ethiopia Zemen Bank Helaway Tadesse

[email protected]

$3,655,928 $1,407,976 Agri $500,000 9/22/2011 9/22/2017


[email protected] $3,655,928 $3,240,011 Agri $500,000 9/22/2011 9/22/2017

Ethiopia Nib Bank International S.C. Habib Mohamed

[email protected] $6,420,000 $4,593,315 SME $1,000,000 9/26/2008 9/26/2020


[email protected] $6,420,000 $4,665,868 SME $1,000,000 9/26/2008 9/26/2020

Burkina Faso Ecobank Burkina Faso Boukary Delma

[email protected] $3,360,000 $3,360,000 Agri SME, Micro $500,000 9/28/2012 9/28/2017

Ghana Opportunity International Savings and Loan Limited (OISL)

Chris Nyidiku [email protected]

$9,304,000 $5,962,489 Agri SME cassava, maize, pineapple, rice, yam, soybeans, sorghum, plantain, beans, horticulture, fishing, l ivestock, coconut, coffee, oil palm, rubber, shea nut

$50,000 12/29/2009 12/28/2016

Ghana Sinapi Aba Trust Frank Owusu-Brobbey

[email protected]

$3,775,000 $3,775,000 Agri Micro, SME Rice, soya, maize $25,000 9/26/2012 9/26/2017

Ghana Ecobank Ghana Abdulai Abdul-Rahman

[email protected] $7,000,000 $7,000,000 Agri SME Rice, soya, maize $1,000,000 9/26/2012 9/26/2019

Mozambique Banco Terra Paulo Khushaldas

[email protected]

$9,115,850 $4,392,652 Agri Agriculture, Tourism $1,500,000 9/28/2011 9/28/2018

Mozambique Banco Terra Paulo Khushaldas

[email protected]

$4,540,000 $3,324,602 Agri $1,000,000 12/28/2009 12/28/2016

Mozambique Banco Oportunidade de Mocambique

Eurico Chauque

[email protected]

$2,000,000 $1,818,492 Micro Agri $400,000 12/28/2009 12/28/2016

Tanzania National Bank of Commerce Shafii Mndeme

shafii [email protected] $10,336,000 $10,336,000 Agri SME $600,000 9/26/2012 9/26/2018

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Documents

Lessons Learned in Creating the Agriculture Fast Track Fund to Enhance the Bankability of Agriculture Infrastructure Investments in Africa (Dec 2013)