development community SADC DEVELOPMENT FINANCE …sadc-dfrc.org/sites/default/files/kufeni_presentation.pdf · 2) SADC Infrastructure Financing Needs 3) SADC Development Finance System

southern africandevelopment community

development financeresource center

SADC DEVELOPMENT FINANCE INSTUTIONS NETWORK

CHIEF EXECUTIVE OFFICERS FORUM

“DEVELOPMENT FINANCE INSTITUTIONS CREDIT RATING AND

THE PRUDENTIAL STANDARDS AND GUIDELINES RATING SYSTEM:

IMPLEMENTATION CHALLENGES”

PROTEA HOTEL, WALVIS BAY, NAMIBIA, 6TH DECEMBER 2012 Stuart Kufeni Chief Executive Officer SADC-DFRC



1. PRESENTATION OUTLINE

1) Introduction

2) SADC Infrastructure Financing Needs

3) SADC Development Finance System

4) DFIs and the Finance and Investment Protocol

5) DFIs and the SADC Regional Development Fund

6) DFI Credit Rating & Resource Mobilisation

7) Concluding Remarks

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2. INTRODUCTION

Against the goals for sustainable and inclusive economic

development, poverty alleviation and employment generation, the

need for development finance in the SADC region remains an

imperative .

Declining and volatile international capital flows and fiscal constraints

at national level, underscore the need to actively pursue alternative

sources of financing hitherto not fully utilised.

Thus, the need to increase recourse to domestic sources of capital and

greater participation of private markets is crucial.

Supporting policies to deepen the financial sector and capital markets

in our economies; and policies and structures conducive to private

investment participation are a prerequisite.



2. INTRODUCTION (cont.)

At the regional level, various structures are emerging to

mobilise funding for development projects, particularly

infrastructure, in line with the SADC Regional Infrastructure

Development Master Plan (RIDMP).

Most SADC countries continue to undertake financial sector

reforms, both to strengthen institutional structures – DFIs

included – and to promote domestic resource mobilisation

including higher savings thresholds.

Against this background the role of DFIs in mobilising long-

term development finance is recognised as critical.

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3. SADC INFRASTRUCTURE FINANCING NEEDS

The RIDMP prioritizes infrastructure development in 6

sectors – energy, tourism, transport, ICT, meteorology and

water.

US$64.2 Billion is required under the RIDMP Short-Term

Action Plan (STAP 2017):

Energy Sector - $12.3 billion

Tourism Sector - $0.3 billion

Transport Sector - $16.6 billion

ICT Sector - $21.4 billion

Meteorology Sector - $0.2 billion

Water Sector - $13.5 billion

STAP will be implemented over a five-year period, an average of US$13 billion p.a..



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4. SADC DEVELOPMENT FINANCE SYSTEM (DFS)

The SADC DFS has evolved overtime and mainly comprises the

following institutions:

The SADC DFI Network (est. 2000) – key objective to participate

in regional development projects through cooperation in pooling of

funds/resource mobilisation, project identification and project

management;

The SADC DFRC (est. 2003) – capacity building, policy research

and advisory services;

The Project Preparation and Development Facility (est. 2007) and

hosted by DBSA – to prepare and develop a pipeline of bankable

projects;

The SADC Regional Development Fund (RDF) – key objective

resource mobilisation. Going through operationalisation process –

issues of mandate, shareholding, voting rights, capital contributions,

hosting DFI, legal framework, operational structure; and



4. SADC DEVELOPMENT FINANCE SYSTEM

(DFS)

The SADC PPP Network (est. 2012), hosted

by DFRC – primary objective is institutional

and technical support for PPPs – target groups

include Governments, SOEs, DFIs + private

sector.

These structures play different but complementary

roles aimed at skilling and institutional

strengthening; project development; resource

mobilisation and promoting private participation in

infrastructure.

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THE SADC DEVELOPMENT FINANCE SYSTEM .

SADC DFI Network

Cooperation on Regional &

in-country Project Financing

Page 8

SADC Regional Development Fund •Infrastructure Fund •Integration & Adjustment Facility •Industrial Development •Social Fund

Project Preparation and

Development Facility

SADC-DFRC

Capacity Building, Advisory

Services & Policy Support

SADC PPP Network

Institutional and Technical

Capacity support for PPPs

• Infrastructure Development

• Industrial Development



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5. DFIS UNDER THE FINANCE & INVESTMENT

PROTOCOL (FIP)

The SADC Finance and Investment Protocol (FIP) is the instrument

establishing the SADC DFI Network.

The FIP Baseline Study (Feb 2012) recognised that there has been minimal

achievement by DFIs in identifying and mobilising resources for regional

projects, a key deliverable under FIP.

This was due to a number of factors, including:

Lack of cross-border investment mandates;

Limited capital resources – dependence on subventions;

Diversity of activities – few DFIs in infrastructure development;

Low creditworthiness – few DFIs credit rated; and

Limited access to capital markets

DFRC BoT at a strategic meeting in May 20012 approved a study of SADC

DFIs to determine policy, mandate, legal and regulatory factors inhibiting cross-

border investments and recommend solutions. TORs done and funding sought.



6. DFIs ANDTHE SADC REGIONAL DEVELOPMENT

FUND (RDF)

RDF once established will largely address the current challenges of

resource mobilisation for development in the region.

As both the RDF and DFIs are in the same space it is crucial that their

activities complement each other.

DFI envisaged interface with RDF:

1) Resource Mobilisation:

As is the case with the regional DFIs like the African Development

Bank, the SADC RDF could use its large balance sheet to leverage

wholesale resources for retailing to national DFIs through lines of

credit;

The RDF could support capital raising efforts of DFIs through

provision of partial/full guarantee services;

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FUND (cont.)

The RDF could partner DFIs in projects, by promoting co – financing; and

DFIs to partner RDF in identifying and executing Public Private Partnerships

(PPP) as an instrument for regional infrastructure investment.

2) Support Services:

DFIs could complement the RDF with project identification, preparation and

management services.

DFIs could play a coordination and marketing role and in the information

and awareness building campaign of the RDF in Member States.

3) Capacity Building:

RDF to collaborate with DFIs on capacity building to improve the skills base

as well as strengthen the institutional, governance and operational structures

of DFIs who will not only be its partners but also its clients.

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FUND (cont.)

RDF to cooperate with the SADC DFRC on capacity building to

develop key skills and support institutional development processes

within development finance institutions and governments.

4) Networking and Information Sharing:

It is crucial that the RDF follows and is fully informed on

developments within the DFI sector and the development finance

system in general of which it is a member. The SADC DFI Network,

supported by the DFRC, fulfils this role and provides a regional

platform for sharing experiences (best practice) and information on

development finance issues in the region. It is therefore crucial that the

RDF works closely and supports the Network activities.

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7. DFI CREDIT RATING & RESOURCE MOBILISATION

Credit rating is one among other key areas to enhance resource mobilisation

by DFIs.

Benefits of credit rating are various but suffice that it will make it less

difficult for investors to price investment and thus provide easier access to

both domestic and international capital markets at more favourable terms,

including lower interest rates than unrated institutions.

Adherence to exigencies of rating will not only bring about transparency

and enable investors to easily assess and compare a DFI with other

borrowing entities but will also allow the DFI to regularly

review/benchmark its operations, management systems, governance

structures, and skills base, among other areas, in accordance with best

practice.

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7. DFI CREDIT RATING & RESOURCE MOBILISATION

The operational environment of DFIs – incl. financial policies,

legislation, supervision, and regulation – and the overall economic

environment complement rating and are critical to capacity of DFIs to

access capital markets.

Thus, sovereign credit rating is also crucial to DFI rating – about 10

SADC countries have been rated but only a few DFIs are rated.

The DFRC, working with the AADFI, has introduced the Prudential

Standards and Guidelines Rating System (PSGRS) to SADC DFI

Network members.

DFRC views the PSGRS as a precursor to international rating and

progress to date has been encouraging – 14 Network DFIs are now using

the system.



8. CONCLUDING REMARKS

Resource mobilisation remains a daunting challenge in the face of huge

infrastructure funding requirements for the region.

As recognised under the SADC FIP, national DFIs, singly and within the

network structures, are critical to mobilisation of long-term dev. finance.

The emerging SADC DFS, presently focused on the establishment of the RDF

provides a framework for collective effort towards raising funding for

development and regional integration. It is critical that it is fully operational.

Credit rating is but one crucial instrument DFIs could employ to enhance their

capacity to attract finance from domestic and international capital markets.

A conducive policy, regulatory and supervisory environment for DFIs as well

as promotive economic and financial systems are a prerequisite for good DFI

rating.

The PSGRS is proving to be a good, practical and important system for DFIs

to adapt best practices; and as a stepping stone towards full international

rating.

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THANK YOU

Stuart Kufeni [email protected]

Website: www.sadc-dfrc.org



Performance vis-à-vis FIP Commitments

FIP Baseline Study concludes that cooperation amongst DFIs has

largely been on capacity building and a discernible impact is still to

be made on:

Participation in regional development projects through

cooperation in pooling of funds/resource mobilisation, project

identification and project management;

PPP: PPP policy, legal and institutional frameworks; and

Establishment of a Regional Insurance Guarantee Scheme.

Overriding objective of DFIs’ Annex 9 of FIP: to ensure DFIs are

capacitated to mobilise resources for investment, particularly in

regional projects.

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CHALLENGES FACING DFIs IN SADC REGION

Resource Mobilisation:

Still a major challenge for most DFIs – domestic and foreign

capital markets

Improve creditworthiness – address governance issues, credit

rating

Collaboration with multilateral financial institutions (MFIs) and

partnerships with regional development banks (RDBs)

Support deepening of domestic capital markets.

Improved Corporate Governance & Regulation:

a prerequisite for resource mobilisation.

Reform interfaces between DFIs and regulatory structures

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CHALLENGES (Cont.)

Capacity Building and Institutional Strengthening:

Development of a strong skills base and institutional structures

Conducive Policy, Regulatory, Legal and Supervisory

Frameworks

Review of financial systems and comprehensive approach to DFI

reforms.

Enabling legislation for cross-boarder investment activities

Development of a bankable project pipeline

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Documents

development community SADC DEVELOPMENT FINANCE …sadc-dfrc.org/sites/default/files/kufeni_presentation.pdf · 2) SADC Infrastructure Financing Needs 3) SADC Development Finance System