Development Bank of Southern Africa
Addressing Market Failure in Regional Integration:
The Case of Financial Infrastructure in SADC
22 November 2006
3rd Regional Consultation on “Rethinking the role of national
DFI’s in Africa”
Presented by: Admassu Tadesse, Vice-President
Corporate Strategy, Governance & Communication Cluster
The Problem of Low Regional Integration

Regional Integration has many dimensions, notably two:
Political/governance (political systems, defense, intern’l
relations);
 economic (monetary policy, trade, investment, regulations);

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The problem of market failure prevails in a number of areas,
classically infrastructure (public goods character); industry,
agriculture and SMME sectors (information gaps &
assymetries);

It is important to note that the problem goes well beyond
market failure, it includes institutional failure and path
dependency (countries get locked into historical patterns and
relationships);
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Some Market & Institutional Failures in Regional Projects

Regional development projects benefiting more than one country often have
difficulty in reaching financial close

Lack of strong sponsors to provide project leadership and management
skills (the anchor problem);

Upfront investment in feasibility studies;

Consensus building and mobilisation of partners;

Lack of institutional capacity of RECs & governments (regulatory, policy etc);

Lack of sufficient financial scope in region to fund large projects
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Regional Integration & the Financial Sector

A key integration sector is the monetary/financial sector:
 Promotes stability and macro-economic convergence
 Facilitates trade in goods and services
 Facilitates convergence towards regional norm
 Support emergence of strong regional private sector
companies with ability to compete globally

There is re-newed focus on regional integration at all levels:
this region (AU, NEPAD, SADC & national level) and globally;

SADC’s Regional Indicative Strategic Plan (RISDP) highlights
importance of integration of financial systems
 Focus on private sector led growth thus resource mobilization
and allocation across region critical
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Toward an Integrated Financial Sector in the Region

RISDP highlights that

Financial institutions should provide fuller spectrum of services to
both households and firms
 Harmonisation of policies and regulatory frameworks at regional level
required
 Mobilization of intra-regional savings
 Co-ordination of central banking required

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Objectives delineated through protocols e.g. Trade Protocol of
2000 and more recent Finance and Investment Protocol (FIP)
Enforcement of FIP expected to

Introduce obligations for closer monetary and financial co-operation
 Harmonization designed to afford stronger rights to investors, protect
intellectual property, implement double-tax treaties and introduce
regional competition policy
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Key Features of the Financial Sector in the Region
State
Ownership of
commercial
banks
Foreign
ownership of
commercial
banks
prohibited
Angola
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Botswana
Regulation of
interest rates
Fixed
exchange
rate
Government
intervention in
the allocation of
credit
Exchange
controls on
the current
account
Exchange
controls on
the capital
account
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Lesotho
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Malawi
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Mauritius
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Mozambique
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Namibia
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South Africa
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Swaziland
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Tanzania
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Zambia
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Zimbabwe
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Emergence of Strong Regionally-based Banks
Country
Namibia
ABSA
FirstRand
Nedcor
Standard
Bank
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Botswana
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Swaziland
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Lesotho
Mozambique
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Zimbabwe
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Zambia
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DRC
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Angola
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Malawi
Tanzania
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Madagascar
Mauritius
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DBSA Approach
Intervention
Goal
Banking & Other Credit Institutions
Interventions
 Long term Credit lines in hard & local currency to
bank & non-bank financial institutions
 Direct lending in local currency
Aim to
 Structure projects to facilitate local bank
extend,
participation
improve
 Active use of T/A as well as advisory services to
credit
allocation to promote participation in projects;
 Support non-bank institutions e.g. leasing
private
enterprise companies
(allocation of  Identify, partner and co-finance with commercial /
investment banks;
capital)
 Technical assistance and capacity building;
 Ongoing support to national DFIs;
Aim to
extent
financial
services to
households
(mobilization
of capital)
Capital Markets Interventions
 Issue long-dated project bonds to develop yield
curve and facilitate investment by institutional
investors
 Structure and Invest in private equity funds with
mandate to list investees
 Partial credit enhancement to promote further listings;
 Advisory and Arranging services
 Housing finance should be seen as critical sector  Secondary issuing of housing portfolio’s
which if developed will truly impact development of  Promote development of local unit trusts and
financial system and economy in general;
mutual funds;
 Microfinance shown to be effective at providing
financial services to the poor and should be supported;
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Profile of DBSA Portfolio & Engagement to Date
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Focus on allocation of capital to enterprise
Credit Lines have been central instrument

US$ 81 million to 7 DFIs combined with T/A
• EADB, DBZ, PTA, NDC, MDC, DBM

US$ 20 million to commercial banks and non-bank institutions
Mobilization of local currency

Mcel in Mozambique utilizing a guarantee

Celtel Tanzania 5 year Swap with Citibank
Investment in Private Equity funds – US$ 99 million
Bond market – subscription to LHCP issue in Zambia
Total investment to date: US$ 265 million
Project Preparation

15 feasibility studies for NEPAD projects, with capital value of R32 billion of which 2
projects with capital value of R4.4 billion are in the financing stage
‘Softer’ support given to regional integration include

Supported the review of the SADC RISDP to identify and prioritize regional projects

Member of the SADC International Cooperating Partner Forum – optimize donor
support to SADC Regional Integration Agenda

Founder member of the SADC DFI Network – help raise capacity of DFIs and build
capital markets
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Thank You
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