Development Bank of Southern
Africa
Regional Integration Through Infrastructure
Development
Piet Viljoen
Principal Programme Manager
1
Content
 The
DBSA as DFI
 DBSA Portfolio
 Trends in infrastructure financing through
PPPS
 Challenges of enhancing investment in
infrastructure
 Towards a solution: DBSA’s approach
 Examples of successful investments in
PPPs
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DBSA Classification and Challenges
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The UN DESA commissioned report classifies the DBSA as
one of the DFIs where:
“..the challenge for these institutions is to combine its
development-orientated activities with its need to be a selffinancing and profitable institution”
“This dilemma of profit versus development impact touches
nearly every aspect of DBSA’s ventures, including
identification of new markets, projects, priorities and
geographical distribution of projects”
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The DBSA’s view is that the above mentioned tension can be
managed effectively:
Its approach is to use income streams from investments in
commercially viable projects to provide concessionary loans
to specified categories of clients
The DBSA
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Development Finance Institution wholly owned by the South
African Government
Mandate to pursue economic development through the
financing of commercially viable public and private
projects/programmes (investments, capacity building and
human development)
Geographical mandate extends to the SADC region under a
⅔-⅓ rule
Borrowers are both public and private sector – critical
capability of DBSA
Mandate to take risk and can provide funding up to 15 years
Investment grade credit ratings equivalent to those of the
Republic of South Africa
Financially-sustainable since establishment
Baa1 & AAA rating
DBSA’s Mandate
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Originally mandated to extend SA infrastructure
Networks into SADC to facilitate regional
integration
Advent of NEPAD and its focus on AEU and
RECs
Recent SADC Summit: increased focus on
integration – Ministerial Task Team
DBSA current mandate in SADC supports all the
elements of Regional Integration
DBSA’s support to Regional Integration
Regional
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Integration is promoted through:
Increased and more diversified economic production
Infrastructure that both leads to increased production and
supports the distribution of goods and services within and
between countries
Integration of markets
The DBSA’s mandate in SADC requires it to play a role in all
three the above areas.
This presentation will focus on infrastructure
I will now focus on the DBSA’s SADC portfolio,
experiences, approaches and examples of
support to infrastructure PPP projects
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Key Strategic Objectives
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Promote greater regional integration through financing
infrastructure and productive sectors
Maximise private sector involvement in infrastructure development
Facilitate and promote private sector and commercialisation of
public sector initiatives
Promote broad-based participation of BEE and indigenous groups
in economic activities
Facilitate Capital Markets Development in SADC to support long
term financing and capacitate local institutions.
Strengthen the capacity of investee entities and Regional
Economic Communities (RECs) with an appropriate combination of
finance and Knowledge Products (TA, Capacity Building, Project
Preparation assistance to prepare for bankability, etc.)
Earn a commercial return consistent with risk assumed to enhance
the financial sustainability of DBSA
DBSA SADC Portfolio
PSI Approvals - Sector Split (31 August 2006)
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Funded 15 feasibility studies for
NEPAD regional integration projects,
with a capital value of R32 billion of
which 2 projects with a capital value of
R4.4 billion are in the financing stage
Cumulative approvals of R15.0 billion
for 205 projects (including 9 Funds:
R0.86 billion)
Cumulative signed agreements
(commitments): R11.8 billion
Cumulative disbursements: R9.8 billion
Net income for year ended 31 March
2006: R245 million
3%
12%
4%
31%
0%
15%
0%
0%
0%
19%
16%
Commercial
ICT
Roads And Drainage
Transportation
Education
Institution Building
Sanitation
Water
Energy
Residential Facilities
Social Infrastructure
PSI Approvals - Regional Split (31 August 2006)
3%
1% 10%
2% 3% 1%
9%
3%
5%
4%
15%
31%
0%
Angola
Malawi
Namibia
Tanzania
Botswana
Mauritius
Seychelles
Uganda
5%
8%
DRC
Mozambique
South Africa
Zambia
Lesotho
Multi-Regional
Swaziland
PSI portfolio growth
(R'million)
8,000
6,000
4,000
2,000
FY-2002 FY-2003 FY-2004 FY-2005 FY-2006 FY-2007
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Gross Book
Approvals
What Happens to DBSA’s Surpluses?
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Development Fund: focuses on capacity building
of local government in South Africa
Siyenza Manje: Focuses on the provision of
expertise to the under-resourced municipalities in
South Africa
Technical Assistance grants to build institutional
capacities of borrowers and RECs
Infrastructure in Africa
Although Infrastructure is a core component
of regional integration, the reality is:
Investment
in Infrastructure in Africa is on the
decline, and
PPPs as investment method is also on the
decline
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Infrastructure Investment in Africa South of
Sahara (ASS) compared to other regions
Total Investment by Region, 1990-2003
East Asia and Pacific
Europe and Central
Asia
Latin America and the
Caribbean
Middle East and North
Africa
US$ millions
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Source: PPI Database, World Bank
20
02
20
00
19
98
19
96
19
94
Sub-Saharan Africa
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92
19
90
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
-10,000.00
19
19 73
19 74
19 75
19 76
19 77
19 78
19 79
19 80
19 81
19 82
19 83
19 84
19 85
19 86
19 87
19 88
19 89
19 90
19 91
19 92
19 93
19 94
19 95
19 96
19 97
19 98
20 99
20 00
20 01
20 02
03
ODA for SSA (US$2002m)
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6,000
5,000
4,000
3,000
2,000
1,000
0
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Infrastructure (US$2002m)
Infrastructure (% ODA total)
ODA for SSA (% ODA total)
Drop in ODA Financing in Infrastructure
Progress with PPPs in ASS
Number of PPI Projects by Sector, 1990-2003
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30
25
20
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Energy
Telecom
Transport
Water
Numbe r of PPI Proje cts by Type , 1990-2003
35
30
25
20
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
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Concession
Source: PPI Database, World Bank
Divesture
Greenfield Project
Management or Lease Contract
Declining PPI Flows to Developing Countries
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What are the specific challenges that lead to
declining ODA, PPP projects and overall
infrastructure investment?
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The challenges to enhanced spending on
infrastructure (DBSA experience)
1. Weak public sector sponsors / government
 Governments generally lack the skills required to drive
PPPs. Private sector participation is often resisted by public
sector officials, for fear of:
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Loss of control,
Negative implications of reductions in staff numbers
Negative public reaction, and
Potential risk of failure that will reflect badly on them.
Limited PPP experience countries creates an element of
risk and fear of unknown
 There is a tendency for greater PPP vision by parastatal
and government utility agents than directly from national
governments.
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The challenges to enhanced spending on
infrastructure (DBSA experience)
2. Affordability of beneficiaries
 Affordability of recipient countries for infrastructure is low.
 Excessive public sector debt (HIPC countries).
 Affordability of end users is low. Tariffs are likely to increase
where PPPs are implemented and such projects will inevitably
require government or donor financial support in the early
years. Unlike PPPs in developed countries which often focus
on operational improvements, PPPs in require substantial
capital investment, as well as operational improvements
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The challenges to enhanced spending on
infrastructure (DBSA experience)
3. Low institutional, managerial capacity and skills levels
 Institutional Capacity shortages in respect of:
 Project initiation,
 Policy support for active PPP development in each sector,
 Regulatory and enforcement framework,
 Weak or ineffective regulatory powers over natural
monopolies,
 Lack of a private sector and customer focus
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Low management capacity and skills result in:
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Additional project risk
The challenges to enhanced spending on
infrastructure (DBSA experience)
4. Legal systems
 Legal and regulatory systems to support complex PPP
ventures are weak and where they may exist are not
effectively enforced.
5. Government / Political Interference
 Interference particularly in respect of tariffs and the
autonomy of PPPs at operational level reduces potential
financial success.
 Fluctuating budgetary allocations or non-availability of
government funds for PPPs which have been initiated, but
require government support, can undermine success and
increase project risk.
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Towards a solution – DBSA’s approach
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Technical assistance
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Provide technical assistance to prepare regional projects and
package them to a bankable proposition
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Provide long-term financing (up to 15 years) in Rand, US$,
Euro
 Equity
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Selective equity stakes reduce risk for market participants,
ensures a stronger role for the DBSA and potentially improves
the Bank’s financial returns
Local capital markets development
 Focus on support for capital market development and
local currency financing to attract local investment in
infrastructure.
Towards a solution – DBSA’s approach
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Catalyse private sector investment
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The DBSA is well positioned to work at enhanced private
sector participation by creating appropriate funding packages
DBSA can provide junior or subordinated debt,
guarantees and equity contributions to reduce overall
project risk to private sector participants. Equity
contributions also potentially increase the Bank’s
financial returns
 Capacity building
 Skills – DBSA has taken on a stronger advisory role
providing greater non-investment support to
sponsor/governments.
 Institution building – DBSA assists the building of
institutions directly through technical assistance,
partnering with governments, DFI’s and NGO’s and
training (Vulindlela Academy)
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Towards a solution – DBSA’s approach
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Knowledge sharing
 The DBSA has a strong knowledge sharing role. This is
provided through an advisory role, technical
assistance, joint project appraisal, post-project
evaluation and the facilitation of knowledge.
Dissemination through reports such as the
Development Report and various conferences and
workshops
Question: How has the DBSA fared in
supporting regional infrastructure projects
through PPPs?
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Examples of DBSA support to Regional
Integration through PPP-based Infrastructure
Projects:
 Project in preparation
- East African Submarine Cable System
(EASSy)
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Project in implementation:
- Maputo Development Corridor
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N 4 Toll Road
Maputo Port Rehabilitation
Mozal Aluminum Smelter
The East Africa Submarine Cable System
EASSy
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EASSy: The ICT Challenge
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Lack of connectivity and prohibitive communications costs
are hampering economic development and growth in East
and Southern Africa:
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Connecting E&S Africa to the Global Economy is Critical:
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international wholesale bandwidth prices are 20 to 40 times
higher than in the US;
international and sub-regional telephone call prices are 10 to
20 times that of other developing countries;
dial-up Internet monthly access prices range from 1 to 10
times the monthly GNI per capita.
Reducing isolation of E&S Africa
Increasing regional and international trade transactions : a
10% decrease in the price of country to country phone calls
can lead to an 8% increase in bilateral trade.
Reducing transaction costs to governments and business
Improving competitiveness of E&S African economies and
attracting more investment in services and IT/Business
Process Outsourcing
The EASSy Programme
1. The establishment of a high capacity fibre optic
submarine cable system along the East Coast of
Africa (EASSy).
2. The establishment of broadband backhaul
systems to connect land-locked countries in
Southern and East Africa to the EASSy
submarine cable system.
3. The rationalisation and co-ordination of
terrestrial ICT infrastructure and development
projects in Southern and East Africa.
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EASSy: 5 IMPLEMENTATION PHASES
4. The establishment of broadband backhaul
systems to connect land-locked countries (and
coastal countries not yet connected) in West and
Central Africa to the SAT-3 / WASC submarine
cable system.
5. The rationalisation and co-ordination of
terrestrial ICT infrastructure and development
projects in West and Central Africa.
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EASSy: DBSA Support
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Support to and participated in a workshop to rationalize
and harmonize ICT networks in Eastern and Southern
Africa (COMTEL, COM 7, SRII and EASSy), leveraging:
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Supported the feasibility study together with AfD, AfDB
and IFC, this leveraging:
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Similar workshops for West and North Africa
EIB support to legal council and KfW support to EIA
DBSA is currently considering investment in
implementation being considered
Maputo Development Corridor
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DEVELOPMENT
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CORRIDORS
Maputo Development Corridor
N4 Toll Road
 In 1996 the South Africa and Mozambique governments
signed a 30 year concession for a private consortium
Trans African Concessions (TRAC) to build, operate and
transfer a R3 billion toll road between Gauteng in South
Africa and Maputo in Mozambique
 SA banks ABSA, Standard, NEDCOR and First National
Bank, together with DBSA provided and pension funds
and TRAC provided 20% equity and 80% debt, supported
by guarantees by South Africa and Mozambique
 Reduced overloading, facilitated growth in tourism and
other investments in Maputo Mozal aluminum smelter and
the natural gas plants at Pande and Temane
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Maputo Development Corridor (Cont)
Maputo Port
 After the toll road success, next step was rehabilitating
Maputo Port
 The Mozambican national ports and rails authority (CFM)
formed a joint venture with a private consortium led by
British Mersey Docks and Harbour Company for a 15 year,
$70 million concession to finance, rehabilitate, operate and
upgrade the Port of Maputo
 Port efficiency has increased from 4.3 m tonnes in 2002 to
5.95 m tonnes in 2005
 The fresh produce terminal reported a 25% year on year
increase in 2004 in citrus exports handled
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Maputo Development Corridor (Cont)
Mozal Phases I and II Aluminum Smelter
 Total cost US$ 2,2 billion
 DBSA investment US$103 million
 Regeneration of Mozambique economy
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Mozal I contributed:
 US$160 million to GDP
 9000 construction workers
 747 permanent jobs
 Trained 5000 people
Mozal II contributed:
 US$170 million to GDP
 6000 jobs
 Tax revenue US$ 4,1 million
Conclusion
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DBSA is managing to achieve development impact with all
its investments and is remaining financially sustainable by
cross-subsidizing low-yielding investments with surpluses
on high yielding investments
 The DBSA has managed to participate in significant PPP
based infrastructure projects within a declining investment
environment
 Reminder: Infrastructure development is but one element
of regional and needs attention ion within an integrated
framework with the other elements
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I Thank You For Your Attention
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Contact Details
Development Bank of Southern Africa
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Registered office
1258 Lever Road
Postal Address
PO Box 1234
Telephone
+2711 313 3911
Headway Hill
Halfway House
Fax +2711 313 3086
Halfway House
Midrand
South Africa
South Africa
1685
1685
WEBSITE ADDRESS:
www.dbsa.org
Piet Viljoen
Africa Partnerships
Unit
DBSA
pietv@dbsa.org