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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
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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.
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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
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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
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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.
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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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6. DFIs ANDTHE SADC REGIONAL DEVELOPMENT
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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6. DFIs ANDTHE SADC REGIONAL DEVELOPMENT
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.
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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 skufeni@sadc-dfrc.org
Website: www.sadc-dfrc.org
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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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