Barry Jackson DBSA presentation

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The Role of Development Finance Institutions: Lessons from Southern Africa of Best Practices for Their Effective Management : 

The Role of Development Finance Institutions: Lessons from Southern Africa of Best Practices for Their Effective Management Barry M Jackson, DBSA 30 September 2004 With Acknowledgements to Lewis Musasike andamp; Ted Stillwell

Contents: 

Contents Introduction to the DBSA Vision and Mission Capitalisation and Funding Modalities DBSA’s Triple Role, Products and Services Review of Lending and Investment Activities The Knowledge Organisation Challenges in Managing the DBSA Overcoming the Challenges – Lessons of Best Practice

Introduction to the DBSA: 

Introduction to the DBSA Established by An Act of Parliament in 1983 and is wholly owned by the Republic of South Africa Initial focus was on 'bantustans'/homeland governments under apartheid Since 1997, geographical coverage extended to the rest of SADC region Mandate focused on infrastructure since transformation of the Development Finance System (DFS) in 1984-1996 Independent Board of Directors, predominantly private sector Reporting under the DBSA Act; and the Public Finance Management Act. Regular reporting to National Treasury and the Reserve Bank for specific information Total assets of R22,87 billion (US$ 3.41 billion) Total borrowings R10,55 billion (US$ 1.57 billion) International grade credit ratings: Standard and Poor’s BBB; Moody’s: Baa2 Domestic ratings: Fitch: AAA

Vision and Mission: 

Vision and Mission VISION The progressive realization of an empowered and integrated region, free of poverty, inequity and dependency To be a leading change agent for sustainable socio-economic development in the SADC region, and a strategic partner in Africa south of the Sahara MISSION To maximise our contribution to development by mobilising and providing finance and expertise and by establishing partnerships to develop infrastructure, in order to improve the quality of life of the people of southern Africa

Capitalisation and Funding Modalities: 

Capitalisation and Funding Modalities Initial capitalisation of R200 million Supplemented by callable capital of R4.8 billion Up to 1994, Bank recipient of annual budgetary transfers With net surplus built since creation; total capitalisation stands at R11,49 billion (US$ 1.71 billion) No taxes and dividends, for now! Domestic and international markets are major sources of funding to supplement internal reserves Funding mainly through bond issues in rands, and loans from international development financial institutions in foreign currencies

DBSA’s Triple Role: Products and Services : 

DBSA’s Triple Role: Products and Services Advisor Partner Background, Nature and Practice of the DBSA Financier

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The DBSA Development Fund: 

The DBSA Development Fund Build sustainable capacity-building in South Africa at municipal level Support municipalities in enhancing service delivery and local economic development Products and services Funds Expertise Development facilitation Background, Nature and Practice of the DBSA

Lending and Investment Activities: 

Lending and Investment Activities Sustainable development effectiveness Economic, financial, technical social, institutional, environmental modules South Africa and SADC countries’ limit South Africa (Two-thirds) Clients mainly local government Black Economic Empowerment initiatives Project financing for critical infrastructure SADC (One-third) Infrastructure, economic growth sectors, capital markets developments No preferred creditor status

Lending and Investment Activities (Cont.): 

Lending and Investment Activities (Cont.) Total approvals to date: R29,8 billion (US$ 4.45 billion) Total disbursements to date: R26,3 billion (US$ 3.93 billion) Investment in Debt and Equity Funds: R902 million Comafin SA Franchise Fund Africa Infrastructure Fund Millennium Consolidated Investments Women’s Private Equity Fund Ethos Technology Fund African Millennium Fund New Africa Mining Fund Pan Commonwealth African Partners Fund Anthuri Growth Equity Fund Emerging Africa Infrastructure (debt) Fund.

Lending and Investment Activities (Cont.)Notable Projects: 

Lending and Investment Activities (Cont.) Notable Projects

Loan Portfolio Management: 

Loan Portfolio Management Background, Nature and Practice of the DBSA

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Risk Price Access to capital Institutional capacity Expertise Backlogs LOW HIGH LOW RESOURCES MARKET 3 MARKET 2 MARKET 1 CAPACITY The DBSA - How? Market Segmentation Model

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LOW HIGH LOW RESOURCES Market 3 Market 2 Market 1 CAPACITY The DBSA - Now? Market Focus: South Africa M1 Low-risk clients, contain M3 areas 34% of borrowers 54% of SA book debt M2 Medium-risk clients 30% of borrowers 26% of SA book debt M3 High-risk clients, mainly poor municipalities 36% of borrowers 13% of SA book debt

Advisor/Knowledge Institution: 

Advisor/Knowledge Institution Implicit common skills for finance and capacity building ~ 20 year track record Explicit recognition of huge pool of knowledge Structures in place to manage knowledge accorded equal importance to other DBSA functions. Background, Nature and Practice of the DBSA

Knowledge Programmes in Five Key Strategic Areas : 

Knowledge Programmes in Five Key Strategic Areas Propagating and entrenching a knowledge culture Becoming a learning organisation Exchanging and sharing knowledge in communities of practice and stakeholders Knowledge accounting through evaluation Building smart institutional partnerships for knowledge building and brokering. Background, Nature and Practice of the DBSA

Challenges in Managing the DBSA: 

Challenges in Managing the DBSA Focusing on Mandate – Board definition a challenge Tension between the development impact and commercial viability goals – 6 appraisal modules Exact role of DBSA in funding non-viable projects and programmes Poverty alleviation/eradication an overarching objective Extent of involvement of shareholder in policy decisions versus operational matters Differences in strategic direction among staff, management, Board and shareholder! Crowding in/out the private sector Lending terms and conditions, particularly for poorer clients No preferred creditor status in the rest of SADC Skills competition with private sector.

Overcoming the Challenges: Lessons from DBSA: 

Overcoming the Challenges: Lessons from DBSA Develop clarity and unity of purpose Formal governance practices, including role of shareholder Autonomous Board of Directors Strong Government support DFIs can achieve enormous leverage beyond their capitalisation by establishing smart partnerships DFIs should be subject to strict commercial norms and practice; max debt : equity of 250% Prudent risk management and financial policies Diversify funding sources.

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THANK YOU

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