Issue 24 November 05 - February 06

A leading change agent for socio-economic development in Southern Africa
Traders interviews Mr Lewis Musasike, Executive Manager of Private Sector and International Investments, and Mr Solomon Asamoah, Advisor and Head of International Finance of the Development Bank of Southern Africa.

DBSA is arguably the second largest Development Finance Institution (DFI) operating in Africa. What is the DBSA's mandate and vision in the region?
The DBSA is a wholesale development finance institution estab¬lished back in 1983 by the South African government. Financing has principally focused on local municipalities. This focus later broadened to include the private sector and black economic em¬powerment (BEE) companies, in response to the role of public-pri¬vate-partnerships in infrastructure development in South Africa. In 1996 our mandate was extended beyond the South African borders to operate in the Southern African Development Com¬munity (SADC) and to support the region's economic and social development. This was in recognition - by the South African gov¬ernment - that South Africa's own development is inextricably linked to progress in the region. Southern Africa's reasonably well-developed infrastructure and diverse natural resource base have the potential to play a leading role in driving Africa towards a more prosperous 21st century. The DBSA, through partnership and mobilisation of its resources, contributes to this leadership opportunity and the objectives of NEPAD through the funding of regional economic infrastructure. It is through this growth driven strategy that we strive to act as a catalyst for our ultimate vision of an empowered and integrated region free of poverty, inequity and dependency.

How do you go about achieving your aims? What is different about the DBSA?
The effective and integrated delivery of financial and non-financial (or knowledge) products and services is at the heart of the DBSA. It is this ability to combine financial support and development knowledge that sets the DBSA apart from commercial funding in¬stitutions. We like to think of this combination of investment and non-investment funds, such as technical assistance for capacity building or knowledge products, as smart money. By approach¬ing our activities in this way we are better able to address the needs of our clients in a comprehensive and sustainable manner. Another major distinguishing feature of DBSA is our ability, and in fact mandate, to take risk - albeit calculated risk. If a project with strong development impacts requires an institution to per¬haps take a greater proportion of the risk to unlock other financing sources and make it happen, we will look to play that role. “Crowd¬ing in” other sources of financing for our development projects is a key operating principle. A final distinguishing feature of DBSA in the region we would highlight is the ability to provide financing to both public and private sector entities. This means we can offer comprehensive solutions to our clients. Strengthening the role of the private sector is well accepted and understood. Working with and financing selected public sector institutions is a little more tricky, but we would argue just as important. If we can fund select¬ed parastatals in the region and help move them along the path of commercialisation and increased private sector involvement and management practices, the development impacts can be huge. This is because in most of Africa, public utilities still provide the majority of services to the majority of the people, especially the poorer ones. If they are left to remain underfunded and inefficient, it is usually the poorest who suffer the most. Whilst conventional theory over the last decade or so, has been that the private sector, if allowed, will take over, the reality in Africa has been different. So much so, that maybe it is now time to reconsider this approach and increase investments through the public sector, provided it can be done differently to the wasteful practices of the past. For DBSA's part, we only consider this if the management and govern¬ment also come to the party and are moving these public institu¬tions in the right direction by adopting new practices and controls. We also find that these institutions are the ones that are ideal candidates for our non-investment assistance.
What sort of investments have you done and what do you want to do in the future?
To be able to deliver on our mandate to promote economic devel¬opment in southern Africa, we focus on those economic sectors that provide an enabling environment for development and private sector involvement, and that contribute most to regional integra¬tion. In this regard, the Bank has been focusing primarily on en¬ergy, telecommunications, transport, tourism, mining, agri-indus¬trial, commercial and financial services. The DBSA's cumulative commitments in SADC, excluding South Africa, exceeds US$1.2 billion. This is about one quarter of our total portfolio and com¬prises of medium and long term finance in a range of currencies for both public and private institutions and projects. The DBSA has participated in large, complex projects such as the Sasol Gas Pipeline, the Mozal Smelter, the N4 Toll Road between South Afri¬ca and Maputo in Mozambqiue, Marromeu Sugar and the Lesotho Highlands Water Project. In total, we have committed to over 120 projects in the region, with many being much smaller, localised in¬vestments. Energy has remained a key focus sector for the DBSA, providing finance to over 60% of the public power utilities operat¬ing in the region. Our commitment to our clients' individual needs beyond financing is best illustrated by the DBSA's long-standing relationship with Zambia Electricity Supply Corporation (ZESCO). Since 1998, the Bank has (together with other partners), through investment and extensive technical assistance, helped ZESCO overcome many challenges; the result being that today ZESCO is a commercialised utility looking to tap the commercial markets.
In addition to providing limited recourse funding with long ma¬turities, the DBSA is able to credit enhance projects, either by underwriting some of the financing (thus providing comfort to the market) or by providing a partial risk guarantee on a bond issue where there may be a lack of investor appetite. The objective is the development of local capital markets, a crucial prerequisite necessary to achieve sustainable economic growth. This will also reduce the enterprise's exposure to foreign exchange risk. DBSA has been involved in bond issues in Zambia, such as the Lunsem¬fwa Hydro Power Company's $7million corporate bond issue in early 2004. Also in 2004, together with the IFC, DBSA structured and provided the City of Johannesburg with a 40% partial guaran¬tee for a R1 billion 12 year bond issue. The DBSA/IFC guarantee had a number of benefits in that the bond had a higher credit rating than the municipality itself, allowing Johannesburg to issue at a longer maturity with a substantially lower spread. Given the need for capital markets development, the DBSA has recently reorient¬ed itself to include financial advisory, arranging and underwriting services for clients wishing to raise funds and broaden their capi¬tal base to fund infrastructure development.
The importance of local enterprise in creating employment and broadening the tax base is undermined by the lack of appropriate capital to support long-term investments for economic diversifi¬cation. The DBSA attempts to play a major role in removing this constraint in SADC by providing long term credit lines to strong financial intermediaries for on-lending. DBSA has extended sev¬eral credit lines to intermediaries in Angola, Mauritius, Tanzania, and Zambia. In addition to the impact longer-term financing offers local economies, DBSA ensures its activities are complemented by skills transfer and capacity building of its partners.

How do you operate? Do you work/finance with others?
Partnership is a fundamental principle that guides the way the DBSA operates. The Bank believes strongly that development is co-created with others. As a partner, we leverage private, pub¬lic and community role players in the development process. By combining forces and sharing resources we are able to enhance the commercial viability of our projects, whilst at the same time, deepening the project's development impact. Where the private sector's participation is limited because of the tenor of the loan or the perceived riskiness of the project, the DBSA will partner with its sister Development Finance Institutions (DFIs) and donor agencies. It is these recognised relationships that won the DBSA the mandate to Lead Arrange and Underwrite the R1.5 billion DFI tranche of the SASOL Gas Pipeline Project. The Bank's involve¬ment in the Maputo Port Rehabilitation Project, as the first port public private partnership in southern Africa operating on a Build-Operate-Transfer (BOT) basis, also provided significant comfort to private and other DFI lenders.
DBSA's role, in addition to partly funding the project, included facilitating participation of other lenders and contributing to the structuring of the deal to ensure its bankability.
There has been much debate on NEPAD and its role in push¬ing Africa's agenda forward. What role (if any) does DBSA play in NEPAD?
The DBSA is recognised for its knowledge of southern Africa and ability to provide financing using innovative instruments, ensur¬ing that participation by the DBSA in a project provides comfort to private investors. This has positioned the Bank as anchor fin¬ancier and as an ideal conduit for international funds directed at NEPAD projects. One of the main priorities of the DBSA in support of NEPAD is the promotion of regional integration since individual southern African economies are often too small to generate the economies of scale needed to compete in global markets. We also provide an early review of NEPAD projects and advise on the criteria necessary for the projects to achieve bankability. If necessary, the DBSA is able to grant technical and project prepa¬ration assistance towards the development of a project's feasibil¬ity, by way of the joint project preparation facility, in partnership with Agence Française de Développement. Regional projects that have received support through this initiative include the East Afri¬ca Submarine Cable Project, the Zambia-Tanzania-Kenya energy Interconnector, the extension to the Kenya-Uganda Oil Pipeline, the Ghana-Benin-Togo energy interconnector and the COM-7 ICT project connecting Botswana, Zambia, DRC and Tanzania. Hav¬ing the NEPAD Secretariat housed in the DBSA further ensures that the Bank remains well informed and very close to NEPAD.
What would you say are DBSA's key strengths when operating in the region?
A review of the region reveals that enhanced economic growth is severely constrained by a lack of access to long-term finance at affordable rates and the inefficiency of many public and private in¬stitutions. Furthermore, there is a lack of capacity to structure and manage both private and public sector projects with inadequate infrastructure hindering competitiveness. Our unique ability to pro¬vide the much needed long-term finance in a number of currencies to both the private and public sector, combined with our appetite and mandate to take risk ensures our position as the regional partner of choice. Our ability to source non-investments funds and our broad network and relationships with other key players in the region also allow us to leverage other sources of finance and act as a catalyst for investment in the region. These strengths, when combined with our vast experience and in-depth understanding of the challenges in financing the region's development, ensures DBSA's central role in helping the region become further integrated, more competitive, better developed and ultimately wealthier.
For further information, please contact
Solomon Asamoah on solomona@dbsa.org