Fact Sheet Proparco () and private finance for development

What is Proparco? Proparco key figures (€ million) Proparco (Company of Promotion and 2012 2011 2010 2009 2008 Participation for the Economic Cooperation) was created in 1977 as a financial Capital base (Total Assets) 420 420 420 420 120 development institution dedicated to private sector financing. Proparco is partly owned Committed investment volumes 740 865 944 893 467 by the French development agency (AFD) Net income 20.8 23.6 18.4 21.6 39.3 and private actors from countries in the 1 global north and south. Its main governing Net interest income 39.2 21.6 18.4 23.5 0.8 body brings together French members of parliament, government officials (foreign Taxes (direct and indirect) paid 17.8 12.6 13.3 8.8 7.8 affairs, development), a representative of the French credit export agency (COFACE) and independent experts with specific relevant qualifications (from civil society, companies Sector focus Proparco in 2012 Use of different instruments etc.). (€ million) 2008 A member of the Association of European €467m Development Finance Institutions (EDFI) 139 since 1992, Proparco is supposed to support 2009 and promote private investment in emerging €893m and developing countries in order to achieve 869 the Millennium Development Goals (MDGs). 2010 Its operations are presented as “financially 1552 €944m and economically viable, socially equitable and environmentally sustainable”. One of 2011 €865m the pillars of Proparco’s mission is to guide companies in order to improve their financial 561 2012 management, marketing, environmental €740m and social risks control, and governance. To manage operations in various regions and 0 200 400 600 800 1000 pool knowledge of local economic reality, Investment funds Financial sector Equityinvestments Proparco loans & guarantees Proparco has a network of 12 regional desks Companies Infrastructures AFD Sub participations Third-party loans Other in four continents.

Proparco does not use any public funds but, as explained in its activity reports, “backing capacities of emerging and developing Sectors from the AFD means Proparco benefits from countries. Proparco uses a wide range of instruments as long-term loans in local or Proparco’s portfolio has been mainly the creditor worthiness of a shareholder with concentrated in the financial sector for a an AA+ rating”. Although Proparco does foreign currency (senior, convertible), own funds, stockholders’ equity, current account, couple of years, while infrastructure finance not benefit from any direct government and investments in companies make up a endowment, this privileged access to convertible bonds, mezzanine, guarantees and technical support in order to finance considerable share of Proparco’s activities as financial markets can be considered as an well. Loans target infrastructure investments implicit subsidy. the productive sector (with a focus on the agro-industrial sector, manufacturing considerably more often than equity, while this is more balanced in the case of companies. Proparco’s activities are not reported as industries, building materials), infrastructure Indeed, companies can be funded through the overseas development assistance (ODA) at (developing and improving the effectiveness direct intervention of Proparco or indirectly by the moment but the ongoing negotiations at of infrastructure in transport, energy, equity fund participation and intermediaries the Organisation for Economic Co-operation communication, water sanitation) and that reinvest later. Loans also seem to and Development (OECD) level to widen financial markets (to improve the capacities outweigh equity in targeting the financial what could be counted as ODA, which are of local markets, local banks and financial sector, although this point must be qualified strongly supported by France, could change institutions). In emerging countries, Proparco and tempered insofar as equity funds are the situation. is especially focused on sustainable energy (biomass, biogas, hydropower, geothermal often concentrated in the financial sector. Objectives and practices energy, wind power system, solar energy). To develop its activity, Proparco follows Instruments Proparco concentrates its finances on the the sectoral policies framework of the AFD A large proportion of Proparco’s finance productive sector, infrastructure and financial group. comes in the form of loans (87% of commitments in 2012), which are sometimes development finance institution (DFI), which Proparco also takes into account to what combined with other instruments such as claims its aim is to realise 50% of its new extent a certain investment fits into its guarantees. Proparco also signs on to AFD commitments in Africa. strategic priorities. According to the following sub participations, equity investments, and criteria: i) achievement of the objectives of to a small degree, to third-party loans. The DFIs have often been criticised in the past the shareholders of Proparco; ii) mobilisation use of AFD sub participations decreased about the fact that private capital flows of the other funds for the project; iii) function significantly in 2012. As a result, the current mainly concentrate on higher income of ‘umbrella’ (ex: protective role in times use of loans and guarantees has become countries and emerging markets. As such, of crisis, against corruption, etc.) or ‘fame’ even more dominant. it seems important to stress that Proparco’s looked for by the partner; iv) subsidiarity current commitments in Africa clearly focus principle in the project. Finally, the efficiency Instruments by sector on higher income countries such as South of the project is calculated according to the Africa or Nigeria. cost of the risk and the conditions of the Between 2008 and 2012, the majority of loan. The global project note is presented to loans were concentrated on the financial How does Proparco determine the committee. Officially, there is no required sector. However, since 2010 this trend has development impacts minimum note for the acceptance of a changed slightly. Although 42% of the loans project. were still deployed for the financial sector To measure the effectiveness and the impacts in 2012, an increased share also targeted in terms of development of its projects, The client is responsible for realising the infrastructure (32%) and companies (26%). Proparco is using a tool inspired by the evaluation at the local level. Proparco GPR (Geschäftspolitisches Projectrating©) examines the conclusions and the Loans by sector developed by the German DFI, Deutsche recommendations of the preliminary studies and the follow-up of the findings, proceeds Since 2008, equity commitments increasingly Investitions- und Entwicklungsgesellschaft (DEG). Although it is difficult to obtain to the environmental and social classification targeted the financial sector. In 2012, a of the projects to determine the type of massive 47% of equity commitments information about the French version of the GPR and its practical application by Proparco, initiative to undertake, and oversees the concentrated on the financial sector, while evaluation mission with the client. During the the share of equity investments in investment we know that this tool allows the French DFI to evaluate the development impacts and evaluation, the client can exchange views funds has dropped dramatically throughout with the interested parties affected by the the years, accounting for merely 7% in 2012. also the commercial aspects of the projects. Indeed, this tool estimates, according to a project (local authorities, administrations, Furthermore, infrastructure finance also make communities, local associations). up a considerable share of Proparco’s equity multidimensional approach, the economic commitments in 2012 (26% in 2012 compared viability of the project, its development The most developed approach is one that to 6% in 2011). impacts, the additional role of Proparco concerns the operations in direct financing, compared with that of commercial banks, because it includes, in particular, a risk and the profitability of the operation. Regions assessment ex ante. This is in contrast to It should be mentioned that, in the case of the operations in financial intermediation It seems clear that Proparco is increasingly (the evaluations ex ante are systematically getting involved in the Latin America Proparco, the tool just takes into account positive effects of the projects from an ex realised for all the projects in direct financing and Caribbean region (the share of these within six to 12 months after their realisation). geographic areas for by the global portfolio ante point of view. In more concrete terms, this implies that the evaluation process In the case of the direct intervention, increased from 5.5% to 15% between Proparco is supposed to strictly apply its 2008 and 2012, with a peak of 18% in 2011. of development projects just intends to measure the positive anticipated and framework; in the operation with a financial Proparco’s commitments in the Middle East intermediary, the approach is more indicative: and Mediterranean appear to be running expected impacts, setting aside negative impacts and, more generally, real ex post Proparco is supposed to support the client in out of steam, while sub-Saharan Africa improving its practices. still remains a special target for the French impacts. In addition, Proparco also uses others AFD internal tools.

Loans by sector Equity by sector Regional focus (loans and participations)

% 100 100 100 90 90 90 80 80 80 70 70 70 60 60 60 50 50 50 40 40 40 30 30 30 20 20 20 10 10 10 0 0 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

Infrastructures Financial sector Asia Latin America & Caribbean Sub-Saharan Africa Infrastructures Financial sector Companies Companies Investment funds Mediterranean and Middle East Multi-countries & French Overseas Territories

Fact Sheet EIB and private finance for development Recent policy changes The ISO 26000 norm should allow Proparco owns 10% of the shares and the final to identify the impacts of its decisions and beneficiaries of these funds are unknown. Responsible finance activities, and enter into a dialogue with French members of parliament have tried relevant actors. to introduce a new rule of transparency to AFD’s global risk management policy is tackle this issue but it has been rejected supposed to be a cross-cutting issue and to However, (after consultation with civil several times, first by the former French be coherent with all the sectoral intervention society), the adoption of Proparco’s CSR Minister of Development, then by the current frameworks. Proparco has defined its Risks policy has been postponed. Meanwhile the Secretary of State in charge of Development Framework according to the International previous policy seems to remain the current and Francophony, claiming that it would be Finance Corporation (IFC) Performance framework. impossible for AFD. Standards.2 The social and environmental evaluation covers the environmental issues Transparency (ecology, biodiversity, natural environment, Tax issues pollution – water, air, soils – health impacts The first steps towards transparency were Use of offshore financial centres and security, natural resources from land made with the adoption of a transparency and underground, energy, space occupation, policy framework3 in the AFD group’s EDFI members have agreed to a number of natural risk, technological risk and risk to strategic plan 2007-2011. The transparency guidelines that set out criteria related to the health, living environment) and the social policy aims to increase the credibility and use of offshore financial centres. These are issues (all the risks related to human rights, the responsibility of the parties of the group non-binding and it is up to individual DFIs to and concerning conventions, text and towards its interested parties and French set up their own policies. This issue was not international norms of the International citizens. AFD’s transparency policy aims to translated into a formal and explicit internal Labour Organization, disadvantaged social give access to all information that might policy until May 2013. groups, failure to respect cultural diversity). be useful for the understanding by all of its At the environmental level, the support functioning, its strategy and operations. The In June 2014, the AFD group informed civil unit requires that the project classification AFD group is also supposed to help clients to society about the internal rules it adopted is realised according to the type of project improve their own transparency policy. in 2009. According to the AFD group, (activity), location (project environment), these rules prohibit the use of financial size of the project and existing regulations. The principles relating to the transparency intermediaries located in non-cooperative policy specify the nature and the conditions jurisdictions, on the basis of the French list From a theoretical perspective, Proparco’s in which the AFD group makes public the of non-cooperative countries and territories. Risks Framework is inspired by the IFC information it produces or that is in its While this list still targeted 18 jurisdictions in Performance Standards but the lack of clarity ownership. The transparency policy follows 2010, it was reduced to just eight jurisdictions surrounding the practical application of this three main criteria. The information has to: in 2014. Several civil society organisations framework leads us to a level of caution when highlight the action of the AFD; improve argue that this list does not include the most comparing both standards. the dialogue between the agency and important secrecy jurisdictions.4 the stakeholders; and not endanger legal The support unit, which confirms the procedures, the objectives of activities and In November 2012, the review of the final note of the project, defines the the commercial interests. financial security framework (“General Policy environmental and social due diligence to on Combating Corruption, Fraud, Anti- be implemented by the beneficiary. In 2010, Transparency is still a main issue in the case Competitive Practices, Money Laundering Proparco developed its own list of exclusion of Proparco. Unlike the IFC, the French DFI and Terrorist Financing”5) approved by the criteria. This list excludes 14 types of activities does not make public the rank of the projects board stipulated that attention should be such as pornography, tobacco, alcohol, covered by the bank secrecy and it does not paid to offshore financial centres only when prostitution, child labour, weapons and have a clear channel of communication about receiving accounts changed their location ammunition, as well as some fisheries. risks and evaluation frameworks. Moreover, to non-cooperative territories and when the AFD group assumes the responsibility payments came from these same territories. In January 2014, AFD presented a new global for choosing which information it considers The policy did not mention the prohibition corporate responsibility framework (not useful to share. AFD is at the same time of investments in financial intermediaries formally adopted yet). The new framework subject to the French law and to the current registered in such jurisdictions. is supposed to be based on the norm law in the countries of intervention. ISO 26000, which offers guidelines for all In May 2013, Proparco eventually adopted its organisations trying to assume responsibility AFD group can neither make public the formal internal policy regarding the use of for the impacts of its decisions and activities information covered by banking secrecy, offshore financial centres. Following pressure and to report these. nor the information that its clients refuse from several civil society organisations to reveal. Access to information is refused and parliamentarians, the policy was In summary, ISO 26000 is supposed to: by AFD when its disclosure may strike a published in April 2014.6 According to AFD, blow at court procedures, at objectives of the policy serves as the extension of the i) Contribute to sustainable development activities of inspection, survey and audit, at aforementioned procedures, which date including the health and well-being of commercial interests of a natural or legal back to 2009 but were never made public. society entity – including intellectual property – in The policy expanded the list of jurisdictions the integrity of the internal decision-making concerned: in addition to the French list of ii) Take into account the expectations of the of AFD. The limits of disclosure apply only for non-cooperative countries and territories, the stakeholders a period in the course of which the protection list now also includes countries that failed to iii) Respect the current laws and be justifies itself in consideration of the contents pass Phase I of the OECD Global Forum peer compatible with international standards of the document. Exceptionally, a maximum review process. So far, there has been no period of 30 years can apply to certain feedback about the concrete implementation iv) Be integrated in the whole of the documents. of the policy. organisation and implemented in its relations. The AFD group publishes only its Civil society organisations remain cautious, participation in the funds in which it since the French newspaper Le Canard

Fact Sheet EIB and private finance for development Enchaîné recently reported that, between 2007 and 2013, Proparco channelled more Endnotes than €400 million intended for developing countries through more than 70 offshore 1 The French Development Agency (AFD) holds 57% 3 http://www.afd.fr/jahia/webdav/site/afd/shared/ 7 of Proparco’s shares. French financial institutions PORTAILS/PUBLICATIONS/RSE/pdf/2-Politique%20 financial centres. For example, in 2013, hold 26% (BNP Paribas, BPCE International et Outre- transparence%20-%20version%20internet.pdf Proparco channelled €5 million to the Mer, , Société Générale, Crédit Agricole SA; Luxembourg-domiciled Moringa Fund, public financial institutions such as Caisse des dépôts 4 The current list includes Botswana, Brunei, Guatema- et consignations, and Credit export agency such as la, Marshall Islands, British Virgin Islands, Montserrat, despite the fact that Luxembourg is listed as COFACE). International Financial Institutions (IFIs) Nauru and Niue. a “tax haven” by OECD Global Forum. hold 13% (BMCE of Morocco, Bank of Africa, West 5 http://www.afd.fr/webdav/site/afd/shared/L_ African Development Bank, Corporaciòn Andina de AFD/L_AFD_s_engage/documents/Politique_AFD_ Tax avoidance responsibility of its clients Fomento, Development Bank of Southern Africa and lutte_contre_corruption_VA.pdf DEG. French companies hold 3% (Bolloré Africa Lo- gistics (transports), (diversified industrial 6 http://www.afd.fr/webdav/site/afd/shared/L_ Since 2007, Proparco has been using a tool group operating in building, energy, communication, AFD/L_AFD_s_engage/documents/Politique- that involves measuring ex ante the fiscal services, etc.), Bouygues Construction (building), groupe-AFD-dans-JNC.pdf DMC (textile), GDF-Suez (energy), Locatom (former impact of projects on national budgets. SES SA, company operating in spatial telecommuni- 7 Le Canard Enchaîné, L’aide au développement des However, this evaluation does not allow cation and providing support and services to media paradis fiscaux, 11 June 2014. group, companies and governments), Saga CTL the identification or the assessment of tax 8 Through participation in the African Agriculture (company operating in logistic and transport -Bolloré Fund, based in Mauritius, Proparco invested in a avoidance or similar practices risks. group), Saur International (environment services, “Congolese” company, Feronia, constituted under water sanitation, waste, etc.), SIPH (International Caiman law and a subsidiary of a Caiman company. In July 2013, France adopted country-by- society of rubber trees plantations, exploiting more Financial reports indicate that Feronia would cumu- than 40,000 hectares of rubber trees in Africa), country reporting for banks but also for big late non taxation in the Caiman Islands, tax holidays Socotec international (services and performance in the Democratic Republic of Congo (DRC) and companies. The thresholds for the latter are improvement in building, real estate, manufacturing declare losses in Canada in order to reduce future and health sector), SOMDIAA (agroindustry operat- yet to be defined and its implementation is taxable profits. waiting until a similar law enters into force at ing in Africa, Villegrain group), Veolia (transport, water, waste and environmental services). Funds and the EU level. Civil society groups, however, philanthropic foundations hold 1%, such as M. Xavier argue that AFD and the French Export de Bayser, Amundi AFD Avenirs Durables, Natixis Credit Agency (ECA), COFACE, should Solidaire. adopt a country-by-country requirement as 2 http://www.ifc.org/wps/wcm/connect/Top- a condition for all financial support, to avoid ics_Ext_Content/IFC_External_Corporate_Site/ IFC+Sustainability/Sustainability+Framework/ investments such as the Feronia project, in Sustainability+Framework+-+2012/Performance+Sta which tax responsibility and fair contribution ndards+and+Guidance+Notes+2012/ to the state budget in host countries are not guaranteed.8 Civil society groups are also encouraging Proparco to include tax issues in its CSR policy and responsible procurement policy.

Accountability and redress mechanism Proparco does not have an independent complaint mechanism but claims to be currently working to implement one.

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