Investor Presentation THE AFRICAN DEVELOPMENT BANK

June 2018 Table of contents

1 Overview of the Bank Group 3

2 Financial Profile of the African Development Bank 24

3 Capital Market Activities 34

4 Appendix: 43

Financial Statements 44

Green Bond Framework 46

Social Bond Framework 60

African Economic Outlook 72

Frequently Asked Questions 78 1. Overview of the Bank Group

3 Africa’s premier development financial institution

The AfDB Group: three constituent institutions, separate legally and financially, with a common goal…

African Development Bank (“AfDB”) African Development Fund (“ADF”) Nigeria Trust Fund (“NTF”)

• Established in 1964 • Concessional financing, established in • Established in 1976 by Nigeria • 80 member countries 1972 • Targeted at the Bank’s needier • Authorized capital: USD 95 billion • Financed by 27 State participants and 4 countries • Resources raised from capital markets regional donors • Maturing in 2018 • 0% risk weighting under Basel II • Subscription: USD 42 billion • Total resources: USD 242 million • Level 1 under Basel III • Focus on low-income countries • Replenished every 3 years

Governance and Oversight

Board of Governors Board of Directors Decisions by both Boards • Highest decision-making body • 20 Executive Directors elected by the require two-third majority or • Composed of Ministers of Finance and Board of Governors 70%, should any member Ministers of Cooperation of the Bank’s • Oversees the general operations of the require so member countries Bank

…focused on combating poverty, and improving living conditions on the continent 4 55 years of partnership for the development of Africa

Americas Europe U.S.A. 6.623% African members: 60% Germany 4.157% France 3.773% Canada 3.876% Non-African members: 40% Brazil 0.332% Italy 2.438% U.K. 1.774% Argentina 0.090% Sweden 1.578% Switzerland 1.473% Denmark 1.182% G-7 Shareholding: 28% Norway 1.181% Africa Spain 1.070% Netherlands 0.879% Belgium 0.642% Nigeria 9.332% South Sudan 0.412% Egypt 5.622% Guinea 0.403% Finland 0.491% South Africa 5.055% Burkina Faso 0.399% Austria 0.449% Algeria 4.243% Namibia 0.345% Portugal 0.240% Côte d'Ivoire 3.738% Sudan 0.309% Luxemboug 0.202% Morocco 3.608% Sierra Leone 0.289% Libya 2.652% Malawi 0.244% Ghana 2.140% Burundi 0.238% Zimbabwe 1.965% Niger 0.237% Ethiopia 1.580% Benin 0.193% Middle-East Kenya 1.440% Liberia 0.192% Tunisia 1.406% Togo 0.157% Kuwait 0.451% D.R.Congo 1.293% Gambia,The 0.152% Turkey 0.359% Zambia 1.177% Equ.Guinea 0.146% 62,291 Saudi Arabia 0.194% Angola 1.168% Rwanda 0.132% General Capital Increases Cameroon 1.082% Swaziland 0.114% (in USD million) Botswana 1.077% Cape Verde 0.070% Senegal 1.047% Sao Tome & P. 0.068% Asia Gabon 0.997% Chad 0.066% Japan 5.518% Lesotho 0.057% Tanzania 0.762% China 1.183% Mauritius 0.653% Mauritania 0.057% 15,381 Korea 0.483% Madagascar 0.649% Cent.Afr. Rep 0.042% 8,075 India 0.258% Mozambique 0.622% Eritrea 0.031% 200 541 1,588 Congo 0.454% Somalia 0.030% Uganda 0.450% Seychelles 0.028% GCI-I GCI-II GCI-III GCI-IV GCI-V GCI-VI Mali 0.433% Guinea Bissau 0.021% 1976 1979 1981 1987 1998 2010 5

(Shareholding as of 31st December 2017) A responsive and effective partner

AfDB Sovereign Operations Additionality and development outcome assessment – core 17 middle-income countries eligible to indicators receive AfDB funding • Job creation Criteria: • Government revenues . GNI per capita • Financial return . Country’s creditworthiness • Foreign currency earnings

Access to AfDB and ADF Private Sector Operations financing Viable enterprises and multinational 10 countries eligible projects with an additionality and development outcome . 4 Blend countries (Cameroon, Kenya, Senegal and Zambia) • Direct loans . 6 Countries have been granted access to • Lines of credits AfDB through the revised credit policy • Equity participation in 2014 (Benin, Burkina Faso, Cote • Guarantees d’Ivoire, Rwanda, Tanzania and Uganda) Enclave Finance Self-sustaining, export-oriented ADF Concessional Financing projects, located in ADF countries 27 low-income countries are eligible to receive loans and grants from ADF only Providing selective access to Bank resources for countries with sound macroeconomic position and sustainable debt profile 6 The High 5s – A compelling opportunity to accelerate Africa's transformation 7 If the SDGs are not met in Africa, they will not be met globally

Improve the Light up and Integrate Feed Africa Industrialize quality of life for Priority areas Power Africa Africa Africa the people of Africa

3 4 5 7 9 13 2 5 13 5 7 8 9 12 6 9 17 3 4 5 6 8 10 11

The High 5s will help Africa achieve close to 90% of the United Nation’s Sustainable Development Goals (SDGs) and are intrinsically linked to the African Union’s Agenda 2063

Delivering on the Bank's Ten Year Strategy to achieve inclusive growth and help Africa gradually transition to green growth 7 A clear and vital mission in Africa Impact delivery from projects Bank Group portfolio of USD 52 billion completed in the period 2015-2017

Bank Group approvals Helped 8.5 million people with improvements in agriculture (in USD million) 10,802 Achieved 460 MW of new power capacity installed 8,782 8,778 8,822 with 33% renewable

6,754 7,316 6,314 6,538 Built or rehabilitated 2,500 km of roads

Eased access to financial services for 210,000 owner-operators and small businesses

Provided 8.3 million people with improved access to water and sanitation

2010 2011 2012 2013 2014 2015 2016 2017 As of 31st December 2017 Created 1.5 million direct new jobs Sovereign Non-sovereign Over 1,000 operations financed Reduced 157,000 tons of CO₂ since 2010 Provided 14 million people with improved access to transport 2017 approvals aligned to the High 5s, across 249 operations 8 Africa’s power potential waiting to be unleashed 9 Fractured social and Leapfrogging to a low-carbon growth pathway economic development

Abundant energy resources and ample reserves of Only 51% of Close to 70% of fossil fuels, but an even more extensive renewable Africa’s population rural areas not energy potential have access connected to to electricity electricity grid 10 million MW of solar power potential

Hundreds of Around 600 thousands dying 110,000 MW of wind power potential with installed In 2017, Africa million Africans annually from using capacity to rise from 4,100 MW today to around reached 176,000 trapped in wood-burning 80,000 MW by 2030 Megawatts (MW) energy poverty stoves for cooking of installed capacity, equivalent to close to 350,000 MW of hydro power potential and 90% of Germany’s projects with combined capacity of 17,000 MW capacity Power shortages Only around 30% under construction and high energy of the population tariffs cost around has access to clean 15,000 MW of geothermal potential and 600 MW 2-4% of cooking solutions currently installed with 96% in Kenya annual GDP

9 Let there be light Empowering with transformational energy projects

CAMEROON NIGERIA-NIGER-BURKINA FASO-BENIN Nachtigal Hydro Power Project Northcore Regional Power Interconnection Project Generation of clean, reliable and affordable power Support regional power system integration in West Africa

Project Cost: EUR 1.1 billion Project Cost: USD 730 million AfDB Financing: EUR 150 million AfDB Financing: USD 160 million Objectives: Construction of a 420 MW greenfield run-of-the- Objectives: Build 842 km of transmission lines from Nigeria river hydro power plant on the Sanaga River, in South Cameroon to Burkina Faso through Benin and Niger

Expected outcomes: Expected outcomes: . Clean, reliable and affordable power . Increase power exchange among the 4 countries from . Increase Cameroon’s capacity by a third and meet the 330,000 to 1,350,000 MWh/per year continuing electricity demand growth while supporting . 243,000 tons of CO₂ emissions avoided per year industrial expansion . Reduction in the cost of electricity ranging from 10% to 30% . Reduction of 1.35 million tons of CO₂ per year . Rural electrification for 540,000 people, spread over . 1,500 temporary jobs during construction and 294 communities 75 permanent during 30-year operation

2017 approvals key expected achievements

USD 1.7 billion 800,000 2,700 km of electricity connections 1,400 MW additional 3.2 million tons 9,000 jobs to be approvals for Light transmission lines benefiting capacity exclusively of CO₂ avoided created during Up and Power and 4,300 km of 3.8 million from renewable energy annually construction Africa in 2017 distribution people 10 Climate change: the greatest enemy

Of the 10 countries in the world most threatened by climate change, 7 are in Africa… Acute climate risks …yet Africa only received 4% of global climate finance

Extreme weather Droughts, flooding, Disease and The Bank’s second Climate Change Action Plan 2016-2020 will increase heat stress malnutrition USD 2.35 billion o Committed to tripling climate finance to 40% of lending portfolio in climate Rising sea levels Farmers’ yields will fall o Mainstreaming climate change and green growth into all Bank finance threaten waterfront cities investments by 2020 approvals in 2017 Fisheries Impact on energy Water resources o Mobilizing additional global climate finance in Africa and reach under threat generation may dwindle parity between adaptation and mitigation

Partnering with Leveraging investment for innovation and change global climate funds • Multi-donor fund • Supporting African • Multi-donor trust fund • Scaling up countries’ • Multilateral fund countries through a platform • Supporting African countries access to climate finance in line • Assisting African countries to launched at COP23 with nationally determined building resilience to the mobilize and apply resources • Fostering long-term climate action contributions impacts of climate change for water and sanitation • Mobilizing means for • 8 projects (USD 3.3 million) • EUR 20 million for climate and • Providing support in implementation approved benefiting 26+ disaster risk management strengthening water governance, • Ensuring coordination, advocacy countries and 20+ projects projects, EUR 13 million for meeting water needs, improving and partnerships in pipeline climate adaptation programs water knowledge

Africa Nationally Climate for Development in Determined Contributions Africa Climate Africa Special Fund African Water Hub Change Fund Initiative Facility 11 Embracing a climate-resilient, low-carbon development and green growth in Africa The green revolution: making Africa food-secure and prosperous

Surmountable challenges Africa, the world’s last frontier of A focused response agriculture development  Low productivity, inadequate production technologies

65% of world’s uncultivated arable land  Stunted commodity value chains Moving to Creating jobs Eliminating large the top of key  Insecure land tenure, weak policy and providing Ensuring food scale imports of agricultural and regulatory environment 25% of the most fertile land sustainable security commodities that livelihoods can be produced value chains locally  Increased climate change, climate variability 10% of renewable water resources  Lack of access to finance

2017 approvals: USD 1.2 billion across 50 operations  High dependency on food imports: two-thirds of all calories consumed are imported, at the 5 flagship programs launched in 2017 staggering cost of USD 35 billion

Technologies for Post-Harvest Transformation of Leadership for “Say No African Agricultural Losses and Agro- African Savannah Agriculture to Famine” Transformation Processing Initiative Engage policymakers, technical Respond with Boost agricultural experts, private sector and leadership and agility Cultivate 2 million productivity by community champions for dialogue, Increase the efficiency to the humanitarian hectares of savannah Most of Africa’s farming delivering proven advocacy and policy formulation to of post-harvest systems crisis caused by across 8 countries technologies to pursue agricultural transformation, is smallholder-based and prolonged drought in by 2025 millions of farmers with financial support of led by women several countries 12 Rockefeller Foundation Agricultural transformation – harvesting the future

Priority commodities and agro-ecological zones Cabinda Province Agricultural Maize, Graine Program Agriculture Value Mechanism and Wheat and soybean, Support Project – Chains Development Seed Improvement horticulture dairy and Phase I (PAPG1) livestock GABON ANGOLA Project NAMIBIA Project Sorghum, millet, across cowpea, and Guinea livestock Savannah Project Cost: EUR 116 million Project Cost: USD 123 million Project Cost: ZAR 1.4 billion across the Sahel AfDB Financing: EUR 99 million AfDB Financing: USD 101 million AfDB Financing: ZAR 1 billion Rice Tree crops Objectives: Creation of agricultural Objectives: Increase food and Objectives: Enhancement of (cocoa, coffee, development zones in various nutrition security and farmers’ agricultural productivity to reduce Cassava in humid and cashew, palm provinces incomes through improved imports of staple cereal crops and sub-humid zones oil), horticulture and fish farming agricultural output and grains, creation of jobs and across Africa Expected Outcomes: value addition improvement in the lives of • Increased production (cassava, rural population plantain, tomato, pepper and Expected Outcomes: palm seeds) by 275,000 tons • 51,000 beneficiaries Expected Outcomes: • Doubling of commercial • Increased maize and pearl millet Selected development impact in 2017 • Greater infrastructure: 191 km operators income of roads, 54 km of power supply production by 47x and 40x times • Creation of more than 5,100 networks, 750 hectares of respectively 46,000 hectares permanent jobs and 17,300 irrigation systems, 16 boreholes • Reduced annual imports of grain of land with improved temporary ones for water supply, a primary cereal by 30% water management school and medical facilities, • Beneficiaries: around 300,000 in 4 municipalities farmers • 111,000 jobs to be created 1,700 tons of agricultural inputs, including fertilizer and seeds supplied 13 Industrialization, the passport to prosperity

Strategic pillars Delivering the Bank’s Industrialize Africa strategy

Fostering successful o Provide technical assistance to governments and funding of key industrial policies Public-Private Partnership projects o Increase and channel funding into GDP catalytic programs o Improve access to market finance for African enterprises Catalyzing funding into infrastructure o Create sustainable jobs and increase productivity and industry projects o Grow co-financing and mobilize private sector investment o USD 1.2 billion approvals in 2017 o USD 473 million approved for African Export-Import Bank Expanding liquid capital markets

Promoting and driving small and medium Madagascar Economic Competitiveness Support enterprise development Program – Phase 1

Bank Financing: USD 46 million Promoting strategic partnerships in Africa Objectives: Establishment of special economic zones

Developing efficient industry clusters Expected outcomes: . across the continent Boost public and private investments . Increase value addition . Creation of 100,000 jobs during the implementation phase

14 Instrumental to create employment, boost productivity and sustained growth Now is the time to industrialize

Ethiopia - Increasing the production Boke, Guinea – Boosting production in Highest urbanization capacity of Derba Midroc Cement plant the world’s largest reserve of bauxite rate in the world

Approved in 2015 and completed in 2017 Project cost: USD 1.4 billion Project cost: USD 350 million AfDB financing: USD 400 million AfDB financing: USD 55 million Second most attractive investment destination with services and Objectives: Boost in government revenue, Realized outcomes: exports and local employment . Increased production capacity from 1.7 to manufacturing leading over extractive industries 12 million tons annually, meeting country’s Expected outcomes: cement needs and allowing exports . Establishment of Guinea as a leading . Employed 740 permanent workers producer and exporter of bauxite with . 70% drop in cement price The world’s youngest annual production capacity of 12 million . Strongly boosted the local construction workforce by 2025 tons sector . Employment of 3,500 workers during . Distributed locally 40% of energy produced construction and 350 staff and 400 by the 5 MW power plant built at the Growing consumer market contractors during the operation phase cement plant and middle class, largely . Development of a container terminal to . Provided schools and training for local SMEs untapped consumer market boost traffic and unlock regional trading . Constructed a hospital, healthcare facilities of 1.2 billion people and agricultural potential

15 Robust industrialization critical to achieving prosperity Recognizing the primacy of the private sector

AfDB boosting intra-African trade The pillars of our strategy Growing footprint in Africa’s private sector Trade finance programs Improve investment and business (in USD million) climate by helping strengthen the legal 5,418 Risk participation agreements and regulatory environment 4,389 4,162 4,234 3,630 3,845 2,444 2,764 Soft commodities facilities Enhance access to social and economic infrastructure

2010 2011 SME program Foster enterprise development by 2012 2013 2014 2015 2016 2017 improving access to finance and addressing the value-chain gap and Outstanding non-sovereign operations Lines of credit to financial skills shortages institutions to on-lend to SMEs at comparatively low rates

Delivery of the High 5s will be private-sector driven and public-sector enabled 16 The Africa Investment Forum

Leveraging strategic alliances to scale-up private investments into the continent Africa’s Premier Investment Market Place

November 7-9, 2018 A transactional and multi-disciplinary platform Johannesburg, South Africa • o Bringing together AfDB and global multilateral financial Private sector: banks, insurance institutions to de-risk investments at scale companies, private equity and venture capital firms, impact investors, pension o Scaling-up project preparation facilities and tools funds, project developers o Leveraging investments strategically into Africa • Government officials: Heads of State and o Catalyzing investments into projects to help the High 5 agenda Government, Ministers of Finance, Central o Promoting projects for co-investments and blended finance Bank Governors, Sovereign Wealth Funds • o Providing effective risk-mitigation instruments Multilateral development finance institutions o Addressing policy and regulatory issues

Bridging the financing gap

Co-guarantee platform with Policy and regulatory Investment promotion multilateral financial institutions, Project Pipeline environment, attracting institutional export credit agencies, insurance preparation development fostering investment- and non-traditional companies to de-risk private friendly regulation investors sector investments at scale

17 Regional integration, a collective responsibility

Addressing the issues through enhanced 54 countries, with 16 landlocked, most with low regional development and cooperation population density, poor infrastructure and impervious borders Low trade Only 14% of African trade o Increase infrastructure and ICT connectivity, trade and (compared to 50% in Asia) is investments, financial markets development and integration intra-regional and exports remain o Ensure deeper integration to increase intra-Africa trade to skewed towards raw minerals about 50% by 2045

Lack of connectivity o Strengthen trade corridors to enable business development, Billions of dollars in potential job creation and higher flows of goods, services and people trade lost annually

High costs High trade costs with small and African firms struggle to reach fragmented markets, and transport o Create larger, more attractive and competitive markets, costs a multiple of those in other with higher productive capacity competitive economies of scale developing regions

Deeper integration should attract greater private Limited travel o Lead several continent-wide initiatives targeting expansion investments, expand regional markets and of hard infrastructure and reform of soft infrastructure Inter-country travel in Africa engagement in global value chains hindered by visas-on-arrival given o Connect the continent with more open travel policies in only 25% of countries 18 Financing an interconnected Africa 312 km of cross-border roads Strategic pillars built or rehabilitated, across 13 countries Improving transportation connectivity Integrating financial and telecommunications markets USD 615 million o USD 253 million Uganda–Kenya corridor and approvals in 2017 Eldoret bypass in Kenya project to boost regional trade in East-African Community To strengthen financial markets and o USD 54 million reconstruction of Coyah- stock exchanges and encourage Farmoreah border road between Guinea and remittances to channel more capital Sierra Leone for development o USD 78 million construction of bridge Air Cote d’Ivoire’s Modernization and over Logone River between Cameroon Fleet Expansion Project and Chad

Project cost: EUR 253 million AfDB financing: EUR 115 million Facilitating trade and investments Continental Free Trade Area Expected outcomes: . Greater job creation, trade, tourism o  A single continental market for goods and Simplified trade regime for small cross-border and private sector development traders subject to double taxation between services, with the free movement of . Opening of new routes Angola and Zambia business people and investments . Increased cargo freight by 35% and passenger o One-stop border post between Zambia and traffic from 3 to 8 million by 2026  A milestone promising a larger, connected Angola at Jimbe to facilitate cross-border trade . Lower costs, reduced ticket prices and benefit local SMEs by linking them to market with the Bank at the forefront established firms in regional value chains providing technical and financial support 19 Changing people’s lives is the core of the Bank’s work

ETHIOPIA SENEGAL Support the One Water, Sanitation Dakar–Diamniadio–Blaise and Hygiene National Program Diagne Airport Regional Express Train (TER), Phase 1 - Project Cost: USD 500 million Urban development AfDB Financing: USD 97 million Objectives: Expansion of Project Cost: EUR 867 million access to water supply, sanitation AfDB Financing: and hygiene facilities in rural EUR 183 million areas hit by drought in the Horn TUNISIA CENTRAL AFRICAN REPUBLIC Objectives: 55 km Regional of Africa ‘Digital Tunisia 2020’ National Strategic Plan Central Africa Fiber Optic Backbone project - - Human and social development Information and Communication Technology (ICT) Express Train from Dakar to Blaise Diagne International Expected outcomes: Airport Project Cost: USD 37 million • Improved livelihoods of Project Cost: EUR 135 million 3 million people AfDB Financing: USD 19 million AfDB Financing: EUR 72 million Expected outcomes: • Higher employment • 113,000 passengers per day • Objectives: Laying of 1,000 km of cable to boost Greater resilience to Objectives: Establishment of ministerial • Beneficiaries: users of information systems (e-finance, e-justice, e-local ICT connectivity climate change transport services and 3.5 • 8,000 constructed or government, etc.) and all platforms that guarantee Expected outcomes: million people in project area rehabilitated water schemes an e-government functionality • Expanded internet access to at least 20% of the • Reduced travel time from 108 Expected outcomes: population to 45 minutes by 2019 • Extended digital technology use in secondary • Increased ICT sector’s contribution to government • 337,000 tons of CO₂ avoided schools from 20% in 2016 to 26% in 2022 revenue from 10% in 2015 to 15% by 2021 at project completion • Creation of 5,000 jobs • At least 20,000 beneficiaries • Creation of 75,000 jobs

20 Creating productive jobs for the youth to unlock the demographic dividend Gender equality, a social and economic imperative

Mainstreaming gender across A focused approach Bank operations

Strengthening textile and clothing Legal status and property Gender Marker System approved to value chain from cotton farms to rights for women categorize operations based on their retail shelves - Fashionomics impact on gender equality Economic empowerment Gender Specialists deployed in Supporting growth of African for women regional hubs to support projects food and cuisine value chain, from design to implementation from farmers to chefs - Knowledge and capacity FoodCuisine building Toolkits and guidelines developed to guide task managers in Launching of AfDB/ECA Africa mainstreaming gender in projects Gender Index to gauge how women are faring alongside male counterparts in economic, social and political representation Affirmative Finance Action for Women in Africa • Pan-African initiative to close gender financing gap and Developing online gender scale-up support for women’s enterprises data portal • Targeting a diversity of women in business: from small-scale farmers to large enterprises owned or operated by women • Built on 3 main pillars: Finance, Technical Assistance, Enabling environment 21 African Legal Support Facility, ensuring fair negotiations

The ALSF was established by Hosted by the African Protection against inadequate local Development Bank legal capacity, improper legal Treaty in 2008 to serve Regional representation, vulture fund litigation, Member Countries 60 members, including 53 states, poorly-drafted concessions agreements and 7 international organizations and investment contracts

Infrastructure, Mining and Energy Sovereign Debt Agriculture

Agreements/Contract Guinea-Bissau vs China Exim Bank Democratic Republic of Liberia - Firestone Natural negotiation support signed – Debt Restructuring Advisory Congo (DRC) vs FG Rubber Company - signed through ALSF in 2017 Services – Signed in 2017 Hemisphere - Vulture Fund in 2017 Litigation, judgement issued - Simandou Mining Project  Assisted Government by responding to in 2013  Firestone is the largest employer Restructuring in Guinea a creditor litigation suit brought by and exporter in Liberia, responsible Export-Import Bank of China  Assisting DRC in defending for the livelihoods of over 80,000 litigation claims issued by a - Corbetti Geothermal  Helped Government settle dispute out people. It operates rubber farms, vulture fund in 8 jurisdictions woods, constructs electric power Project in Ethiopia of court, facilitated settlement and debt restructuring negotiations plants and 120 housing  As a result, outstanding debt reduced  Allowed DRC to successfully communities with schools, and a - Bugesera Airport from USD 50 million to USD 5 million, win appeals in New York and medical clinic for employees in Rwanda resulting in savings of about 22% of Paris courts  Before intervention, Firestone was annual budget for Guinea-Bissau considering shutting down  In New York Court appeal, operations and laying-off people judgement resulted in savings  Through ALSF interventions, of over USD 100 million Government able to save jobs and for DRC secure tax revenues

22 Crowding-in resources through co-financing and partnerships

AFIF Japan AGTF AFD South Korea

EUR 2.2 billion USD 6 billion USD 2 billion EUR 1.5 billion USD 620 million

Africa Investment Government of Japan Africa Growing A co-financing A co-financing Facility: a co-financing launched Japan-Africa Together Fund: a co- agreement with Agence agreement with Korea partnership with the Energy Initiative to financing facility with Française de Exim Bank to provide European Union that provide concessional China to support Développement to loans for sovereign combines loans, and non-concessional sovereign and non- support projects operations, targeting grants, technical finance to support New sovereign projects in focusing on renewable energy, infrastructure, assistance and equity Deal on Energy for infrastructure, energy and climate water, ICT, green investments to support Africa transport, energy finance, transport and growth, agriculture and transformational and water agriculture human development projects

23 2. Financial Profile of the African Development Bank

24 Summary financial information

(in USD million) 2013 2014 2015 2016 2017

Assets 32,335 33,251 35,152 39,963 46,392

Loans 17,619 18,105 17,832 20,295 25,113

Investments 9,372 10,637 11,629 14,237 16,408

Borrowings 19,939 20,828 22,794 27,753 33,005

Equity 8,980 8,809 8,980 8,880 10,101

Paid-in Capital * 4,580 4,730 4,932 5,187 5,854

Reserves 4,400 4,079 4,048 3,693 4,247

Income before distributions 278 220 129 161 368

Subscribed Capital 100,424 94,366 90,741 88,035 93,278

*Net of Cumulative Exchange Adjustment on Subscriptions Note: Reporting currency is Special Drawing Rights (SDR) of the IMF. Data converted to USD at period-end exchange rates SDRUSD: 1.54000 (2013); 1.44881 (2014); 1.38573 (2015); 1.34433 (2016); 1.42413 (2017)

25 A very strong financial profile at the service of Africa

AAA re-affirmed with a stable outlook

Prudent Preferred Extraordinary The pillars of Strong financial & risk Excellent Creditor shareholder our AAA rating capitalization management liquidity support policies Status

26 Prudent risk management policies consistent with our rating

Prudent liquidity Prohibited from Use of derivatives to managament taking FX risk hedge interest rate and Currency composition of One year liquidity available to foreign exchange risk net assets aligned with cover net cash flow requirements SDR basket*

Prudent framework of approved counterparties and exposure limits

Borrowings, investments Minimized counterparty and lending in multiple Credit policy guiding credit risk currencies while mitigating our lending activities Minimum credit rating for foreign exchange risk treasury investments and derivative counterparties (A)

27 * Composed of USD, EUR, JPY, GBP, RMB A clearly defined risk appetite for lending to the continent

Outstanding portfolio 25,113 Portfolio credit profile 25,000 (in USD million) 20,295 4.00 (B-) 3.94 (B) 20,000 18,105 17,832 16,730 17,619 14,210 3.04 (BB) 15,000 12,596 2.74 (BB+)

10,000

5,000 2010 2011 2012 2013 2014 2015 2016 2017 0 2010 2011 2012 2013 2014 2015 2016 2017 Sovereign Non-sovereign Combined portfolio Prudential limit for the combined portfolio Sovereign loans Non-sovereign loans

The Bank’s risk appetite statement Weighted Average Risk Rating of the Bank’s lending portfolio target range between BB+ and B-

28 Prudent credit portfolio risk management to enable maximum development impact Capital base, the foundation supporting the Bank’s mission

Risk capital reinforced by on-going capital Risks assumed through development operations entirely covered by risk capital payments and income transfer to reserves 9,849

332 81 369 7,679 (in USD million) (in USD million) 946 265 Available risk 1,733 capital (22%) 10,101 8,980 8,809 8,980 8,880 4,485 7,424 7,494 8,207

Risk capital (as of 31st December 2017) utilized (78%) 2010 2011 2012 2013 2014 2015 2016 2017

Reserves Paid-in capital *Diversification benefit stems from correlation between risks **After adjustments for valuations of equity investments and borrowings

2015 Exposure Exchange Private Sector Credit USD 1,024 million additional paid-in Development-related Agreement had positive Enhancement facility funded capital expected over 2018-2026 exposures consumed impact of 3.8% on Risk by ADF increased risk will reinforce capital position 73% of capital Capital Utilization Rate in 2017 capital base by 1% in 2017 29 Prudential ratios closely monitored to protect stakeholders

Key prudential ratios remain within statutory thresholds

Leverage ratio: Maximum capacity to 100% borrow should not exceed the usable capital (i.e. sum of callable capital of 84% 81% members rated A- or better, plus 73% reserves and paid-in capital) 58% Positive 55% 53% 50% 52% impact of 6th 48% General 40% 42% 35% Capital 28% Increase 24% 25% 26%

Gearing ratio: Maximum capacity to 2010 2011 2012 2013 2014 2015 2016 2017 lend should not exceed the sum of unimpaired subscribed capital plus Leverage ratio Gearing ratio Prudential limit reserves and surplus

Outstanding debt of USD 32.8 billion fully covered by total usable capital of USD 41 billion 30 Redeploying capital for the High 5s with balance sheet optimization

Risk transfer instruments A real impact on our mission True sale transactions Improve capital Single-name Credit adequacy ratios Exposure Exchange Default Swap Exchange of credit risk Purchase of credit Free capital allocated to Cash Securitization protection new projects lending

Maximize development impact Credit Risk Synthetic Insurance/Guarantee securitization Third party Improve return on capital and Asset Sell-Down Synthetic transfer enhance liquidity management insurance/guarantee of credit risk Outright sale of an asset of the portfolio

Manage credit risk limits …with the Bank remaining the lender of record

Attract a new investor base in Assets transferred out of the the financing of the continent Bank’s balance sheet Expanding lending headroom 31 A profitable institution operating in a challenging environment

A solid Bank with a strong performance (in USD million) 948 USD 2.2 759 817 Higher volume 715 667 721 billion in 680 632 income of loans and investments 364 339 391 earned Disbursements 295 287 273 since 2010 235 190 at historical 311 297 232 278 234 238 levels in 2017 189 178 2010 2011 2012 2013 2014 2015 2016 2017 Reinvesting for greater development impact

Allocable Income Income from loans and investments Borrowing expenses

Democratic Republic Highest transfer to reserves in 2017 of Congo Debt Relief African Development Mechanism – an arrears to support business growth Fund to support the needs clearance plan to assist of low-income countries DRC in its reconstruction efforts Distributions 2010-2017 2017

Middle Income USD 189 million Special Relief Fund To reserves USD 1,050 million Countries Technical (proposed) to provide humanitarian Assistance Fund to make assistance to countries resources available for the To key affected by unpredictable USD 121 million preparation of projects and development USD 1,169 million disasters (proposed) building the pipeline initiatives 32 Conservative investment strategy underpins our strong liquidity profile

USD 16.4 billion multi-currency portfolio Investment Strategy High quality treasury investments

8,247 (in USD million) Capital preservation

5,178 AA+ to AA- 39% Liquidity AAA 53%

1,033 82.5% 900 615 350 82 2 Return

USD EUR CNY GBP JPY SEK CHF ZAR A+ and lower 8% (As of 31st December 2017) (As of 31st December 2017)

13.4% Two treasury 2.4% 1.6% 0.1% Held-at-fair-value sub-portfolios Held-at-amortized- trading portfolio of cost portfolio of USD USD 9.5 billion to Supra, Sov & Covered Corporate Money ABS* 6.8 billion to stabilize Agencies Bonds bonds markets meet short-term net interest margin liquidity needs * Asset-Backed Securities 33 3. Capital Market Activities

34 Leveraging our AAA rating to meet Africa’s needs

A diversified funding profile in multiple markets and currencies across the world

Borrowing program

(in USD billion) 9.9 9.8

7.5 8.0

5.6 4.4 Outstanding 3.8 3.8 3.9 borrowings 2.8 of USD 33 billion

(As of 31st 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 December 2017)

Promoting “AfDB’s funding profile remains very diverse in African capital markets terms of investor base, currency and maturity” Deepening and Standard & Poor’s, July 2017 widening our investor base across Catering to the the world needs of Socially Responsible Maintaining a strong Investors track record in 35 issuing liquid global Attracting competitive funding levels for the benefit of the continent benchmarks Larger size USD benchmarks seal widespread name recognition

Strategic repositioning as a more liquid issuer …deepening and widening the Bank’s investor base March 2017 October 2017 March 2018 46% 36% AAA rating and strong fundamentals 11% 6%

High quality 3-year USD 2 billion of execution 3-year USD 2.5 billion 5-year USD 2 billion Americas Europe Asia Africa & 1.875% due Mar 2020 2.125% due Nov 2022 2.625% due Mar 2021 Middle-East

US Treasuries + 25.8 bps US Treasuries + 19.4 bps US Treasuries + 26.4 bps Numbers do not add up to 100% due to rounding High quality Midswaps + 3 bps Midswaps + 12 bps Midswaps -1 bp order books Central Banks & Asset Managers Official BAML/Daiwa/Goldman Barclays/BNP/Citigroup/ BAML/Barclays/BMO/ 34% Sachs/JP Morgan/ JP Morgan/Wells Fargo Nomura/TD Institutions Secondary market TD Securities 48% performance

Largest Strong developmental Largest ever 5-year mission ever AfDB USD transaction benchmark Bank Treasuries 18%

36 A reference issuer in the Kangaroo market

January 2018 February 2018 “Improve the quality of life January 2017 September 2017 for the people of Africa” “Industrialize Kangaroo Africa” Kangaroo 10-year 15-year AUD 380 million AUD 50.4 million 10-year 10-year 3.35% due 3.556% due AUD 50 million AUD 80 million August 2028 August 2033 3.30% due 3.345% due BBSW + 44 bps BBSW + 45 bps July 2027 September 2027 Daiwa BNP Paribas BBSW + 51 bps BBSW + 46 bps Mizuho Daiwa 1,150 AUD 4.5 billion outstanding Kangaroos across 11 maturities (In AUD million)

650 Green Highlights of 2017 Kangaroo 565 560 Close to AUD . 20 bond increases executed 800 million 350 . Close to AUD 1 billion issued 300 330 issued in 2018 250 . 83% increase in issuance 140 115 volume vs 2016 50

Feb Feb Mar Mar Jan Jun Jul Sep Aug Dec Aug 2019 2020 2022 2024 2025 2026 2027 2027 2028 2031 2033 37 Euro issuance, expanding our footprint

Attracting new investors

Europe 72% Asia 17% Americas Africa & 4% Middle-East 7% Gradually building our curve through annual benchmark issuances Strong AfDB secondary market performance Inaugural EUR benchmark 0 -5 10-year 7-year -10 EUR 750 million EUR 1 billion -15 0.125% due Oct 2026 0.25% due Jan 2024 -20 -25 Bund + 29.5 bps Bund + 45.5 bps -30 OAT + 3 bps OAT + 8 bps -35 Midswaps – 10 bps Midswaps – 3 bps -40 Dec-16 Mar-17 May-17 Aug-17 Oct-17 Jan-18 Mar-18 Jun-18 Barclays/Goldman Sachs/ Barclays/Natixis/Natwest/ AFDB 0.25 01/24/24 KOMMUN 0.25 02/16/24 Societe Generale Credit Agricole KFW 0.125 01/15/24 EIB 0 03/15/24 38 Financing inclusive and sustainable growth in Africa

Inaugural Social Bond Water supply & sanitation Showcasing Education & vocational training Social Bond concrete actions Healthcare Social Bond EUR 1.25 billion Job creation EUR 500 million to alleviate 0.875% due May 2028 Electricity last-mile connectivity 0.25% due Nov 2024 poverty Bund + 36.7 bps Information and Communication Technologies Bund + 41.4 bps on the continent OAT + 13.9 bps Food security OAT + 20 bps Midswaps – 8 bps with our Social Financial inclusion Midswaps – 14 bps Bond program Gender Credit Agricole, Goldman Credit Agricole, HSBC, Sachs, Natixis, Societe Goldman Sachs Generale Multi-currency theme bonds linked to the High 5s catering 3x oversubscribed Largest ever Euro to Japanese Socially Responsible Investors in 150 minutes benchmark 2017 “Mirova welcomes African Development Bank’s Social Bond. Global deal Clean energy Education This transaction has been very well prepared, with an extensive of the year roadshow and an open dialogue with investors, and very nicely award by executed. We invite other issuers to develop similar Social Bond 10-year frameworks. This market can contribute to channelling more Infrastructure Food security funds to a more sustainable economy and Mirova will support it” SEK 733 million Marc Briand, Head of Fixed Income, Mirova, November 2017 “Light Up And Power Africa” Light up and power Africa Feed Africa theme bond “Overall, Sustainalytics is of the opinion that the AfDB’s Social 1.245% due September 2027 Industrialize Improve quality of life 39 Bond Framework is credible and transparent, and aligns with the Africa for the people of Africa four pillars of the Social Bond Principles 2017”, September 2017 A well-established force in the Green Bond market

A credible and transparent Green Bond framework to finance climate change mitigation and adaptation

2013 2015 2014 2014 2016 2016 USD USD SEK SEK SEK AUD 500 million 500 million 1 billion 1 billion 1.25 billion 110 million matured due due due due due Oct 2016 Dec 2018 Feb 2019 Mar 2019 Jun 2022 Dec 2031

Contributing to GHG emission reduction of approximately 43 million tons of CO₂ at projects’ completions

Eligible Greenfield Renewable Demand-side Brownfield and Energy Generation Greenfield Energy Efficiency green projects Vehicle energy efficiency fleet retrofit or urban transport Water Supply and Access modal change

40 Favorable rating on Environmental, Social and Governance

Corporate Social Responsibility performance: 63/100 (Advanced) (10 points improvement vs 2014)

“AfDB’s overall Corporate Social Responsibility performance is considered “Advanced” in absolute terms (63/100) and it ESG rating: A has significantly increased since last review.” (unchanged vs 2014) “AfDB displays an homogeneous approach to the management of its ESG impacts, achieving “AfDB has moderately high exposure to Corporate rating: C+ (Prime) an advanced performance in all the three credit risks arising from the environmental (unchanged vs 2014) pillars. ... The institution Environmental impact of the countries and activities it strategy addresses the material issues related finances. The Bank's strong set of “The company acknowledges climate change to its business operations, and environmental environmental policies and formalized as a major challenge and states its and climate ESG risk management systems place it in a commitment to reduce greenhouse gas safeguards are implemented”. strong position to mitigate the emissions stemming from its own Vigeo, August 2016 environmental risk inherent in the projects operations. In addition the company is and activities it finances..” committed to reducing some of the MSCI ESG Research, June 2017 emissions in the corporate value chain (e.g. lending and investment activities) through the endorsement of renewable energies and/or clients' energy efficiency.” Oekom Corporate Rating, January 2018 41 Promoting the development of African capital markets

Expanding the Bank’s African lending currencies Grow liquid and effective capital markets ZMW – Zambian Kwacha

NGN – Nigerian Naira African Financial Markets Improving access to Initiative contributing to local debt market finance for UGX – Ugandan Shilling markets’ growth African enterprises

ZAR – South African Rand Advise BWP – Botswanan Pula Bloomberg® African African governments, Invest directly in African Domestic Financial stock exchanges capital markets XOF – CFA Franc BCEAO Domestic Bond Fund Markets and regulators to increase Bond Index Database on development liquidity of liquid capital markets XAF – CFA Franc BEAC

EGP – Egyptian Pound Composed of Approved local issuance programs Exchange local currency Leading source government bonds Traded Fund KES – Kenyan Shilling investing in of information ZMW 160 million MTN program of South Africa, on African bond NGN 160 billion MTN program Egypt, Nigeria, African local currency bond markets covering UGX 125 billion MTN program TZS – Tanzanian Shilling Kenya, Namibia, 43 countries Botswana, Ghana markets BWP 5 billion MTN program and Zambia ZAR 20 billion inward listing program GHS – Ghanaian Cedi 42 4. Appendix

43 AfDB Income Statement (UA million)

Year ended 31 December 2017 2016 2015 2014 2013 Operational Income and Expenses Loans and related derivatives 459.29 369.19 314.78 317.92 296.78 Income from Investments and related derivatives 195.04 155.71 122.21 132.41 131.25 Income from Other Securities 2.15 3.78 3.73 3.85 3.95 Total income from Loans and Investments 665.76 536.02 455.78 460.52 441.42 Interest and amortized issuance costs (428.92) (373.05) (346.13) (375.96) (302.99) Net interest on borrowing-related derivatives 154.02 196.26 217.62 245.42 150.08 Unrealized losses on borrowings, related derivatives and others 48.13 (68.04) (38.81) (36.73) 46.82 Provision for Impairment on Loan Principal and Charges Receivable (16.97) (67.81) (65.43) (18.02) (41.14) Provision for Impairment on Equity Investments (0.02) 0.16 0.43 0.75 0.76 Provision for Impairment on Investments - - - - 9.19 Translation Gains/(Losses) (1.45) 1.00 14.61 (4.07) 13.33 Other Income 3.61 9.51 2.30 3.39 3.03 Net Operational Income 426.46 261.49 229.65 282.20 302.98 Administrative Expenses (147.77) (130.06) (122.00) (123.16) (110.97) Depreciation – Property, Equipment and Intangible Assets (15.22) (10.04) (9.05) (7.61) (6.70) Sundry (Expenses)/Income (5.04) (1.32) (5.44) 0.26 (4.98) Total Other Expenses (168.03) (141.42) (136.49) (130.50) (122.65) Income before Distributions Approved by the Board of Governors 258.43 120.07 93.16 151.70 180.33 Distributions of Income Approved by the Board of Governors (82.00) (95.00) (124.00) (120.00) (107.50) Net Income for the Year 176.43 25.07 (30.84) 31.70 72.83 44 1 UA = 1 SDR = 1.54000 (2013) ; 1.44881 (2014) ; 1.38573 (2015) ; 1.34433 (2016) ; 1.42413 (2017) AfDB Balance Sheet highlights (UA million)

Year ended 31 December 2017 2016 2015 2014 2013 Assets Cash 1,173.10 1,306.82 1,214.61 406.71 954.13 Demand Obligations 3.8 3.8 3.8 3.8 3.8 Treasury Investments 11,521.07 10,590.04 8,392.26 7,341.62 6,058.45 Derivative Assets 717.02 1,233.75 1,454.62 1,143.68 985.96 Non-Negotiable Instruments on Account of Capital 0.08 0.16 0.27 0.74 1.2 Accounts Receivable 594.97 543.83 489.54 640.16 843.86 Outstanding Loans 17,818.24 15,348.44 13,070.40 12,647.81 11,585.84 Hedged Loans – Fair Value Adjustment 54.45 80.23 79.84 112.7 32.49 Equity Participations 781.22 719.38 703.27 596.82 525.01 Other Securities - 54.36 46.42 94.11 82.9 Other Assets 96.37 97.7 93.56 79.46 41.22 Total Assets 32,575.73 29,727.09 25,346.74 22,950.83 20,996.72 Liabilities, Capital and Reserves Accounts Payable 1,255.59 1,615.99 1,332.38 1,211.81 1,246.11 Derivative Liabilities 1,051.63 861.27 1,084.99 853.74 971.85 Borrowings 23,175.69 20,644.15 16,449.27 14,375.95 12,947.44 Capital Subscriptions Paid 4,268.81 4,019.88 3,727.69 3,438.23 3,147.08 Cumulative exchange adjustment on subscriptions (158.04) (161.04) (168.84) (173.54) (172.65) Reserves 2,982.05 2,746.84 2,921.25 2,815.32 2,856.88 Total Liabilities, Capital and Reserves 32,575.73 29,727.09 25,346.74 22,950.83 20,996.72 45 1 UA = 1 SDR = 1.54000 (2013) ; 1.44881 (2014) ; 1.38573 (2015) ; 1.34433 (2016) ; 1.42413 (2017) Green Bond Framework

46 AfDB’s Green Bond framework

• Pipeline of projects Monitoring and reporting • Disbursement of eligible • Impact assessment of projects Portfolio selection projects, metrics, positive • Semi-annual allocation of outcome of the investment • AfDB eligibility proceeds to green projects to • Disclosure on disbursements criteria for Green be approved by ALCO Bond linked to the & deployment of proceeds climate finance • Update on projects tracking Management of proceeds methodology

Investor Marketing “A clear impression of an institution that is well aware of the challenges • Updates through roadshows and posed by climate change as well as targeted communications • Certification process: other environmental and social • Respond to investor queries Second opinion from concerns that may be associated with • ESG rating CICERO investments projects. In particular we are pleased with the consciousness External assurance shown towards the external impacts of projects both across space and time”. September 2013 47 …aligned to the Green Bond Principles AfDB guiding principles for climate finance tracking

Adaptation Eligible projects for the Projects reducing Green Bond portfolio vulnerability of human or natural systems to climate change by maintaining or increasing adaptive capacity Only projects whose and resilience financing can be qualified in full as promoting either low- carbon or climate-resilient development will be Mitigation considered for the Bank’s Green Bond portfolio Projects leading to significant GHG emissions reductions over the lifetime of the asset

48 What can be financed with AfDB Green Bonds?

Biosphere conservation Solid Waste Management projects (reduce emissions (e.g. incineration of waste, Greenfield from deforestation and landfill gas capture and Fugitive emissions and Renewable Energy degradation of ecosystems) landfill gas combustion) carbon capture (e.g. carbon Generation capture and storage, (e.g. solar, wind, reduction of gas flaring or geothermal, and methane fugitive emissions ocean power) in the oil and gas industry, coal mine methane capture)

Vehicle energy efficiency fleet retrofit or urban Industrial Processes transport modal change (reduce GHG emissions from industrial processes improvements and cleaner production) Demand-side Brownfield and Greenfield Energy Efficiency (e.g. energy efficiency Urban Development (e.g. improvements in lighting and rehabilitation and upgrade of urban equipment; retrofit of water drainage systems in areas transmission lines, substations Water Supply and Access vulnerable to frequency and/or or distribution systems to (e.g. water-saving measures such as severity of flash floods and storm reduce technical losses) introduction of less water-intensive surges brought by climate change) crops or preservation of soil moisture and fertility) 49 Project evaluation & selection

ALL PROJECTS

Joint Multilateral Bank’s Bank’s Development Environmental Methodology for Bank (MDB) Strategy Tracking Climate Report on permeates design Adaptation and Adaptation/ of all projects Mitigation Mitigation Finance Finance SCREENING AND SELECTION OF PROJECTS ACCORDING TO THE CLIMATE FINANCE TRACKING METHODOLOGY

APPLICATION OF GREEN BOND FRAMEWORK

BOND PROCEEDS GREEN BOND ELIGIBLE PROJECTS

USD

EUR ZAR SEMI-ANNUAL ALLOCATION 50 Allocation of proceeds

An amount equal to the net proceeds of As long as the bonds are outstanding, the bonds will be kept in the treasury the balance of net proceeds will be liquidity portfolio and tracked in an reduced at the end of each semester, appropriate manner through an attested under the Bank’s debt allocation formal internal process that assures the framework, by amounts matching the link of net proceeds to AfDB’s lending disbursements made during the operations in the fields of climate semester in respect of eligible change adaptation and mitigation projects/loans* (“eligible green projects”)

TREASURY

USD BOND EUR ZAR PROCEEDS SEMI-ANNUAL GREEN BOND ALLOCATION ELIGIBLE PROJECTS 51 * Pending such disbursements, net proceeds will be held in the Bank’s liquidity portfolio and invested under the same conservative investment guidelines as other ordinary capital resources Addressing the potential negative effects of large hydro projects

Full Environmental and Social Impact Analysis (ESIA) needed if any criteria here below are met AfDB Green Bond portfolio contains 2 large hydro projects: . ONEE Integrated Wind/Hydro Project in Morocco . Itezhi-Tezhi Hydro Project in Zambia

Power Power Dam projects transmission lines involving of more than 110 generation plants construction of a Case study: Itezhi-Tezhi Hydro Project in Zambia with capacity of kV crossing highly reservoir of 1,000 populated, . Electricity generation of clean hydro power will save an more than 30 ha or more affecting estimated 360,000 tons of CO₂ emissions per year MW land used by local forested or . As a category 1 project, full ESIA conducted populations cultivated areas . A positive environmental externality of USD 39 million minimum expected to be created AfDB Green Bonds can only finance large hydro if net . For the 400 people affected by the project, full Resettlement emission reductions can be demonstrated (i.e. Action Plan prepared and implemented in accordance with the emission reductions from replacing fossil fuel minus Bank’s policy on involuntary resettlement including supporting emissions generated from creating the reservoir) the vulnerable to relocate . A budgetary allocation provided by Zambia Energy Utility Company (ZESCO) to ensure fair and timely compensation of project-affected persons Share of large hydro projects in the Bank’s Green Bond portfolio was 6.74% in 2017 52 Green unpacked: commitment to transparency

Dedicated Green Bond webpage Annual Green Bond newsletter

Impact reporting: . AfDB’s Green Bond Framework . Renewable energy capacity constructed or rehabilitated . Cicero’s Second Opinion . Annual energy savings . Vigeo’s ESG Rating . Annual energy produced . List of eligible projects in the Green Bond portfolio . Annual GHG emission reduced or avoided . List of Green Bond issues . Volume of water saved/treated . AfDB’s Green Bond newsletter . Annual catchment of water . Other indicators (job creation)

53 Annual newsletter: green impact reporting

AfDB Share of Project Sector Financing Financing

Allocated Annual Energy Annual Energy Lifetime (years) amount to Produced Savings (MWh) green bonds (MWh)

Renewable Annual GHG capacity emissions reduced constructed / avoided (CO2) Other Indicators

Gender Water impact Saved

Jobs Trees created planted 54 Green Bond impact reporting (1) – Selected renewable energy/energy efficiency projects

Renewable Allocated Expected energy Annual GHG AfDB amount to AfDB economic Annual energy capacity emissions financing Green Brief Project Profile Country Sector share of life/financial produced constructed reduced or Other Indicators (USD Bonds financing life (MWh) or avoided (in tons mn) (USD) (years) rehabilitated CO2e) mn) (MW) Uganda Rural Electricity Access Project, Uganda The project aims to build distribution networks to evacuate renewable energy - 992 direct jobs created during generated from a hydropower source, and to provide last-mile connections to construction (198 women) and 88 the grid for rural households, businesses and public institutions. This will help Uganda Solar 100 82% 0.5 20 0 0 38,713 during operation (26 women). replace diesel based energy generation with renewably generated electricity, as - 110,000 trees planted well as limit deforestation.

Ithezi-Tezhi Power Project, Zambia The project represents the development, construction, and operation of a new - About 700 workers are expected to be hired during construction. 120 MW base load hydropower dam at the site of the existing Itezhi-Tezhi Zambia Hydro 35 15% 31 40 89,477 17.57 52,720 dam. By deploying additional generation capacity in the region, this project will - During operations about 120 contribute to the resilience of the Zambian economy. permanent jobs should be created.

Eskom Renewable Energy Project - Sere Wind Facility, South Africa - The wind facility is expected to The project will add 100 MW of renewable energy production capacity to the generate approximately 140 direct and national grid and contribute to saving nearly 6 million tons of GHG emissions South Africa Wind 45 13% 9 20 28,833.39 13.17 32,915 1,371 indirect jobs during over its 20 year lifespan. construction and 10 jobs during operation. Kivuwatt Project, Rwanda The project comprises 2 main components: a methane gas extraction and - The project is expected to create 60 purification facility located meters below the lake surface, on a floating barge permanent skilled jobs, in addition to Rwanda Biogas 25 20% 23 25 215, ,000 25 700,000 off the coast of Lake Kivu to harvest methane rich gas from 320 m and a 25 the 250 jobs created at construction MW capacity power plant on the lake shore at Kibuye to convert the methane stage gas to electrical energy. Cabeólica Wind Power Project, Cabo Verde The project consists of the construction, operation and maintenance of 4 onshore wind farms on 4 islands of the Cape Verdean archipelago, with a Wind - 80 local jobs during construction Cabo Verde 16 23% 12 20 21,562 5.98 19,922 combined installed capacity of 25.5 MW. The project will reduce CO2 and 8-10 local jobs during operations emissions by at least 85,000 metric tons per year.

55 Green Bond impact reporting (2) – Selected sustainable and waste water projects Annual Annual absolute Allocated Annual GHG AfDB AfDB absolute ( (gross) amount of amount to emissions reduced Brief Project Profile Country Sector financing share of gross) water wastewater Other Indicators Green Bonds or avoided (in tons (USD mn) financing savings (million treated, reused or (USD mn) CO2e) m3) avoided in m3 National Irrigation Water Saving Programme Support Programme, Morocco - Anchor infrastructure will help to save This adaptation project promotes water efficiency, water and soil water, which will be recycled for an conservation, diversification of income sources and capacity building of Sustainable water estimated production of 64.3 million water users’ associations and farmers. As a result, it is expected to Morocco 88.00 49% 0.00 31.60 management m3/year improve the resilience of vulnerable groups as well as production - Close to 700,000 additional jobs created systems to climate change. The project's impact area covers a total land through land development. area of 26 000 hectares, comprising 10 250 farms divided into two water basins, Oum Rbia and Loukko. Project to Improve the Quality of Treated Water, Tunisia - About 3.9 million inhabitants will have The project will contribute to reducing Tunisia’s water stress through a healthy environment; 5,000 hectares of Wastewater the direct use of treated water for irrigation and recharge of water tables. Tunisia 37.03 87% 12.38 38,544.893 154,180 land and for watering about 700 hectares treatment of golf courses; coastal fishing will be improved in the region. Gabal El-Asfar Wastewater Treatment Plant - Stage II, Phase II - The project includes the use of Project, Egypt anaerobic digesters for electricity The project objective is to improve the quality of wastewater discharged generation. Power generation (about 6 into the drainage system in Cairo East, thereby contributing to increased Wastewater MW) by the project will be used internally Egypt 60.86 21% 48.89 182,500,000 730,000 coverage of improved sanitation and clean environment for the nearly 8 treatment and cut down electricity costs. million people living in this area. The project entails the construction of - 250-300 permanent jobs with varied phase II of GAWWTP. This phase will provide an additional wastewater skills needed during operations and treatment capacity of 500,000 m3/d. maintenance of the facility. The National Irrigation Water Saving Programme Support Project, Morocco - Will directly benefit 5,853 farms and a The project will finance the construction of irrigation infrastructure Sustainable water target population of almost 30,000 covering about 20,000 ha. The project has both climate adaptation and Morocco 61.16 78% 47.98 53.66 management inhabitants mitigation co-benefits, given that it seeks not only tomconvert - 235,000 additional jobs. conventional irrigationm systems into on demand irrigation systems, but also to establish an irrigation warning system. Farm Income Enhancement and Forestry Conservation - 4,038 hectares of new irrigated land to Programme - Project 2, Uganda be cultivated with high value crops With effects of climate change and the increasingly unreliable rainfall - 31,000 households from the irrigation pattern, the need for investment in irrigation has become of paramount schemes will benefit directly of which importance for the Government of Uganda. The project will develop Sustainable water 10,276 Uganda 77 84% 1.4 about 51% are women five new gravity fed irrigation schemes which will help improve management - 5,000 hectares of degraded forest household incomes, food security, and climate resilience through rehabilitated sustainable natural resources management and agricultural enterprise - 90,683 farmers trained in natural development. resource management. 56 World’s largest concentrated solar power plant

Morocco - Ouarzazate Solar Complex – Phase II (NOORo II and NOORo III)

Project cost: USD 1 billion - AfDB financing: USD 121 million Approved: December 2014 Signed: December 2014 Planned completion date: December 2019

In 2016, Morocco kicked-off the 1st phase of the world's largest concentrated solar power plant, Noor 1, one of the 4 solar plants that compose the Noor Solar Power complex. This project will produce 580 MW of electricity and reduce Morocco’s dependence to fossil fuels and foster the use of renewable energy in the country. Noor 1 has an installed capacity of 160 MW and will contribute to reduce GHG emissions of 240,000 tons of CO2 per year over a 25-year period.

. 500 MW of Concentrated Solar Power (CSP) capacity . Annual GHG reductions of 520,000 tons of CO2 per year . Curb CO2 emissions by 13 million tons over the lifetime of the project . Create 1,600 jobs during construction and 200 permanent jobs thereafter . Increase in the share of renewable energies in Morocco’s energy supply

57 Promoting sustainable transport in Dar Es Salam

Tanzania - Dar Es Salam Bus Rapid Transit (BRT)

Project Cost: USD 160 million - AfDB financing USD 97 million Approved: September 2015 Signed: October 2015 Planned completion date: December 2020

Since 2016, Dar Es Salam residents embrace new rapid transit service with the 1st phase of the BRT project completed and covered more than Expected impact 20 km of truck routes. The project is planned as an extensive system of 137 km of corridors to be built in 6 phases.

. Travel time and cost savings on this corridor by many commuters who previously faced traffic congestion and mobility issues . Improve economic productivity of Dar Es Salam and its environs . Improve health of Dar Es Salam residents by reducing transport related air pollutants

The 2nd phase of the BRT would see the on-going construction of the BRT system totaling 20.3 km, linking Dar Es Salam central business district with Mbagala. 58 Financing irrigation for a greener agriculture

Morocco - National Irrigation Water Saving Program Support Project (PAPNEE II)

Project Cost: USD 97 million - AfDB financing USD 88 million Approved: December 2016 Signed: June 2017 Planned completion date: December 2023

PAPNEEI-2 will cover 2 water basins, Oum Rbia (basin with high water stress levels) and Loukkos (basin with very high energy cost). This climate change adaptation project will fund the construction of irrigation infrastructure within the 2 water basins covering about 26,000 hectares, as well as irrigation water development measures and capacity building activities for the water users’ associations and farmers especially women and youths who are the vulnerable groups.

. Directly benefit 10,250 farms, with a target population of almost 61,500, mostly smallholder farmers . 64.3 million m3 of water will be saved per year . USD 0.5 million worth of energy gained annually . 535,310 additional jobs created by construction sites and 696,180 additional

jobs generated annually through land development over 2017-2022 59 Social Bond Framework

60 Why issue Social Bonds?

AfDB’s mission statement is to spur sustainable economic development and social The Bank’s Ten-Year Strategy progress in Africa, contributing overarching objectives: promote to poverty reduction inclusive growth and support African countries gradually transition to green growth

Investor diversification Showcasing AfDB’s concrete actions to alleviate poverty on the Providing support to continent the nascent Social Bond market AfDB strong SRI credentials 61 AfDB’s Social Bond Framework

Use of proceeds

Projects with strong social outcomes and impacts, leading to significant poverty reduction and job creation

External Review Project evaluation and selection Sustainalytics second opinion Project eligibility for Social Bond portfolio linked to development impact metrics

“Overall, Sustainalytics is of the opinion that the AfDB’s Social Monitoring and reporting Bond Framework is credible • Annual newsletter including: and transparent, and aligns with Management of proceeds the four pillars of the Social - Impact reporting: metrics/positive social outcomes Bond Principles 2017”. • Pipeline of social projects Sustainalytics, September 2017 - Disclosure on disbursements and • Disbursements to eligible projects allocations to social projects • Semi-annual allocation of - Update on social projects proceeds to eligible projects • Dedicated Social Bond webpage approved by Asset & Liability Committee

62 …aligned to the 2017 Social Bond Principles Project evaluation & selection

BANK PROJECTS

SCREENING AND SELECTION OF PROJECTS WITH STRONG SOCIAL OUTCOMES AND IMPACTS

APPLICATION OF AFDB SOCIAL BOND FRAMEWORK

ELIGIBLE SOCIAL PROJECTS

* Mainly AHVP (Vice-Presidency for Agriculture, Human and Social Development) 63 and PIVP (Vice-Presidency for Private Sector, Infrastructure and Industrialization) What can be financed with AfDB Social Bonds?

Agriculture and food security Water supply and sanitation Agriculture and (small-scale irrigation and (sustainable safe water food security agriculture value chain supply and sanitation 25% Water supply Education and development, provision of farm services delivery) and sanitation vocational infrastructure and agricultural 51% Energy training inputs for rural farmers, soft distribution 5% commodity finance facilities) Health (health systems 13% development, public health and construction and/or rehabilitation of hospitals Information and Agri-business, industries and and healthcare centers) Communications services (Small and Medium Technology Enterprises and value chain 6% financing) Information and Communications Technology 6% (last mile connectivity for Energy distribution (rural 29% 13% rural communities) electrification)

10% 25% Housing finance, financial 17% Education and vocational training inclusion and sector (skills development for development (social housing, employability and financial payment systems for entrepreneurship, youth populations) employment programs, enhanced Multinational North Africa East Africa infrastructure and capacity Southern Africa Central Africa West Africa building for schools) 64 Poverty reduction projects all across the African continent Management of proceeds

An amount equal to the net proceeds As long as the Notes are not fully of the Notes will be kept in AfDB’s allocated, the balance of net treasury liquidity portfolio and tracked proceeds will be reduced at the in an appropriate manner through an end of each semi-annual period by attested formal internal process that amounts matching the assures the link of net proceeds to disbursements made during such projects with strong social impact semi-annual period in respect of (“eligible social projects”) eligible social projects/loans*

TREASURY

USD SOCIAL BOND EUR ZAR PROCEEDS SEMI-ANNUAL SOCIAL BOND ALLOCATION ELIGIBLE PROJECTS

* Pending such disbursements, net proceeds will be held in the Bank’s liquidity portfolio and 65 invested under the same conservative investment guidelines as other ordinary capital resources Meeting transparency and disclosure requirements of SRI investors

Dedicated Social Bond webpage

. AfDB’s Social Bond Framework, including project evaluation, selection criteria and use of proceeds . Review/rating of the Bank’s Social Bond Framework by Second Opinion Provider Sustainalytics . List of projects included in the Social Bond portfolio . List of Social Bond transactions . AfDB’s Social Bond newsletter . Development Effectiveness Report*

Annual Social Bond newsletter

. Key developments in Social Bond market . Details on selected social projects (implementation, disbursements, other relevant indicators collected) . Impact reporting: number of beneficiaries positively impacted by social projects, job creation etc. . AfDB’s Social Bond issuance (outstandings, allocation to Social projects, investor distribution per type and geography) * Produced annually, the report monitors all AfDB public and private sector projects, shows details on Africa’s progress against its development goals and 66 assesses the contribution made by the Bank to Africa’s development Social Bond impact reporting (1) – Selected projects

AfDB Project Title / Goal Sector Country Currency Project cost Number of beneficiaries Employment generation Other indicator financing Institutional Support for the Sustainability of Urban Water Supply and 154,710,000 123,770,000 2.3 million (52% women) Women & youth in the Decrease in under 5 mortality rate Sanitation Service Delivery - Strengthen institutional efficiency in water Water supply and underserved peri-urban areas due to diarrheal disease to Angola USD and sanitation sector at central and provincial level and improve access Sanitation 108/1,000 from 173/1,000 and service delivery Four Towns Water Supply and Sanitation Improvement Program - 113,950,000 76,110,000 635,000 (>50% women) Employment/livelihood Decrease in under 5 mortality rate Improve health and socio-economic development of residents of 4 Water supply and opportunities generated by to 30/1,000 from 64/1,000 Ethiopia USD beneficiary towns, through increased access to sustainable water supply Sanitation increased investments and sanitation services and improvement in service delivery Towns Sustainable Water Supply and Sanitation - Unlock economic 451,663,097 381,191,000 2,110,000 people with access 600 direct, 2,000 permanent & Under 5 mortality rate to growth potential and improve quality of life through provision of safe, Water supply and to piped water, 1,340,000 10,000 temporary indirect jobs 20/1,000 from 51/1,000 Kenya USD affordable and sustainable water and sanitation services Sanitation people with access to sewerage Drinking Water Quality and Service Improvement Project - Consolidate 177,700,000 88,850,000 8 million in 2030, including 1 Few hundreds during works and Under 5 mortality rate to Water supply and and secure drinking water supply in several towns and improve water Morocco EUR million in rural areas operational phase + boost 25/1,000 from 30/1,000 Sanitation quality and the performance of existing drinking water supply services economic activities in the regions Urban Water Sector Reform and Port-Harcourt Water Supply and 346,060,000 200,000,000 1,300,000 (47% women) Youth employment opportunities Under 5 mortality rate to Sanitation Project - Provide sustainable access to safe drinking water and Water supply and through a fresh graduate 22/1,000, from 142/1,000 Nigeria USD sanitation in Port-Harcourt and strengthen Government's capacity to Sanitation attachment scheme reform the urban water and sanitation system across the country Reinforcement of Multiple-Use Water Supply along the Louga-Thies- 423,840,000 65,000,000 3 million people (51% 5,150 jobs created Reduction of diarrheal-disease Water supply and Dakar Road - Reinforce and safeguard drinking water supply for Senegal EUR women) prevalence rate by 15% by 2025 Sanitation domestic, industrial and rural purposes Arusha Sustainable Urban Water and Sanitation Delivery Project - 233,916,000 143,647,000 600,000 people in Arusha Opportunities during construction Under 5 mortality rate to Provide safe, reliable and sustainable water and sanitation services, and Water supply and and 250,000 additional 54/1,000 from 81/1,000 Tanzania USD contribute to improvement in health, social well-being and living Sanitation people standard Rural Drinking Water Supply Programme - Phase II - Improve socio- 149,255,909 97,400,000 372,000 inhabitants and 2,000 temporary jobs (works Reduction in water-borne disease economic and sanitary living conditions of rural communities, by Water supply and 130,000 students and phase), 1,000 permanent jobs rate by 2025 Tunisia EUR ensuring steady supply of drinking water of adequate quality and Sanitation teaching staff from more (management of DWS system), up quantity than 1,200 schools to 7,500 indirect jobs Lusaka Sanitation Program - Climate Resilient Sustainable Infrastructure 127,830,000 50,000,000 473,000 direct (52% 250 full-time skilled/semi-skilled + Under 5 mortality rate to Water supply and Project -Increase access to sustainable sanitation services to Lusaka Zambia USD women), 600,000 indirect 600 part-time unskilled jobs 50/1,000 from 87/1,000 Sanitation residents especially the urban poor trhough the program

67 Social Bond impact reporting (2) – Selected projects

AfDB Project Title / Goal Sector Country Currency Project cost Number of beneficiaries Employment generation Other indicator financing Agricultural Value Chain Development Project - Improve 115,081,000 89,291,000 242,000 (50% women) 6,000 jobs created Competitiveness of targeted Agriculture and competitiveness in oil plam, plaintain and pineapple value chains, Cameroon EUR value chains improved food security create employment for the youth Belier Region Agro-Industrial Pole Project - Contribute to increasing Agriculture and Côte 123,475,475 64,360,000 461,600 (50% women) 19,000 jobs created Decrease in rate of chronic EUR food and nutritional security of the population food security d'Ivoire malnutrition to 20% from 32% National Drainage Programme - Increase agricultural productivity Agriculture and 74,990,000 50,200,000 125,000 farming Indirect increase in gainful Increased crop productivity by Egypt EUR and income of households in the project area food security households employment 15-21% Enable Youth Nigeria - Create business opportunities and decent 523,000,000 250,000,000 50% of unemployed 185,000 (50% women) Beneficiaries income increased employment for young women and men along priority agricultural Agriculture and Nigerian graduates + 50% by 40% Nigeria USD chains food security of youth engaged in agribusiness Capacity Building for Youth Employability and Social Protection 94,040,000 84,630,000 720,000 youth (14-35 Unemployment rate of youths Success rate in professional Education and Improvement - Contribute to improve youth employability and Gabon EUR years) (25-34y) to decrease to 23% (from exam to reach 60% (55% girls) by strenghten social inclusion vocational training 25.9%), including 40% women 2022 Afe Babalola University - Enhance the quality and competitiveness 99,775,505 40,000,000 10,000 students 250 new staff, 1000 temporary ABUAD to be ranked TOP 10 Education and of ABUAD Nigeria USD jobs University in Nigeria vocational training

Skills Development and Entrepreneurship Porject - Support 35,250,000 30,000,000 Decrease in extreme Unemployment rate to decrease Increased MSME productivity Women & Youth: job creation, promotion of gender equality and Education and poverty for 17,000 youth to 32% (from 42.2%): 1,000 and competitiveness; Increased Zambia USD poverty reduction through skills development and entrepreneurship vocational training and women MSMEs and 10 schools farmers income and employment Power Transmission and Distribution Networks reinforcement 162,141,176 137,820,000 1,400,000 people (51% 3,020 jobs created (32% women) 252 localities electrified resulting Côte Project - Accelerate the economy's structural transformation Energy Supply EUR women) in reduction of insecurity & through industrialization and improvement of living conditions d'Ivoire pressure on forests Last Mile Connectivity Porject II - Increase electricity access for low 153,840,000 134,640,000 285,000 residential 2,500 jobs created during Number of customers to reach income population in Kenya Energy Supply Kenya USD customers and 15,000 implementation 6,785,000 commercial customers Central Africa Backbone Project - Contribute to the diversification 46,301,000 37,304,000 2,604,248 people In relation with equipment Improved access of the Information and of the economy by fostering the emergence of a digital economy in operation population and businesses to Communications Cameroon EUR Cameroon telecommunications and ICT Technology services Digital Technology Park - Increase contribution to ICT for economic 70,610,000 60,960,000 30,000 people (youth, 35,000 direct (40% women) and 500 new companies involved in Information and and inclusive growth in Senegal women, entrepreneurs) 105,000 indirect (35% women) the ICT sector Communications Senegal EUR within various areas of jobs created by 2025 Technology ICT 68 Water supply and sanitation

Senegal – Reinforcement of Multiple-Use Water Supply along the Louga- Thies-Dakar Road from the Keur Momar Sarr Treatment Plant

Project cost: EUR 423 million - AfDB financing: EUR 65 million Approved: November 2016 Signed: December 2016 Planned completion date: December 2021

Improving access to drinking water, strengthening industrial activities and supporting agricultural production. Construction of a 3rd water treatment plant (with a capacity of 100,000m3/day), a 216 km water supply pipeline, 2 water storage reservoirs (with a capacity of 10,000m3) and 3 distribution reservoirs. 792 km extension of the network and installation of 85,000 social connections.

. Direct beneficiaries: 3 million people living in rural areas with improved drinking water supply . Support 20,000 producers (farmers, market gardeners, fruit and vegetable sellers etc.), of which 48% women . Over 30,000 permanent jobs in agriculture . 5,150 jobs created (5,000 during construction and 150 permanent jobs) . 100,000 people to benefit from agricultural and market-gardening production- support facilities (60% women and 20% youth) . Market-gardening production to increase by 30% by 2035 . Availability of drinking water increased from 6 hours to 24 hours per day 69 Agriculture and food security

Cameroon – Agricultural Value Chain Development Program

Project cost: EUR 115 million - AfDB financing: EUR 89 million Approved: January 2016 Signed: October 2016 Planned completion date: January 2022

Improve the competitiveness palm oil, banana and pineapple agricultural value chains through rural infrastructure and crop sector development, resulting in:  Food security  Wealth creation, through higher income for the farmers  Job creation, especially for youth, through supporting entrepreneurship

. 242,000 direct beneficiaries (farmers and young graduates in agro-industry) . 1 million indirect beneficiaries in rural communities . Agricultural GDP growth rate to increase from 5% in 2014 to 8% in 2025 . Rural infrastructure development: construction of 1,000 km of rural roads, 30 warehouses, 15 rural markets, 30 km of electricity networks, 30 water supply systems . 600 businesses created in agro-business for 1,500 young graduates with access to credit . Annual income gains of USD 1,500 per household and over USD 10,000 for young entrepreneurs

70 Education and vocational training

Nigeria – Babalola University Expansion Plan

Project cost: USD 40 million - AfDB financing: USD 40 million Approved: October 2016 Signed: June 2017

Construction of a 400-bed teaching hospital for the Medical School, an industrial research park, a post-graduate school, student hostels, a central library and a small scale hydro-power plant installation. In 2014, only 30% of eligible students were admitted to University in Nigeria (more than 1 million unable to study in universities due to capacity constraints). Also the quality of training offered by universities is poor as over 75% of graduates are not fully employed.

. Enhancement of a farmer training program that will benefit over 2,400 smallholder farmers . Improved access to high quality education for more than 10,000 students per year and double student capacity by 2025 . Generate 12,000 high quality and employable graduates . Create 250 permanent and 1,000 temporary jobs . Provide scholarships to more than 500 students

71 African Economic Outlook

72 Increased momentum of African economies

GDP Growth Resilience in the face of difficult global environment

7.3% 5.8% 6.5% 3.6% 3.7% 2.9% 3.4% 2.3% 3.7% 2.3% 1.3%

Sustained domestic Recovery in commodity 2010 2011 2012 2013 2014 2015 2016 2017 Improvements in demand partly met by prices, particularly oil agricultural production Africa Euro Zone import substitution and metals Emerging and developing Asia Latin America and the Caribbean

Real output is up But challenges remain

. Slow changes in structure of production . Better macroeconomic . Commodity prices recovering but still management below super-cycle levels . Improved global . Tightening of global financial conditions economic conditions constraining global liquidity . Sensible policy . Political risks on the horizon frameworks . Increase in protectionism

73 Jobless growth remains a concern A promising growth outlook across the continent

5.9% • Libya 5.5% Best performing region, led by Ethiopia, Djibouti, 5.3% East Africa Rwanda, Uganda and Kenya, fueled by agriculture and 70.8% Leading the way industry sectors Senegal 2015 2016 2017 • Encouraging projections for 2018 and 2019 6.9% Guinea Burkina Faso 6.7% Djibouti 6.7% Ethiopia Cote d’Ivoire Ghana 7.0% 3.7% 5.2% North Africa • Egypt, Libya, Morocco and Algeria contributed substantially 8.1% 3.2% 7.6% 8.5% The second to regional growth, driven by economic and fiscal reforms Rwanda best performer • Positive outlook for 2018 and 2019 6.1% 2015 2016 2017 Tanzania 32 countries 6.7% • Performance dependent on commodities, hence posted growth 3.2% 2.7% West Africa vulnerable to price changes rates of 3.6% 0.4% • Progress in a Growth acceleration expected in 2018 and 2019 as or higher contrasting panorama Nigeria consolidate gains, and Cote d’Ivoire, Ghana and 2015 2016 2017 Senegal contribute to regional growth expansion

• Botswana, Madagascar, Mozambique and Zambia lead Largest African 1.6% 1.1% 1.7% growth, but South Africa, the region’s economic powerhouse, Southern Africa performed below potential: services and industry sector’s economies Growth contribution increased, agriculture contracted due to drought (% of GDP) 2015 2016 2017 below potential • Projections for 2018 and 2019: higher growth rates required for poverty reduction

3.1% 1.4% Central Africa • Underperformance as output contracted sharply in Republic 0.3% A modest of Congo and Equatorial Guinea • Resilient regional economies to pave the way to 2015 2016 2017 performance improvement in 2018 and 2019

74 Most economies operating below full growth potential Positive economic trends, deep-seated issues

Current account positions leave Fiscal deficits, including grants, narrowed some countries too exposed

% GDP % GDP 2014 2015 2016 2017 2014 2015 2016 2017 0 0 -2 -4 -2 -6 -4 -8 -10 -6

Africa Oil-Exporting Oil-Importing -8 Africa Oil-Exporting Oil-Importing

Sharp increase in inflation fueled by Debt-distress risk low or moderate depreciation in exchange rates and for 60% of African economies previous widening of fiscal deficits % % 20 60 50 15 40 30 10 20 10 5 0 0 2014 2015 2016 2017 Total External Debt (% GDP) Africa Oil-Exporting Oil-Importing Debt Service (% of Exports) 75 A critical need to improve domestic resource mobilization

Tax-to-GDP ratio still below 25% threshold

(in USD billion) Heavy dependence on foreign resources 700 25% 650 23% 100 (in USD billion) 600 21% 550 19% 500 50 450 17% 400 15% 2010 2011 2012 2013 2014 2015 2016 0 Tax Revenues Tax-to-GDP ratio 2010 2011 2012 2013 2014 2015 2016 Foreign Direct Investments Remittances Additional tax reforms and better Official Development Assistance revenue regimes needed Portfolio Investments Rationalizing public expenditure to preserve socio-economic outcomes

76 …essential to funding recurrent and capital funding needs Africa, the next investment frontier

Urgent need for structural transformation to accelerate economic diversification Annual Annual While the global infrastructure financing economy boasts needs gap hundreds of Policies to Investment in trillions of dollars Job creation empower the poor infrastructure USD 130- USD 68- of savings chasing 170 billion 108 billion investment opportunities . Improve regulatory . Shift toward labor- . Critical for sustainable environment intensive industries growth and inclusive . Subsidize wages . Modernize agricultural development . Attract foreign sector Yet infrastructure finance declined in recent years investment . Enter into global 83 (in USD billion) value chains 75 75 79 63

19 25 19 20 19 44 26 31 24 26

2012 2013 2014 2015 2016 African Governments Donors China Private Sector Arab countries MDBs & other bilaterals

77 Africa has the potential to capitalize on its strengths Frequently Asked Questions

78 Frequently asked questions

1) What is the relationship between AfDB and ADF? 80 2) What is the capital structure of the Bank? 81 3) What is your procedure for capital call? 82 4) What are your investment guidelines? 83 5) Net income vs allocable income 84 6) What is AfDB’s credit policy? 85 7) What are the AfDB’s lending limits? 86 8) What are the eligibility criteria for loans? 87 9) What is the AfDB’s loan approval process? 88 10) AfDB’s Loan Pricing 89 11) What are the Bank’s policies for equity investments? 90 12) What are the eligibility criteria for equity investments? 91 13) What are your largest notional exposures? 92 14) What is the distribution of the sovereign and non-sovereign portfolios by countries? 93 15) What is your exposure to North Africa? 94 16) What is the Exposure Exchange Agreement ? 95 17) What does the Preferred Creditor Status (PCS) mean? 96 18) What are the AfDB’s non-performing loans ? 97 19) What is your policy on write-offs? 98 20)What is a fragile situation? 99 21) What is your field presence in Africa? 100 22)What is the Bank’s Integrated Safeguards Systems? 101 23)What are your ethical business practices? 102 24)What is the Extractive Industries Transparency Initiative? 103 79 What is the relationship between AfDB and ADF?

 The African Development Bank and the African Development Fund are two entities within the AfDB Group that are separate both legally and financially. They have distinct assets and liabilities

 The African Development Bank is the rated entity that raises funds from the capital markets to on-lend to the most credit worthy countries of Africa and to viable sector projects

 The African Development Fund (ADF) is the soft loan lending arm of the AfDB group and is primarily funded through contributions from donors. In effect it provides highly concessional loans and grants to the poorest countries of Africa

 The AfDB has an equity participation in the Fund, and makes annual contribution from its net income to ADF. There is no recourse to the AfDB for obligations in respect of any of the ADF liabilities and vice-versa. There can be no transfer of exposure between these two institutions, as they are separate.

80 What is the capital structure of the Bank?

Capital structure of the Bank 200% capital increase with Reinforce the Bank’s 70,000 (in USD million) 6% paid-in portion raising franchise value, key the capital to around USD prudential ratios and AAA 60,000 100 billion credit rating 50,000

40,000

30,000 Callable capital is the commitment by each shareholder to 55,114 make additional capital available to the institution in case of 20,000 financial distress 10,000 1,014 18,578 12,493 6,079 0 Paid-in Capital AAA Callable AA+ to A- Other Callable Demonstrated strong shareholders support Capital Callable Capital Capital 31-Dec-17 Remaining paid-in capital

Capacity to meet increased level There has never been a of future demand and support call on the capital of the business growth plan the Bank

81 What is your procedure for capital call?

• Callable capital is the portion of the subscribed capital which may only be called to meet obligations of the Purpose Bank for money borrowed or on any guarantees

• Payment must be made by the member countries concerned in gold, convertible currency or in the currency required to discharge the obligation of the Bank for which the call was made • The Bank has entered into arrangements whereby, in the event of a call on its callable capital, it will request its member countries to make payment in response to such a call into a special account Mechanism established by the Bank with the Federal Reserve Bank of New York, or its successor duly designated for the purpose. • Terms of such account provide that the proceeds of a call must first be applied in payment of, or in provision for full settlement of, all outstanding obligations of the Bank incurred in connection with the issuance of senior debt before any other payment shall be made with such proceeds.

• Calls on callable capital are required to be uniform in percentage on all shares of capital stock, but obligations of the members to make payment upon such calls are independent from each other. Independent • The failure of one or more members to make payments on any such call would not discharge any other Obligation member from its obligation to make payment. Further calls can be made on non-defaulting members if necessary to meet the Bank’s obligations. However, no member could be required to pay more than the unpaid balance of its ordinary capital subscription.

82 What are your investment guidelines?

Minimum Investment type Maturity limit Liquidity Haircuts rating

AAA/Aaa 30 years 0% for AAA Government/Agency/Supranational AA-/Aa3 15 years 20% from AA+ to AA- A 1 year 40% for A+ to A-

AAA/Aaa 10 years 50% from AAA to A Banks and Financial Institutions AA-/ Aa3 5 years 100% below A/A2 6 months

AAA/Aaa 10 years 50% from AAA to A Corporates AA-/ Aa3 5 years 100% below A 6 months

MBS and ABS AAA/Aaa 40 years 100%

83 Net income vs allocable income

Distributions of income approved by the Board are done on the basis of Allocable Income

(in USD million) 2017 2016 2015 2014 2013 Income before distributions approved by the Board 368 161 129 220 278 Distribution approved by the Board 117 128 172 174 166 Distributions to key Net Income 251 34 -43 46 112 development initiatives approved by the Board of Allocable income is the income before distributions adjusted with unrealized Governors reported gain/(loss) on borrowings and related derivatives and translation gain/(Loss) as expenses in Income Statement in (in USD million) 2017 2016 2015 2014 2013 the year distributions Income before distribution approved by the Board 368 161 129 220 278 Adjusted for: are approved - Unrealized gain/(loss) on derivatives and borrowings 75 106 69 43 -53 - Translation gain/(loss) 2 -1 -20 6 -21 - Fair valuation gain/(loss) of macro hedge swaps 3 7 13 19 29 Allocable Income (Income - Adjustments) 311 273 190 287 234

84 (totals may not add up due to rounding) What is AfDB’s credit policy?

The Bank Group’s Credit Policy determines each Regional Member Country’s (RMC) eligibility to access the African Development Bank, the African Development Fund or a combination of both, based on the following 2 criteria: - Per capita income above a certain threshold/operational cut off and - Creditworthiness to sustain non-concessional financing

In addition to creditworthiness assessment, the Bank conducts an annual internal rating exercise of all its African member countries based on sovereign rating models validated by leading international rating agencies. Sovereign ratings are subject to continual surveillance throughout the year and rating changes may occur in case of a change in the country’s fundamentals and these actions are reviewed and approved by the Credit Risk Committee of the Bank.

As of April 2018, 21 countries are eligible for sovereign lending, namely, Algeria, Angola, Botswana, Cameroon, Cabo Verde, Congo, Egypt, Equatorial Guinea, Gabon, Kenya, Libya, Mauritius, Morocco, Namibia, Nigeria, Senegal, Seychelles, South Africa, Swaziland, Tunisia and Zambia. Nigeria graduated from blend to ADB-only category in 2014, and is benefitting from a transition period of 5 years in line with the Bank’s Group Transition Framework for Countries Changing Credit Status. Nigeria will not receive ADF resources starting from 1st January 2019.

In 2014, the Bank introduced some flexibility into its Credit Policy aimed at pro-actively responding to the economic development needs in ADF countries. The revision allowed access to this category of countries, on a case-by-case basis, to resources from the ADB public window for financing transformative projects. To be eligible to ADB sovereign resources countries must meet the following criteria: (i) be at low or moderate risk of debt distress, as determined by a debt sustainability analysis (DSA) by the IMF/World Bank; (ii) have headroom for non-concessional borrowing, as determined by a DSA by the IMF/World Bank; (iii) have a sustainable macroeconomic position determined on the basis of a Special Risk Assessment; and (iv) the request for financing must be approved by the Bank’s Credit Risk Committee, based on the risk assessment for the RMC.

As of March 2018, the following ADF countries are eligible to access ADB sovereign resources under the 2014 Credit Policy provision: Burkina Faso, Côte d’Ivoire, Rwanda, Tanzania and Uganda. 85 What are the AfDB’s lending limits?

There are several limits applicable to the Bank’s operations with the ultimate objective of ensuring that the Bank is protected from a risk perspective:

• 45% of the total risk capital* for Public Sector operations • 45% of total risk capital for Non-Sovereign operations • 10% of the total risk capital for market risk and operational risk

Limits Definition Percentage Country limit Total capital allocated to a single 15% of the Bank’s risk capital country Sector Limit Total Capital allocated to a single 25% of the risk capital allocated to private sector sector operations for any sector. 35% of the risk capital allocated to private sector operations for the financial services sector.

Single name limit Total capital allocated to a single 6% of the private sector risk capital counterparty Equity limit Equity participations 15% of total risk capital

Lines of credit limit Lines of Credit Participation limited to 50% of the equity of the borrowing bank

* Risk capital is defined as paid-in capital and reserves

86 What are the eligibility criteria for loans?

Public Sector Private Sector The eligibility is based on two pillars: 1- Gross National Income The Bank only lends to commercially viable private sector per capita and 2- Credit Worthiness. operations in its 54 regional member countries. Commercial viability and risks are estimated based on internal rating models As of April 2018, there are 21 countries eligible for sovereign (reviewed and recalibrated periodically with the support of major lending, namely, Algeria, Angola, Botswana, Cameroon, Cabo international rating agencies). The ratings are reviewed at least Verde, Congo, Egypt, Equatorial Guinea, Gabon, Kenya, Libya, annually and subject to continued monitoring in order to ensure Mauritius, Morocco, Namibia, Nigeria, Senegal, Seychelles, proactive corrective measures are taken in a timely manner. South Africa, Swaziland, Tunisia and Zambia. The list of eligible countries is reviewed periodically to determine the status The Bank does not lend to projects rated below an internal rating of the countries and a decision to add or to remove countries of “5” which is equivalent to “B-” international rating and all from the list is taken by the Board. projects rated (numerically) above “5” are subject to: 1) exceptional Board approval and 2) a limit of 10% of the Bank’s Moreover, the Bank conducts an annual internal rating exercise capital. The Bank also has a set of limits that governs single name of all its African member countries based on sovereign rating exposure (6% of total risk capital) and sector exposure (25-35% models validated by leading international rating agencies. of the risk capital allocated to private sector operations). Sovereign ratings are subject to continued surveillance throughout the year and rating changes may occur in case of The Bank has in place a framework for the ex-ante additionality change in the country’s fundamentals and these actions are and development outcome assessment (ADOA) of its private approved by the Credit Risk Committee of the Bank. sector operations. The established baseline development outcome indicators will facilitate tracking, monitoring and ex-post evaluations.

87 What is the AfDB’s loan approval process?

The Bank has clear core operational priorities and cross cutting themes as part of its Ten-Year Strategy in deciding in which areas to intervene. All projects follow the same internal approval process.

1. Preparation of a Project Concept Note - The Project Concept Note (PCN) is a document prepared to present, in a concise and analytical way, the main features of the project to be financed. The main objective is to allow Management to take an informed decision whether to go ahead with appraisal and due diligence of the project or not. The first review level of the PCN is done by peer reviewers and members of the Project Appraisal Team (PAT), which constitutes experts drawn from a wide range of relevant Bank departments. The PCN is finally reviewed and discussed by the Country Team who determines if the transaction is well conceived and that both structure and orientation are compliant with the Bank’s strategy and development priorities. It will also establish if the project is technically sound and commercially viable. The PCN is cleared by the Country Team (chaired by the Regional Director) which will recommend the project to the Operations Committee (which is chaired by the Bank’s Vice- President/Chief Operating Officer) for final clearance. However, PCNs of some projects responding to certain circumstances including but not limited to having an amount higher than UA 100 million, reputational risk, exceptionally innovative features in their design, will require prior review by the Credit Risk Committee (CRC), chaired by the Bank Group Chief Risk Officer, who will make recommendations, as applicable to credit risk governance, credit assessment, rating change approval to the Operations Committee prior to its final clearance. The Operations Committee will then make a comprehensive review of the Project Concept Note with focus on finer technical details of operation. At this stage, particular attention is given to rating. If the project is cleared at this level, the PAT will go on a project appraisal mission to do an appraisal and due diligence, assessing the Project on the ground. Simultaneously, the Bank’s Risk Management Department undertakes an independent credit evaluation of the project and prepares a Summary Credit Note.

2. Project Appraisal Stage - On completion of the due diligence mission, a Project Appraisal Report (PAR) is prepared. This is then discussed by the Project Appraisal Team at Country Team level. The discussion of the PAR at the Country Team is subsequent to the CRC reviewing the project for further credit assessment recommendations. Once cleared at the Country Team level, the project is sent to the Operations Committee before being submitted for approval to the Board.

3. Board Approval - Final approval rests with the Board of Directors. The Board will make a decision based on the Project Appraisal Report and on the independent Board Credit Memorandum report prepared by the Risk Management Department.

Following approval (and disbursement), all projects continue to be periodically assessed and evaluated by the Bank’s Risk Management Department, 88 and their internal risk rating is regularly updated. AfDB’s loan pricing

FULLY FLEXIBLE SOVEREIGN AND SOVEREIGN NON-SOVEREIGN LOANS GUARANTEED LOANS Currency USD, EUR, JPY, ZAR and any other currency designated as lending USD, EUR, JPY, ZAR and any other currency designated as lending currency of the Bank currency of the Bank Maturity Up to 25 years, with up to 8 years grace period Up to 15 years with up to 5 years grace period. Longer maturities can be considered on a case-by-case basis Lending Rate Base rate + funding cost margin + lending spread (80 bps) + Base rate + lending margin maturity premium Base Rate Floating or fixed Floating base rate, fixed base rate or all-in cost of funds (for local currency lending) Lending based on project specific credit risk rating in line with the Bank’s Margin non-sovereign pricing framework. Margin includes credit risk premium (derived from probabilities of default and loss given default) and concentration risk premium. Maturity Dependent on the average loan maximum maturity of the loan (0 Premium bps for up to 12.75 years, 10 bps for Average Loan Maturity greater than 12.75 years and up to 15 years and 20 bps for Average Loan Maturity greater than 15 years) Fees 25 bps commitment fee and 25bps front end fees - 1% front end fees - 0 to 1% Appraisal fees - 0.5% to 1% commitment fee Repayment Equal instalments of principal after expiration of grace period. Equal instalments of principal after expiration of grace period. Terms Other repayment terms may also be considered Other repayment terms may also be considered Optionality The borrower can fix, un-fix and refix the base rate; caps and collars are available for the base rate; currency conversion 89 possibilities on disbursed and undisbursed portion of the loan What are the Bank’s policies for equity investments?

The Bank applies pre-defined eligibility criteria to select suitable operations that maximize its catalytic impact, guided by the principles of development effectiveness.

Objectives: . In addition to the financial return for the Bank, Equity Investments are aimed at promoting: (a) local ownership of productive enterprises; (b) efficient use of resources; (c) regional economic cooperation and integration; (d) entrepreneurial risk-taking in economic sectors of emerging importance, with a view to diversifying and modernising national or sub-regional economies; (e) best-practice standards in corporate governance, business management, and corporate responsibility as a mean to strengthen the competitiveness of Africa’s medium and large scale enterprises; and (f) the mobilisation of domestic, regional and foreign direct investment resources in pivotal sectors of the economy such as socio-economic infrastructure, manufacturing, agribusiness and food security, and financial sector development.

Eligibility: . Non-sovereign operations can be implemented in any of the Regional Member Countries eligible to be considered for Bank investments; . All economic sectors and sub-sectors are eligible for Bank investments, except: Production of alcoholic beverages, tobacco, and luxury consumer goods - Production or trade in weapons, ammunition and other goods used for military or paramilitary purposes - Production, trade in, or use of nuclear reactors and related products, asbestos fibres, harmful substances - Trade in wildlife or wildlife products regulated under international conventions (CITES) - Speculative trade or investment in platinum, pearls, precious stones, gold and related products - Gambling, casinos and equivalent enterprise - Use of logging equipment in unmanaged primary tropical rainforests - Economic activities involving harmful or exploitative forms of forced labour and/or child labour - Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements. 90 What are the eligibility criteria for equity investments?

Non-sovereign operations must be compatible with the strategic orientations and priorities of the Bank (High 5s, 2013-2022 Ten STRATEGIC FIT Year strategy and successors) and regional member countries (Country Strategy Papers and Regional Integration Strategy Papers)

Potential investee companies must be operating under competent management and good corporate governance, with a track record CREDITWORTHINES or demonstrable capacity for environmental and social responsibility, in good standing, with a viable business model, with realistic S business strategies, and capable of generating sufficient revenues to reimburse the Bank and other financiers

COMMERCIAL Equity participations must have good prospects to support dividend payments and/or retained earnings, yielding satisfactory VIABILITY expected internal rates of economic and financial return In assessing financial return on equity on single-investments as well as of its equity portfolio, the Bank calculates a financial rate of RETURN ON return on investment (FRRI). The bank will calculate the expected FRRI of each prospective investment, which should show an INVESTMENT adequate premium over the rate at which it would extend a senior loan to the same investee The Bank will approve an equity investment only after an attainable ‘exit strategy’ has been defined and agreed upon with other key EXIT STRATEGY shareholders. DEVELOPMENT In its capacity as lender of last resort, the Bank will not provide financing for a non-sovereign operation if, in the Bank’s opinion, the OUTCOMES client can obtain financing elsewhere on terms that may be considered reasonable for the recipients The Bank will only participate in transactions if its role is “additional” over resources that can be provided by private-sector sources of finance, that is, if the Bank’s participation is providing (a) political risk mitigation; (b) financial additionality, including extension of BANK’S the tenor of financing, and spurring the development of capital markets; and (c) improving development outcomes. In the assessment of ‘additionality’, a special focus is on the Bank’s role in leveraging additional co-financing that would not have been ADDITIONALITY forthcoming in the absence of the Bank’s participation in the operation, and catalysing other investments in related sectors of the economy

SIZE OF The Bank does not seek to acquire a controlling interest in companies in which it invests, and accordingly, its participation is limited INVESTMENTS to 25% of the total capital of the company throughout the life of its investment PRIVATE EQUITY Assessment is based on (a) financial strength and historic fund performance, (b) investment strategy and risk management, (c) FUNDS industry structure, (d) management and corporate governance and (e) information quality 91 What are your largest notional exposures?

Consolidated portfolio

Morocco 17.75% Tunisia 12.74% South Africa 12.41% Egypt 10.83% Nigeria 7.94% Botswana 4.66% Angola 4.43% Algeria 4.25% ZMultinational 4.18% Gabon 3.40% Namibia 3.03% Mauritius 2.29% Dem Rep Congo 2.00% Kenya 1.49% Zimbabwe 1.11% Senegal 0.85% Côte D'Ivoire 0.77% Cape Verde 0.67% Ethiopia 0.63% Ghana 0.53% Mauritania 0.51% Madagascar 0.45% Tanzania 0.45% Uganda 0.37% Zambia 0.37% Sudan 0.30% Cameroon 0.29% Rwanda 0.23% Seychelles 0.20% Swaziland 0.19% Togo 0.17% Eq Guinea 0.13% Congo CG 0.12% Burkina Faso 0.10% Mali 0.09% Niger 0.04% Mozambique 0.03% Somalia 0.02% 92

As of 31st December 2017 What is the distribution of the sovereign and non- sovereign portfolios by country?

Sovereign portfolio Non-sovereign portfolio

Morocco 21.92% South Africa 22.68% Tunisia 15.36% ZMultinational 18.99% Egypt 12.71% Nigeria 15.32% South Africa 9.52% Kenya 6.07% Botswana 5.97% Egypt 4.15% Nigeria 5.86% Tunisia 3.40% Angola 5.67% Senegal 2.91% Algeria 5.45% Morocco 2.89% Gabon 4.34% Ethiopia 2.86% Namibia 3.87% Ghana 2.42% Mauritius 2.48% Côte d'Ivoire 2.33% Dem Rep Congo 2.26% Mauritania 2.31% Zimbabwe 1.38% Madagascar 2.05% Cape Verde 0.79% Tanzania 1.98% Sudan 0.38% Mauritius 1.64% Côte d'Ivoire 0.33% Uganda 1.52% Senegal 0.27% Zambia 1.38% Swaziland 0.24% Dem Rep Congo 1.05% Seychelles 0.23% Cameroon 0.86% Kenya 0.21% Togo 0.76% Eq. Guinea 0.16% Rwanda 0.72% Congo 0.16% Burkina Faso 0.44% Cameroon 0.13% Mali 0.43% Rwanda 0.09% Cape Verde 0.22% Niger 0.18% Zambia 0.08% Zimbabwe 0.14% Uganda 0.05% Mozambique 0.13% Somalia 0.03% Seychelles 0.08% Tanzania 0.02% Gabon 0.08% ZMultinational 0.02% Namibia 0.04% Ethiopia 0.003% 93

As of 31st December 2017 What is your exposure to North Africa?

(in USD million)

Country Outstanding Balance Undisbursed Balance Notional Exposure

Tunisia 3,223 704 3,937 Egypt 2,749 163 2,913 Morocco 4,504 863 5,367 Algeria 1,079 - 1,079 Libya - - - Total North Africa 11,565 1,731 13,290 Total AfDB 25,381 10,226 35,607 Share of Exposure 46% 17% 37%

As of 31st December 2017

94

exposures exposures 95

and the Bank continues to expect full recovery of its sovereign and sovereign and sovereign its of recovery full expect to continues Bank the and guaranteed guaranteed -

no default have occurred on any exposures covered under these EEA EEA these under covered exposures any on occurred have default no 2017, December of As .

settled settled

Experience shows that MDBs hardly ever write off arrears as arrears always ultimately get get ultimately always arrears as arrears off write ever hardly MDBs that shows Experience .

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IBRD and IADB, both both IADB, and IBRD

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amortization starting from 2025 from starting amortization

into entered Bank the , 2015 In Multilateral other with EEA) ( Agreement Exchange Exposure the Final maturities in 2030 with linear linear with 2030 in maturities Final What is the Exposure Exchange Agreement? Exchange Exposure the is What What does Preferred Creditor Status mean?

For the public sector exposures, Preferred Creditor Status (PCS) means that the repayment to the Bank, generally, takes precedence over other creditors in the event of sovereign default. In other words, according to the PCS, AfDB ranks higher than other creditors in case of default. Rating agencies take this specific feature in their assessment of Multilateral Development Banks.

For the private sector exposure, the Preferred Creditor Status has a different benefit. In case of restriction of access to the foreign currencies by the sovereign, rating agencies consider that this restriction will not apply for the repayment due to Multilateral Development Banks. This provides strong mitigation to the Transfer and Convertibility Risk. For example, in case of a default or a near default of a country on its financial obligations, it may restrict the private sector access to foreign currencies but this restriction will not apply in case the money is meant for the repayment to the Bank.

96 What are the AfDB’s non-performing loans ?

Total non performing loans (NPLs) of 2.4% (vs 3.7% in 2016) Provisioning trends (in million USD) Non-sovereign loans (In USD thousand) 706 Sector Outstanding Impairment on Impairment 641 principal principal rate 478 Mining 135,864 67,932 50% 337 Air Tranport/Airport 74,230 44,538 60% 280 Finance - Development Banking 17,506 4,000 20% 216 Finance - Development Banking 10,868 2,484 20% Agriculture 7,760 7,760 100% Finance - Commercial Banking 7,500 7,500 100% Finance 3,281 2,064 100% 2014 2015 2016 Total private sector 257,009 136,686 Total outstanding non- Principal Accum. Provisions sovereign loans 5,567,952 Non-sovereign NPLs 4.62% NPL comparables vs peers IBRD (in % of total outstanding loans) IADB Sovereign loans (In USD thousand) AfDB Country Outstanding Impairment on Impairment Principal Principal rate IFC Zimbabwe 273,747 89,439 33% Sudan 75,817 25,496 34% EBRD Somalia 8,679 4,738 55% Total public sector 355,650 118,283 Total outstanding sovereign 0% 1% 2% 3% 4% 5% 6% loans 19,812,553 2016 2015 2014 Sovereign NPLs 1.80% 97 Source: Moody’s Investors Service (As of 31st December 2017) What is your policy on write-offs?

The Bank has never written off sovereign guaranteed loans. Its experience has been that countries default in case of unusual civil disturbances or events. When peace and stability is restored, the countries re-engage with the Bank and pay their arrears or usually obtain assistance from donors for arrears clearance.

It is the Bank’s policy that if the payment of principal, interest or other charges becomes 30 days overdue, no new loans to that member country, or to any public sector borrower in that country, will be presented to the Board of Directors for approval, nor will any previously approved loan be signed, until all arrears are cleared. Furthermore for such countries, disbursements on all loans to or guaranteed by that member country are suspended until all overdue amounts have been paid. These countries also become ineligible in the subsequent billing period for a waiver of 0.5% on the commitment fees charged on qualifying undisbursed loans.

Although the Bank benefits from the advantages of its preferred creditor status and rigorously monitors the exposure on non-performing sovereign borrowers, some countries have experienced difficulties in servicing their debts to the Bank on a timely basis. As previously described, the Bank makes provisions for impairment on its sovereign loan portfolio commensurate with the assessment of the incurred loss in the portfolio.

Write-offs could arise for non-sovereign loans and these are financed by the Bank’s net operating income (NOI). To date there has not been any significant loan write offs of non-sovereign loans.

In compliance with IFRS, the Bank does not make general provisions to cover the expected losses in the performing non- sovereign portfolio. For the non-performing portfolio, the Bank makes specific provisions based on an assessment of the credit impairment, or incurred loss, on each loan.

98 What is a fragile situation?

No country is immune to fragility which can be defined as a “condition of elevated risk of institutional breakdown, societal collapse or violent conflict”. While there is no internationally agreed framework or set of indicators for assessing fragility, for operational purposes and in line with the new strategy, AfDB categorizes countries and regions by their degree of fragility.

• Harmonized list of fragile situations by Multilateral Development Banks; targeted qualitative fragility assessment; presence of armed conflict in the state’s territory; Category presence of violent political/social uprisings 1 • For example, Great Lakes and Central Africa Region, Horn of Africa, Mano River Union, Sahel

• Risk of spill-over from neighboring conflict; increasing trend and/or sudden onset of Category governance problems; high risk of sustained social/political unrest; 2 • Declining trend in policy and institutional performance and/or presence of important non-political drivers of fragility

Category • Relatively low risks of violence or societal breakdown; relatively high capacity of social 3 and political institutions to manage challenges within a legitimate/inclusive framework

99 What is your field presence in Africa?

2002 2017 Ideally placed to identify unique needs of each country

Greater Deeper effectiveness understanding of context

Improved project Enriched policy supervision dialogue quality and engagement

Headquarters

Country offices Improved New country Close coordination disbursements with other Regional hubs offices: Benin, and procurement Guinea and Niger development Liaison offices processes partners

Strong presence in 41 countries, expanded to fragile states

 39% of Bank staff working in field offices 100  76% of projects managed from those field offices What is the Bank’s Integrated Safeguards System?

Cornerstone of the Bank’s strategy to Safeguards as a tool for identifying Encourages greater transparency and promote growth that is socially inclusive risks, reducing development costs, and accountability through project-level and environmentally sustainable improving project sustainability grievance and redress mechanisms

Structure of the Integrated Safeguards System Environmental and Social OS 1 Declaration of commitment to Assessment Integrated safeguards environmental and social sustainability and policy statement reducing risk of non-compliances Involuntary Resettlement: Land OS 2 Acquisition, Population Displacement and Compensation Short and focused policy statements that Operational safeguards follow Bank commitments and establish (OS)(OS) operational parameters OS 3 Biodiversity and Ecosystem Services

Environmental and Social Procedural and process guidance Assessment Procedures (documentation, analysis, review and Pollution Prevention and Control, revised reporting) at each stage of project cycle OS 4 Greenhouse Gases, Hazardous Materials and Resource Efficiency

Integrated Environmental Detailed (methodological, sectoral and and Social Impact Labor Conditions, Health and thematic) guidance on integrated OS 5 Safety Assessment guidance environmental and social impact assessment notes revised 101 What are your ethical business practices?

• Committed to good governance and to the promotion of ethical business practices as well as the endorsement of international standards of anti-corruption and transparency that apply to its operations • Adopted the Uniform Framework for Preventing and Combating Fraud and Corruption along with other Multilateral Development Banks in 2006 : harmonized strategy for mitigating corruption and fraud for development effectiveness in projects financed by the multilateral banks • Created an Integrity Due Diligence structure for private sector operations and other operations financed without a sovereign guarantee, premised on the institution’s fiduciary and legal responsibilities to its shareholders and with attention to considerations of economy, efficiency and competitive trade

Guiding Principles for Integrity Due Diligence (IDD)

Assessment of Civil, Criminal, Sanctioned Persons and Identification of Beneficial Politically Exposed Persons and Regulatory Backgrounds: Entities: will not finance a Ownership: will not proceed on (PEPs) and Other High Risk closely evaluate the criminal, Project where any of the a transaction without Relationships: carry out civil and regulatory history of Counterparty, Significant ascertaining the identity of the enhanced IDD in addition to its the Counterparty and Significant Related Party or their Beneficial Beneficial Owners of such standard IDD measures where Related Parties for Integrity Owners is debarred or cross- transaction PEPs are involved in a Project Risk* debarred by the Bank Group

Monitoring of Integrity Risks Mitigation of Integrity Record-Keeping: keep adequate and Enforcement of Covenants: Risks:The underlying objective and reliable records of all effectively monitor Projects of the IDD process should be to documentation involved in and throughout the project cycle to identify and mitigate Integrity steps taken throughout the IDD identify early warning signs and Risks process indicators of Integrity Risks

*Integrity Risk is the potential for financial and non-financial loss including adverse reputational impact that may result from Unethical Practices in Projects and investment decisions 102 What is the Extractive Industries Transparency Initiative?

The Extractive Industries Transparency Initiative (EITI) aims to promote governance by strengthening transparency in the extractive industries. Natural resources, such as oil, gas, metals and minerals, belong to a country’s citizens. Extraction of these resources can lead to economic growth and social development. However, when poorly managed it has too often lead to corruption and even conflict. More openness around how a country manages its natural resource wealth is necessary to ensure that these resources can benefit all citizens.

Countries implement the EITI Standard to ensure full disclosure of taxes and other payments made by oil, gas and mining companies to governments. These payments are disclosed in an annual EITI Report. This report allows citizens to see for themselves how much their government is receiving from their country’s natural resources

EITI provides a number of benefits to various stakeholders. Benefits for implementing countries include an improved investment climate by providing a clear signal to investors and international financial institutions that the government is committed to greater transparency. EITI also assists in strengthening accountability and good governance, as well as promoting greater economic and political stability. This, in turn, can contribute to the prevention of conflict based around the oil, mining and gas sectors.

Benefits to companies and investors are centered on mitigating political and reputational risks. Political instability caused by opaque governance is a clear threat to investments. In extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, reducing such instability is beneficial for business. Transparency of payments made to a government can also help to demonstrate the contribution that their investment makes to a country.

Benefits to civil society come from increasing the amount of information in the public domain about those revenues that governments manage on behalf of citizens, thereby making governments more accountable.

The Bank is working to mainstream EITI principles in its own sector operations. Through encouraging regional member countries to take part in the EITI process and by offering technical and financial assistance where applicable, the Bank’s support will help bring about sound extractive industry practices and the utilization of natural resources for sustainable development. To date, the Bank has contributed to the achievement of EITI candidacy status of three countries namely Central Africa Republic, Liberia and Madagascar and is supporting various African countries adhere to and implement the initiative. These include Liberia, Sierra Leone, Chad, Togo, Guinea Conakry, and Madagascar. 103 For more information

www.afdb.org

Contact: [email protected]

African (225) 20 26 39 00 afdb_acc Development AfDB_Group (225) 20 26 29 06 Bank Group 104