Proparco Annual Report 2016 by Agence Française de Développement

P A N O R A M A

ANNUAL REPORT 2016

Editorial

A NEW ACTION STRATEGY GEARED TO THE SUSTAINABLE DEVELOPMENT GOALS

Rémy Rioux,

Grégory Clemente,

Chief Executive Officer, AFD President of the Board of Proparco

Chief Executive Officer, Proparco

016 was a significant year for Proparco: implementation of the Sustainable Development Goals (SDGs), the Addis Ababa Action Agenda on financing for development, and the Paris Climate Agreement which all became integral to the new milestones of the Agence Française de Développement (AFD) Group, of which Proparco has been the private-sector financing arm for 40 years. 03

To meet these new challenges, Proparco has adopted a new strategy for 2017–2020. By the year 2020, Proparco is committed to doubling its financial commitments to €2bn per year and tripling the impact of its actions for creating employment, fostering innovation and climate awareness and promoting access to essential services. Proparco began working towards those goals in 2016 with €1.3bn in approved financing, including €504m for climate Proparco Annual Report 2016

projects (up 74% compared to 2015) and €509m for Africa. €177m of that total is invested in equity, quasi-equity instruments and subordinated loans designed to boost the strength and growth potential of private companies operating in developing and emerging countries. Other important developments in 2016 included Proparco’s first accession to European Union funds for off-grid renewable energy electrification projects in Africa and accreditation from the Green Climate Fund.

All of these results confirm that Proparco has resolutely embarked on a growth path that will enable it to meet the ambitious goals it has set for 2020. Over the next few years, Proparco will continue to expand its work in the key development sectors where it has extensive expertise (climate, infrastructure, health, education, financial institutions), at the same time stepping up project support for customers, in particular through the provision of technical assistance, and with a commitment to back innovative projects targeting vulnerable population groups, especially in fragile States. Proparco will mobilize additional third-party resources to increase the impact of that work, continuing to pursue the implementation of its strategy of equity and quasi-equity investments in response to strong customer demand. In order to offer its customers increased levels of financing and relevant solutions, notably through co-financing, Proparco will work to enhance the existing cooperation arrangements with the other French, European and multilateral financing institutions.

“Boosting the strength and growth potential of private companies operating in developing and emerging economies.”

Finally, Proparco will continue to work in synergy with its parent company; AFD plays a vital role in enlisting support from public partners and developing an attractive environment for private companies. The AFD Group’s added value vis-à-vis the private sector lies in its ability to provide assistance on all aspects of sectoral strategies, from public policy support to the financing of both public and private operators. This public-private continuum is a strong attribute of the Group that is important to capitalize on.

Ambitious operational goals for 2017–2020:

€2 bn

FOR THE CLIMATE

PROPARCO OBJECTIVES: JOBS, CLIMATE, ACCESS TO ESSENTIAL SERVICES, TECHNICAL ASSISTANCE, INNOVATION Proparco’ priority impacts for 2020 target the following key components of sustainable development:

€2.7 bn FOR AFRICA

€1 bn

FOR FRAGILE STATES

€1 bn

ADDITIONAL THIRD-PARTY RESOURCES

• 1.7 million direct and indirect jobs supported per year • 15 million teq CO2 avoided per year • 12 million people with acces to essential goods or services per year • 180 companies assisted by Proparco in environmental and governance issues during the period 2017–2020

• 45 innovative programmes for vulnerable population groups per year

Proparco Annual Report 2016

MOBILIZED BY PROPARCO

€1.5 bn IN QUASI-EQUITY

AND SUBORDINATED LOANS

Strategy

Our ambition for 2020 JOBS 1.7m direct or indirect jobs supported

ODD

per year

ODD

CLIMATE 15m teq CO2 avoided per year 2020: €2bn per year

PROPARCO X2 COMMITMENTS

CLIENTS X3 IMPACTS

SERVICES

EDUCATION, HEALTHCARE, ENERGY INFRASTRUCTURE

12m people

with access to essential goods and services per year

2015: €1.05bn per year

ASSISTANCE TO BUSINESSES 180 companies assisted by Proparco on

ODD

INNOVATION 45 innovative programmes per year for

ODD

environmental and governance issues

vulnerable population groups

AFRICA

€2.7 bn

IN FINANCING DEDICATED TO THE CONTINENT CLIMATE

€2 bn

DEVOTED TO PROGRAMMES THAT MOVE FORWARD THE FIGHT AGAINST CLIMATE CHANGE

Strengthening our role as providers of expert assistance to our customers

Supporting innovative projects aimed at vulnerable population groups

RESOURCES

INNOVATION

Stepping up our work in areas of key importance to development

EXPERTISE

CONSOLIDATION

How we plan to achieve our ambition 2017-2020

Mobilizing resources to maximize impact

CSR

INNOVATION

CUSTOMERS ASSISTED WITH IMPROVING THEIR ENVIRONMENTAL AND SOCIAL PERFORMANCE, ABOVE ALL THROUGH OUR TECHNICAL ASSISTANCE OFFER

INNOVATIVE PROJECTS FINANCED OVER THE PERIOD

180

120

ADDITIONAL THIRD-PARTY RESOURCES

€1 bn

MOBILIZED BY PROPARCO

FRAGILE STATES

€1bn

DEDICATED TO LEAST ADVANCED, LOW-INCOME, TRANSITION OR POST-CRISIS COUNTRIES

Proparco Annual Report 2016

EQUITY AND SIMILAR INSTRUMENTS

€1.5 bn

Content

03 EDITORIAL PROPARCO – A FINANCIAL INSTITUTION SERVING THE PRIVATE SECTOR AND SUSTAINABLE DEVELOPMENT

Strategy 2017–2020

Project map

CSR as core component of Proparco’s strategy

Impacts in 2016

How Proparco invests

40 years

Proparco Annual Report 2016

16 PROJECTS SUPPORTED BY

The Chiaka Sidibé Hotel School: The future on a silver platter

The lights of Kingo in Guatemala

Microcredit: A solution under certain conditions

The economic power of women boosted by microfinance

Senegal trying to break free from reliance on oil

Winds of hope in Pakistan

Insurance in Africa: An economic growth catalyser

PROPARCO

56 OUR FINANCIAL R E S U LT S

Private Sector

Proparco Annual Report 2016

& Development

PROPARCO – A FINANCIAL INSTITUTION SERVING

the private sector and sustainable development

Mexico Central America and the Caribbean

Casablanca North Africa

roparco, a subsidiary of the Agence Française de Développement (AFD) devoted to private sector financing, has been supporting sustainable economic, social and environmental development for 40 years. Operating in Africa, Asia, Latin America and the Middle East, the institution extends loans, makes equity investments and provides guarantees to help finance and support financial institutions and corporate private-sector projects. Proparco focuses on the key development areas, such as renewable energy-based infrastructure, agribusiness, financial institutions, health and education. Through its work, Proparco seeks to bolster the contribution of private enterprise to the achievement of the Sustainable Development Goals (SDGs) adopted by the international community in 2015. A significant share of its financing therefore goes to companies likely to create jobs with decent pay, supply essential goods and services and, more broadly, help reduce poverty and mitigate climate change. Moreover,

Abidjan West Africa

to achieve its aims, Proparco takes a broad-based approach to governance. Alongside majority shareholder AFD, its governing bodies include publicand private-sector financial institutions from France, the rest of Europe, Africa and Latin America. Proparco has a staff of over 200, divided up between Paris and its 11 offices abroad. Proparco can also rely on the AFD’s network of 72 agencies and offices around the world. Financing is only part of the picture, however. Proparco’s role is also to promote the emergence of responsible business and financial organizations in developing and emerging economies. This means helping its clients improve their environmental and social performance and their governance. Proparco is one of Europe’s leading development finance institutions, and spearheads a large number of joint programs with its peers. Proparco Annual Report 2016

São Paulo South America

COUNTRIES

DEALS SIGNED

Proparco Map

PARIS Headquarters

Istanbul Turkey and Middle East, Central Asia, Caucasus, Southeast Europe

New Delhi South Asia

Lagos

Bangkok

Nigeria

North and Southeast Asia

Douala

Nairobi

Central Africa

East Africa

Johannesbourg Southern Africa and Indian Ocean

€1,279M FINANCING APPROVALS

€504M FOR PROJECTS WITH A POSITIVE

€509M

IMPACT ON CLIMATE CHANGE

IN AFRICA

Proparco Annual Report 2016

OF ALL FINANCING APPROVALS

CSR AS CORE COMPONENT OF PROPARCO’S STRATEGY In addition to financing, Proparco offers its customers support and advice on governance and environmental and social management of their businesses. In 2016, Proparco helped 65% of its customers improve their environmental and social practices.

Managing environmental and social (E&S) risk Proparco helped us implement an environmental and social action plan. As a result, Aeria’s overall environmental management was enhanced. With their assistance, we gained a better sense of our weak points and could identify pathways to improvement. Aeria project officer

Adding value

Compliance with local regulations

Certifications for companies (e.g., ISO 14001, OHSAS 18001, Forest Stewardship Council)

Compliance with E & S standards (e.g., World Bank, International Finance Corporation, International Labour Organisation)

Incorporate sustainability into company policy/strategy and governance Sustainable consumption and production (value chain)

Improve customers’ E & S performance

Limiting reputational, financial and legal risk

Proparco Annual Report 2016

Business gains

Impacts

IMPACTS IN 2016 Proparco is committed to accountability and transparency. And meeting that commitment involves measuring the results and impact of its work. In 2017, financing and co-financing by Proparco will impact development on several fronts.

DIRECT AND INDIRECT CONTRIBUTION TO EMPLOYMENT

ACCESS TO ESSENTIAL GOODS AND SERVICES

CLIMATE AND ENERGY

142,000

13.4

680,500

JOBS DIRECTLY CREATED OR MAINTAINED AT PROPARCO-FINANCED BANKS, BUSINESSES AND INFRASTRUCTURE OPERATORS

732,000

JOBS INDIRECTLY CREATED OR MAINTAINED AT THOSE ENTITIES’ SUPPLIERS AND CUSTOMERS, OVER 350,000 OF THEM ENGAGED IN SMALL FARMING

47%

OF THE WORKFORCE AT PROPARCO-FINANCED BANKS, BUSINESSES, INFRASTRUCTURE OPERATORS AND INVESTMENT FUNDS ACCOUNTED FOR BY WOMEN

ADDED VALUE

million

PEOPLE WITH POTENTIAL ACCESS TO ELECTRIC POWER SOURCES

million

MORE PEOPLE WILL BE MICROCREDIT BENEFICIARIES, WITH LOANS TOTALLING €192M

1,700

ADDITIONAL BEDS IN HOSPITALS

52,000

STUDENTS ENJOYING QUALITY EDUCATION AT PROPARCO-FINANCED SCHOOLS

€406

898

MEGAWATTS (MW) OF POWER CAPACITY WILL BE INSTALLED, INCLUDING 802 GWH FROM RENEWABLE ENERGY SOURCES

ASSISTANCE TO BUSINESSES

65%

OF ALL PROJECTS WILL BE SUPPORTED TO HELP IMPROVE ENVIRONMENTAL AND SOCIAL PERFORMANCE

CONTRIBUTION TO PUBLIC FINANCES

€140

million

GENERATED IN THE FORM OF WAGES AND BENEFITS IN COUNTRIES WHERE PROPARCO OPERATES

TEQ CO2 WILL BE AVOIDED PER YEAR

million

NET CONTRIBUTION TO TAX REVENUE

Proparco Annual Report 2016

HOW PROPARCO INVESTS In line with the AFD’s overall strategic direction and France’s international cooperation policy, Proparco works to promote the emergence of a buoyant, innovative, socially responsible private sector in developing and emerging economies that can effectively contribute to sustainable economic growth, creating jobs, supplying essential goods and services and, more broadly, helping to reduce poverty and mitigate climate change.

Investment conditions and principles

TARGETS

ADDITIONALITY

KNOCK-ON EFFECT

Proparco supports the development of companies and financial institutions that are active in areas of key importance to development, both local organizations and international companies (particularly French) with operations developing countries or seeking to develop subsidiaries there.

Proparco works to supplement the activity of local and international commercial banks, but without coming into competition with them. Its operations focus on areas where its assistance is most needed and where it has the highest added value.

Proparco’s financing aims to demonstrate the economic and financial viability of private enterprise in businesses and/or regions that investors tend to shy away from. In this sense, Proparco’s operations have a significant knock-on effect.

DEVELOPMENT IMPACT

CLIENT RELIABILITY

PROJECT PROFITABILITY

The contribution that the companies it finances make to local development is central to Proparco’s approach to investment.

All financing decisions are based on an in-depth analysis of the various risk factors – credit, social, environmental and other risks – related to clients and their projects.

Projects cannot last unless they are profitable. Moreover, profitability is critical to the business model of an organization like Proparco and to its ability to win over additional providers of funding.

Proparco Annual Report 2016

Invest

OUR MISSION Strengthen the private sectorâ&#x20AC;&#x2122;s contribution to the achievement of the Sustainable Development Goals (SDGs)

OUR ADDED VA L U E

OUR TOOLS Loans

+ Expertise spanning multiple sectors and geographies + Ability to organize complex projects + An international network + Third-party funding (arrangement, syndication, credit facility management) + Good control of financial, environmental, social and other risks + Financial strength (as part of the AFD Group) + Co-financing arrangements with fellow development finance organizations (DEG, FMO, IFC)

Equity and quasiequity investments Investment funds Guarantees Technical assistance

OUR AREAS OF I N V O LV E M E N T Agriculture and agribusiness Banks and financial markets Climate Education Industry

Infrastructure (energy, telecommunications, transport, water and sanitation) Microfinance Health Tourism

Proparco Annual Report 2016

PROPARCO

1977/2017

When first established in 1977, Proparco was a wholly-owned subsidiary of the Caisse Centrale de Coopération Economique (CCCE, since renamed AFD) with share capital of 10m French francs (or €1.5m). Over the past 40 years, the institution has gradually broadened the range of its financing tools, target countries and shareholders, making it one of the leading European development finance institutions today, with share capital of €693m.

“If Proparco were a person, you’d have to wonder whether it makes sense to write the biography of someone who’s still growing – like a teenager. Still, this 40th birthday is a great opportunity to explore how Proparco came into being, return to the ideas that motivated its founders and initial staff, bring to light the many continuities in its history. The institution has changed swiftly, but the pace of change seems less impressive than the shift to greater scale scheduled to take place between now and 2020.”

François Pacquement, Project Manager, History and Strategic Thinking, Agence Française de Développement

With its top-grade equipment, the school’s kitchen is one of the most modern in Bamako. “A kitchen is like a hospital,” says culinary instructor Thomas Brissiaud.

Proparco Annual Report 2016

Vocational training

REPORT

THE CHIAKA SIDIBÉ HOTEL SCHOOL :

Photo credit: © Sébastien Rieussec

the future on a silver platter

CHIAKA SIDIBÉ, MALI’S FIRST WORK-STUDY HOTEL SCHOOL, BEGAN OPERATING IN BAMAKO IN 2015 WITH THE AIM OF EXPANDING HOSPITALITY TRAINING OPPORTUNITIES IN THE COUNTRY. THE SCHOOL GREW OUT OF THE ENCOUNTER BETWEEN MOSSADECK BALLY, THE VISIONARY CEO OF THE AZALAÏ HOTEL GROUP, AND PROPARCO AND ITS PARTNERS. ALL OF THEM ARE BETTING ON MALI’S YOUTH AND FUTURE.

Proparco Annual Report 2016

ali is a vast, land locked country in West Africa extending from the Tropic of Capricorn to the Equator, with a population of 17.6 million – and expanding at an annual rate of 3.6%. Several years of economic expansion gave way to a political and security crisis triggered by the 2012 coup d’état and the occupation of the north of the country by Tuareg rebels and Islamist groups. International military intervention came in response. Those dramatic events have taken their toll on Mali’s largely undiversified economy, where cotton remains king. Although tourism grew in the first decade of the new century, it has since collapsed. Mali is a fragile state indeed, ranked 179th out of 188 countries on the UN’s Human Development Index. And yet the resumption of foreign aid in 2013, measures planned by the government, the mobilization of part of the business community and initiatives to bring about a return to normal provide grounds for the hope that the country will soon be back on the path to growth – and that further projects like Chiaka Sibidé will take shape. While the Land of the Dogons and Timbuktu are still off limits for now, business travel has picked up in Bamako. The World Tourism Organization (UNWTO) reported 168,000 visitors in 2014, a figure that reflects government efforts to create an investment-friendly environment.

Manager and project coordinator. With French-speaking West Africa forecast to grow faster than any other region of Africa for the third year straight, and with the hospitality and tourism sector working to establish higher standards, EHCS’s time has come, she says.

This is a project we’ve been deeply attached to for ten years, one that took several tries. Aminata Soumah, Azalaï HR Manager

Five months to open the school The Chiaka Sidibé Hotel School (EHCS) thus emerged against a background of political instability tempered by hopes for economic recovery and inclusive development. “This is a project we’ve been deeply attached to for ten years, one that took several tries,” explains Aminata Soumah, the Azalaï HR Proparco Annual Report 2016

“The school grew out of the need to close a gap,” adds Mossadeck Bally, the CEO of Azalaï Hotels. “We realized we couldn’t find young people who already had basic hotel training, so we decided to tackle the problem on our own, found a school and train young people ourselves.” As it happens, what set the wheels in motion was an encounter with Bernard Creff, a native of Brittany and former Accor Hotels executive. Restless, always game for new challenges, known for his pioneering work in Cambodia, where he started a hospitality industry vocational school in Siem Reap that currently has over 40 trainees a year, he started the project in Mali at the beginning of 2015. Creff moved swiftly to bring in Nicolas Huet, a former Campus France executive, to run the programme. Named for a trusted colleague of Bally’s who died in 2010, Chiaka Sidibé opened in September 2015 on the premises of the Azalaï Dunia Hotel. “Once Mossadeck Bally got me involved in this great project, it barely took us five months to set up the Bamako school,” recalls Creff.

Proparco, back after 15 years’ absence But that wasn’t the end of the story for the head of Azalaï. Returning to Mali after 15 years’ absence, Proparco reached out to the hotel group as part of its focus on fragile states in SubSaharan Africa and its policy of supporting the private sector. Convinced that a thriving hospitality industry would be crucial to luring investors back to Mali, the institution’s leadership granted a €16.4m loan to renovate and expand the Salam Hotel, Azalaï’s pride and joy in Bamako. The loan was accompanied by a three-year technical assistance 18

The one-year elite training programme takes the form of cooperative education, with students spending half their time in class and the other half on the job at Bamako’s hotels and restaurants. Even during their school periods, they engage every lunch hour in practical exercises at a learning restaurant open to the public

€16,4 m

LOANED BY PROPARCO TO RENOVATE AND EXPAND THE SALAM HOTEL

11 months OF TRAINING

over 40 TRAINEES A YEAR

Interns employed at N’Ice Cream, an ice cream chain founded in Dakar that has since fanned out across the entire continent. Operating in Bamako for over a year now, the company has branched out into breads and pastries under the leadership of Ryan Souleiman, one of the founder’s sons.

knives and the like. They soon move on to the adjoining Grand Hotel for a first real taste of work in a dining room and, barely two months later, they start in on internships at hotels and restaurants in Bamako.

programme to consolidate the school’s business model and help put the curriculum in place.

Cooperative education – an approach previously unknown in Mali

They know that they’re here to learn a trade, that this is the key to escaping unemployment.

The cooperative education model offered at EHCS, with students spending half their time in class and the Thomas Brissiaud, culinary instructor other half on the job, is a novelty in Mali. Existing training programmes tend to To be admitted, applicants must pass be confined to the classroom, partia written test comparable to the one cularly in the hospitality industry. But taken by French pupils at the end of while the new hotel school has made middle school and go in for an indihands-on experience a priority, it vidual interview. Annual tuition is also gives students courses in French, 250,000 West African CFA francs (equal English, computer science and other to roughly €380). Virtually from the subjects that contribute to a broadoutset, trainees get down to work, based education. handling dishes, wielding carving Proparco Annual Report 2016

Daniel Hougnon, the owner of the Badala Hotel whose stunning restaurant overlooks the Niger River, immediately agreed to partner with EHCS. This former figure at Accor with fifty years of hotel experience – primarily in Africa – has taken on five interns. He has even hired one of them from last year’s graduating class. Initially a waiter, Luc Kassogué gets kitchen training on his days off and dreams of opening a hotel of his own.

The right attitude An extremely demanding employer, Mr Hougnon appreciates how little time it takes his young recruits to be operational, and that they show “real passion for their work and the right attitude”. Stressing that he is constantly in need of skilled staff, he asserts that he is prepared to hire interns. The Azalaï Hotel Group likewise plans to hire 30% of the students in each graduating class. For the class of 2016–2017, the school has partnered with an NGO, SOS Villages Mali, to provide training to 25 young people from the countryside. Meanwhile, the Server and Line Cook programme has been expanded to include baking and pastry-making, a skill in great demand in Bamako, with the result that the group has been increased from 40 to 60 students. “We have eleven months to turn them into professional staff,” comments 20

Vocational training

director Nicolas Huet. Graduates leave the programme with recognized vocational competence and maximum employability. “Everyone from the first year who wanted to work found a job,” he adds. Thomas Brissiaud, an international service volunteer who teaches culinary arts at the school, fully agrees. Impressed with how motivated his students are, the young chef says, “They do their utmost. They know that they’re here to learn a trade, that this is the key to escaping unemployment.”

Working to avoid disaster Today more than ever, young people in Mali need economic opportunities and solutions that address their aspirations. Even those with diplomas may find themselves unemployed, given that many university curricula are ill-suited to labour-market demand and the status of apprenticeship programmes is very much up in the air. Moreover,

the 10.3% official unemployment rate only partially reflects the dramatic conditions affecting a country where, according to a UN Population Division estimate, at least 50% of people in the 15-to-39 age cohort are unemployed or underemployed. Mossadeck Bally discusses the challenge in no uncertain terms, saying, “We consider reinvestment in training for youth as part of our corporate social responsibility. We have to give a chance to young people who might otherwise gravitate towards terrorist groups or set out on a highrisk journey across the desert and the Mediterranean.”

Gratifying for everyone Female students are now in the majority, an outcome of the school’s commitment to gender equality and the sign that a modest but real cultural

Cooperative education gives young women like this student the opportunity to increase their self-reliance by increasing their knowledge, skills and professional aptitude.

Proparco Annual Report 2016

OF MALIANS AGED 15 TO 39 ARE UN- OR UNDEREMPLOYED ACCORDING TO THE UNDP

Vocational training

revolution is unfolding. Not only has empowering women become a key issue in Mali, but women are under-represented in the country’s hotels and restaurants, both in management and non-management positions. For them even more than for their male counterparts, training thus takes on crucial importance. Cooperative education at EHCS enables young women to increase their knowledge, skills and professional aptitude. In addition, young men and women working together fosters dynamic collaboration and encourages parity that will benefit both.

Better still, Chiaka Sidibé now has its own fan base. The restaurant used for on-the-job training has become a popular venue where Bamako’s gourmets get a chance to taste dishes prepared by the students and the renowned bread baked at the school, all for just 10,000 West African CFA francs (roughly €15). In this way, the restaurant can advertise the quality of its cuisine while covering its costs. Furthermore, enthusiasm for the school extends well beyond local food lovers. A growing number of employers are eager to hire EHCS students even before they have completed the programme. “In light of how successful the first year was and how much positive feedback we have received from partner businesses, we have increased the size of the class of

The students have bought into the mindset evinced by the founder of Azalaï Hotels, who grew up in a family of merchants where “entrepreneurship was second nature”. Today, Mossadeck Bally wants to steadily expand the hotel school’s student body to be able to train more young people.

2017. We also plan to offer additional courses in 2018 and recruit enough staff to be able to accommodate a hundred students a year. So we are training more young people and stepping up our work with African companies and other partners,” says Mossadeck Bally.

In a few years, we hope to replicate our business model elsewhere in Africa. Aminata Soumah, 23

Azalaï HR Manager

Convinced that there is plenty of opportunity and a genuine will among hospitality providers to enhance their industry, Bally wants to get his approach more widely adopted in the region. EHCS is therefore seeking further investors to give that approach the staying power it needs and make Proparco Annual Report 2016

the school “an autonomous, solid, recognized structure throughout West Africa”, explains Aminata Soumah, the head of Human Resources. The aim is to broaden the choice of courses and build new classrooms to provide training across the spectrum of hospitality industry work, from the reception desk to room service and ultimately on to management positions. Ms Soumah would also like to see the certifications of EHCS graduates recognized as State diplomas. “In a few years, we hope to replicate our business model elsewhere in Africa and start up initiatives similar to Chiaka Sidibé,” she adds. That may sound ambitious, but such a plan responds to actual needs. Observers claim that the number of unfilled job vacancies at restaurants in sub-Saharan Africa increases every year.

Innovations combining solar energy with digital are on the rise in countries inadequately covered by conventional power grids to date. Driving the boom are agile, ‘pay-asyou-go’ schemes based on actual day-to-day power consumption and software applications that help make access to electricity more widely available.

THE LIGHTS OF KINGO REPORT

in Guatemala

Energy

ONE OUT OF TEN GUATEMALANS HAS NO ACCESS TO THE NATIONAL POWER GRID. THAT MEANS 1.5 MILLION PEOPLE DEPENDENT ON CANDLELIGHT, EXPERIENCING THE DISCOMFORT AND INSECURITY OF HOMES AND STREETS SHROUDED IN DARKNESS EVERY NIGHT. UNTIL KINGO CAME ALONG.

This is the quickest and cheapest way to boost access to electric power among country-dwellers. Juan Fermin Rodriguez, CEO and co-founder of Kingo Energy

A 25

large share of the population in Central America still has to get along without utility-supplied electricity. While significant progress was made between 1990 and 2010, most notably in Guatemala, Honduras and Nicaragua, the region’s least electrified countries, millions of people are still unconnected to the power grid. In Guatemala, for example, over 300,000 households are dependent for their lighting on candles, kerosene lamps or diesel-powered generators.

just twenty minutes to install and connect to a solar panel, is an offthe-grid power solution, i.e., with no connection to the national power grid. This makes it fully independent of Guatemala’s centralized electricity infrastructure, which relies heavily on hydropower. “This is the quickest and cheapest way to boost access to electric power among country-dwellers,” explains Juan Fermín Rodríguez, the CEO and co-founder of Kingo Energy, a Guatemalan start-up that designs and markets the orange-coloured battery boxes bearing its name.

But alongside those widespread makeshift arrangements, an innovative alternative has been gaining ground in the country’s most remote areas. Kingo, a battery box that takes

Cost is obviously a key consideration in a country marked by grinding poverty and high inequality. Half the population lives below the poverty line and

Off-grid power or no power

Proparco Annual Report 2016

13% lives in extreme poverty — with an even higher proportion among Mayas, who make up 40% of Guatemala’s population and are for the most part farmers in remote areas. As it happens, off-grid solutions have begun to take root in just such areas. Prime examples are Alta Verapaz and Petén, two of the country’s poorest Departments, where conventional power grid coverage is only 44% and 66%, respectively. “It’s taken us under two years to equip more than 15,000 Guatemalan households,” states Kingo Energy’s CEO. “This has not only given families improved living conditions and greater home security. It also means less time devoted to household chores and more time for children to do school work.” Off-grid lighting systems

unquestionably have a lot of upside. Cheaper, more efficient, brighter, they are also safer and produce less pollution than candles and kerosene lamps. Moreover, Kingo requires no cultural adjustment, as users already pay their mobile phone top-ups in the same way.

Customers who opt for the basis Kingo 15 kit, which can light three lamps for five hours and recharge one mobile

A solar panel on the roof How exactly does this environmental friendly offer work? To start with, a solar panel is installed on the rooftop of each user who signs a no-commitment contract that provides for prepayment per unit of time (hour, day, week or month), very much as with a mobile phone top-up. Once the kit has been installed and the prepaid codes have been entered by the customer, they unlock the system for the specified time period. The verification is done independently of GSM coverage, making the service accessible to people in even the remotest areas. With this ‘pay-as-you-go’ system, there is no need to purchase equipment or pay for installation. Each user gets a guarantee and a perpetual service commitment, so that it all takes is a phone call for Kingo teams to step in.

phone per day, pay 60 centavos (€0.70) a day or 110 centavos (€13) a month. Those who sign up for the high-end Kingo 100 offer will have enough power to light up the main room of their homes for five hours, recharge three mobile phones and run two electrical appliances like fans, TVs, computers and radios. Kingo customers will be able in the future to prepay on their mobile phones, for example by going through the financing department of a financial intermediary. But given the current size of Guatemala’s unbanked population, for the time being users have to purchase their top-up

Making daily life easier, increasing home safety and creating better conditions for children to do school work.

Proparco Annual Report 2016

cards either at local grocery shops or at directly from Kingo representatives, who pocket a 6% commission.

“It’s been a game-changer for me” Elena Laj Yuja de Gua and her husband Jorge moved two years ago to a village called Caserío El Limón located two hours away from Flores, the capital of Petén Department. A mother of four children, she claims that the arrival of Kingo was a game-changer for her. “We used to get up at 4 or 5 in the morning to prepare meals for the whole day by candlelight. We don’t have to do that anymore. I can get up later, spend more time with the family and do my part for the village women’s association. Above all, the children can devote an hour a day to their homework. I never dreamt that Kingo would come here. Ours is now one of 26

Energy

20 minutes

Kingo – a kit that can change your life

THAT’S HOW LONG IT TAKES TO INSTALL A KINGO KIT, WHICH IS CONNECTED TO A SOLAR PANEL ON THE CUSTOMER’S ROOFTOP. THAT’S ALL THERE IS TO IT.

This little box gives Guatemala’s poorest inhabitants access to electricity. For a few euros a month to be paid up front on flexible terms, customers can have indoor lighting in the evening, keep animals out and give their children better conditions for doing their school work. Here are Kingo’s five essential features.

4 years

THAT’S HOW LONG THE PROJECT HAS BEEN AROUND. IT WAS STARTED BY JUAN FERMÍN RODRÍGUEZ AND JUAN JOSÉ ESTRADA IN 2013.

100 % From Guatelama KINGO COMES STRAIGHT FROM GUATEMALA CITY.

€O.70 cents a day

THAT’S THE BASE RATE CHARGED BY KINGO. IT’S ENOUGH TO POWER 3 LAMPS, LIGHT UP A HOUSE FOR 5 HOURS A DAY AND TOP UP A MOBILE PHONE. USERS SPEND AN AVERAGE OF US$15 A MONTH.

THOUGH INSPIRED BY PREVIOUS SOLUTIONS DEVELOPED ELSEWHERE – IN AFRICA, FOR EXAMPLE – IT’S A HOME-GROWN OFFER CREATED BY TWO YOUNG GUATEMALANS.

US$100

THAT’S WHAT IT COSTS TO PRODUCE AND INSTALL A

KINGO KIT. NO CHARGE TO THE CUSTOMER FOR THE EQUIPMENT, INSTALLATION OR AFTER-SALES SERVICE.

Proparco Annual Report 2016

ÂŠ Sarah Caroline MĂźller

The kits include solar panels along with batteries to store the electrical energy produced. Customers can use them to light their homes and power lowenergy electrical appliances.

Proparco Annual Report 2016

Energy

Elena Laj Yuja de Gua and her husband Jorge moved two years ago to a village called Caserío El Limón located two hours away from Flores, the capital of Petén Department. Education for girls and access to electricity are both preconditions to controlling population growth. Innovative, alternative ways of making electric power available are therefore crucial to social and economic development.

fifteen families with access to electricity. Everybody wants electricity!” With her Kingo 15 plan, Elena can have indoor lighting for over five hours a day, recharge her phone, organize her children’s school work and keep her home safe, while saving 25% on monthly expenses. “I used to buy candles and go through three or four of them a day,” she says. “There was always a risk of setting fire to the house, not to mention the danger that snakes would Elena Laj Yuja de Gua, an inhabitant of Caserío El Limón slither inside after nightfall while the children were still playing. With electric light, animals no longer approach and the children can play or do school remote parts of the country. In fact, the receiving $5m plus a $4m loan converwork whenever they need to.” aim is to equip two million households tible into shares from FMO, they plan to by 2020 and extend the company’s raise another $8m to be able to branch This is obviously the kind of feedback business to other countries. As Kingo’s out across the region and provide serthat motivates Kingo Energy staff to leaders see it, Petén is only part of a vice in Colombia, Honduras, Nicaragua increase the availability of their offer in much larger potential market. After and even Mexico.

I never dreamt that Kingo would come here. Ours is now one of fifteen families with access to electricity. Everyone wants electricity!”

Proparco Annual Report 2016

In addition to tracking conventional performance and impact indicators, Kingo maintains a User Happiness Index.

40,000 users

SINCE IT WAS LAUNCHED IN 2015, THE KINGO ENERGY SOLUTION HAS BEEN ADOPTED BY 40,000 USERS. IT COULD WELL WIN OVER ANOTHER 2 MILLION USERS

BY 2020.

Energy

THE ART OF BOUNCING BACK Altruism and profitability According to the International Energy Agency’s projections for sub-Saharan Africa, “Two-thirds of the mini-grid and off-grid systems in rural areas in 2040 will be powered by solar voltaics, small hydropower or wind”. For several years now, a large number of start-ups have risen to the challenge of providing electricity to Africa. Some have turned to off-grid solar power and their investments are starting to pay off. Juan Fermín Rodríguez, who left a career at Procter & Gamble to “bet the farm” on his start-up, considers it a vital necessity for Kingo to both meet its commitments and turn a profit. “I strongly believe that we’ve taken the right approach and that we can make a profit while serving the public interest,” he states. When asked whether that outlook reflects the altruistic upbringing he received from a father already engaged in cooperation programmes in rural Guatemala, he comments: “The most important thing in our eyes is to have increasingly high-quality offerings, software and raw materials in our equipment so that we can deliver better service to our users. With new components coming out in the market, we should be able to develop smaller, longer-lasting batteries, which means that we can reach even more remote regions and offer an accessible alternative to more and more people.”

to make to make clean energy available across the region? A decade after the first pioneering solutions in this area emerged, no business model – whether pay-as-you-go, rent-to-own or perpetual leases of the kind offered by Kingo – has achieved global dominance so far, even though the alternative energy market has followed much the same trajectory as mobile telephony, according the International Energy Agency. On the basis of this outlook, Kingo anticipates a return on investment in short order. “Due to our knowledge of the market and our adaptability, we can profitably invest while narrowing the poverty gap. But with the financing requirements we face, it’s essential to enlist support from financial partners like Proparco and FMO who are willing to take on risks that may seem like too much for local banks,” Kingo’s CEO stresses. In any case, only massive investment can make a difference in Guatemala. In a country where 57% of GDP – that is, $30bn – accrued to just 260 citizens in 2014, there will be no progress without private capital. Nor can financial institutions be expected to step in, given the commitment to keeping government debt under control. Yet, private investment and help from financial institutions could make it possible to reduce the gap in both energy supply and economic opportunities between rural communities and the urban population.

No progress without private capital Have these progresses made us closer 31

Proparco Annual Report 2016

For Juan Fermín Rodríguez, it all started in 2010 when he left Procter & Gamble to become the co-founder of a first, pay-as-you-go business called Quetsol. With backing from local microfinance institutions, the company set out to supply cheap electric power to Guatemala’s poorest households, many of them dependent on candlelight and diesel generators. This laudable initiative failed, however. The need to repay the initial loan, combined with customer insolvency and high unit costs for solar panels and batteries, made this an unsustainable business model. But Juan Fermín is one of those responsive, agile entrepreneurs who can reinvent their business at the drop of a hat. He bounced back, and fast. With his partner Juan José Estrada – alias “J. J.” – he crafted a telecomstyle approach and came out with a solar power service offering that had his new company, Kingo Energy, bear the cost of installation. Two key factors rendered their solution workable. For one thing, Kingo raised funds from several investors including FMO and Proparco. For another, solar installation costs have declined by 80% since 2008, making the technology cost-competitive with fossil fuels.

Proparco Annual Report 2016

Microfinance

REPORT

MICROCREDIT: A SOLUTION

under certain conditions

BY OFFERING FINANCIAL SERVICES TO THE NEEDIEST POPULATION GROUPS, MICROFINANCE INSTITUTIONS SUPPORT MICRO-ENTERPRISES AND HELP ENHANCE LIVING CONDITIONS FOR THEIR CUSTOMERS. MICROFINANCE PROVIDES ASSISTANCE IN STARTING UP A BUSINESS, MOBILIZING SAVINGS

Photo credit: Sam Lam

OR TAKING OUT INSURANCE TO COPE WITH THE HAZARDS OF

LIFE. THIS MEANS IT HAS A POTENTIAL FOR GROWTH THAT IS COMMENSURATE WITH THE DEGREE OF FINANCIAL EXCLUSION THAT CONTINUES TO PLAGUE SO MANY DEVELOPING COUNTRIES. AT FIRST BLUSH, THIS LOOKS LIKE AN IDEAL WAY OUT OF POVERTY.

Proparco Annual Report 2016

17,6 % OF ALL ADULT CAMBODIANS HAD CONTRACTED A LOAN IN THE PRECEDING 12 MONTHS, ACCORDING TO THE CREDIT BUREAU.

2.4 millions BORROWERS IN CAMBODIA’S MICROFINANCE MARKET, ACCORDING TO THE CAMBODIA MICROFINANCE ASSOCIATION (CMA).

THE TWO PRIMARY CAUSES OF OVERINDEBTEDNESS ARE THE TENDENCY OF INDIVIDUAL BORROWERS TO TAKE OUT SEVERAL LOANS FROM SEVERAL INSTITUTIONS AND THE TENDENCY TO REFINANCE (SEVERAL) SMALL LOANS WITH A LARGER ONE.

icrofinance came into being as a means to promote financial viability, and is therefore governed in part by a commercial mindset. In fact, a number of buoyant markets have seen intense competition between microfinance providers, and while this has led to a welcome decrease in lending rates, it has also spawned a variety of practices that are detrimental to customers. In many countries, the microfinance sector has experienced spectacular growth, correlated with a bidding war and a tendency to overheating that may result in unsustainable debt levels that can only hurt the sector itself. Significant microfinance crises have already unfolded in such places as Peru, Bosnia, Nicaragua, Bolivia and Andhra Pradesh, India. Due to competition between microfinance institutions and increased lending, some loans have been used to pay off previous ones in a well-documented vicious circle that now seems to be looming in Cambodia as well.

Experts ringing the alarm bell in Cambodia A mere 22% of all Cambodians over fifteen years of age have accounts at formal financial institutions, whether banks or microfinance institutions (MFIs). This stands in stark contrast to the situation in neighbouring Thailand, where 78% of the population was ‘banked’ in 2014.* With a population of 15 million, Cambodia boasts an advanced regulatory environment and therefore a high degree of transparency, along with sound market infrastructure that includes a central credit registry and the Cambodia Microfinance Association (CMA). This favourable environment has offered considerable opportunity to MFIs and made this a highly competitive market. Today, however, experts are ringing the alarm bell. They emphasize the risk of market saturation in specific provinces, the growing average Proparco Annual Report 2016

size of microcredits and the presence of informal lenders engaged in reckless practices, from usurious interest rates to shoddy assessment of customers’ creditworthiness.

The kingdom benefits from a professional legal framework but experts raise the alarm about risks of saturation. Stiffer regulation On 13 March 2017, the National Bank of Cambodia issued a new regulation setting an interest-rate ceiling for all microfinance institutions from April 1st, 2017 onward. This creates an additional challenge for the country’s regulated MFIs, particularly those operating in rural areas and offering small loans that entail high operating costs. Daniel Rozas, a microfinance specialist and consultant in Cambodia, has developed a tool for forecasting microfinance saturation that he has pleasingly named MIMOSA. *According to the World Bank’s Findex study.

Microfinance

Founded in 2000 as a limited liability company, Amret is Cambodiaâ&#x20AC;&#x2122;s leading microfinance institution. In its efforts to support economic growth in the country, Proparco contributes to the creation and development of microbusinesses.

MIMOSA AND GOOD PRACTICE Since the 1990s, the number of MFIs in the world has seen exponential growth that has not always been accompanied by stricter regulation with regard to responsible lending, financial soundness or transparency on lending activity. With signs of overheating already experienced by several countries, for example in Morocco, Bosnia and Nicaragua in 2008, followed by India in 2010, experts have come forward to warn the microfinance institutions. MIMOSA (Microfinance Index of Market Outreach and Saturation) provides country studies based on metrics that track market saturation, regulation and competition as well as the maturity of MFIs and how transparent and risky their lending activities are. Studies have already been conducted on Cambodia, Kyrgyzstan, Bolivia, Morocco, Peru, Azerbaijan and Senegal.

Proparco Annual Report 2016

INTERVIEW WITH

Daniel ROZAS

Drawing: Luca Laurenti

MIMOSA co-founder Daniel Rozas works as a consultant to a variety of institutions that range from the European Microfinance Platform (E-MFP) to the Cambodia Microfinance Association (CMA), as part of a programme to prevent overindebtedness and design common guidelines for MFIs. He holds an MBA from the University of Maryland and worked previously, from 2001 to 2008, for the US mortgage lending institution Fannie Mae.

Cambodia at the crossroads Proparco has been present in Cambodia’s microfinance sector for ten years and has played a part in setting the Lenders’ Guidelines adopted by the MFIs, whose purpose is to heighten cooperation among those institutions and reduce the risk of overindebtedness. Launched in 2016 and jointly financed by Incofin Investment Management, a Belgian fund specializing in microfinance, and two other EDFIs – Belgium’s BIO and the Netherlands’ FMO – this initiative represents the first attempt to establish common guidelines focused on the issue of overindebtedness by setting precise lending procedures and customer protection procedures. The aim is to assist the Cambodia Microfinance Association (CMA) with the crafting and implementation of the guidelines.

Proparco Annual Report 2016

Microfinance

In terms of microfinance, Cambodia is the exception. Why is that? Cambodia is a particularly interesting case. During the first decade of this century, the country basically had no financial sector. The primary vehicle for developing local financing were microfinance institutions, rather than banks. All those MFIs were originally NGOs active in the countryside in a variety of development projects, including microlending. What distinguishes Cambodia is that its MFIs got started in rural areas, not in cities. The result of microfinance has been to connect the rural economy to the financial sector. A further point is that institutions from abroad, for example, foreign social investment funds and development institutions like Proparco, have played an essential role in the sector since the early 1990s. Virtually all of the Cambodian microfinance sector’s financial resources initially came from development assistance, and that was still true five or six years ago. Microfinance NGOs gradually developed into MFIs and in some cases banks funded by foreign organizations. That has happened nowhere else in the world.

You claim that the decree of 13 March 2017 has created a lot of uncertainty. Could you elaborate on that? The decree shows confusion between interest rates charged by informal MFIs, which are considered usurious, and those charge by regulated MFIs. It could have a major impact on those institutions. If interest rates are kept at such a low level without any room for flexibility, a number of MFIs will find it hard to stay in business. They’ll 37

be forced to lend money at rates that don’t even cover their operating costs. If you slash interest rates over night, MFIs will stop offering specific products. Rural borrowers are likely to be the first casualties, given that it costs more to provide service in remote areas.

You also take part in designing good practice guidelines together with the CMA. What needs does that project seek to meet? What are your goals? The CMA was concerned to lay down guidelines for preventing overindebtedness and guaranteeing sustainable expansion of the market. So a number of development finance institutions, among them Proparco, were asked to help out. These restrictive, self-regulatory guidelines establish a framework for MFI activity that includes requirements on reporting to the Credit Bureau Cambodia (CBC). The CBC is responsible for producing a follow-up report that funding providers can access. A noteworthy feature is that the guidelines have been set exclusively by microfinance organizations themselves. The CMA hopes that the National Bank of Cambodia will incorporate the guidelines into a law that applies to all financial sector institutions. In practice, the guidelines will compel MFIs to collect more extensive customer information, provide the data to the CBC, limit the number of loans to any single borrower and more effectively protect customers.

Could you describe good practice in the sector? MFIs in Cambodia are eager to cooperate with each other. For years now, they have strived to create a responsible Proparco Annual Report 2016

We need to design regulations, but not just any regulations, and not at any price.

microfinance sector governed by common principles. They routinely respond to requests from funding providers that they submit to social ratings, something you don’t see in other markets. This has given rise to a prescriptive framework covering both financial and social standards. In fact, a number of MFIs have distinguished themselves with socially responsible treatment of their customers. For example, they cooperate with the Social Performance Task Force (SPTF) and the Smart Campaign, a global effort to safeguard the well-being and overall financial situation of individuals and families involved in microfinance projects. Above all, they make sure they understand their customers and zero in on the needs that are specific to their situation. This creates a more ethical framework. In this respect, too, Cambodia is in the vanguard.

THE ECONOMIC POWER OF WOMEN BOOSTED BY MICROFINANCE

Photo credit: Oriane Zerah

REPORT

Microfinance

SPOTLIGHT ON CHANDNI, A YOUNG WOMAN WHO BECAME A MICRO-ENTREPRENEUR THANKS TO MICROCREDIT.

handni, age 22, has been married for four years. She lives with her husband and two daughters in Saidapur, a village 40 minutes away from Lucknow, the capital of Uttar Pradesh located between Delhi and Calcutta. Two and a half years ago, shortly after their first daughter was born, the family found itself in financial trouble. Chandni’s husband, a farm labourer, didn’t have a regular job. His earnings were too low to cover their basic needs, i.e., healthcare, food, housing and education. That same year, a visit by a Sonata employee whose role is to go from door to door to acquaint village-dwellers with microcredit was to initiate a decisive change in the young woman’s life. At age 19, Chandni borrowed 40,000 rupees (c. €585) from Sonata with the aim of starting her own business – a grocery shop. She discussed it with her husband and relatives. Everyone encouraged her to go ahead. 39

Chandni went out and joined a joint liability group made up of village women who wanted to take out Sonata loans.

Joint liability groups

This credit has changed my life; it’s made it better. I am stronger now. Chandni, age 22

Proparco Annual Report 2016

Ninety-six per cent of the women who contract Sonata loans do so through joint liability groups. The groups usually have between ten and twenty members who know each other and live in the same area. It is an approach to credit grounded in trust and solidarity among group members. Although loans are granted on an individual basis, they are guaranteed by joint surety among the members. By using existing social bonds among the beneficiaries, the group creates a form of collective guarantee that encourages members to pay back their loans. Such solidarity groups are loosely based on the ‘tontines’ that are highly popular in sub-Saharan Africa. Tontines “are associations composed of members of a clan or family, neighbours and other individuals who agree to pool goods or services to benefit all members on a rotating basis” (F. Boman, economist). At the monthly meetings, all members

Weekly meeting of the solidarity group that Chandni belongs to.

HIGHLIGHTS Chandni opened her own grocery shop to overcome her family’s financial difficulties. That move was made possible by a loan of 40,000 Indian rupees (c. €585) from Sonata Finance Private Limited (Sonata), a small-amount microfinance lender supported by Proparco. Access to microcredit can contribute to the liberation and empowerment of women, giving them recognized social responsibility and including them in the labour market. Many families in the rural and semi-urban areas of Uttar Pradesh (UP) benefit from microcredit. UP is one of India’s poorest states. It has a population of 200 million – as large as Brazil’s. Economic growth in the state is 6%, versus 8% in India as a whole.

contribute a predetermined amount to the kitty, and one member gets to take the whole sum on a rotating basis.

her repayments on schedule. At long last, the family was enjoying financial stability.

Chandni’s group is made up of about ten women. They meet once a week to review each member’s projects and collect repayments.

Chandni, who rarely loses her smile, is proud of what she has accomplished, and she is confident about the future. “This credit has changed my life. Our life is better now. I am also stronger than before. Once I have paid off my loan, I plan to take out a larger one so that I can expand the premises and offer additional products.”

A sense of accomplishment After taking out a two-year loan for 40,000 rupees from Sonata, Chandni opened her shop. The business soon prospered and she was able to make Proparco Annual Report 2016

Microfinance

Chandni proudly and happily operates a grocery shop that she opened with the help of a microcredit from Sonata.

Proparcoâ&#x20AC;&#x2122;s role In November 2016, Proparco acquired a stake in Sonata for approximately US$6.5m. That investment reflects Proparcoâ&#x20AC;&#x2122;s strategy of encouraging responsible microlending in emerging economies and assisting microfinance institutions that show a commitment to social performance. Through the support it provides, Proparco helps Sonata to achieve its aim of delivering microfinance service to low-income women transparently, swiftly and efficiently. To ensure that its work benefits the target population, Sonata uses poverty assessment tools that measure household living conditions and assets. Sonataâ&#x20AC;&#x2122;s lending activity also incorporates the client protection principles developed by the Smart Campaign initiative. The organization has demonstrated in particular its skill in managing the prevention of overindebtedness by steering clear of areas with high microfinance penetration rates. At the same time, despite the serious regulatory constraints it faces, Sonata seeks to broaden its financial product offer to include home improvement loans, mobile banking and the like as a way of more effectively meeting client needs and cementing its reputation in a competitive market. In India, as in many other countries, microfinance can be a highly competitive industry. Its members must therefore strive for a proper balance between financial and social performance of the kind that can lead to responsible, sustainable development. 41

Proparco Annual Report 2016

It will take up to 200 or 250 employees to build the power plant. For hiring, the neighbouring villages have priority status. A reforesting programme around the construction site will make it possible to prevent erosion and keep the PV panels from sanding up.

REPORT

SENEGAL TRYING TO BREAK FREE from reliance on oil

HARDLY-HIT BY THE OIL-PRICE HIKE IN 2008, CONSTRAINED BY AN INADEQUATE Photo credit: Clément Tardif

ENERGY SYSTEM, SENEGAL HAS BEGUN TO EXPLOIT ITS IMMENSE RENEWABLE ENERGY POTENTIAL, WITH SOLAR POWER IN THE LEAD. THE NUMBER OF PROJECTS HAS BEEN RISING FOR TWO YEARS NOW, A PRIME EXAMPLE BEING SENERGY, THE COUNTRY'S FIRST PRIVATE SOLAR POWER PLANT AND THE LARGEST ONE IN WEST AFRICA, 80% FINANCED BY PROPARCO. THE AIM IS TO HELP BOOST SENEGAL’S ENERGY SECURITY AND FACILITATE THE TRANSITION TO LOW-CARBON DEVELOPMENT.

s in several other African countries, Senegal’s economic and social development is held back by sub-par performance in the energy sector. With 843 MW of nameplate power capacity in 2015 (whereas Morocco’s is ten times higher), the national power grid is ill-equipped to handle the growing needs of businesses and citizens alike. There are many reasons for that deficiency, among them over a decade of under-investment in generation capacity and Senegal’s high dependency on fossil fuels, with thermal power plants accounting for 90% of total output. But things got even worse in the period from 2008 to 2011, when the global oil shock upended the country’s energy sector. The result was massive power cuts and a profound social crisis, as demonstrated by the ‘electricity riots’ of 2011. Moreover, Senegal’s electricity prices are among the highest in West Africa (almost twice as high as in the Ivory Coast), despite a 2009 freeze on rates and generous State subsidies to the national power company, Senelec, until 2014. According to an IMF estimate, those subsidies are equal to 2% of GDP.

No economic take-off without reliable, affordable, sustainable energy This, then, was the backdrop to the ambitious roadmap for economic and social development adopted by the government in 2012. Titled Plan Sénégal Emergent (PSE), the plan places major emphasis on energy security. The government aims to increase national production capacity by 10% to 15% a year, while reducing the country’s reliance on high-polluting imported fossil fuels, which represent a burden for both households and Senegal’s public finances. If the plan is successful, the share of petroleum products in

Dakar accounts for 0.3% of the country’s land surface, but is home to one fourth of its population. The peninsula capital is also where the bulk of Senegal’s economic activity takes place, with the result that the power grid is subject to increasing pressure.

the country’s energy mix could drop from 90% to 45% in 2017, while solar and other renewable energy sources could rise to 20% of nameplate capacity, offsetting that drop. For Thierno Alassane Sall, Minister of Energy and Development of Renewable Energies, the goal is clearly “to break free of the tyranny of a single fuel source, which was the case with oil for several decades”. In line with the Sustainable Energy for All (SE4ALL) global initiative launched by the United Nations in 2012, President Macky Sall has also pledged to electrify the country’s rural areas. And rightly so. Whereas 90% of Senegal’s urban population is connected to the power grid, barely one out of four country-dwellers is. Moreover, that average encompasses large disparities, with some areas below the 5% mark. Proparco Annual Report 2016

The goal is clearly to break free of the tyranny of a single fuel source, which was the case with oil for several decades. Thierno Alassane Sall,

Minister of Energy and Development of Renewable Energies

Energy

AFD GROUP AND THE ENERGY ISSUE IN SENEGAL Over the past decade, the AFD, Proparco’s parent company, has provided close to €200m to Senegal’s energy sector, for the most part to help put Senelec’s finances and operations back on even keel. In 2008, €30m were invested to recapitalize the failing national electricity company. Three years later, following the ‘electricity riots’, the AFD was the first development finance institution to extend a loan (€60m) to rehabilitate Senelec’s production facilities, with the result that 110 MW of additional capacity was recovered and a total of 210 MW was put on a secure footing (equal to almost one fourth of nameplate capacity). At the same time, a €1m subsidy was made available to the energy industry, chiefly for research and to enhance capabilities at the Energy Ministry and Senelec through the work of three engineering assistants. The Agency also contributes to investment programmes to help West Africa’s SMEs reduce their energy bills through energy efficiency and renewable energy projects, chiefly in Benin, Burkina Faso, the Ivory Coast, Senegal and Togo, granting its commercial banking partners (in Senegal, Orabank and SGBS) ‘green’ lines of credit totalling €30m (see www.sunref.org), coupled with a programme of technical assistance to the small businesses involved. Lastly, the AFD works to promote electrification of the countryside, including an €8m subsidy in 2008 to provide electricity to 18,000 households via solar power kits and extend the power grid.

West africa's largest private solar power plant To carry out this large-scale change, the government has turned to independent private power producers. A number of power purchase agreements have been signed or are being negotiated. Initiated by the French investment company Meridiam, Senegal’s sovereign wealth fund Fonsis and the solar power firm Solairedirect (an Engie subsidiary), co-financed by Proparco, a member of the Agence Française de Développement (AFD) Group, Senergy is the largest private solar power plant project anywhere in West Africa. The project was launched in 2011 by an American-Senegalese entrepreneur. Due to the capital-intensive nature of solar energy projects, Fonsis threw its weight behind Senergy in 2013. The sovereign wealth fund then managed to bring Meridiam on board 45

(see box) to structure the deal and settle the basic engineering questions. In a country with no previous industrial-scale solar energy infrastructure, “we needed to address a whole host of regulatory and engineering issues, some of them complex and costly”, explains Mathieu Peller, who heads Meridiam’s West Africa office. “For example, securing land tenure in an area with multiple layers of property rights, devising adequate compensation for the local population, working out contract terms and conditions and connecting to the power grid.” Sited on 64 hectares of former farmland near Mekhé (130 km north of Dakar), the Senergy power plant will encompass 92,000 solar modules with total nameplate capacity of 29.5 MW. That will be enough to cover the annual Proparco Annual Report 2016

electric power needs of a city with over 200,000 inhabitants at a cost that makes it competitive with the country’s thermal power plants. The electricity it generates will be sold to Senelec under a 25-year power purchase agreement. In addition, 34,000 tonnes of C0 2 equivalent emissions will be avoided per year thanks to this low-carbon infrastructure. “On this project, Meridiam has made a long-term commitment that was a compelling argument for our partners,” says Peller. “Proparco’s involvement since 2013 was also essential to convincing Senelec and the government to invest. The organization’s reputation and demanding approach gave our consortium real credibility, not to mention that Proparco has provided 80% of the funding – through a €34.5m loan – on competitive terms.”

Involving the local population from the outset

Portrait

until everyone approved.” In addition to compensation for landholders as required by Senegalese law and in keeping with the demands of a funding provider like Proparco, the Senergy project includes a number of measures designed to benefit local communities. Unskilled labourers from neighbouring villages will be hired, preference will be given to local contractors and E&S work will be promoted. Furthermore, “a plan for restoring the livelihoods of local inhabitants has been drawn up. Under the plan, a well will be drilled and between 12 and 25 hectares of land will be purchased to offers farmers the means to engage in long-term agriculture. Most farming in Senegal takes place during the rainy season. But with the new well, the villagers can engage in ongoing, more diversified farming,” Mr Ba points out. In partnership with a local bank, a microcredit mutual benefit society will also be made available so that women and youth can develop business activities. A maternity clinic will likewise soon be built in SanthiouMékhé. Finally, a committee holding monthly meetings has been set up to monitor delivery on the project owner’s commitments.

MERIDIAM AS A LONG-TERM DEVELOPER AND INVESTOR

More solar power, more know-how

In a global economy short of breath, Africa provides significant opportunities for stimulus and shared growth. Macky Sall,

President of the Republic of Sénégal

Meridiam is an investment firm specializing in essential infrastructure. “Our goal is to have a positive impact on the areas where we invest, to meet the long-term development needs of the government and local population,” Peller states. Right from the start, the impact issue was central to the project negotiations. “The primary challenge was purchasing land owned by 66 small farmers,” explains Abdourahim Ba, Managing Director of the firm Engineering & Environment Services, in charge of the environmental and social (E&S) questions surrounding the project. “The negotiations got going in 2013 with the chiefs of the neighbouring villages, who called together all the interested parties. The aim was to identify the ideal site and the people who would be affected, hold public outreach meetings and basically talk to everyone

Meridiam SAS (‘Meridiam’) is a French investment company founded in 2005 that develops, finances and manages public-sector infrastructure projects on a longterm basis (25 years). The company partners with key engineering and financial firms – from planning to implementation and operation. On most projects, Meridiam is the majority or reference shareholder. The company currently has €5bn worth of assets under management invested in 49 projects worldwide, most of them in Europe and North America. In 2015, Meridiam created MIAF, an African investment fund endowed with €300m. Its brief is to make roughly a dozen investments of between €10m and €40m each in social, transport and clean energy infrastructure projects. While Senergy is its first project in mainland Africa, Meridiam is already working in Madagascar and has responded to calls for tenders across sub-Saharan Africa. “We aim to establish our position on the continent as partners and suppliers of proven, competitive solutions for providing long-term sustainable development assistance spanning economic, social and environmental issues,” states Mathieu Peller in conclusion.

Proparco Annual Report 2016

The Senergy facility is scheduled to come on stream in July 2017, but Meridiam and Proparco are already working to develop a second, extremely similar solar power plant just a few kilometres away from the first one. And this new project won’t be the last one, either. T h e S e n e g a l e s e g ove r n m e n t ’ s renewable energy goals have won over bilateral and multilateral development finance institutions and aroused interest among independent private power (IPP) producers. “Six solar power plant projects are currently in the development or construction stages in Senegal,” says Papa Mademba Biteye, 46

Energy

More reliable electric power supply should also have a positive impact on productivity in the population and eventually create jobs and stimulate economic growth.

a technical advisor to the Ministry for Energy and Renewable Energy Development (Meder). “By the end of 2017, they will be generating another 105 MW of power, with 150 MW more to come in 2018 from Senegal’s first wind farm.” On top of those 255 MW, an additional 100 MW will be commissioned in two years as part of the Scaling Solar programme launched by a World Bank subsidiary to support private-sector initiative. Even so, there is still insufficient funding to fulfil Senegal’s ‘green’ aspirations. “The private sector is where the financial resources are,” stresses Mamadou Mbaye, the Executive Director in charge of Energy and Mining at Fonsis. “Our mission is to use the resources allocated by the State to attract private funding for greenfield projects by deconstructing investor apprehensions about financial risk in Senegal. For example, insurance 47

companies make 30% to 40% of their equity investments in North America, versus under 5% in Africa. We need to secure dedicated financing for low-carbon infrastructure quickly. So why not try to line up partial guarantees provided by development finance institutions or via the Green Climate Fund to obtain a higher credit rating for Senegal?” In a similar frame of mind, Senegal’s President has urged public — and private — sector partners “not to overestimate the risk of investing on the continent. Africa has made substantial strides towards good governance and an improved business climate. Risk here is no higher than elsewhere. Besides, with the global economy clearly running out of steam today, Africa shouldn’t be equated with risk, but rather with opportunities to revive the economy and achieve shared Proparco Annual Report 2016

growth.” Apart from the funding issue, the future of renewable energy in Senegal will also depend on support for appropriate policies and regulations that can ensure the financial viability of the relevant projects, particularly with regard to drafting power purchase agreements, setting guaranteed feed-in tarifs for IPPs and establishing capped, harmonized rates for the population. And it will mean enhancing the ability of power companies and public services to respond locally to the requirements specific to solar power. The need to incorporate such intermittent energy sources into the national grid is an engineering challenge that escapes no one’s attention in Senegal. And from that standpoint, a project like Senergy will contribute to the transfer of knowhow from Meridiam and Engie’s solar energy subsidiary Solairedirect to the people at Senelec and the Energy Ministry.

Proparco is investing $20m to support a new wind farm in Sindh Province as part of a move to increase renewable energy output and drive economic development in Pakistan.

REPORT

Photos credit: Oriane Zerah

WINDS OF HOPE IN PAKISTAN

Renewable energy

PROPARCO IS INVESTING $20M IN A PAKISTANI WIND FARM, CONFIRMING ITS SUPPORT FOR THE SHIFT TO RENEWABLE ENERGY SOURCES.

akistan suffers from an estimated annual energy shortfall of roughly 5,200 MW. To tackle this pressing problem, Gul Ahmed Energy Group has developed a wind power project in partnership with Proparco. In October 2016, a first facility comprising 20 wind turbines producing 2.5 MW each, and thus a total of 50 MW, was commissioned in the Jhimpir corridor located in southerly Sindh, Pakistan’s second most populous province. Ubaid Amanullah, the Executive Director of Gul Ahmed Energy, argues that wind farms deliver both environmental benefits, in that they entail lower greenhouse gas emissions and a smaller carbon footprint, and economic benefits by reducing the country’s reliance on costly imported fossil fuels. 49

Wind power is an inexpensive, appropriate energy source chosen by Pakistan’s government as a means to diversify an energy mix that is still overly dependent on high-polluting fossil fuels.

This project is a first step in the right direction. Now we need to go further.” Ubaid Amanullah, Executive Director of Gul Ahmed Energy Proparco Annual Report 2016

A young shepherd tending his flock at the foot of wind turbines, Gul Ahmed Energy Wind Farm in the Jhimpir corridor in Sindh Province, Pakistan.

And while he believes it is too soon to assess the ultimate impact of these new forms of energy on the population, he considers even these modest initial steps to be encouraging. “The first wind farm was commissioned in 2013, and most of the others weren’t built until 2015 or 2016,” he says. “Wind power isn’t a substitute at this stage; it’s merely a secondary energy source. The Sindh wind farm has nameplate capacity of 50 MW, and if you add that to the power generated by other wind farms, you get a total of 600 MW. That still represents only 10% of Pakistan’s current energy needs, but what makes this project significant is that it marks the beginning of a new form of energy production that is essential for Pakistan. The country is starting to realize how important the shift to renewable energy is. This project is a first step in the right direction. Now we need to go further.”

WIND FARMS GENERATE

2.5%

OF PAKISTAN’S

€20 million and some guidelines

ELECTRIC POWER OUTPUT

over 500 JOBS CREATED DURING THE CONSTRUCTION PHASE AND 50 PERMANENT JOBS

A REDUCTION OF THE COUNTRY’S CARBON FOOTPRINT BY C.

60,000 TONNES OF CO2

TARGET: COVER 10% OF PAKISTAN’S ENERGY REQUIREMENTS Thirteen wind farms are currently operating in Pakistan and nine others are in the pipeline. Over the coming years, many wind farms are also scheduled to be built, particularly at sites in Jhimpir and Gharo, both in Sindh Province in southern Pakistan. All of these projects are part of the Proparco/AFD “Green growth and solidarity” programme launched in 2015 to support responsible initiatives that help to effectively combat climate change.

EQUIVALENT PER YEAR.

Proparco Annual Report 2016

Proparco has invested €20m in this project as part of AFD’s ‘Green growth and solidarity’ initiative, reflecting its commitment to developing renewable energy sources and combating climate change. “Without the contribution of Proparco, one of the key investors, this wind power project never would have got off the ground,” Amanullah states with conviction. “Our country really needs projects like this one.” But aside from the financial support – a loan of around $19m for a project with a total cost of $126m – Proparco also encouraged the recruitment of local labour. The construction phase created jobs for construction workers and security agents, and since the wind farm has been up and running, all of the security staff and wind turbine operatives have been recruited from among the inhabitants of Jhimpir. 50

Renewable energy

Zehra Zaheer: “The more qualified I am, the more respect and the more responsibilities I will have.”

Portrait

ZEHRA ZAHEER, ENGINEER AND PIONEER Zehra Zaheer has always been passionate about electronic engineering. A native of Karachi, Zehra attended the NED University of Engineering and Technology in the capital. She was hired by Gul Ahmed Wind Power Limited (GAWPL) about a year ago as part of the team of engineers working on the Jhimpir corridor wind farm, about 100 km east of Karachi in Pakistan’s southerly Sindh Province.

“Most of my female classmates went on to study but once they finished university, they got married, had kids, and that was it! They are very highly qualified but they don’t work because their families are against the idea. Where I come from, women would never be asked to support the household: that is the man’s role. So when a woman decides to work, she always gets asked why. I completed four years of engineering studies – I want to put what I learned into practice and to experiment and test my skills.”

No ordinary choice Twenty-three-year-old Zehra Zaheer is the first electronic engineer to be hired by GAWPL. Although she was wooed by a number of companies right after she graduated, she had no hesitation in choosing to work for the Group. “They selected the ten best graduates from my year – five men and five women – and asked us to do a test and an interview. I got chosen. Selecting a woman was no ordinary choice: it was important for Gul Ahmed to have a woman on their team of engineers. It’s a way for them to tackle gender inequality in this profession. In the legal department, the staff are all women but in the engineering department, for the moment, there’s just me!” Not acceptable Zehra works at the head office, but she is in daily contact with the staff out in the field. She sometimes goes on-site for training or for meetings. Zehra is responsible for

Proparco Annual Report 2016

analysing data from the wind farm, as well as for writing reports and resolving technical problems, but she also has a say in decisions concerning future projects. “My boss supports me and sees to it that I am comfortable in my work environment. I would not have been able to work for them if I had had to stay on-site at Jhimpir, which is over two and a half hours from Karachi by car (around 130 km). In our society, it is not acceptable for a woman on her own to live alongside a group composed solely of men. But I really hope that I can serve as an example and that other women will join the team.” The young engineer intends to resume her studies in a few years and to specialize so that she can become a technical manager. But for now, Zehra Zaheer is proud to be working on the wind farm programme because she believes that “renewable energy is the future of Pakistan”.

REPORT

INSURANCE IN AFRICA:

An economic growth catalyser THE INTANGIBLE CHARACTER OF INSURANCE OBSCURES ITS ROLE IN ECONOMIC DEVELOPMENT. YET INSURANCE STIMULATES GROWTH, INCREASES THE RESILIENCE OF HOUSEHOLDS AND LOCAL ECONOMIES AND ACHIEVING AFRICA’S INSURANCE POTENTIAL REQUIRES THE BIG PLAYERS IN THE SECTOR TO STEP UP TO THE CHALLENGE, ADAPTING THEIR PRODUCTS AND DISTRIBUTION CHANNELS TO THE CHARACTERISTICS OF LOCAL MARKETS.

FAVOURS REDISTRIBUTION. PAID OVER INSURANCE PREMIUMS STIMULATE FINANCIAL ACTIVITY WHEN REINVESTED.

Insurance

nsurance is based on a simple principle: paying a defined sum today to cover a risk that may or may not materialize tomorrow. However, insurance has always existed in some form. Today it is offered by traditional organizations, private companies and public authorities. In Africa, traditional ‘self-insurance’ tools are designed to collectively transfer and manage risks, often taking the form of community savings supervised by a ‘wise’ person, or more complex hierarchical and social arrangements. Pooling risks and resources to help people through tough times is very common in Africa. Apart from tontines, other non-profit, membership-based schemes such as burial societies in South Africa or iddirs for Ethiopian smallholder farmers pool risks among people with no access to formal insurance.

An effective growth driver Moving from these informal community-based ‘insurance’ systems to formal individual ones clearly has a positive impact on economic development: it contributes to the growth and stability of economies, and to pooling and mutualization between individuals (see diagram). This growth-driving effect can be analysed in two ways: firstly, through the vital role of insurance payouts in the event of a risk occurring, and secondly, via the insurer’s role as an institutional investor linked to the 53

For local economies and households, insurance represents a factor of stability and resilience to face extreme events. Proparco Annual Report 2016

technical reserves accumulated for the payment of future insurance claims. The insurance premiums received are reinvested in the local economy in the form of government bonds, corporate bonds and equities, transforming short-term savings into long-term savings favourable to the development of the local economy. Several research papers have highlighted the correlation between the insurance penetration rate and GDP growth. Analysing 77 advanced and emerging economies between 1994 and 2005, Han et al. (2010) found that a 1% increase in total insurance penetration led to an annual 4.8% increase in economic growth (versus a 1.7% increase when only life insurance is considered). Low levels of economic development and a fragile economy with little transparency are typically associated with low insurance penetration, while informal and traditional self-insurance mechanisms are not easily quantifiable. In contrast, when GDP per capita reaches levels of around US$ 3,000–5,000, insurance penetration rises faster than GDP until the market reaches a plateau. Two major factors explain this relationship. First of all, insurance makes it possible for individuals to take risk-related decisions that are greater than those each individual could bear on their own, e.g. creating a company, building a large infrastructure or a factory, developing a new technology, etc. Once such risks start to be covered, the associated peace of mind

allows households to take ‘productivity-enhancing’ decisions and invest for the longer term, e.g., begin to use fertilizers, send a child to school, buy preventive equipment against malaria. Second of all, insurance also has an impact on the decline in interest rates and the lengthening of credit maturities. By insuring firms and households against property loss, damage and loan repayment difficulties, insurance helps lower credit risk.

Insurance as a vector for stability and solidarity between individuals Insurance is also a source of stability and resilience to random shocks for local economies and households. It allows them, for example, to protect themselves against natural disasters by transferring risks to insurance companies and subsequently to financial markets. Insurance is also a powerful vector for distribution and solidarity between people and generations, through pooling and aggregating risks. Insurance restores a form of equality between policyholders. Once they have paid a premium, what matters is the risk they face, and not their income, education or social status. As a result, at the macroeconomic level, the insurance sector contributes to national income through the creation of added value. Measuring this contribution remains complex and multifactorial from both a qualitative and a quantitative point of view. But domestic demand is growing, largely sustained by the demographic vitality of Africa and the emergence of the middle classes, estimated at 350 million people across the continent. This article is reproduced in large part from the article in issue 25 of the magazine Private Sector & Development, published by Proparco. The issue explores the opportunities and constraints of insurance in Africa, presenting analyses of several major players in the sector (insurers, researchers, donors, etc.).

ACTIVA – CONFIDENCE IN THE IMPACT OF INSURANCE Created in Cameroon in 1998, Activa has become a major insurer (life and non-life) in sub-Saharan Africa. Activa is present in seven African countries today. Twenty years ago, the founder and current CEO, Richard Lowe, was already aware of the market’s potential. In 2014, Activa achieved annual consolidated revenue of CFA 23bn in Cameroon (around €35m), becoming the country’s second largest insurance company. For Lowe, Activa’s success is rooted in an African ambition, aiming to ensure that “Africans are able, in such a competitive sector, to unabashedly work to international standards”. This success is supported by Proparco, which has pledged to invest €10m in Activa’s equity to support its development in sub-Saharan Africa, including the DRC. After a long period of focusing on international corporations, Activa has recognized the importance of targeting populations with no history of coverage, particularly in rural areas. To reach this agricultural population – 70% of the population in Cameroon lives on the land (Swiss Re) – the company offers a product covering livestock mortality risk. Activa has recently been developing agricultural insurance, which is practically non-existent across the continent, to deal with climate risks. Activa also offers micro-insurance services to the poorest members of society, who are a particular target. For Richard Lowe, “This means creating products that are compatible with the purchasing power of these very low-income populations”. Activa has become a micro-insurance pioneer in the Cameroonian market. Activa Makala, a micro-insurance policy marketed by mobile phone via the Orange money service, was launched in December 2015 in partnership with the telecom operator Orange. For 0.91 or 1.52 euros per month (600 or 1,000 CFA francs) depending on the package selected, the insured are covered against personal and business accidents affecting their sources of income. Activa is aiming for this innovative service to reach 30,000 subscribers in 2016 and 2017, after which it plans to double its objectives in 2018.

Proparco Annual Report 2016

Insurance

Why is insurance a vector of economic growth?

Micro-insurance in Africa

Great potential US$ 647M

5,4Â %

61,9

WORTH OF MICRO-

OF THE AFRICAN

INSURANCE PREMIUMS

POPULATION COVERED

millions PEOPLE INSURED

EGYPT 0.3%

ALGERIA 2.2%

MAURITANIA 0.3% SENEGAL 1.1 % GUINEA 0.3 % SIERRA LEONE < 0.1 %

Source of growth Enables risk-taking. Positively impacts interest rates, credit supply and financing terms and conditions.

TUNISIA 2.2%

MOROCCO 1.3%

MALI 0.8%

BURKINA FASO 2.8% BENIN 2.1 %

IVORY COAST 0.7%

SUDAN 1.1%

NIGERIA 1% CAMEROON 1.8%

TOGO 3.4%

CONGO 0.1%

RWANDA 1,2% DRC 0.4 %

ETHIOPIA 1.9%

Source of stability In economic terms: smooths income patterns and facilitates disaster recovery. In financial terms: long-term focus.

UGANDA 6.7% KENYA 6%

BURUNDI 1.2 %

TANZANIA 3.9%

ZAMBIA 22.2%

MALAWI 1.6 %

ZIMBABWE 1.1 %

NAMIBIA 15.1%

MOZAMBIQUE 0.3 % MADAGASCAR 0.2 %

BOTSWANA 2.8%

SOUTH AFRICA 64%

COMOROS 8.5%

SWAZILAND 21.4%

overage rate C (% of the population)

Source: issue No. 25, Private Sector & Development

Proparco Annual Report 2016

Credit: Advitam

GHANA 29.6%

Source of redistribution Pooling and mutualization: spreads risks between generations and between individuals.

OUR

FINANCIAL RESULTS

Proparco, the subsidiary of Agence Française de Développement (AFD) devoted to private sector financing for the past 40 years, has sustained the pace on its ambitious drive to assist the private sector.

he international development finance community adopted the Sustainable Development Goals (SDGs) in 2016. During the year, it also became clear that more private sector involvement was required to achieve them. This has created a more favourable environment for Proparco’s work. In response, Proparco has recalibrated its strategy for the period from 2017 to 2020, a move approved by its Board of Directors on December 16, 2016. The institution has thus pledged to double its financial commitments in relation to their 2015 level by 2020 and to triple the impact of that funding as measured by five indicators.

Regarding the volume of approvals, commitments and payments, the following was observed: - Both approvals and payments during the year exceeded the targets set, with approvals reaching 102% and payments 106% of the targets; - Commitments reached 96% of the target set; - ‘Climate’ projects accounted for 39% of annual financing approvals, a level slightly above the 30% target initially set; - Proparco will be working further to achieve the goals set out in its Strategic Plan for 2017–2020, which focus on Africa, ‘frontier’ countries, climate finance and high-impact sectors.

Proparco Annual Report 2016

Results

IN BRIEF INCOME 2011–2016

(million €)

130.8

140

Net banking income

130

Net income

120

110.0

104.7

110 100

97.1

90.7

90 80

75.1

60.4

60 50

40.9

39.3

34.5

40 30

32.9

21.6

20 10 0 2011

2012

2013

2014

2015

TOTAL ASSETS 2011–2016

(million €)

2011

2012

2013

2014

2015

2016

3,062

3,493

3,720

4,660

5,095

5,401

Proparco Annual Report 2016

2016

NEW COMMITMENTS IN 2016

At December 31, 2016, excluding FISEA Loans, equity investments and other securities

€923m in 2016

€420M

in climate-related commitments

€167

in financing for LACs and fragile states

NEW COMMITMENTS BY SECTOR

NEW COMMITMENTS BY REGION

% of total

35%

Infrastructure

% of total 13%

Multi-country

Corporate

36% 14%

Sub-Saharan Africa

15%

33%

Asia

43% 9%

Investment funds

Financial institutions

NEW LOANS BY SECTOR 38%

% of total 13%

Corporate

31% 13%

Sub-Saharan Africa

17%

39%

Asia

49%

Financial institutions

NEW EQUITY INVESTMENTS BY SECTOR 20%

Latin America & Caribbean

% of total 14%

11%

Multi-country

Corporate

62% 20%

20%

46%

Sub-Saharan Africa

Asia

Financial institutions

Investment funds

Mediterranean & Middle East

NEW EQUITY INVESTMENTS BY REGION

% of total

Infrastructure

Mediterranean & Middle East

NEW LOANS BY REGION

% of total

Infrastructure

Latin America & Caribbean

Mediterranean & Middle East

Proparco Annual Report 2016

Results

2016 PORTFOLIO At December 31, 2016, excluding FISEA Loans, equity investments and other securities

TOTAL BY REGION

TOTAL BY SECTOR

% of total

Investment funds

49%

Multipays

Europe

French Overseas Territories

Financial institutions

35%

16%

Sub-Saharan Africa

Asia

17%

23%

Corporate

Latin America & Caribbean

21%

Mediterranean & Middle East

30%

Infrastructure

LOANS BY SECTOR

LOANS BY REGION

% of total

17%

Corporate

51%

Multipays

French Overseas Territories

Financial institutions

35%

16%

Sub-Saharan Africa

Asia

25%

Latin America & Caribbean

20%

Mediterranean & Middle East

32%

Infrastructure

EQUITY INVESTMENTS BY SECTOR

EQUITY INVESTMENTS BY REGION

% of total

43%

Investment funds

26%

Financial institutions

Multi-country

Latin America & Caribbean

19%

Corporate

12%

Infrastructure

Europe

Proparco Annual Report 2016

36%

Sub-Saharan Africa

25% 20% Asia

Mediterranean & Middle East

BALANCE SHEET – ASSETS, DECEMBER 31, 2016

(thousands of €)

Assets

DEC. 31, 2016

Cash & central banks Receivables due from financial institutions

2,678,829

2,672,539

Demand Term Transactions with customers

110,435

147,473

2,568,395

2,525,066

2,018,050

1,806,900

Bonds and other fixed-income securities Equity investments and other long-term securities Intangible assets Property, plant and equipment Other assets

34,877

37,230

649,201

554,894

1,017

778

2,242

10,854

16,347

11,923

5,400,573

5,095,119

Accrual adjustments TOTAL ASSETS

DEC. 31, 2015

BALANCE SHEET – LIABILITIES & EQUITY, DECEMBER 31, 2016

(thousands of €)

Liabilities & Equity Debts to credit institutions

Demand Term Other liabilities Accrual adjustments

DEC. 31, 2016

DEC. 31, 2015

4,029,295

3,852,733

4,029,295

3,852,733

404,119

325,329

4,956

5,776

66,861

62,074

Shareholders’ equity

895,341

849,208

Outstanding shares

724,898

Provisions

Statutory reserve

13,554

11,907

Retained earnings

96,448

79,472

Net income TOTAL LIABILITIES & EQUITY

60,441

32,931

5,400,573

5,095,119

Proparco Annual Report 2016

Results

INCOME STATEMENT â&#x20AC;&#x201C; DECEMBER 31, 2016

(thousands of â&#x201A;Ź)

Income statement

2016

2015

260,929

224,958

On transactions with credit institutions

110,938

101,565

On transactions with customers

148,542

121,012

1,449

2,381

-168,121

-141,278

-168,121

-141,278

Interest and similar income

On bonds and other fixed-income securities Interest and related expenses

On transactions with credit institutions Income from variable-income securities

12,308

8,619

Commissions (income)

26,945

22,006

-942

-605

Commissions (expenses) Other income on banking operations Other expenses on banking operations NET BANKING INCOME

Other administrative expenses Depreciation, amortization and provisions Gross operating income Cost of risk

0 -3,714

130,831

109,986

-44,906

-42,068

-268

-286

85,657

67,632

-25,286

-23,346

Operating income

60,371

44,286

Gains and losses on property and equipment

29,763

4,291

Pre-tax income from operations

90,134

48,577

Exceptional income

-2,978

-674

Other income Non-recurring expenses Corporation tax NET INCOME

0 -289

Proparco Annual Report 2016

-3,005

-730

-26,715

-14,971

60,441

32,931

Magazine

PRIVATE SECTOR & DEVELOPMENT Magazine

Blog

Private Sector & Development (PS&D) is a unique quarterly publication that provides analysis and insights into the mechanisms through which the private sector can contribute to the development of countries in the Southern hemisphere. PS&D presents the views of a variety of experts in different fields, from academia to the private sector, development institutions and civil society. Each issue includes six to eight articles on a single theme (e.g., African ports, the African insurance sector, air transport). In the process, Private Sector & Development has gradually emerged as a benchmark publication.

The PS&D blog was launched as an extension of the magazine to provide a wider forum for debate. It includes contributions from people in the private sector who recount their own efforts to overcome the constraints facing developing countries. The themes covered in the blog are in part the focal points of the various issues of the magazine.

Issue on le social business: Social business is creating new ways of responding to the challenges of economic deveÂlopment. Straddling economic utility and public interest, the concept has attracted a large following in both the developed and the developing worlds.

Issue on air transport: Complex journeys, limited connections and coverage â&#x20AC;&#x201C; African air transport faces many challenges. How they are met will have a major impact on the continentâ&#x20AC;&#x2122;s future.

Proparco Annual Report 2016

Issue on the African insurance sector: Major names in the insurance sector have been increasingly focusing on Africa, which currently accounts for only 1.5% of the global insurance market. This issue explores the opportunities and constraints involved. 62

PROPARCO 151, rue Saint-Honoré, 75001 Paris Tel.: +33 1 53 44 31 08 Fax: +33 1 53 44 38 38 proparco@proparco.fr

LATIN AMERICA AND THE CARIBBEAN Central America and the Caribbean MEXICO CITY Torre Omega, piso 5, Campos Eliseos #345, Col. Chapultepec Polanco, 11560 Mexico City D.F. Mexico Tel.: +52 55 5281 1777 afdmexico@afd.fr Paul Centeno-Lappas

South America SÃO PAULO Edificio Çiragan Offi ce Alameda Ministro Rocha de Azevedo, 38 11° andar, conjunto 1103 01410-000, São Paulo, SP Brazil Tel.: +55 11 3149-7907 Fax: +55 11 3142-9884 afdsaopaulo@afd.fr Benjamin Guerini

ASIA North and Southeast Asia BANGKOK Exchange Tower, Unit 3501-02, 35th floor 388 Sukhumvit Road, Klongtoey Bangkok 10110, Thailand Tel.: +66 2 663 60 90 Fax: +66 2 663 60 77 afdbangkok@afd.fr Magali Roux

South Asia DELHI 19 A Rajdoot Marg Chanakya Puri New Delhi, 11021, India Tel.: +91 11 42 79 37 00 Fax: +91 11 42 79 37 01 afdnewdelhi@afd.fr Philippe Serres

MEDITERRANEAN AND MIDDLE EAST North Africa CASABLANCA 15, avenue Mers-Sultan 20130 Casablanca, Morocco Tel.: +212 522 29 53 97 Fax: +212 522 29 53 98 afdcasablanca@afd.fr Yazid Safir

Middle East, Central Asia and Caucasus, Eastern Europe ISTANBUL Büyükdere Cad. Yapi Kredi Plaza C Blok Levent, Istanbul Tel.: +902 122 833 111 afdistanbul@afd.fr Jean-Gabriel Dayre

Southern Africa and Indian Ocean JOHANNESBURG Ballywoods Office Park, Ironwood House, 1st Floor 29 Ballyclare Drive, Bryanston P.O. Box 130067, Bryanston 2021 South Africa Tel.: +27 11 540 71 00 Fax: +27 11 540 71 17 proparcojohannesbourg@afd.fr Denis Sireyjol

Nigeria LAGOS c/o Consulate General of France 1, Oyinkan Abayomi Drive Ikoyi, Lagos, Nigeria Tel.: +234 816 387 8459 afdlagos@afd.fr Olivier Follin

SUB-SAHARAN AFRICA West Africa ABIDJAN Boulevard François Mitterrand 01 BP 1814 Abidjan, Côte d’Ivoire Tel.: +225 22 40 70 40 Fax: +225 22 44 21 78 proparcoabidjan@proparco.fr Laurent Farge

Central Africa DOUALA 96, rue Flatters Immeuble Flatters, 2e étage, Suite 201 BP 2283 Douala, Cameroun Tel.: +237 233 42 06 24 Fax: +237 33 42 06 25 proparcodouala@proparco.fr Thomas Husson

East Africa NAIROBI Top Plaza, 4th floor Kindaruma Road, Off Ngong Road P.O. BOX 45955 00100 Nairobi, Kenya Tel.: +254 20 271 12 34 Fax: +254 20 259 29 08 afdnairobi@afd.fr Damien Braud

Proparco Annual Report 2016

Coordination Anne-Gaël Chapuis, Christelle Thomas

Copywriting Karim Bourtel, Anne-Gael Chapuis, Nicole Chevranski, Victoria Lickert, François Pacquement, Christelle Thomas, and Oriane Zerah

Photo credits pp. 14–15: © ThinkstockPhotos, © Proparco, © Flickr, © Yosr Hmam, © Izkander Ezzerelli, © PhalinnOoi, © samjamphoto, © Joseluis Franco, © Joseluis Franco, © Clement Tardif, © Picasa, © Izkander Ezzerelli, © Sujeewa de Silva, © CIAT (International Center for Tropical Agriculture), © Dominique Chavez, © Oriane Zerah, © Enko Riviera This report was printed using plant-based rather than mineral ink. The paper is PEFC certified, meaning the process for obtaining the wood it was made from does not contribute to deforestation and supports the environmental, economic and social functions of forests. Proparco, a French financial company (société anonyme) with capital of €693,079,200 Registered with the Paris business registry (RCS) under number 310 792 205 Officially filed in July 2017

ANNUAL REPORT 2016