#1CIM OPMENT DEVELOPMENT FUND AFRICAN SAFRICAIN DE DEVELOPPEMENT BANQUE AFRICAINE DE DEVELOPPEM AFRICAN DE Investor Presentation The African Development Bank Group October 2016 1#2Table of contents 1 Overview of the Bank Group 3 Financial Profile of the African Development 22 2 Bank 3 Capital Market Activities 33 4 Appendix A - Financial Statements 40 B-African Economic Overview and Outlook 43 C-Green Bonds 48 D - Frequently Asked Questions 69 2#3The African Development Group Africa is a continent of contrast, rich in natural resources yet its people are among the poorest in the world. The image of Africa that gets projected in the world is that of a continent with disease, hunger, corruption and the need for aid beyond foreseeable future. But, there is another story that is less told which acknowledges the challenges faced by the continent but also recognizes the progress made in terms of more children going to school, less war, growing quest for better governance and an expanding middle class. The African Development Bank is part of that story. 1 Overview of the Bank Group 3#4Africa's premier development financial institution The AfDB Group: three constituent institutions, separate legally and financially, with a common goal... EVELOPPE NQUE AFRICAINE DE DEV DEVELOPMENT BANK African Development Bank ("AfDB") Established in 1964 • 80 member countries . Authorized capital: US$ 93 billion • Resources raised from capital markets . 0% risk weighting under Basel II • Level 1 under Basel III AFRICAN DEVELOPMENT T FUND FONDS AFRICAIN DE DEVELOPPEMENT African Development Fund ("ADF") • Concessional financing, established in 1972 • Financed by 27 State participants and 3 regional donors • • • Subscription: US$ 36 billion • Focus on low income countries Replenished every 3 years • ONECIAL Nigeria Trust Fund (“NTF”) Established in 1976 by Nigeria Targeted at the Bank's needier countries Maturing in 2018 Total resources: US$ 235 million Board of Governors: • Highest decision making body, • Composed of Ministers of Finance and Ministers of Cooperation of the Bank's member countries Governance and Oversight Board of Directors: • • 20 Executive Directors elected by the Board of Governors Oversees the general operations of the Bank • Decisions by both Boards require two third majority or 70% should any member require so ...focused on combating poverty, and improving living conditions on the continent 4#550 years of partnership for the development of Africal Americas USA 6.6% Canada 3.9% Brazil 0.4% Argentina 0.1% G-7 Shareholding: 28% Africa Nigeria 8.20% Guinea 0.40% Egypt 5.60% Mali 0.40% South Africa 5.10% Namibia 0.40% Algeria 4.20% Malawi 0.30% Cote d'Ivoire 3.80% Niger 0.30% Morocco 3.60% Europe Germany 4.20% France 3.80% Italy UK 2.40% 1.80% Sweden 1.60% Switzerland 1.50% Denmark 1.20% Norway 1.20% Spain 1.10% Netherlands 0.90% Belgium 0.70% Austria 0.50% Finland 0.50% Portugal 0.30% Luxembourg 0.20% Sierra Leone 0.30% Libya 3.00% Sudan 0.30% Ghana 2.20% Benin 0.20% Zimbabwe 2.10% Burundi 0.20% Ethiopia 1.60% Eq.Guinea 0.20% Kenya 1.50% Middle East Gambia 0.20% Tunisia 1.40% Liberia 0.20% Angola 1.20% Togo 0.20% Kuwait 0.5% Dem. Rep. Congo 1.20% Cape Verde 0.10% Turkey 0.3% Zambia 1.20% Cent. Afr.Rep. 0.10% Botswana 1.10% General Capital Increases Saudi Arabia 0.2% Chad 0.10% Cameroon 1.10% Lesotho 0.10% In USD million 60,612 Gabon 1.10% Mauritania 0.10% Senegal 1.10% Rwanda 0.10% Tanzania 0.80% Sao Tome & P. 0.10% Madagascar 0.70% Swaziland 0.10% 14,966 Mauritius 0.70% Eritrea 0.04% 7,857 Mozambique 0.60% 5,584 Seychelles 0.04% 527 1,545 Asia Japan 5.5% China 1.2% Korea 0.5% India 0.3% South Sudan 0.50% Somalia 0.04% Uganda 0.50% Djibouti 0.03% Burkina Faso 0.40% Guinea-Bissau 0.03% Congo 0.40% Comoros 0.02% GCI-I 1976 GCI-II GCI-III GCI-IV GCI-V 1979 1981 1987 1998 GCI-VI* 2010 Shareholding as of June 2016 * 2 countries did not participate 5#6The Bank Group addresses the diverse needs of the continent AfDB Sovereign Operations 16 middle-income countries eligible to receive AfDB funding ☐ Criteria: ■ GNI per capita Country's creditworthiness Preserving the long-term financial integrity of the AfDB Additionality and Development Outcome Assessment-Core indicators Job creation Government revenues Financial return Foreign currency earnings ADF Concessional Financing 34 low-income countries eligible to loans and grants Private Sector Operations Viable enterprises and multinational projects, additionality and development outcome Direct loans Lines of credits Equity participation Guarantees Access to both AfDB and ADF 10 countries eligible for both AfDB and ADF Funding: Cameroon, Kenya, Nigeria*, Zambia, Côte d'Ivoire, Ethiopia, Rwanda, Senegal, Tanzania, Uganda * Nigeria graduated to the AfDB-only category in 2014 and is currently benefiting from a transition period of 5 years which will be concluded on 31 December 2018 Enclave Finance Self-sustaining, export oriented project, located in an ADF-eligible country 6#7At the center of Africa's transformation UN Sustainable Development Goals (SDGs) 1 NO POVERTY 2 NO FUNGER 555 AfDB Ten Year Strategy 2013-2022 AfDB 'High 5' priority areas Operational priorities Areas of special emphasis Infrastructure Development Light up & power Africa 3 GOOD HEALTH SDG 3 4 5 6 9 10 SDG 3 4 5 9 Fragile States QUALITY EDUCATION GENDER EQUALITY 6 CLEAN WATER AND SANITATION 7 RENEWABLE ENERGY 8 GOOD JOBS AND ECONOMIC GROWTH INNOVATION AND INFRASTRUCTURE 10 REDUCED INEQUALITIES 11 SUSTAINABLE CITIES AND COMMUNITIES 12 RESPONSIBLE CONSUMPTION 13 CLINATE ACTION 14 LIFE BELOW WATER 15 LIFE ON LAND 16 PEACE AND JUSTICE PARTNERSHIPS 17 FOR THE GOALS Regional Integration SDG SDG 6 9 16 17 5 Agriculture & food security Private Sector Development SDG 5 8 17 Governance & Accountability SDG 5 8 9 16 Skills & Technology Feed Africa Industrialize Africa SDG 5 8 9 Gender Integrate Africa SDG 6 9 17 Improve the quality of life for the people of Africa THE GLOBAL GOALS For Sustainable Developmen SDG SDG 4 5 9 10 17 3 4 5 6 8 10 11 7#8High 5s - Scaling up implementation of the Ten Year Strategy 4 Light up and power Africa Unlock the continent's energy potential in order to drive much- needed industrialization Improve the quality of life for the people of Africa Develop innovative flagship programs to open up opportunities for youth employment, improve access to basic services and create economic opportunities for the extreme poor Feed Africa Transform agriculture to increase productivity, lower food prices, enhance food security, revive rural areas and create jobs for Africans Industrialize Africa Lead other partners in the process of industrializing Africa and developing the private sector to create wealth from natural assets Integrate Africa Address barriers, create regional value chains and leverage complementarities in order to tap the continent's huge market potential 8#9Light up and power Africa Energy in Africa, Over 640 million Africans lack access to electricity a grey picture Per capita use of electricity Africa Europe USA 613 kWh 6,500 kWh 13,000 kWh Insufficient energy access Hydropower provides about a fifth of current capacity but not even a tenth of its total potential is harnessed Our ambition To provide universal energy access by 2025 162 GW electricity generation 130 million on-grid connections 75 million off-grid connections 150 million households with access to clean cooking solutions Power shortages estimated to cost 2% GDP annually, undermining economic growth, employment creation and investment Causes hundreds of thousands of deaths annually through the use of wood- burning stoves Undermines hospital and emergency services operations Compromises educational attainment Drives up cost of doing business due to the use of generators Africa's poorest pay 60 80 times more per unit in northern Nigeria than residents of New York and London AfDB to invest USD 12 billion and leverage about USD 50 billion over 5 years Partnership-driven effort Work with partners to develop a framework that takes into account different energy sources, geographic conditions, regulation and pricing, technologies and distribution mechanisms 9#10Feed Africa Agriculture employs over 60% of the African workforce and accounts for 33% of the continent's GDP, yet Africa is the world's most food-insecure region Heavy dependence on food imports (over USD 35 billion) More than 1 in 4 Africans is malnourished Poor infrastructure Limited access to Inadequate mechanization credit, fertilizers and technology Insecure land tenure Droughts, water scarcity and famine are well-known and real 60% of arable land in the world not yet put to production is in Africa Africa's potential for agricultural production is enormous How is AfDB tackling these challenges? "Feed Africa initiative" will deploy financial resources to enable African countries to seize the opportunity to promote agriculture related industrialization Accelerate support for massive agricultural transformation across Africa to: Our Goals: Adequately feed 150 million additional people Create Lift 100 million people out of poverty Restore productivity to 190 million hectares jobs Unlock the potential of agriculture Lower Revive food prices rural areas AfDB's investment to quadruple from a current annual average of USD 612 million to about USD 2.4 billion 10#11• African economies are largely dependent on sectors with low added value Industrialize Africa Africa's share of global manufacturing at around 1.9% 62% of imports and 19% of exports are manufactured Commodity dependence (% government revenue) Libya 98% Equatorial Guinea 85% Angola 80% Nigeria 74% Industry GDP per capita North America USD 11,500 Low value-added activities lead to low GDP/capita • • East Asia USD 3,400 Our ambition Move Africa to the top of the value chain Increase industrial GDP by 130% to USD 1.55 trillion by 2025 • Develop efficient industry clusters • Africa USD 700 • AfDB to invest about USD 5.6 billion per year Provide policy advisory services, technical assistance to governments and funding to key PPP projects Increase investment/financing to lend to small and medium enterprises (SMEs) and increase their capacity Improve access to market finance for African enterprises • Catalyze funding into infrastructure and industrial projects Link up African enterprises and major projects with potential partners and investors We cannot do it alone! 11#12Policy Regulatory Regional integration challenges: Institutional Infrastructural Integrate Africa African countries are losing out on billions of dollars in potential trade every year because of fragmented regional markets and lack of cross-border production networks that can spur economic dynamism The Bank Group focus Intra-African trade at 15%, lowest globally compared to Building regional infrastructure Boosting intra-African Facilitating movement of trade and investment people across borders 70% in the EU 54% in the North America Free Trade Area 60% in Asia Our ambition.....to lead several continent-wide initiatives targeting both "hard" and "soft" infrastructure . • Continental Free Trade Area - to address Africa's low internal and external trade performances Comprehensive Africa Agriculture Development Program Program for Infrastructure Development in Africa - designed to develop a vision and strategic framework for the development of regional and continental infrastructure Sahel and the Drought Resilience and Sustainable Livelihoods Program in the Horn of Africa AfDB to invest about USD 3.5 billion per year from 2016 to develop high quality regional infrastructure 12#13Improve the quality of life for the people of Africa Our vision . Widespread inclusive growth, allowing all Africans across different countries to have access to Basic services (education, health care, water and sanitation) Productive employment and entrepreneurship opportunities Build critical skills Ensuring that Africa's demographic growth yields significant economic dividends and contributes to inclusive growth will Improve access to water and sanitation Catalytic approach will turn demographic growth into economic dividends Strengthen health systems Offer a new hope for younger generations Contribute to halting the migration flows draining African youth Create millions of jobs Create 80 million jobs 13#14In USD million 10.80% West Delivering on a strong pipeline of projects Sectoral distribution of 2015 approvals 8,778 7,316 6,754 2013 2014 2015 MADB ADF NTF Special Funds South Approvals by region 20.80% 18.30% 17.70% North East 9.60% Central Multinational 22.80% Industry: 0.1% Agriculture: 8.1% Social: 9.4% Multi-sector*: 12.5% CHAT RO GROUPEMENT Finance: 21.3% RESERVE BANK 20 TWENTY RAND Infrastructure: 48.6% Energy 13.80% Breakdown of infrastructure approvals Communications 1.40% Water Supply and Sanitation 6.30% Transport 27.20% * Multi-sector includes public finance management and other governance-related operations 14#15Innovating and crowding-in resources to do more USD 6 billion Large scale partnerships that enlarge the Bank's footprint in Africa USD 2 billion Enhanced Private Sector Assistance for Africa (Japan) Africa Growing Together Fund (China) Risk transfer instruments improving capital efficiency USD USD 707 million 1 billion Private Sector Credit Enhancement Facility Risk sharing vehicle that enables AfDB to support more private sector projects in lower income countries to increase development impact Expected to catalyze USD 1 billion of additional lending over 3 years Africa 50 15#16Improving governance in Africa Over 100 governance projects completed, resulting in better macroeconomic management, increased tax revenue, more foreign direct investment and less time required to start a business Mali USD 21 million to improve public expenditure management in support of economic recovery Project will enhance fiscal decentralization, ensure greater efficiency and transparency in public procurement and strengthen internal controls Morocco USD 111 million to strengthen the commercial legal system, institute tax reforms and promote Public- Private Partnerships (PPPs) and institutions to combat corruption Project will support competitiveness and SME growth Tanzania USD 69 million for policy reforms in the power utilities sector Reforms will address governance of state owned enterprises 29 governance operations approved in 25 countries for USD 1.1 billion in 2015 Zimbabwe USD 3 million to support Civil Society Organizations working in economic and financial governance, women's rights and Parliamentary capacity building initiatives on women's economic empowerment 16#17Fostering development through Trade Finance Ample array of trade finance products Unmet demand estimated at USD 120 billion annually Benefits countries by facilitating international trade, critical for economic growth Trade Finance Program provides: • Guarantees to major international banks Trade liquidity support to local banks and soft commodity corporates Consistent partner, even in times of market stress USD 1 billion USD 305 million Risk Participation Agreements Trade Finance Lines of Credit Local partners provide finance to SMEs and local corporates, promoting intra-African and international trade Supported more than 1,000 trade transactions worth USD 3 billion since inception Two-thirds of the transactions benefited SMEs Liquidity and risk mitigation to more than 85 local banks in more than 20 African countries, most of which are in low-income countries and/or fragile and transition states USD 110 million Soft Commodity Finance Facilities GTR Global Trade Review AfDB 2014 Best Development Financial Institution in Trade Finance in Africa 17 04#18Building resilient health systems AfDB made a valuable contribution towards the rapid containment of the Ebola outbreak Many lives saved versus the prediction of millions dying Psychosocial support provided to survivors Health systems strengthened, human resources capacity built to respond effectively to Ebola virus disease and other infectious diseases An estimated 321 million people in the Economic Community of West African State (ECOWAS) sub region benefited from AfDB Ebola containment projects Communities empowered to effectively respond to Ebola Bank now supporting Post Ebola efforts through the Post Ebola Recovery Social Investment Fund project 18#19Addressing the energy gap Low electricity access rates (0 C(0 Guinea 12% Uganda 14% Guinea-Bissau Gambia Senegal 19% 35% 57% Gambia, Guinea, Guinea-Bissau, Senegal The Gambia River Basin Development Organization Energy Project • Pooling of hydropower to end power shortages 1.3 million people will benefit from regular and more affordable electricity Interconnection network among the four countries will help share energy from power plants in the area USD 1 billion with USD 134 million financed by the Bank Uganda Rural Electricity Access • • • 58,000 rural households in 16 districts representing around 280,000 people will benefit from the investment Project will significantly improve public institutions and businesses in the area Provide a reliable energy supply to 5,320 business centers and 1,470 public institutions USD 121 million project with USD 100 million financed by the Bank 19#20Currently 30% of people in Africa have no access to reliable water sources 70% do not have access to modern sanitation Water, the development nexus > 30% Water is the lifeblood of the High 5s 3 key initiatives hosted by AfDB of water points in rural areas are non-functional Food security Rural Water African Water Supply and Sanitation Initiative Multi-donor Water Partnership Program Countries in Africa can lose up to 5% of annual GDP to poor coverage of drinking water and sanitation 25% of annual GDP to droughts and floods in affected countries 2% of annual GDP to frequent power outages Energy security hydropower Industrialization water is a key input and facilitator Regional integration transboundary waters Improving quality of life through impact on health, education, gender equity, employment and livelihoods Facility Help countries achieve the objectives of the Africa Water Vision 2025 Increase financing for water supply and sanitation in rural areas Promote effective water management policies and practices In 2015, 13 projects worth USD 531 million were approved for development of the water and sanitation sector in Africa 20#21Climate Investment Funds USD 973 million Global Environment Facility USD 252 million Path to green growth Several African countries have already embarked on ambitious programs that integrate climate action with sustainable development AfDB is committed to tripling climate finance to USD 5 billion per year by 2020 Rwanda National Strategy for Climate Change and Low Carbon Development One of the world's most ambitious renewable energy strategies • Combines sustainability, wealth creation and poverty reduction measures • Power generation from renewable energy to increase to 50% by 2017 from 4% in 2008 Africa Climate Change Fund USD 11 million Ethiopia Climate Resilient Green Economy Strategy A comprehensive approach to mitigate the impact of climate change • Almost all electricity comes from hydropower and generation capacity has tripled since 2005 53.5% of the population now enjoying access to electricity compared to 16% eight years ago Sustainable Energy Fund for Africa USD 102 million Green Climate Fund USD 2.5 billion funding target for 2016 CLIMATE INVESTMENT FUNDS $8 BILLION WORLDWIDE $5.5 BILLION Chand $1.3 BILLION 5639 MILLION $551 MILLION SUSTAINABLE ENERGY FUND AFRICA AFRICA CLIMATE CHANGE FUND gef GREEN CLIMATE FUND 21#222 The African Development Bank The financial position of the AfDB is very strong. Thanks to its solid capitalization, ample liquidity buffers and prudent risk- management framework the institution has the capacity to absorb potential shocks emanating from the turbulent operating environment. The Bank has substantial headroom in risk- bearing capacity to further expand its lending. Continued financial and operational prudence will remain key. Financial Profile of the African Development Bank 22#23Summary financial information (in USD million) 2011 2012 2013 2014 2015 June 2016** Assets 31,107 32,605 32,335 33,251 34,212 37,439 Loans 14,210 16,928 17,842 18,324 17,405 18,760 Investments 11,653 9,971 9,372 10,637 10,791 13,515 Borrowings 19,810 20,408 19,939 20,828 22,173 25,651 Equity 7,494 8,207 8,980 8,809 8,895 9,324 Paid-in Capital net of CEAS* 3,601 4,108 4,581 4,730 4,647 5,070 Reserves 3,894 4,100 4,400 4,079 4,010 4,150 Income before distributions 253 301 278 220 134 104 Subscribed Capital 57,300 100,230 100,424 94,366 90,255 92,124 * Cumulative Exchange Adjustment on Subscriptions ** Unaudited Note: Data converted from UA (SDR) to USD at period-end exchange rates Source: AfDB Annual Report/Financial Statements 23#24A solid institution to pursue Africa's development goals. Fitch Ratings MOODY'S STANDARD & POOR'S JCR Japan Credit Rating Agency, Ltd. Critical development mandate Prudent financial risk management ง ว 2 Strong capitalization Diversified funding profile ง 2 Aaa/AAA/AAA Excellent Liquidity Preferred creditor status Extraordinary shareholder support Intrinsic financial strength bolstered by shareholders' support 24#25Managing the Bank's portfolio in a challenging environment Bank's internal risk rating 5 -Sovereign WARR Portfolio risk profile Non-sovereign WARR O Combined WARR 4 3 2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 WARR: Weighted Average Risk Rating A defined risk appetite for the lending portfolio: BB+ to B- (i.e. 3 to 4) 4.0 (B) 3.0 (BB) 2.63 (BBB-) Sovereign Non-sovereign In USD million 19,282 19,055 20,000 18,577 18,760 17,530 16,000 14,788 12,088 13,093 12,000 8,044 8,952 9,180 8,000 4,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 June 2016 Falling commodity prices have negatively impacted resource based non-sovereign projects notwithstanding.... combined WARR at the stronger end of the targeted risk appetite 25#26Strong risk bearing capacity to support business growth Risk capital increased by USD 2 billion since 2006 Amount in USD 6,699 8,870 8,818 8,672 8,696 8,207 7,494 7,440 7,432 7,424 7,178 Adequate portion of earnings incorporated into reserves 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* Jun-2016* Reserves in USD Paid-in Capital in USD * In 2013, AfDB adopted the economic capital framework and as a result, in computing risk capital, reserves were reduced after taking into account adjustments for valuations of equity investments and borrowings through other comprehensive income Reinforced capital base bolstered by payments received under the sixth general capital increase approved in 2010 "Capitalization... remains a key rating strength for the Bank" Fitch, August 2016 USD 1.5 billion of additional paid-in capital expected from 2016 to 2027 26#27A comfortable cushion for risk bearing activities Measuring and monitoring capital requirements for credit, counterparty, market and operational risks 9,000 In USD million AfDB risk 8,000 capital 7,000 supports a USD 19 billion 6,000 243 74 - 218 5,710 portfolio of 509 868 5,000 sovereign, 1,162 commercial 4,000 and equity 3,070 financing as 3,000 well as a USD 2,000 13.5 billion treasury portfolio 1,000 0 Sovereign Non-sovereign As of 30 June 2016 * Diversification benefit stems from correlation between risks Equity Treasury Retirement plan Operational risk Diversification benefit* Total used risk capital Capital utilization driven by the volume and quality of the Bank's various risk exposures Total risk capital 8,870 3,160 Available risk capital (36%) Risk capital 5,710 utilized (64%) 27#28Safeguarding stakeholders' interests Leverage 100% Debt/ usable capital (usable capital = 80% Σ paid-in capital, reserves, callable capital of non- borrowing countries rated A- and above) 60% Gearing 40% Loans* + equity investments + guarantees/subscribed 20% capital** + surplus + reserves *Including undisbursed ** Unimpaired Key prudential ratios well within statutory limits Global Financial Leverage ratio Crisis GCI-VI 200% Capital Increase Gearing ratio 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Limit 58% Leverage 28% Gearing 28#29Positive allocable income in a negative operating environment Allocable income at comfortable level reinforces the Bank's financial capacity Reserves have first claim on earnings In USD million 287 USD 2.9 billion of allocable income since 2006 USD 1.2 billion allocated to reserves 234 190 109 88 58 178 146 132 2013 2014 2015 African Development Fund USD 1.7 billion allocated to high development impact initiatives and surplus accounts Middle Income Country Trust Fund Special Relief Fund • Non-sovereign operations generated a proportionally larger share of revenue but higher profit margins were counterbalanced by slightly higher provision rates Increase in non-sovereign operations provisioning resulted from unfavorable operating context Low interest rate environment Allocation to development initiatives Allocation to reserves AfDB cost-to-income ratio continues to be the lowest among peers 29#302015 income continues to fund key development initiatives (in USD million) 2015 2014 2013 2012 2011 Income before distribution approved by the board Distribution of income approved by the board Net Income 129 220 278 305 253 172 174 166 169 173 -43 46 112 136 80 (in USD million) 2015 2014 2013 2012 2011 Income before distribution approved by the Board Adjusted for: 129 220 278 305 253 - Unrealized (gain)/loss on derivatives and borrowings - Translation (gain)/loss 69 43 -53 16 5 -20 6 -21 3 43 - Fair valuation (gain)/loss of macro hedge swaps Allocable Income (Income - Adjustments) 13 19 29 15 -5 190 287 234 339 295 The income distributions approved by the Board of Governor for key development initiatives are reported as expenses in the Income Statement in the year such distributions are approved. The decisions on income distribution approved by the Board are made on the basis of Allocable Income The allocable income represents the income before distribution for the year adjusted with unrealized gain/(loss) on borrowings and related derivatives and translation gain/(Loss). 30#31Mitigating interest rate risk ■ Minimized by matching interest rate characteristics of assets and liabilities ■ Stabilize net interest margin Managing market risks Minimize credit risk exposure with credit and derivative counterparties ■ Minimum credit ratings established for investments (A) Minimum ratings for derivative counterparties (A-) Prohibited from taking foreign exchange rate risk ■ Liabilities in any currency matched with assets in the same currency Currency composition of net assets aligned with the SDR* currency basket Conservative principles underlying our asset and liability management Relying on our own resources in the face of shocks before shareholders' support materializes ◉ ■ Ability to meet net cash flow requirements including debt redemption and loan disbursements for 1-year without access to additional resources *SDR: Special Drawing Rights 31#32Conservative management of liquidity USD 13.5 billion of treasury investments* USD 8 billion Mandatorily at Fair Value Trading portfolio to meet short and medium term cash flow needs AAA 43% AA+ to AA- 43% Multi-currency portfolio including: USD EUR GBP USD 5.5 billion held at amortized cost to stabilize BBB+ and lower 0.56% A+ and below 13% JPY CHF CAD ZAR net interest margin Investment objectives 67% AfDB investment portfolio 19% 10% 3% 1% Capital preservation Liquidity Return Sovereign Supranational and Agencies Financial institutions Time Deposits Corporate bonds ABS *As of 30 June 2016 32#33The African Development Bank del 3 Capital Market Activities 33#34Funding needs driven by development financing commitments In USD million 3,844 Borrowing program 5,667 4,664 3,912 11,869 2012 2013 2014 2015 2016 Issuing AAA bonds across continents... NZD NGN KES AED JPY HKD GHS CAD BRL BWP AUD EUR USD IDR VND H MXN ZMK GBP UGX ZAR TZS TRY CHF SEK RUB SGD SWAPPED INTO... Derivatives used to protect against currency risks and interest rate risks ZAR 5% Outstanding borrowings of USD 25 billion USD 57% EUR 36% + CHF 2% 34#35Diversified funding... Global benchmarks Public Domestic Issues Private Placements Uridashis A global footprint Sourcing funding opportunities for the Bank and its clients while catering to investor demand USA USD 16,084mln CANADA USD 1mln MEXICO USD 105mln UK USD 809mln EUROPEAN UNION USD 668mln GHANA USD 40mln BRAZIL NIGERIA USD 82min USD 776mln SWEDEN USD 238mln SWITZERLAND USD 359mln RUSSIA USD 23mln TURKEY USD 194mln ZAMBIA USD 7mln UGANDA USD 18mln UAE USD 136mln SOUTH AFRICA USD 710mln Euro commercial paper Loans Outstanding borrowings before swaps AUSTRALIA USD 2,871mln JAPAN USD 1,980mln VIETNAM USD 19mln INDONESIA USD 11mln NEW ZEALAND USD 149mln As of 30 June 2016 35#36Feb 2016 USD 1 billion 1.125% due March 2019 US Treasuries + 29.5bps Midswaps + 29bps AfDB global benchmarks Quality and rarity continue to drive successful issuance Apr 2016 QUE AFRICAINE DE DEVELOPPEMEN Jul 2016 Central Banks and Official Institutions Bank Treasuries 8.3% Asset Managers/Fund 7.8% Managers Corporates 1.7% Sept 2016 USD 1 billion 1.000% due May 2019 US Treasuries + 20.3bps Midswaps + 13bps AFRICAN DEVELOPMENT USD 1 billion 1.250% due July 2021 US Treasuries + 23.2bps Midswaps + 24bps USD 1 billion 1.125% due September 2019 US Treasuries + 26.9bps Midswaps + 9bps Central Banks and Official 80.8% Institutions Asset Managers/Fund Managers Bank Treasuries 7.3% 20.1% 68.3% Central Banks and Official Institutions Bank Treasuries 20.5% Corporates 3.8% Asset Managers/Fund 15.3% Managers Insurance Companies 1.4% Insurance Companies 0.4% Africa 12.0% Africa 14.3% Europe 39.0% Asia 11.9% Americas 37.0% Europe 48.4% Americas 20.4% Europe 48.8% Solid reputation High quality of execution Asia 17.0% Asia 6.9% Pristine AAA rating and fundamentals Africa 17.0% Americas 27.3% Central Banks and Official 64.2% Institutions Asset Managers/Fund 18.1% Managers Europe 37.7% Bank Treasuries 10.9% Corporates 3.8% Middle East 2.5% Africa 2.9% Asia 11.1% Americas 45.8% A very strong development mandate and business profile 67.2% 36#37Kangaroos, Bulldogs and Euro benchmarks EUR 750 Inaugural Euro benchmark million bond due October 2026 issued in 2016 1000 Building a curve in Australia... Total amount of AUD 375 million issued 650 In AUD million 500 نزاس 325 in 2015 275 300 250 Jan 2018 Feb 2019 Feb 2020 Mar 2022 Mar 2024 Jan 2025 Jun 2026 GBP 250 million bond due December 2018 issued in 2016 Total amount of AUD 175 million issued in 2016 米 Back to Sterling... Note: Bulldogs and Kangaroos are bonds issued in the UK and Australia respectively by a foreign borrower 37#38Accessing Africa's foremost bond markets. Waivers requested for bond issuance in domestic markets Authorization to issue in the domestic market Authorization to freely exchange bond proceeds in any other currency Withholding tax exemption Tax exemption on income and gains to bondholders Confirmation that the bonds will be accorded an asset-risk weighting of 0% AfDB bonds are 0% risk weighted under Basel II Eligibility of the bonds. for bank liquidity ratio requirements AfDB bonds are level 1 assets under Basel III Landmark NGN 12.95 billion 7-year domestic bond in Nigeria First-ever debt program from a supranational issuer $ Issuance in Uganda amounting to UGX 25 billion since 2012 ZAR 650 million 3-year Eurobond in 2014 AfDB and Bloomberg launched the AFMI Bloomberg African Bond Index (ABABI) - 2015 Transparent and credible benchmark indices to provide investors with a tool with which to measure and track the performance of Africa's bond markets ■ Composite index comprised of the Bloomberg South Africa, Egypt, Nigeria and Kenya local currency sovereign indices 38#39Socially responsible issuer tapping sustainable markets Good Environmental, Social and Governance (ESG) credentials Strong name recognition in Japanese Socially Responsible Investing (SRI) markets A strong and transparent Green Bond Framework underpinned by transformative climate adaptation and mitigation projects Corporate Responsibility rated by Prime oekom research 3000 QUE AFRICAINE DE DEVELOPPEN AFRICAOPMENT BA USD 20 million Infrastructure bond due July 2025 °CICERO vigeo rating AUD 100 million Food Security bond due April 2020 South Africa - Xina Solar One Concentrated Solar Power Plant Nigeria - Urban Water Sector Reform and Port Harcourt Water Supply and Sanitation Kenya - Lake Turkana Wind Farm Zambia - Ithezi-Tezhi Hydropower Plant Morocco - Power Transmission and Distribution Development AfDB adheres to the Green Bond Principles AfDB Green bonds 2013 USD 500 mln 2014 SEK 2 bln 2015 USD 500 mln Dedicated AfDB green investors Blackrock, California State Teachers Retirement System (CalSTRS), Calvert Investment Management, Nordea Investment Management, Pictet Asset Management, Praxis Intermediate Income Fund, Raiffeisen Capital Management, State Street Global advisors, Second, Third and Fourth Swedish National Pension Funds, Teachers Insurance and Annuity Association (TIAA) Asset Management, Trillium Asset Management, Zürcher Kantonalbank Asset Management Helping Africa gradually transition to green growth DECEMBER 2015 ANQUE AFRICANE DE DEVEL OFFERED AFRICAN DEVELOPMENT BANK USD 500,000,000 1.375% Green Bond Senior Unsecured Notes Due 2018 "Best Green Bond" EMEA Finance 39#40The African Development Bank 4 C Appendix A. Financial Statements 40#41AfDB Income Statement (UA million) Year ended 31 December 2015 2014 2013 2012 2011 Operational Income and Expenses Income from Loans 350.20 342.13 335.01 351.16 314.92 Income from Investments and related derivatives 122.21 132.41 131.24 199.35 168.85 Income from Other Securities 3.73 3.85 3.95 4.83 5.41 Total income from Loans and Investments Interest and amortized issuance costs Net interest on borrowing-related derivatives 491.20 (346.13) 180.22 484.73 221.21 470.20 (375.96) (302.99) (356.41) 139.16 555.34 489.18 (316.82) Unrealized losses on borrowings, related derivatives and others (49.51) (29.83) 111.85 34.11 (10.17) 112.16 (3.04) Provision for Impairment on Loan Principal and Charges Receivable (65.43) (18.02) (41.14) (29.69) (17.68) Provision for Impairment on Equity Investments Provision for Impairment on Investments Translation Gains/(Losses) Other Income 0.43 0.75 0.76 (0.05) (0.15) 9.19 0.29 6.39 14.60 (4.07) 13.33 (2.27) (27.95) 4.27 3.39 3.02 15.29 4.46 Net Operational Income 229.66 282.20 302.98 309.79 246.55 Administrative Expenses (122.00) (123.16) (110.97) (107.55) (79.50) Depreciation Property, Equipment and Intangible Assets. (9.05) (7.61) (6.70) (4.59) (4.47) Sundry (Expenses)/Income (5.44) 0.26 (4.98) (1.94) 1.93 Total Other Expenses (136.49) Income before Distributions Approved by the Board of Governors Distributions of Income Approved by the Board of Governors Net Income for the Year 93.16 (124.00) (30.84) (130.50) 151.69 (120.00) 31.69 (122.65) (114.07) (82.04) 180.33 (107.50) 72.83 195.71 (110.00) 85.71 164.51 (113.00) 51.51 1 UA = 1 SDR = 1.53527 USD (2011) = 1.53692 USD (2012) = 1.54000 (2013) = 1.44881 (2014) = 1.38573 (2015) 41#42AfDB Balance Sheet Highlights (UA million) Year ended 31 December Assets Due from Banks 2015 2014 2013 2012 2011 Demand Obligations 1,214.61 3.80 Treasury Investments 8,392.26 Derivative Assets 1,454.62 406.71 3.80 7,341.62 1,143.68 954.13 Non-Negotiable Instruments on Account of Capital 0.27 Accounts Receivable 489.54 0.74 640.16 Outstanding Loans 12,868.55 12,496.52 3.80 6,058.45 985.96 1.20 843.86 11,440.70 881.45 3.80 6,487.51 1,558.33 344.16 3.80 7,590.47 1,696.68 1.97 762.67 10,885.80 3.04 914.85 9,373.52 Hedged Loans - Fair Value Adjustment 79.84 112.70 32.49 86.85 49.87 Equity Participations 703.27 596.82 525.01 438.56 309.76 Other Securities 46.42 94.11 82.90 76.54 79.99 Other Assets 93.56 79.46 41.22 31.06 13.34 Total Assets 25,346.74 22,950.83 20,996.72 21,214.55 20,261.45 Liabilities, Capital and Reserves Accounts Payable Derivative Liabilities Borrowings Capital Subscriptions Paid Reserves Total Liabilities, Capital and Reserves 1,332.39 1,211.81 1,246.11 1,084.99 853.74 971.85 16,449.26 14,375.95 12,947.44 3,727.69 3,438.23 3,147.08 2,839.48 2,505.97 2,921.25 2,815.32 2,856.88 2,667.44 2,536.18 25,346.74 22,950.83 20,996.72 21,214.55 20,261.45 2,083.07 1,974.68 512.60 13,278.80 502.29 12,902.96 1 UA = 1 SDR = 1.53527 USD (2011) = 1.53692 USD (2012) = 1.54000 (2013) = 1.44881 (2014) = 1.38573 (2015) 42#43The African Development Bank 4 Appendix B. African Economic Overview and Outlook 43#44Resilient growth in the face of global and regional headwinds GDP growth (%) 10 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -2 -4 -6 Asia Pacific Drivers of Africa's growth Strong public investment in infrastructure Africa North America Europe Latin America and the Caribbean Strong domestic consumer base Burgeoning services sector Gradual economic diversification 44#45Diverse country-specific factors driving growth Five of the ten fastest-growing countries in the world with real GDP growth above 7% are in Africa Côte d'Ivoire DRC Rwanda 4% 2% North Africa 2014 2015 6% West 3% Africa 2014 2015 Growth picked-up on the back of improvements in political and economic stability Lower growth due to depressed commodity prices as well as to the impact of the Ebola outbreak Ethiopia 6% Central 4% Africa Decline in oil and metal prices adversely affected growth in the region 2014 2015 7% 6% East Tanzania Africa 2014 2015 3% Southern 2% Africa 2014 2015 Political instability in Burundi and South Sudan weighed down on growth in the region Growth impacted by acute shortages of power, hostile weather conditions and low commodity prices 45#46Macroeconomic environment remains relatively stable Low commodity prices depressed revenues, contributing to the widening of both fiscal and current accounts Current Account Balance (% GDP) 2013 2014 2015 2 Fiscal and monetary policies have proven prudent, keeping inflation generally stable aided by low fuel prices in importing countries 0 -2 Inflation (%) Fiscal Balance excluding grants (% GDP) -4 2013 2014 2015 -6 10 0 -8 8 -2 -10 -Oil-Exporting -Oil-Importing Africa 6 -4 -6 4 -8 -10 2 Oil-Exporting -Oil-Importing Africa The strengthening of the US dollar also put additional pressure on the exchange rate of a number of countries Oil-Exporting 0 2013 -Oil-Importing Africa 2014 2015 46#47Africa's growth should remain favorable, in spite of challenges Growth prospects remain positive, underpinned by relatively stable macroeconomic conditions, strong domestic consumer demand, robust public investment in infrastructure and fiscal consolidation in order to contain the commodity price shock Africa has shown its resilience and should continue to maintain its position as the second fastest growing region of the world 4.5% 2017 Downside risks include a continued decline in commodity prices, power shortages, adverse weather, conflict, political instability and terrorism 3.6% 2015 3.7% 2016 47#48The African Development Bank 4 Appendix C. Green Bonds 48#49Portfolio selection AfDB eligibility criteria for Green Bond linked to the climate finance tracking methodology . • AfDB's Green Bond framework • Pipeline of projects Disbursement of eligible projects . • Semi-annual allocation of proceeds to green projects to • be approved by ALCO . Management of proceeds • Monitoring and reporting Framework for selecting green projects Impact assessment of projects: metrics positive. outcome of the investment Disclosure on disbursements & deployment of proceeds Update on projects Investor Marketing Updates through roadshows and targeted communications. Respond to Investor queries ESG rating Certification process: Second opinion from CICERO External assurance 49#50Outstanding Green Bond project portfolio breakdown By region Southern Africa 30% Western Africa 1% By sector Biogas 1% Energy Efficiency Eastern Africa 19% 14% Wind 30% Hydro 3% Multinational 2% Northern Africa 48% Water 8% Examples of eligible mitigation and adaptation projects Renewable energy generation Energy efficiency Vehicle energy efficiency fleet retrofit or urban transport modal change Biosphere conversation projects Solid waste management Fugitive emissions and carbon capture Urban development Water supply and access Low carbon transport Transport 19% Solar 25% 50#51AfDB guiding principles for climate change finance tracking Projects reducing vulnerability of human or natural systems to climate change by maintaining or increasing adaptive capacity and resilience Projects leading to significant GHG emissions reductions over the lifetime of the asset will also be eligible Only projects whose financing can be qualified in full as promoting either low- carbon or climate resilient development will be considered for the Bank's Green Bond portfolio 51#52Typology of climate and mitigation for tracking purposes Wind Energy Activities with Adaptation Co-benefits Improve design of turbines to withstand higher wind speeds as a result of extreme weather events Solar Energy Improve design of solar panels to withstand higher intensity storms resulting from CC&CV Construct power generation capacity from solar thermal, solar PV and wind • Strengthen regulatory and institutional framework to support expansion of wind and solar power generation Activities with Mitigation Co-benefits Support wind and solar energy technology manufacturers 52#53Typology of climate and mitigation for tracking purposes Other Sources of Energy Activities with Adaptation Co-benefits • Secure access to water for crops used as bioenergy source (i.e. biofuel) Activities with Mitigation Co-benefits Support other renewable energy Construct power generation capacity from other renewable sources (biomass, geothermal and other non-hydro) • Geothermal power • Solid biomass power (pellets, sawmill residues, bagasse, forest plantations, etc.) only if biomass resources are residues, or produced in a sustainable manner Biogas power (only if the biomass resources used for biogas production are residues, or produced in a sustainable manner) • Ocean power (wave, tidal, ocean currents, salt gradient) • Rural electricity with off-grid renewable energy (in the case of hybrid systems, only renewable energy • components are counted) Urban off-grid applications (PV public lighting) 53#54Project evaluation & selection Joint Multilateral Development Bank (MDB) Report on Adaptation/Mit igation Finance Bank's Environmental Strategy permeates design of all projects Bank's Methodology for Tracking Climate Adaptation and Mitigation Finance ALL PROJECTS SCREENING AND SELECTION OF PROJECTS ACCORDING TO THE CLIMATE FINANCE TRACKING METHODOLOGY Energy, Environment and Climate Change Department with operational departments evaluate and select climate change projects according to the Bank's methodology for tracking climate finance Energy, Environment and Climate Change Department with Treasury Department evaluate and select projects for the Green Bond portfolio according to the Bank's Green Bond framework BOND PROCEEDS USD EUR ZAR SEMI-ANNUAL ALLOCATION APPLICATION OF GREEN BOND FRAMEWORK GREEN BOND ELIGIBLE PROJECTS 54#55What can be financed with AfDB Green Bonds? Greenfield Renewable Energy Generation (e.g. solar, wind, geothermal, and ocean power) Biosphere conservation projects (reduce emissions from deforestation and degradation of ecosystems) Solid Waste Management (e.g. incineration of waste, landfill gas capture and landfill gas combustion) Fugitive emissions and carbon capture (e.g. carbon capture and storage, reduction of gas flaring or methane fugitive emissions in the oil and gas industry, coal mine methane capture) Vehicle energy efficiency fleet retrofit or urban transport modal change Industrial Processes (reduce GHG emissions from industrial processes improvements and cleaner production) Demand-side Brownfield and Greenfield Energy Efficiency (e.g. energy efficiency improvements in lighting and equipment; retrofit of transmission lines, substations or distribution systems to reduce technical losses) Water Supply and Access (e.g. water-saving measures such as introduction of less water intensive crops or preservation of soil moisture and fertility) Urban Development (e.g. rehabilitation and upgrade of urban water drainage systems in areas vulnerable to frequency and/or severity of flash floods and storm surges brought by climate change) 55#56Morocco Selected eligible Green Bond projects Ouarzazate Solar Complex - Phase I (NOORO 1) Africa's largest concentrated solar power plant AfDB financing USD 204 million • • • • 160 MW of Concentrated Solar Power (CSP) capacity by end 2014 Annual GHG reductions of 0.27 MT CO2e per year Curb CO2 emissions by 6.8 million tons over the lifetime of the asset Creation of 800 jobs between 2012 and 2014 and 50 permanent jobs thereafter Increase in the share of renewable energies in Morocco's energy supply by 2020 Morocco Ouarzazate Solar Complex - Phase II (NOORO II and NOORO III) AfDB financing USD 121 million 500 MW of CSP capacity Annual GHG reductions of 0.52 MT CO2e per year Curb CO2 emissions by 13 million tons over the lifetime of the asset Creation of 1,600 jobs during construction and 200 permanent jobs thereafter Increase in the share of renewable energies in Morocco's energy supply by 2020 56#57Selected eligible Green Bond projects South Africa Xina Solar One Concentrated Solar Power plant AfDB Financing USD 100 million • 100 MW of capacity • • Annual GHG reductions of 0.40 MT CO2e Creation of 1,415 jobs 85% of electricity in South Africa is coal generated, and accounts for over 40 percent of Africa's CO2 emissions. Project aims to increase renewable energy production and reduce use of coal- power plants ABENGOA SOLAR Kenya Lake Turkana Wind Farm Africa's largest wind power project AfDB financing EUR 115 million 300 MW of wind capacity Annual GHG reductions of 0.74 MT CO2e per year Curb CO2 emissions by 16 million tons over the lifetime of the asset Creation of 850 jobs Computer generated mockup of the Lake Turkana project 57#58Selected eligible Green Bond projects Morocco ONEE Integrated Wind/Hydro Programme AfDB financing USD 450 million • • • Three wind farms of 100-300MW capacity and two hydro facilities to supply base-load power Annual GHG reductions of 3.3 MT CO2e per year 4000 jobs during construction and 350 permanent jobs • 86,000 new rural household connections • Zambia Itezhi-Tezhi Hydro Project AfDB financing USD 35 million Installed capacity of 120 MW Annual GHG reductions of 0.56 MT CO2e per year Creation of 820 jobs Mitigating the severe energy generation deficit of the Zambian electricity network while reducing dependency on coal powered plants 58#59Selected eligible Green Bond projects South Africa Eskom Renewable Energy Projects - Sere Wind Facility and Upington CTSP AfDB financing USD 265 million One wind farm of 100MW capacity and a solar plant of 100MW to supply base-load power • Annual GHG reductions of 0.81 MT CO2e • 3071 jobs created . Reduced dependency on coal-fired power Skom Cape Verde Cabeolica Wind Farm Project AfDB financing USD 20 million 25.5 MW capacity Diversify its energy matrix which is currently dominated by diesel thermal power generation Annual GHG reductions of 0.07 MT CO2e 59#60Egypt Selected eligible Green Bond projects Gabal El-Asfar Wastewater Treatment Plant, Stage II Africa's largest wastewater treatment plant AfDB financing USD 74 million 500,000 m3/d primary and secondary wastewater treatment capacity Improved water and sanitation for approximately 10 million people with attendant reduction in pollution and water borne diseases Annual GHG reductions of 0.2 MT CO2e • Tunisia The Electricity Distribution Networks Rehabilitation and Restructuring Project AfDB financing USD 65 million Energy efficiency project aimed at promoting more efficient and sustainable energy use in view of increased economic development Construction and rehabilitation of power lines and • stations to maximize efficiencies Annual GHG reduction of 110 tonnes of CO2e 60#61Selected eligible Green Bond projects Morocco Power Transmission and Distribution Development Project AfDB financing USD 154 million . · Designed to minimize energy transmission losses from production sites to the distribution grid Reduction of electricity losses from 4.7% to 3.5% will help save 376 GWh annually • Annual GHG emissions reduction of 0.18 MT CO2e • Morocco National Irrigation Water Saving Programme . Support Project (PAPNEEI) AfDB financing USD 74 million Protect water resources for rural populations through sustainable management of these resources Direct benefit for 5,853 farms and 30,000 persons 69 million m3 of water saved 61#62Addressing the potential negative effects of large hydro Hydro projects that need to observe the strictest environmental and social impact standards require a full Environmental and Social Impact Analysis (ESIA) when any of the following criteria are met: ☐ Dam projects involving the establishment of a reservoir of 1,000 ha or more affecting land used by local populations; Power transmission lines of more than 110 kV, crossing highly populated, forested or cultivated areas; Power generation plants of more than 30 MW. Net proceeds of AfDB Green Bonds might finance large hydro as long as and only if net emission reductions can be demonstrated (i.e. emission reductions from replacing fossil fuel generation minus emissions generated from creating the reservoir e.g. cutting trees) The Green Bonds project portfolio currently contains two hydro projects: ONEE Integrated Wind/Hydro in Morocco and Itezhi-Tezhi in Zambia . • Case study: Itezhi-Tezhi hydro project Planned electricity generation of clean hydro power will save an estimated 360,000 tonnes of CO2 emissions per year As a category 1 project, a full ESIA was conducted for the Itezhi-Tezhi project which involved public consultations (publicly available online*). A positive environmental externality of USD 39 million minimum is expected to be created by the overall project For the 404 persons affected by the project, a full Resettlement Action Plan was prepared and implemented in accordance with the Bank's policy on involuntary resettlement including supporting the vulnerable to relocate. A budgetary allocation was also provided by the Zambia Energy Utility Company (ZESCO) to ensure fair and timely compensation of project affected persons * http://www.afdb.org/fileadmin/uploads/afdb/Documents/Environmental-and-Social-Assessments/0305_Final%20Document%20_ITT_ESIA_RAP%20Summary.pdf 62#63Allocation of proceeds greenbonds An amount equal to the net proceeds of the bonds will be allocated within the treasury's liquidity portfolio, to a sub- portfolio, that will be linked to the AfDB's lending operations in the fields of climate change adaptation and mitigation ("eligible projects") So long as the bonds are outstanding, the balance of this sub- portfolio will be reduced, at the end of each semester, under the Bank's debt allocation framework, by amounts matching the disbursements made during the semester in respect of eligible projects 63#64Green unpacked: commitment to transparency To enable investors to follow the implementation of AfDB's Green Bond program, a dedicated website has been established which includes, among other things: Suspe Reges Pr Stan APRICAN DEVELOPMENT BANK GROUP elding today better A S T Oper Green Bond Program Latest news Explore Car Activities ancoped mest Knowledge Products 1064 2014 By vary Engle Vicen Deforestation in Africa is twice the world rate Subscribe imate fac TOAM Documents ADORE Pesm go f Key information about the AfDB's Green Bond program and framework, including project selection criteria Key documents related to AfDB's Green Bond program including the second opinion from CICERO as well as links to other relevant Bank documents such as the Long-Term Strategy and the Environment Policy Annual newsletter reporting on the projects which are part of the Green Bond portfolio Impact reporting measurements ✓ Installed capacity ✓ Annual energy savings ✓ Lifetime GHG emission reductions ✓ Annual GHG emission reductions ✓ Job creation http://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/green-bond-program/ 64#65Green Bond impact reporting (1) Annual energy Year approved Name of project Region Type Total project cost (USD) Installed capacity (MW) output/ savings (GWh) Lifetime GHG emissions reduced or avoided (in tons CO2e) Annual GHG emissions reduced or avoided (in tons CO2e) Volume of water saved/ treated (in million m3) Job creation (no. of people) 2015 Mahe Sustainable Water Augmentation project Eastern Africa Hydro 26,000,000 1 104 2015 Uganda Rural Electricity Access Project Eastern Africa Energy Efficiency 121,405,000 1,018 113 938,000 47,000 2014 Ouarzazate Solar Complex Project - Phase II (NOORO II and NOORO III power plants) Northern Africa Solar 2,370,893,916 350 1,800 1,100 13,050,000 522,000 2014 Xina Solar One Project Southern Africa Solar 908,000,000 100 1,415 383 7,200,000 400,000 2013 Lake Turkana Wind Power Project Eastern Africa Wind 693,874,555 300 750 1,249 16,000,000 736,615 2012 Ouarzazate Solar Power Station Project Phase I (NOORO 1 power plant) Solar Northern Africa 1,489,000,000 160 850 497 6,784,150 271,366 2012 ONEE Integrated Wind/Hydro and Rural Electrification Programme Northern Africa Wind 2,479,457,888 1100 4,350 2,496 65,000,000 3,250,000 2012 Ithezi-Tezhi Power Project Southern Africa. Hydro 239,000,000 120 820 611 14,400,000 560,654 2011 Project to Improve the Quality of Treated Water Water Northern Africa 51,882,976 78 0 65#66Year approved Green Bond impact reporting (2) Name of project Region Туре Total project cost (USD) Installed capacity (MW) Annual energy output/savings (GWh) Lifetime GHG emissions reduced or avoided (in tons CO2e) Annual GHG emissions reduced or avoided (in tons CO2e) Volume of water saved/treated (in million m3) Job creation (no. of people) 2011 Rift Valley Railways Project Multinational Transport 372,000,000 0 2011 Eskom Renewable Energy Project - Sere Wind Facility Wind Southern Africa 332,575,200 100 1,521 219 4,760,000 238,000 2011 Eskom Renewable Energy Project - Upington CSTP Southern Africa Solar 870,238,440 100 1,550 531 11,400,000 570,000 2011 Kivuwatt Project Eastern Africa Biogas 127,580,000 25 107 311 53,655 2010 Cabeólica Wind Power Project Western Africa Wind 84,704,271 25.5 90 98 2,100,000 67,444 2009 Gabal El-Asfar Wastewater Treatment Plant Stage II, Phase II Project Northern Africa Water 294,661,627 6.5 183 550 2.14 14,600,000 730,000 2009 The Electricity Distribution Networks Rehabilitation and Restructuring Northern Africa Energy Efficiency 73,313,204 0 0 8,600 430 Project 2009 Power Transmission and Distribution Development Project Northern Africa Energy Efficiency 169,114,489 0 376 2,745,000 183,000 2009 The National Irrigation Water Saving Programme Support Project (PAPNEEI) Northern Africa Water 74,663,045 69 69 234,627 2008 Buseruka Hydropower Project Eastern Africa Hydro 41,100,000 62 6 232 52 985,740 32,858 66#67°CICERO MSCI Corporate Responsibility rated by Prime Third party assurance "A clear impression of an institution that is well aware of the challenges posed by climate change as well as other environmental and social concerns that may be associated with investments projects. In particular we are pleased with the consciousness shown towards the external impacts of projects both across space and time" CICERO, 1st September 2013 "On a relative benchmarking with other supranationals and development banks, the bank continues to demonstrate robust benefits and programs to attract and retain talent. Additionally, the bank has a well-defined system in place to manage credit and reputational risks arising from these impacts." MSCI ESG Research, 5th December 2014 The company's environmental social lending and investment banking guidelines cover client-related environmental and social risks and impact management aspects, including risk and impact assessments, effective stakeholder engagement and grievance mechanisms. Oekom Corporate Rating, 12th December 2014 oekom research vigeo rating The way to responsible investment. "AfDB's overall Corporate Social Responsibility performance is considered advanced in absolute terms (63/100) and it has significantly increased since last review (July 2014) " "AfDB displays an homogeneous approach to the management of its ESG impacts, achieving an advanced performance in all the three pillars. As for the Governance pillar, ESG issues appear to be integrated in the governance strategy with material ESG issues discussed at board meetings and the related risks covered by internal controls. The institution Environmental strategy addresses the material issues related to its business operations, and environmental and climate safeguards are implemented. As regards the Social pillar, AfDB discloses extensive measures to foster consultation of Stakeholders in its projects and thematic policies, in addition tools have been set up to monitor the achievement of its development goals in its member countries." Vigeo, August 2016 67#68AfDB Theme Bonds issuance 4 AfDB Socially Responsible bonds issued since 2010. Proceeds used on a best- efforts basis towards lending in the relevant areas Light up and power Africa • Clean energy • Powering Africa Feed Africa Industrialize Africa ⚫ Agriculture • Infrastructure • Infrastructure . Food Security • Industrial projects Integrate Africa Improve the life of the people in Africa • Social • Water • Education • Gender • Health • Job creation AUD 40 million Water bond issued in 2010 AUD 100 million Clean energy bond issued in 2010 BRL 150 million Education bond issued in 2013 USD 130 million Infrastructure bond issued in 2014 AUD 55 million Food security bond issued in 2015 IDR 58 billion "Improve the life of the people of Africa" theme bond issued in 2016 68#69The African Development Bank 4 Appendix D. Frequently Asked Questions 69#70Frequently asked questions 1) What is the relationship between AfDB and ADF? 2) What is the Bank's Integrated Safeguards System 3) What are the eligibility criteria for loans? 4) What is the AfDB's loan approval process? 5) AfDB's Loan Pricing 6) What are the Bank's policies for equity investments? 7) What are the eligibility criteria for equity investments? 8) What are the AfDB's lending limits? 9) What is the Exposure Exchange Agreement? 10) What are your largest notional exposures? 11) What is the distribution of the sovereign and non-sovereign portfolios by countries? 12) What is your exposure to North Africa? 13) What does the Preferred Creditor Status (PCS) mean? 14) What is your field presence in Africa? 15) What is a fragile situation? 16) What are the AfDB's non-performing loans? 17) What is your policy on write-offs? 18) What are your investment guidelines? 19) What is the capital structure of the Bank? 20) What is your procedure for capital call? 21) What are your ethical business practices? 22) What is the African Financing Partnership? 23) What is the Extractive Industries Transparency Initiative? 24) What is AfDB's credit policy? 25) AfDB financial ratios versus peers 26) AfDB Theme Bonds issuance 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 70#71What is the relationship between AfDB and ADF? The African Development Bank and the African Development Fund are two entities within the AfDB Group that are separate both legally and financially. They have distinct assets and liabilities. The African Development Bank is the rated entity that raises funds from the capital markets to on- lend to the most credit worthy countries of Africa and to viable sector projects. The African Development Fund (ADF) is the soft loan lending arm of the AfDB group and is primarily funded through contributions from donors. In effect it provides highly concessional loans and grants to the poorest countries of Africa. The AfDB has an equity participation in the Fund, and makes annual contribution from its net income to ADF. There is no recourse to the AfDB for obligations in respect of any of the ADF liabilities and vice-versa. There can be no transfer of exposure between these two institutions, as they are separate. 71#72What is the Bank's Integrated Safeguards System? Cornerstone of the Bank's strategy to promote growth that is socially inclusive and environmentally sustainable Structure of the Integrated Safeguards System Integrated safeguards policy statement Safeguards as a tool for identifying risks, reducing development costs, and improving project sustainability Declaration of commitment to environmental and social sustainability and reducing risk of noncompliances Encourages greater transparency and accountability through project-level grievance and redress mechanisms OS 1 Environmentaland Social Assessment Operational safeguards (OS) Short and focused policy statements that follow Bank commitments and establish operational parameters Involuntary Resettlement: Land OS 2 Acquisition, Population Displacement and Compensation OS 3 Biodiversity and Ecosystem Services Environmental and Social Assessment Procedures revised Procedural and process guidance (documentation, analysis, review and reporting) at each stage of project cycle Pollution Prevention and Control, OS 4 Greenhouse Gases, Hazardous Materials and Resource Efficiency Integrated Environmental and Social Impact Assessment guidance notes revised Detailed (methodological, sectoral and thematic) guidance on integrated environmental and social impact assessment OS 5 Labour Conditions, Health and Safety 72#73What are the eligibility criteria for loans? Public sector: The Bank uses the same credit policy as the World Bank for determining the eligible countries to which it can lend on the sovereign side. The eligibility is based on two pillars: 1- Gross National Income per capita and 2- Credit Worthiness. As of January 2016, there are 20 countries eligible for sovereign lending, namely, Algeria, Angola, Botswana, Cameroon, Cape Verde, Congo, Egypt, Equatorial Guinea, Gabon, Kenya, Libya, Mauritius, Morocco, Namibia, Nigeria, Seychelles, South Africa, Swaziland, Tunisia, and Zambia. The list of eligible countries is reviewed periodically to determine the status of the countries and a decision to add or to remove countries from the list is taken by the Board. Moreover, the Bank conducts an annual internal rating exercise of all its African member countries based on sovereign rating models validated by leading international rating agencies. Sovereign ratings are subject to continued surveillance throughout the year and rating changes may occur in case of change in the country's fundamentals and these actions are approved by the Credit Risk Committee of the Bank. Private sector: The Bank lends only to commercially viable private sector operations in any of its 54 regional member countries. Commercial viability and risks are estimated based on internal rating models (reviewed and recalibrated periodically with the support of major international rating agencies). The ratings are reviewed at least annually and subject to continued surveillance in order to ensure proactiveness in taking any corrective measures. The Bank does not lend to projects rated below an internal rating of "5" which is equivalent to "B-" international rating and all the projects rated (numerically) above "5" are subject to: 1) exceptional Board approval and 2) a limit of 10% of the Bank's capital. The Bank also has a set of limits that governs single name exposure (6% of total risk capital) and sector exposure (25- 35% of the risk capital allocated to private sector operations). The Bank has in place a framework for the ex-ante additionality and development outcome assessment (ADOA) of its private sector operations. The baseline development outcome indicators established will facilitate tracking, monitoring and ex-post evaluations. 73#74What is the AfDB's loan approval process? The Bank has clear core operational priorities and cross cutting themes as part of its Ten-Year Strategy in deciding in which areas to intervene. All projects follow the same internal approval process. 1. Preparation of a Project Concept Note The Project Concept Note (PCN) is a document which is prepared to present, in a concise and analytical way, the main features of the project to be financed. The main objective is to allow Management to take an informed decision whether to go ahead with appraisal and due diligence of the related project or not. The first review level of the PCN is done by peer reviewers and members of the Project Appraisal Team (PAT), which constitutes experts drawn from a wide range of relevant Bank departments. The PCN is finally reviewed and discussed by the Country Team who determines if the transaction is well conceived and that both structure and orientation are compliant with the Bank's strategy and development priorities. It will also establish if the project is technically sound and commercially viable. The PCN is cleared by the Country Team (chaired by the Regional Director) which will recommend the project to the Operations Committee (which is chaired by the Bank's Vice-President/Chief Operating Officer) for final clearance. However, PCNS of some projects responding to certain circumstances including but not limited to having an amount higher than UA 100 million, reputational risk, exceptionally innovative features in their design, will require prior review by the Credit Risk Committee (chaired by the Bank Group Chief Risk Officer) who will make recommendations, as applicable to credit risk governance, credit assessment, rating change approval to the Operations Committee prior to its final clearance. The Operations Committee will then make a comprehensive review of the Project Concept Note with focus on finer technical details of operation. At this stage, particular attention is given to its rating. If the project is cleared at this level, the PAT will go on a project appraisal mission to do an appraisal and due diligence, assessing the Project on the ground. Simultaneously, the Bank's Risk Management Department undertakes an independent credit evaluation of the project and prepares a Summary Credit Note. 2. Project Appraisal Stage On completion of the due diligence mission, a Project Appraisal Report (PAR) is prepared. This is then discussed by the Project Appraisal Team at Country Team level. The discussion of the PAR at the Country Team is subsequent to the CRC reviewing the project for further credit assessment recommendations. Once cleared at the Country Team level, the project is sent to the Operations Committee before being submitted for approval to the Board. 3. Board Approval Final approval rests with the Board of Directors. The Board will make a decision based on the Project Appraisal Report and on the independent Board Credit Memorandum report prepared by the Risk Management Department. Following approval (and disbursement), all projects continue to be periodically assessed and evaluated by the Bank's Risk Management Department, and their internal risk rating is regularly updated. 74#75AfDB's loan pricing Fully Flexible Sovereign and Sovereign Guaranteed Loans Currency: USD, EUR, JPY, ZAR and any other currency designated as lending currency of the Bank Maturity: Up to 25 years, with up to 8 years grace period Lending rate: Base rate (floating or fix) + funding cost margin + lending spread (80 bps) + maturity premium Maturity premium: Dependent on the average loan maximum maturity of the loan (0 bps for up to 12.75 years, 10 bps for Average Loan Maturity greater than 12.75 years and up to 15 years and 20 bps for Average Loan Maturity greater than 15 years). Fees: 25 bps commitment fee and 25bps front end fees Repayment terms: Equal instalments of principal after expiration of grace period. Other repayment terms may also be considered. Optionality: The borrower can fix, un-fix and refix the base rate; caps and collars are available for the base rate; currency conversion possibilities on disbursed and undisbursed portion of the loan. Non-Sovereign Loans Currency: USD, EUR, JPY, ZAR and any other currency designated as lending currency of the Bank Maturity: Up to 15 years with up to 5 years grace period. Longer maturities can be considered on a case-by-case basis. Lending rate: Base rate + lending margin Base rate: Floating base rate, fixed base rate or all-in cost of funds (for local currency lending) Lending margin: based on project specific credit risk rating in line with the Bank's non-sovereign pricing framework. Margin includes credit risk premium (derived from probabilities of default and loss given default) and concentration risk premium. Fees: 1% front end fees, 0 to 1% Appraisal fees and 0.5% to 1% commitment fee Repayment terms: Equal instalments of principal after expiration of grace period. Other repayment terms may also be considered. 75#76What are the Bank's policies for equity investments? The Bank applies pre-defined eligibility criteria to select suitable operations that maximize its catalytic impact, guided by the principles of development effectiveness. Objectives: In addition to the financial return for the Bank, Equity Investments are aimed at promoting: (a) local ownership of productive enterprises; (b) efficient use of resources; (c) regional economic cooperation and integration; (d) entrepreneurial risk-taking in economic sectors of emerging importance, with a view to diversifying and modernising national or sub-regional economies; (e) best-practice standards in corporate governance, business management, and corporate responsibility as a mean to strengthen the competitiveness of Africa's medium and large scale enterprises; and (f) the mobilisation of domestic, regional and foreign direct investment resources in pivotal sectors of the economy such as socio-economic infrastructure, manufacturing, agribusiness and food security, and financial sector development. Eligibility: Non-sovereign operations can be implemented in any of the Regional Member Countries eligible to be considered for Bank investments; All economic sectors and sub-sectors are eligible for Bank investments, except: Production of alcoholic beverages, tobacco, and luxury consumer goods - Production or trade in weapons, ammunition and other goods used for military or paramilitary purposes - Production, trade in, or use of nuclear reactors and related products, asbestos fibres, harmful substances - Trade in wildlife or wildlife products regulated under international conventions (CITES) - Speculative trade or investment in platinum, pearls, precious stones, gold and related products - Gambling, casinos and equivalent enterprise - Use of logging equipment in unmanaged primary tropical rainforests - Economic activities involving harmful or exploitative forms of forced labour and/or child labour Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements. - 76#77What are the eligibility criteria for equity investments? Investment Criteria: Strategic fit: Non-sovereign operations must be compatible with the strategic orientations and priorities of the Bank (High 5s, 2013-2022 Ten Year strategy and successors) and regional member countries (Country Strategy Papers and Regional Integration Strategy Papers). Creditworthiness: Potential investee companies must be operating under competent management and good corporate governance, with a track record or demonstrable capacity for environmental and social responsibility, in good standing, with a viable business model, with realistic business strategies, and capable of generating sufficient revenues to reimburse the Bank and other financiers. Commercial viability: Equity participations must have good prospects to support dividend payments and/or retained earnings, yielding satisfactory expected internal rates of economic and financial return. Return on investment: In assessing financial return on equity on single-investments as well as of its equity portfolio, the Bank calculates a financial rate of return on investment (FRRI). The bank will calculate the expected FRRI of each prospective investment, which should show an adequate premium over the rate at which it would extend a senior loan to the same investee. Exit strategy: The Bank will approve an equity investment only after an attainable 'exit strategy' has been defined and agreed upon with other key shareholders. Development outcomes: In its capacity as lender of last resort, the Bank will not provide financing for a non-sovereign operation if, in the Bank's opinion, the client can obtain financing elsewhere on terms that may be considered reasonable for the recipients. Bank's additionality: The Bank will only participate in transactions if its role is "additional" over resources that can be provided by private- sector sources of finance, that is, if the Bank's participation is providing (a) political risk mitigation; (b) financial additionality, including extension of the tenor of financing, and spurring the development of capital markets; and (c) improving development outcomes. In the assessment of 'additionality', a special focus is on the Bank's role in leveraging additional co-financing that would not have been forthcoming in the absence of the Bank's participation in the operation, and catalysing other investments in related sectors of the economy. Size of investments: The Bank does not seek to acquire a controlling interest in companies in which it invests, and accordingly, its participation is limited to 25% of the total capital of the company throughout the life of its investment. Private equity funds: assessment is based on (a) financial strength and historic fund performance, (b) investment strategy and risk management, (c) industry structure, (d) management and corporate governance and (e) information quality. 77#78What are the AfDB's lending limits? There are several limits applicable to the Bank's operations with the ultimate objective of ensuring that the Bank is protected from a risk perspective. There are three fundamental limits: 45% of the total risk capital for Public Sector operations 45% of total risk capital for Non-Sovereign operations 10% of the total risk capital for market risk and operational risk Some other limits are: Limits Country limit Sector Limit Single name limit Equity limit Lines of credit limit Definition Total capital allocated to a single country Total Capital allocated to a single sector Total capital allocated to a single counterparty Equity participations Lines of Credit Risk capital is defined as paid-in capital and reserves Percentage 15% of the Bank's risk capital 25% of the risk capital allocated to private sector operations for any sector. 35% of the risk capital allocated to private sector operations for the financial services sector. 6% of the private sector risk capital 15% of total risk capital Participation limited to 50% of the equity of the borrowing bank 78#79What is the Exposure Exchange Agreement? In 2015, the Bank entered into Exposure Exchange Agreements (EEAs) with other Multilateral Development Banks (MDBs) with the objective of managing the risks in its loan portfolio in order to optimize its balance sheet, reduce sovereign concentration risk and increase lending headroom The EEA involves a simultaneous exchange of equivalent credit risk on defined sovereign credit exposure with each participating MDB retaining a minimum of 50% of the total exposure to each country that is part of the EEA. Under the EEA, the MDB that originates the sovereign loans continues to be the lender of record. Final maturities in 2030 with linear amortization starting from 2025 USD 4.47 billion of total notional amount of credit protection purchased/sold No premium paid as amount of exposure exchanged is notionally the same at inception Similar to other regional MDBs, AfDB's credit rating is affected by concentration risks First EEA with IBRD and IADB, both AAA rated entities, to reduce sovereign concentration risk EEA has substantially improved lending capacity and capital adequacy ratios The seller is only required to make principal payments to the buyer when the buyer writes off or restructure part or all of the loans in the reference portfolio Experience shows that MDBs hardly ever write off arrears as arrears always ultimately get settled As of June 2016, no default have occurred on any exposures covered under these EEA and the Bank continues to expect full recovery of its sovereign and sovereign-guaranteed exposures Share of Portfolio 25% 20% 15% 10% 5% 0% Morocco Egypt South Africa Tunisia Botswana Angola Nigeria Before EE After EE Brazil Mexico Argentina 79#80What are your largest notional exposures? Consolidated portfolio Burkina Faso 0.0% Somalia 0.0% Mali 0.0% Niger 0.0% Tanzania 0.1% Eq Guinea 0.1% Djibouti 0.1% Swaziland 0.2% Ethiopia 0.2% Mozambique 0.2% Togo 0.2% Seychelles 0.3% Rwanda 0.3% Ghana 0.3% Zambia 0.4% Sudan 0.4% Cameroon 0.4% Uganda 0.6% Madagascar 0.6% Senegal 0.6% Cape Verde 0.7% Mauritania 0.7% Namibia 0.7% Côte D'Ivoire 1.2% Kenya 1.2% Zimbabwe 1.5% Gabon 1.6% Mauritius 3.2% Angola 3.2% Dem Rep Congo ZMultinational Nigeria Botswana Egypt South Africa Tunisia Morocco 3.4% 4.4% 5.0% 7.0% As of June 2016 (unaudited) 0.0% 5.0% 10.0% 12.4% 14.0% 14.5% 20.1% 15.0% 20.0% 25.0% 80#81What is the distribution of the sovereign and non-sovereign portfolios by countries? Senegal 0.0% Tanzania 0.0% Uganda 0.0% Zambia 0.0% Sovereign portfolio Somalia 0.0% Rwanda 0.1% ZMultinational 0.1% Eq Guinea 0.1% Cameroon 0.1% Swaziland 0.2% Seychelles 0.3% Sudan 0.5% Cape Verde 0.8% Namibia 0.9% Zimbabwe 1.9% Gabon 2.0% Nigeria 2.7% Mauritius 3.7% Dem Rep Congo 4.1% Angola 4.2% Botswana 9.1% South Africa 11.9% Egypt 14.5% Tunisia Morocco 18.0% 24.6% As of June 2016 (unaudited) Botswana 0.1% Burkina Faso 0.1% Namibia 0.1% Gabon 0.1% Seychelles 0.1% Zimbabwe 0.2% Non-sovereign portfolio Mali 0.2% Niger 0.2% Cape Verde 0.3% Tanzania 0.5% Djibouti 0.6% Ethiopia 0.7% Mozambique 0.7% Togo 1.0% Rwanda 1.1% Ghana 1.3% Dem Rep Congo 1.3% Cameroon 1.4% Mauritius 1.6% Zambia 1.7% Uganda 2.4% Madagascar 2.7% Senegal 2.7% Tunisia 3.0% Mauritania 3.1% Morocco 4.9% Côte D'Ivoire 5.1% Kenya 5.3% Egypt 5.3% Nigeria 12.7% ZMultinational South Africa 18.5% 21.1% 81#82What is your exposure to North Africa? (in USD million) Country Tunisia Risk Capital Utilization Outstanding Balance Undisbursed Balance Notional Exposure Risk Capital Used Rate 2,696 496 3,192 381 4.4% Egypt 1,819 1,135 2,953 466 5.4% Morocco 3,672 1,012 4,684 216 2.5% Algeria Libya Total North Africa 8,186 2,643 10,829 1,063 12.3% Total AfDB 18,114 6,431 24,545 2,124 60.6% Share of Exposure 45% 41% 44% 50% As of December 2015 82#83What does Preferred Creditor Status mean? For the public sector exposures, Preferred Creditor Status (PCS) means that the repayment to the Bank, generally, takes precedence over other creditors in the event of sovereign default. In other words, according to the PCS, AfDB ranks higher than other creditors in case of default. Rating agencies take this specific feature in their assessment of Multilateral Development Banks. For the private sector exposure, the Preferred Creditor Status has a different benefit. In case of restriction of access to the foreign currencies by the sovereign, rating agencies consider that this restriction will not apply for the repayment due to Multilateral Development Banks. This provides strong mitigation to the Transfer and Convertibility Risk. For example, in case of a default or a near default of a country on its financial obligations, it may restrict the private sector access to foreign currencies but this restriction will not apply in case the money is meant for the repayment to the Bank. 83#84Morocco Algeria Mauritania Mali Senegal Burkina What is your field presence in Africa? Tunisia Egypt Sudan Chad Country/Customized liaison office Regional resource center Guinea Guinea Faso Benin Bissau Sierra Nigeria Leone Liberia Ghana Togo CAR South Ethiopia Sudan Ivory Cameroon Coast Congo Uganda Gabon Kenya (HQ) Rwanda Sao Tome and A Principe DRC Burundi Tanzania Angola Zambia Malawi Zimbabwe Madagascar A Mozambique Mauritius South Africa Presence in 40 African countries Projects managed locally increased from 51% in 2014 to 60% in 2015 Regional Resource centers empowering faster business delivery and stronger regional dialogue 84#85What is a fragile situation? No country is immune to fragility which can be defined as a "condition of elevated risk of institutional breakdown, societal collapse or violent conflict". While there is no internationally agreed framework or set of indicators for assessing fragility, for operational purposes and in line with the new strategy, AfDB categorizes countries and regions by their degree of fragility. Category 1 • Harmonized list of fragile situations by Multilateral Development Banks; targeted qualitative fragility assessment; presence of armed conflict in the state's territory; presence of violent political/social uprisings • For example, Great Lakes and Central Africa Region, Horn of Africa, Mano River Union, Sahel Category 2 • • Risk of spill-over from neighboring conflict; increasing trend and/or sudden onset of governance problems; high risk of sustained social/political unrest; Declining trend in policy and institutional performance and/or presence of important non-political drivers of fragility Category 3 • Relatively low risks of violence or societal breakdown; relatively high capacity of social and political institutions to manage challenges within a legitimate/inclusive framework 85#86What are the AfDB's non-performing loans ? As of December 31, 2015 Total non performing loans (NPLs) were 4.1% (vs 3.1% in 2014) Non-sovereign NPLs were 6.2% (vs 3.3% in 2014) Impairment on Outstanding Impairment Charges Provisioning (in USD million) Balance on Principal Receivable Charges Receivable Rate Private Sector Industry/Mining 20.2 10.1 0.4 0.2 50% Telecom 42.7 36.3 11.3 9.6 85% Airport/Transport 1 69.2 27.7 1.7 0.7 40% 600 Power 61.1 1.2 4.4 0.1 2% Telecoms 2 51.1 6.1 12% 500 Airport/Transport 2 12.0 7.2 0.5 0.3 60% Agriculture/Agro-industries 7.8 7.8 0.6 0.6 100% 400 Airport/Transport 3 28.0 16.8 0.9 0.6 60% Industry/Mining 2 139.9 69.9 2.7 1.3 50% 300 Finance 1.5 1.5 0.1 0.1 100% Total 433.5 184.7 22.7 13.5 200 Public Sector Sudan 78.6 25.9 104.8 74.1 Somalia 6.1 3.4 17.2 14.7 Zimbabwe 278.8 92.4 336.0 237.3 Total 363.5 121.7 458.0 326.0 Grand Total (Private & Public) As of June 2016 Provisioning trends (in million USD) 207 348 175 111 103 94 73 70 100 60 53 45 47 47 37 42 24 0 2011 2012 Impaired Loans 2013 2014 2015 Provisions Arrears 86#87What is your policy on write-offs? The Bank has never written off sovereign guaranteed loans. Its experience has been that countries default in case of unusual civil disturbances or events. When peace and stability is restored, the countries re-engage with the Bank and pay their arrears or usually obtain assistance from donors for arrears clearance. It is the Bank's policy that if the payment of principal, interest or other charges becomes 30 days overdue, no new loans to that member country, or to any public sector borrower in that country, will be presented to the Board of Directors for approval, nor will any previously approved loan be signed, until all arrears are cleared. Furthermore for such countries, disbursements on all loans to or guaranteed by that member country are suspended until all overdue amounts have been paid. These countries also become ineligible in the subsequent billing period for a waiver of 0.5% on the commitment fees charged on qualifying undisbursed loans. Although the Bank benefits from the advantages of its preferred creditor status and rigorously monitors the exposure on non-performing sovereign borrowers, some countries have experienced difficulties in servicing their debts to the Bank on a timely basis. As previously described, the Bank makes provisions for impairment on its sovereign loan portfolio commensurate with the assessment of the incurred loss in the portfolio. Write-offs could arise for non-sovereign loans and these are financed by the Bank's net operating income (NOI). To date there has not been any significant loan write offs of non-sovereign loans. In compliance with IFRS, the Bank does not make general provisions to cover the expected losses in the performing non- sovereign portfolio. For the non-performing portfolio, the Bank makes specific provisions based on an assessment of the credit impairment, or incurred loss, on each loan. 87#88What are your investment guidelines? Investment type Minimum rating Maturity limit Liquidity Haircuts Government/Agency/Supranational ААА/Ааа AA-/Aa3 A 30 years 15 years 1 year 0% for AAA 20% from AA+ to AA- 40% for A+ to A- Banks and Financial Institutions AAA/Aaa AA-/ Aa3 A/A2 Corporates 10 years 5 years 6 months 50% from AAA to A 100% below AAA/Aaa AA-/ Aa3 A 10 years 5 years 6 months 50% from AAA to A 100% below MBS and ABS AAA/Aaa 40 years 100% 88#89What is the capital structure of the Bank? Capital structure of the Bank 70,000 (in USD million) 60,000 200% capital increase with 6% paid-in portion raising the capital to around USD 100 billion Reinforce the Bank's franchise value, key prudential ratios and AAA credit rating 50,000 40,000 30,000 59,840 20,000 Callable capital is the commitment by each shareholder to make additional capital available to the institution in case of financial distress 10,000 1,540 11,501 13,857 5,437 0 Paid-in Capital AAA Callable Capital AA+ to A- Callable Capital Other Callable Capital Demonstrated strong shareholders support 30-Jun-16 Remaining paid-in capital Capacity to meet increased level of future demand and support the business growth plan There has never been a call on the capital of the Bank 89#90Purpose Mechanism Independent Obligation What is your procedure for capital call? Callable capital is the portion of the subscribed capital which may only be called to meet obligations of the Bank for money borrowed or on any guarantees Payment must be made by the member countries concerned in gold, convertible currency or in the currency required to discharge the obligation of the Bank for which the call was made • The Bank has entered into arrangements whereby, in the event of a call on its callable capital, it will request its member countries to make payment in response to such a call into a special account established by the Bank with the Federal Reserve Bank of New York, or its successor duly designated for the purpose. • Terms of such account provide that the proceeds of a call must first be applied in payment of, or in provision for full settlement of, all outstanding obligations of the Bank incurred in connection with the issuance of senior debt before any other payment shall be made with such proceeds. Calls on callable capital are required to be uniform in percentage on all shares of capital stock, but obligations of the members to make payment upon such calls are independent from each other. ⚫• The failure of one or more members to make payments on any such call would not discharge any other member from its obligation to make payment. Further calls can be made on non-defaulting members if necessary to meet the Bank's obligations. However, no member could be required to pay more than the unpaid balance of its ordinary capital subscription. 90#91• • What are your ethical business practices? Committed to good governance and to the promotion of ethical business practices as well as the endorsement of international standards of anti-corruption and transparency that apply to its operations • Adopted the Uniform Framework for Preventing and Combating Fraud and Corruption along with other Multilateral Development Banks in 2006: harmonized strategy for mitigating corruption and fraud for development effectiveness in projects financed by the multilateral banks Created an Integrity Due Diligence structure for private sector operations and other operations financed without a sovereign guarantee, premised on the institution's fiduciary and legal responsibilities to its shareholders and with attention to considerations of economy, efficiency and competitive trade Identification of Beneficial Ownership: will not proceed on a transaction without ascertaining the identity of the Beneficial Owners of such transaction Guiding Principles for Integrity Due Diligence (IDD) Assessment of Civil, Criminal, and Regulatory Backgrounds: closely evaluate the criminal, civil and regulatory history of the Counterparty and Significant Related Parties for Integrity Risk* Mitigation of Integrity Risks: The underlying objective of the IDD process should be to identify and mitigate Integrity Risks Sanctioned Persons and Entities: will not finance a Project where any of the Counterparty, Significant Related Party or their Beneficial Owners is debarred or cross- debarred by the Bank Group Monitoring of Integrity Risks and Enforcement of Covenants: effectively monitor Projects throughout the project cycle to identify early warning signs and indicators of Integrity Risks Politically Exposed Persons (PEPS) and Other High Risk Relationships: carry out enhanced IDD in addition to its standard IDD measures where PEPS are involved in a Project Record-Keeping: keep adequate and reliable records of all documentation involved in and steps taken throughout the IDD process *Integrity Risk is the potential for financial and non-financial loss including adverse reputational impact that may result from Unethical Practices in Projects and investment decisions 91#92What is the African Financing Partnership? The African Financing Partnership (AFP) is a collaborative, co-financing platform amongst Development Finance Institutions (DFIs) active in private sector project financing in Africa. The AFP is a component of the AfDB's mission to help reduce poverty in Africa by mobilizing resources for private sector development on the continent. The objective of the AFP is to bring together DFI partners with a similar mission so that further results could be delivered through combined efforts. An AFP MOU is being signed between the core group of eight DFIs called the AFP Promoting Partners. The MOU endorses improvement in efficiency across multilateral and bilateral financing institutions, achieving best practices, reducing cost and “doing more with less.” The partners include: AfDB Deutsche Investitions UND Entwicklungsgesellschaft MBH (DEG) Development Bank of Southern Africa Ltd. (DBSA) European Investment Bank (EIB) Industrial Development Corporation of South Africa Ltd. (IDC) International Finance Corporation (IFC) Nederlandse Financierings Maatschappij Voor Ontwikkelingslanden N.V. (FMO) Société de Promotion et de Participation pour la Coopération Economique S. A. (PROPARCO) Areas of Focus / Sub-Sectors Harmonization: creating common best practices and collaboration between DFIs operating in Africa; Additionality: using DFI capital to leverage private capital for catalyzing greater investments in Africa. Main sectors of operations Infrastructure - Power, Transport, Information Communication Technology (ICT) and Water/Sanitation; Industries - Extractive Industries, Agribusiness and Healthcare; and Financial Institutions - African DFIs, Banks, Microfinance, Guarantees Experiences, Challenges, and Ways Forward With eight anticipated promoting partners taking the lead in two to three AFP projects per year, the partnership is estimated to finance 10 to 20 projects in Africa, which could reach well above USD 10 billion in total financing 92#93What is the Extractive Industries Transparency Initiative? The Extractive Industries Transparency Initiative (EITI) aims to promote governance by strengthening transparency in the extractive industries. Natural resources, such as oil, gas, metals and minerals, belong to a country's citizens. Extraction of these resources can lead to economic growth and social development. However, when poorly managed it has too often lead to corruption and even conflict. More openness around how a country manages its natural resource wealth is necessary to ensure that these resources can benefit all citizens. Countries implement the EITI Standard to ensure full disclosure of taxes and other payments made by oil, gas and mining companies to governments. These payments are disclosed in an annual EITI Report. This report allows citizens to see for themselves how much their government is receiving from their country's natural resources EITI provides a number of benefits to various stakeholders. Benefits for implementing countries include an improved investment climate by providing a clear signal to investors and international financial institutions that the government is committed to greater transparency. EITI also assists in strengthening accountability and good governance, as well as promoting greater economic and political stability. This, in turn, can contribute to the prevention of conflict based around the oil, mining and gas sectors. Benefits to companies and investors are centered on mitigating political and reputational risks. Political instability caused by opaque governance is a clear threat to investments. In extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, reducing such instability is beneficial for business. Transparency of payments made to a government can also help to demonstrate the contribution that their investment makes to a country. Benefits to civil society come from increasing the amount of information in the public domain about those revenues that governments manage on behalf of citizens, thereby making governments more accountable. The Bank is working to mainstream EITI principles in its own sector operations. Through encouraging regional member countries to take part in the EITI process and by offering technical and financial assistance where applicable, the Bank's support will help bring about sound extractive industry practices and the utilization of natural resources for sustainable development. To date, the Bank has contributed to the achievement of EITI candidacy status of three countries namely Central Africa Republic, Liberia and Madagascar and is supporting various African countries adhere to and implement the initiative. These include Liberia, Sierra Leone, Chad, Togo, Guinea Conakry, and Madagascar. 93#94What is AfDB's credit policy? AfDB's credit policy allows eligible ADF countries to access to the AfDB sovereign window, for financing viable projects. The private sector in ADF countries already has access to AfDB financing and governments will also access AfDB resources, subject to a stringent set of criteria. The criteria, which will ensure that AfDB resources do not contribute to an increase in debt distress, include: (i) the country must have a sustainable debt profile and be classified as having low or moderate risk of debt distress, as defined by an IMF Debt Sustainability Assessment (DSA), (ii) the country must have headroom for non-concessional borrowing, as determined by the IMF DSA, and in compliance with the IMF external debt limit policy for countries under fund- supported programs and the Bank Group Policy on Non-Concessional Debt Accumulation, (iii) the country must have a sustainable macroeconomic position, as determined by a Special Risk Assessment conducted by Management, and (iv) the country must receive a positive recommendation by the Bank's Credit Risk Committee, based on the Bank's elaborate risk management framework. As of August 2016, there are 16 countries eligible for AfDB resources only. Although Nigeria is officially considered eligible for AfDB resources only, the country is still receiving ADF funding within a gradual phasing-in-out mechanism, thanks to the transition framework (aiming at smoothing the transition from ADF to AfDB window). Thus, the country is not included in the 16 countries. The 5-years transition period of Nigeria started in 2014 and is expected to end on January 1, 2019. Up to July 2016, Côte d'Ivoire, Ethiopia, Rwanda, Senegal, Tanzania, and Uganda have already benefitted from AfDB approvals. 94#95AfDB financial ratios versus peers AfDB (Aaa/AAA) End- AsDB (Aaa/AAA) End- IBRD (AAA/Aaa) June- 2014 2014 2014 Coverage of net debt by callable capital AAA AAA A+ Shareholders' Support Average rating of key shareholders* BBB+ AA- AA Profitability Net income/average equity (%) 0.53 2.30 -2.49 Equity/assets (%) 27.51 20.46 18.39 Capitalization Paid-in/subscribed capital (%) 5.40 5.02 6.02 Debt/equity (%) 243.53 375.28 421.74 Average rating of loans & guarantees BB BBB- BBB- Impaired loans/gross loans (%) 3.1 0.04 0.3 Share of non-sovereign exposure (%) 27.5 8.9 0.0 Risks Equity stakes/(loans + equity stakes) (%) 4.5 1.5 0.0 Five largest exposures/total loans (%) 59.1 77.2 43.7 Share of 'AAA'-'AA' treasury assets (%) 93.9 70.2 75.6 Source: Fitch (August 2015) * The AfDB rating only includes rated countries located in Africa 95#96African Development Bank Group Annual Meetings Lusaka, May 23-27, 2016 For more information English Français Search About us Your Stay Programme Publications & Documents Speakers Multimedia News Speeches & Interviews Press Contacts Zambia and the AfDB Annual Meetings Lusaka, May 23-27, 2016 Energy and Climate Change 2016 Annual Meetings Zamine and the ATDB May 23-27 ma Since it commenced operations in Zambia in 1971, the Bank has committed more than USD 1 billion to public sector infrastructure projects in agriculture, industry, water and sanitation, energy, social sector (education and health), transport and multi-sector (primarily general budget support) New Deal on Energy Bank Publications AM 2016 16 Days President's welcome message 46 for the 304E Annual Mentinne Hours S f afdb_acc African Development Bank Group 40 Mnides Seconds AfDB_Group Financial and operational analysis Documentation for debt programs Rating agency reports Financial products for borrowers Annual report www.afdb.org Investor Contact: [email protected] (225) 20 26 29 06 96#97Disclaimer This presentation has been prepared by the African Development Bank ("AfDB") for information purposes only. Any opinions expressed in this presentation reflect the judgment of AfDB at the date and time hereof and are subject to change without notice and AfDB has no obligation to inform any recipient when opinions or information in this presentation change. The AfDB makes no representation, warranty or assurance of any kind, express or implied, as to the accuracy or completeness of any of the information contained herein. This presentation is not an offer for sale, or a solicitation of an offer to buy, any notes or other securities of AfDB. It does not take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of the investments referred to in this presentation may fluctuate. Past performance is not a guide to future performance and future returns are not guaranteed. Each recipient of this presentation is deemed to acknowledge that this presentation is a proprietary document of AfDB and by receipt hereof agrees to treat it as confidential and not disclose it, or permit disclosure of it, to third parties without the prior written consent of the AfDB. All content (including, without limitation, the graphics, icons, and overall appearance of the presentation and its content) are the property of the AfDB. The AfDB does not waive any of its proprietary rights therein including, but not limited to, copyrights, trademarks and other intellectual property rights. 97