Improving Governance in Africa

What 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

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