AFD in East Africa

AFD IN EAST AFRICA

Thika Road, Kenya © AFD – Yves Terracol

A partnership to address regional challenges

AFD’s strategy in East Africa is to scale-up regional integration and support economic growth, while preserving the region’s exceptional natural capital. Its activities are centered on three priority areas: Water and sanitation around Lake Victoria; eveloping a low-carbon energy sector and regional energy D infrastructure; Financing the economy.

Over the past ten years, the volume of the AFD Group’s financing in East Africa has reached EUR 1.64 bn, of which more than EUR 1.3 bn was committed between 2009 and 2013.

SCALING-UP REGIONAL INTEGRATION AND SUPPORTING GROWTH

The regional office covers an area with diverse characteristics, including post-conflict countries, developing countries and “preemerging” countries. Consequently, it employs various intervention methods and a wide range of financial tools (grants, subsidized loans, direct or intermediated commercial loans, equity investments and guarantees) in order to provide a tailored response to local contexts and partners’ needs. The main beneficiaries of AFD financing are Governments, parastatals and sometimes NGOs, but they can also be credit institutions, private companies and investment funds.

400

Commitments in East Africa from 2004 to 2013 (millions of EUR)

350 300 250 200 150 100 50 0

2004

2005

2006

Kenya Tanzania

2007

2008

2009

Uganda Burundi

2010

2011

2012

2013

Multi-country Rwanda

© AFD – Yves Terracol

AFD’s activities in East Africa date back to 1995 when PROPARCO, its private sector subsidiary, opened an office in Nairobi. AFD subsequently opened a regional office in Nairobi in 1997, which covers the five countries of the East African Community (Burundi, Kenya, Rwanda, Tanzania and Uganda).

AFD Group’s network in East Africa today comprises offices in Bujumbura, Dar es Salaam and Kampala, which report to the Nairobi regional office and have gradually expanded.

Lake Victoria

KENYA

REGIONAL APPROACH FOR ENVIRONMENTAL CREDIT LINES

PROMOTING STRONG AND SUSTAINABLE DEVELOPMENT

On average, over 80% of primary energy in East African countries comes from biomass, the bulk of which is firewood. This resource is used by a significant number of Kenyan households and by certain industries in the agribusiness sector, which leads to an alarming rate of deforestation. This situation is an incentive to actively assist Kenya, Tanzania and Uganda in their transition towards renewable energies (RE), by supporting public policies and promoting various forms of private investment. Alongside large-scale geothermal and hydropower projects, the development of small-scale hydropower and other renewable energies, as well as support for energy efficiency projects in industry and services, all contribute to this objective.

In Kenya, the AFD Group’s support primarily focuses on:

Developing key infrastructure, particularly for energy and transport, with a specific focus on environmental issues ­(biodiversity, natural resources management and climate change mitigation);

Supporting urban development by financing integrated urban programs and key investments, with a focus on the water and sanitation sector;

Supporting economic growth by promoting the private sector, which is an engine for growth and job creation.

AFD finances small to medium-sized renewable energy generation units (from 0.5 to 8 MW) via its local partner banks, as well as the development of high energy efficiency (EE) industrial processes in agri-businesses that consume the most energy. This gives them a competitive advantage, particularly on export markets.

Over the past decade (2004 to 2013), the volume of AFD’s financing has grown to more than EUR 1.125 bn. It has mainly been in the energy sector (a total of EUR 559.7 m, including EUR 487.5 m for ongoing projects), the drinking water and sanitation sector (EUR 220.9 m), transport infrastructure sector (EUR 176.7 m) and urban development sector (EUR 73.4 m).

These commitments have mainly been in the form of soft loans, which account for over 84% of the total amount of sovereign and non-sovereign loans extended by AFD in the country since 2004.

This financing also aims to gradually convince the commercial banking sectors in the three countries to finance this type of innovative project. Both local banks and potential investors do, however, consider that the technical risks of these projects are high and poorly monitored. To overcome this barrier, the credit line is combined with a regional technical assistance mechanism, which is partly financed by the European Union. This assistance is based in Nairobi and comprises expertise in renewable energy and energy efficiency.

Support for infrastructure The energy sector accounts for over 50% of AFD’s commitments in Kenya. In the country, it supports:

Renewable energy development, particularly geothermal energy, with the aim of promoting a low-carbon energy mix;

Access to electricity, particularly in rural areas, while keeping the country’s energy intensity under control; © AFD –All rights reserved

The strengthening of power transmission and distribution

Kisumu, Kenya

networks;

The regional integration of the electricity market in East Africa.

AFD has also contributed to the definition and planning of national renewable energy policies under its mandate as lead donor in the energy sector. With commercial banks and the Kenya Association of Manufacturers (KAM), it mobilizes the private sector with the aim of promoting sustainable growth via specialized credit lines, earmarked to finance renewable energy and energy efficiency projects.

In the future, AFD intends to continue financing geothermal energy and access to energy, alongside the tools recently implemented by the European Union under the Sustainable Energy for All (SE4All) initiative, as well as its operations in the renewable energy and energy efficiency sectors.

It also takes part in the rehabilitation of the road infrastructure aimed at improving access to markets by financing rural roads in six Counties in central Kenya.

Finally, AFD finances regional transport infrastructure, e.g. the International Airports of Nairobi – the regional airport hub – and Mombasa.

Water, sanitation and integrated urban development In the water and sanitation sector, AFD is financing the upgrading and extension of drinking water supply and sanitation facilities in three of Kenya’s main cities: Nairobi, Mombasa and Kisumu, with a regional approach on Lake Victoria in Kisumu. This helps build the management and planning capacities of local public water distribution companies and thus supports the ongoing decentralization process.

In addition to its action to support climate change mitigation, for several years now, AFD has also been providing assistance for adaptation projects, as well as for ecosystem and biodiversity protection. AFD initially forged a partnership with the NGO Green Belt Movement, founded by the 2004 Nobel Peace Prize Winner, Professor Wangari Maathai, for the partial reforestation of the Aberdares Forest (2,000 ha of forest). It is now financing a project that aims to protect the Marsabit Forest, which is located in the north of the country in the middle of a desert area.

AFD previously financed technical assistance to the ex-Prime Minister’s and Minister for Environment’s departmental staff to help the Kenyan Government define a National Climate Change Plan. It has now contracted ADETEF to provide technical assistance to three entities for climate change mitigation: the Ministry of Energy, for renewable energies, Kenya Wildlife Service, for a climate change adaptation plan for parks, and Kisumu City, for its sustainable urban development.

Support for the private sector AFD supports Kenyan small and medium-sized enterprises (SMEs) and banks with its ARIZ guarantees and specialized long-term credit lines. The main beneficiaries of PROPARCO’s financing have been the agro-industry (tea, sugar), the tourism industry and energy sector. Over the past ten years, PROPARCO has allocated EUR 154.1 m to Kenyan SMEs.

© AFD – Yves Terracol

AFD is supporting a major urban development project in Kisumu City and is co-financing along with the World Bank and Swedish cooperation (SIDA), a Slum Upgrading program covering fifteen urban areas. Finally, AFD is supporting social housing by refinancing Shelter Afrique.

Environment and biodiversity

Grevy’s zebras, Meru National Park, Kenya

AFD is today working to diversify its portfolio: the productive ­sector, financial sector and microfinance sector hold promising prospects for operations. AFD is also financing projects led by civil society via the Sector Innovation Facility for NGOs.

BURUNDI

AFD is financing a few projects led by civil society, particularly the Red Cross, which is implementing a project to develop paramedical training, and Handicap International, which is conducting a pilot project that aims to improve educational integration for ­disabled children.

FOCUSING SOLIDARITY ON EDUCATION AFD resumed its activities in Burundi in 2002 with budget support on behalf of the French Government. AFD was able to resume its direct financing in 2006, following the return of political stability. A total of EUR 31.3 m has been mobilized by AFD in form of grants, the only financial instrument available for Burundi over the last decade. Through multi-faceted assistance, AFD has supported – and continues to strongly support – efforts to increase the education system’s intake capacity and improve the quality of education.

© AFD – Yves Terracol

OPTIMIZING TEACHING CONDITIONS IN BURUNDI An initial grant allocated in 2006 for the Government’s Emergency Program has contributed to providing each primary school pupil with one textbook per subject. AFD also supports the implementation of the National Education and Training Sector Development Plan by co-financing the Education Basket Fund (EBF). AFD renewed its commitments to this fund by signing a EUR 5 m grant in January 2013. This Fund acts as a real catalyst for external financing to support the national education strategy.

AFD also supports the national policy by mobilizing international technical experts, who have a mission to develop a pilot learning assessment mechanism and strengthen the capacities of the Ministry of Education. In addition to its financing for the EBF, AFD also provides assistance for the Government of Burundi’s education policy via budget support. The EUR 3 m grant allocated to the Republic of Burundi in January 2013 ties in with the support AFD has provided to the education sector and will improve the quality of primary education by accelerating the timetable for teacher recruitment.

School in Burundi

UGANDA MEETING THE STRUCTURAL NEEDS OF UGANDA’S ECONOMY AFD’s strategy for operations in Uganda is part of an approach to scale up its financing volumes. The aim is to meet the structural needs of Uganda’s economy in areas where there is high value addition: core infrastructure (water & sanitation and energy) and private sector development.

AFD’s financing has mainly focused on three sectors:

© AFD – Yves Terracol

Improving water supply and sanitation systems. AFD has com-

Construction of a school, Burundi

mitted EUR 92 m in this sector. After financing two water intakes in Lake Victoria (in Jinja and Gaba), in 2010, AFD ­co-financed the project for drinking water supply and access in Kampala City. With a total cost of EUR 212 m, the project is financed by AFD (EUR 75 m sovereign loan), EIB and KfW. Due to its regional dimension, it benefits from a grant from the EU-Africa Infrastructure Trust Fund, as well as from the synergies developed with similar projects financed by AFD around Lake Victoria in Kenya (Kisumu) and in Tanzania.

© AFD – Yves Terracol Mwanza, Tanzania

REGIONAL APPROACH FOR LAKE VICTORIA AFD has defined a regional strategic approach on the shores of Lake Victoria, where it supports water operators in the main cities (Kisumu in Kenya; Kampala and Jinja in Uganda; Bukoba, Musoma and Mwanza in Tanzania). This regional approach is shared with the Lake Victoria Basin Commission and provides for experience-sharing and the implementation of common solutions validated for each project. The aim is to address issues related to water quality and optimize the selection of raw water treatment methods. For example, each of these cities faces a problem of pollution and algae growth, which hampers the functioning of the traditional treatment systems in place.

Solutions need to be implemented in a coordinated manner between the projects. The support provided by AFD via these regional projects on common issues is highly appreciated by its partners. It also offers the opportunity to call on France’s internationally recognized expertise in the sector.

AFD Group’s activities are expected to continue to develop in the coming years, with an annual commitment target in the region of EUR 30 to EUR 60 m. The aim is to meet the country’s infrastructure financing needs, but also to protect Uganda’s rich biodiversity. In the water sector, the Ugandan authorities have asked AFD to support investments for its food security by improving its irrigation infrastructure and the agriculture sector that benefits from it. Finally, AFD is appraising a project to protect biodiversity and support the tourism sector in the Queen Elizabeth and Lake Mburo parks. It is also supporting climate change mitigation in the energy and water sectors and in Kampala City (KCCA), with technical assistance provided by ADETEF.

RWANDA SUPPORTING PRODUCTIVE ACTIVITIES AFD resumed its activities in Rwanda in early 2010 from its Nairobi regional office. Financing is provided via the French Debt Reduction-Development Contract (C2D) and focuses on the basic economic infrastructure sector, primarily energy. For example, AFD is supporting the National Energy Access Program, ­particularly the electrification of downtown Cyanika‑Miko in the Nyamagabe district. Furthermore, AFD is providing assistance for an experimental household waste management project in the districts of Rusizi and Karongi.

AFD also mobilizes credit lines for State-owned Rwandan banks in order to provide them with the long-term resources they require for their development. In addition, it guarantees the loans that these banks allocate to SMEs via the ARIZ mechanism.

Support for the energy sector: In 2007, AFD co-financed

© AFD – Nafal Hassani

the Bujagali run-of-river hydropower dam and its 250 MW power plant. With a total cost of USD 906 m, the Group’s participation comprised a USD 60 m PROPARCO loan and a EUR 12.8 m AFD loan, earmarked to finance the additional measures to mitigate the environmental and social impacts of the construction of the dam. The power plant was commissioned in the summer of 2012. AFD has also co-financed the Hoïma‑Nkenda power transmission line via a EUR 18 m loan approved in 2012. At a total cost of USD 85 m, the project is also co-financed by the Governments of Norway (USD 54 m grant) and Uganda.

Private sector promotion: In 2010, AFD allocated a EUR 7.7 m market-rate credit line to Housing Finance Bank as part of the long-term refinancing of the bank’s housing finance activity.

At the same time, a EUR 30,000 grant was allocated via a Capacity Building Management Fund (FRCG) for the updating and development of the bank’s in-house anti-money laundering and social responsibility policy.

Export of coffee, Rwanda

TANZANIA SCALING UP ACCESS TO WATER AND SANITATION AND SUPPORTING DEVELOPMENT As in Uganda, AFD’s strategy for operations in Tanzania is part of an approach to scale up the level of its financing. The aim is to meet the structural needs of Tanzania’s economy in areas where it benefits from high added value: infrastructure (water, sanitation and energy) and private sector development.

The proceeds from these debt cancellations have been earmarked for basic education in form of sector budget support. A 4.7 m grant was also approved for the construction of the National College of Tourism’s Dar es Salaam campus, which was officially opened by President Kikwete and the French Minister for Cooperation in December 2011.

Support for the electricity sector is now the second pillar

Since 1999, AFD has approved funding amounting to some EUR 170 m. PROPARCO, for its part, has extended a total of EUR 145 m in investments for the private sector.

of AFD’s operations in Tanzania, with two projects under appraisal: first, the rehabilitation of substations and modernization of communications on the interconnected network and, second, co-financing of the Kenya‑Tanzania‑Zambia interconnection line.

75% of AFD’s financing (EUR 123 m) focuses on improving

In addition to PROPARCO’s activities, AFD also contributes

drinking water supply and sanitation systems. Following an initial project in two small towns (Utete and Mpwapwa, with a EUR 6 m grant), AFD contributed EUR 30 m, via a highlyconcessional loan, to the joint water sector development program (2007‑2014) implemented by the Ministry of Water and donors. In addition to this sectoral program – and as part of AFD’s regional approach to Lake Victoria – three loans (totaling EUR 91 m) have also been extended for drinking water supply and sanitation in Mwanza, Musoma and Bukoba.

These projects are implemented in close cooperation with the European Investment Bank.

AFD has also contributed over EUR 17 m of grants for human

to promoting the private sector via the ARIZ risk-sharing mechanism for local commercial banks, a credit line to promote private renewable energy and energy efficiency projects, and financing for the development of the Aga Khan Hospital in Dar es Salaam and its associated peripheral health centers.

AFD’s financing was initially extended in form of grants, but are now mainly implemented through soft loans with an annual ­target in the region of EUR 80 to EUR 100 m, subject to sustainability of Tanzania’s debt level. As part of the support for private sector development and a regional approach to transport, AFD is also in discussion on the development of port and airport infrastructure.

© AFD – Yves Terracol

resources development. Three Debt Reduction-Development Contracts (C2Ds) have been signed as part of the debt cancellation process.

Pumping station in Mwanza, Tanzania

Fisherman in Zanzibar, Tanzania © AFD – All rights reserved

AFD is present on four continents where it has an international network of seventy agencies and representation offices, including nine in the French Overseas Provinces and one in Brussels. It finances and supports projects that improve people’s living conditions, promote economic growth and protect the planet, such as schooling for children, maternal health, support for farmers and small businesses, water supply, tropical forest preservation, and the fight against climate change.

In 2012, AFD approved €7 billion to finance activities in developing countries and the France’s overseas provinces. The funds will help get 10 million children into primary school and 3 million into secondary school; they will also improve drinking water supply for 1.79 million people. Energy efficiency projects financed by AFD in 2012 will save nearly 3.6 million tons of carbon dioxide emissions annually.

www.proparco.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

This publication was printed in an environmentally responsible manner using vegetable-based ink and PEFC™ paper, chain of custody n° 19-32-319 (sustainable forest management).

PROPARCO REGIONAL OFFICE Top Plaza Building – Kindaruma Road, off Ngong Road Tel +254 20 259 29 07/09 – Fax +254 20 259 29 08 AFDNairobi@afd.fr kenya.afd.fr BUJUMBURA OFFICE Immeuble Old East – Place de l’Indépendance BP 2740 – Bujumbura – Burundi Tel +257 22 20 30 00 – Fax +257 22 25 59 32 AFDBujumbura@afd.fr burundi.afd.fr DAR ES SALAAM OFFICE French Embassy – Ali Hassan Mwinyi Road PO box 2349 – Dar es Salaam – Tanzanie Tel +255 22 219 88 66 – Fax +255 22 219 88 68 AFDDaressalam@afd.fr tanzanie.afd.fr KAMPALA OFFICE French Embassy – 16 Lumumba Avenue – Nakasero PO box 7212 – Kampala – Ouganda Tel +256 414 304 533 AFDKampala@afd.fr ouganda.afd.fr

Creaion: Planet 7 – February 2014

The Agence Française de Développement (French Agency for Development - AFD) is a public development finance institution that has been working to fight poverty and foster economic growth in developing countries and the French Overseas Provinces for seventy years. It executes the policy defined by the French Government.

AFD REGIONAL OFFICE Top Plaza Building – Kindaruma Road, off Ngong Road PO Box 45955 – 00100 Nairobi – Kenya Tel +254 20 259 29 07/09 – Fax +254 20 259 29 08 AFDNairobi@afd.fr kenya.afd.fr