Proparco Activity Report 2015

P R O P A R C O A C T I V I T Y R E P O R T 2015

P R O P A R C O A C T I V I T Y R E P O R T 2015

Panorama

2015 P R O PA R C O

On the ground with private players

P R O PA R C O, G R O U P E A G E N C E F R A N Ç A I S E D E D É V E L O P P E M E N T Tel: +33 (0)1 53 44 31 08 – Fax: +33 (0)1 53 44 38 38 151, rue Saint-Honoré – 75001 Paris

www.proparco.fr

— ABOUT US —

Proparco, a financial institution serving the private sector and sustainable development

€5

P bn

on the balance sheet.

80

target countries.

438 clients.

roparco, a subsidiary of Agence Fran­­ çaise de Développement (AFD) devoted to private sector financing, has been supporting sustainable economic, social and environmental development for almost 40 years.

Operating in Africa, Asia, Latin America and the Middle East, the institution extends loans, makes equity investments and provides guarantees to help finance and support financial institutions and corporate private-sector projects. Proparco focuses on the key development areas, such as renewable energy-based infrastructure, agribusiness, financial institutions, health and education.

Through its work, Proparco seeks to bolster the contribution of private enterprise to the achievement of the Sustainable Development Goals (SDGs) adopted by the international community in 2015. A significant share of its financing therefore goes to companies likely to create jobs, supply essential goods and services and, more broadly, help reduce poverty and mitigate climate change.

Moreover, to achieve its aims, Proparco takes a broad-based approach to governance. Alongside majority shareholder AFD, its governing bodies include public- and private-sector financial institutions from France, the rest of Europe, Africa and Latin America. Proparco has a staff of over 200, divided up between Paris and its 11 offices abroad. Proparco can also rely on the AFD’s network of 72 agencies and offices around the world.

Proparco’s role is also to promote the emergence of responsible business and financial organizations in developing and emerging economies. This means helping its clients improve their environmental and social performance and their governance.

Proparco is one of Europe’s leading development finance institutions, and spearheads a large number of joint programs with its peers.

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— EDITORIAL —

Reaching the Sustainable Development Goals with private players

By Anne PAUGAM, Chair of the Proparco Board of Directors and Chief Executive Officer of the AFD (2013-2016), and Claude PÉRIOU, Chief Executive Officer of Proparco (2012-2016).

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015 was a red letter year for the sustainable development agenda. The Addis Ababa Conference on Financing for Development, the UN General Assembly on the Sustainable Development Goals (SDGs) and the COP21 conference established guidelines for a new, universal approach to tackling the interrelated, interlocking issues of economic development, social inclusion and preservation of our planet. Those many goals cannot be reached unless all the stakeholders – from companies and financial institutions to central governments, from civil society to local authorities – pitch in to help. Their involvement and contribution will be essential to tackling the underlying challenges and fostering the emergence of pioneering approaches to creating responsible, sustainable models of development. Just such a commitment to alliance and partnership guides the work of the AFD Group, above all at Proparco, whose role is to ensure a continuum between public-sector policy and private-sector investment strategies in ways that maximize developmental impact.

2015 was a very important year for the AFD Group.

We provided a larger amount of funding than before – €8.3bn spanning all continents – with 55% of the total going to projects with co-benefits for climate change mitigation (30% in the case of Proparco). That increase was our response to the ambitious goal set by French President Hollande, who announced last September that an additional €4bn would be channelled to development financing between now and 2020, including €2bn with climate co-benefits. Such a plan will require our Group to boost its annual volume of financing to over €12bn throughout that period.

The President’s statement was a reaffirmation of our key role in France’s development financing programme. And because it makes it necessary for us to scale up – taking on greater size and credibility

AFRICA AS PRIORIT Y FOCUS

62 %

of financing approved by Proparco this year (€648m)

went to Africa, in line with the French government’s commitments on behalf of the AFD Group.

– the AFD Group will gain recognition as an essential institution in the international arena. Proparco will be very much a part of that process as a vital contributor to the private-sector component of the development finance agenda.

PRIVATE-SECTOR ORGANIZATIONS AS DEVELOPMENT PARTNERS The adoption of the SDGs amounted to official recognition of the private sector’s vital contribution to development. Among the partners called upon by the United Nations to help achieve those goals were businesses and investors, alongside civil society representatives and government officials.

Proparco has been successfully pursuing just such a course for nearly 40 years now. Supplementing official development assistance, whose pivotal operator in France is the AFD, Proparco works to assist businesses and financial institutions engaged F I N A N C I N G A P P R OVA L S (in €m) in a dynamic, responsible and at the same time financially profitable entrepreneurial process so as to promote sustainable, 1,066 inclusive, low-carbon growth 1,054 trajectories in developing and 1,023 emerging economies.

2015

2014

2013

“COP21 highlighted the central role of private businesses and investors in the fight against climate change: $1 trillion is the annual requirement.”

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MOBILIZING $4 TRILLION A YEAR The United Nations has estimated that developing countries will require investment – from both public and private sources – totalling anywhere from $3.3 trillion to $4.5 trillion a year. However colossal those figures look, reaching them will be crucial to addressing the needs of Africa, Asia, Latin America and the Middle East in such areas as infrastructure, food security, health, education and adjustment to climate change, as well as to mitigating social, economic and environmental imbalances around the world.

people, including the neediest among them. They are also heavily involved with the transfer of skills and technology from North to South – and within the South. But however essential the private sector’s contribution to development may be, it is no replacement for public policy. Private-sector and public-sector actions supplement and mutually enhance each other, provided that are properly coordinated. The role of public funding must accordingly be to catalyse and give direction to private investment.

The private sector plays an essential role in creating wealth, distributing wages and contributing to a wide variety of government budgets.

Over the past five years, companies financed by Proparco have directly or indirectly helped create or maintain 1.6 million jobs. Those companies have also generated nearly €2bn in tax revenue for the countries in which they (equal to 31% of our funding) operate. But the contribution of prifor projects with a positive vate businesses to development goes impact on climate change well beyond their role as employers (e.g., renewable energy, energy and taxpayers. There is hardly a secefficiency). tor in which they have no involvement, whether as investors, suppliers of medium- and long-term funding, operators or providers of technical solutions. In Asia, Latin America and Africa, they produce and distribute power, contribute to the agribusiness value chain, transport goods and people, provide financial services, process waste and more. The private sector is not just a source of financing; it also develops production technology and promotes forms of consumption that generate less pollution and use less energy. Furthermore, in the Northern and Southern hemispheres, private-sector organizations are the primary producers of research and development, bringing about innovations like mobile banking that benefit millions of

THE EXPANDING ROLE OF DEVELOPMENT FINANCE INSTITUTIONS To address the growing needs of its partners, Proparco has provided a steadily increasing volume of financing. Its portfolio went from €9.7m and 65 clients in 1990 to nearly €4.5bn and over 400 clients in 2015. Its work, which initially focused on French-speaking Africa, has since expanded to cover all countries eligible for development assistance. Proparco today operates in 80 countries, making it one of the leading European Development Finance Institutions.

€290 m

1/3

of all financing approvals in 2015 for fragile States (least advanced countries – LACs – and/or post-crisis countries).

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Like its counterparts elsewhere in Europe, Proparco uses a wide range of financing tools (loans, equity and quasi-equity investments, guarantees) to ensure effective support to private business. It acts as a catalyst for private capital from local and international providers – not only its peers and shareholders, but also private equity funds, foundations and private investors and entrepreneurs.

Through its in-depth knowledge of conditions on the ground, Proparco is well-equipped to handle the political, financial, social and environmental risks related to locally developed projects and can therefore offer the private sector incentives to back projects initially perceived to be too risky. At the same time, Proparco has continued to give its clients hands-on assistance with improving their

22 %

of all funding provided through co-financing arrangements with our

fellow EDFIs – Germany’s DEG and the Netherlands’ FMO – with multilateral institutions like the European Investment Bank (EIB) and the International Finance Corporation (IFC) or with Proparco shareholders.

P R O PA R C O A C T I V I T Y R E P O R T 2 015

OUR STRATEGY IN 10 POINTS (2014-2019)

environmental, social and governance practices.

This includes financing technical assistance to help clients enhance working conditions, reduce their carbon footprint and achieve environmental certification, for example. By promoting such good practices, we not only contribute to sustainability; we also serve France’s strategic interests.

30% of our activity on projects that 01 Focus help combat climate change.

development in Africa by 02 Support providing financing of at least €3.7bn

CONSTANTLY EVOLVING NEEDS To meet its clients’ constantly evolving needs even more effectively, Proparco will continue in 2016 to boost the added value of its offering by drawing on the sectoral and geographic expertise of it AFD Group staff, expanding its technical assistance work and facilitating networking among private-sector organizations.

The institution will also go on supporting the French government’s focus on Africa while maintaining its engagement with the sectors that are central to the Sustainable Development Goals (SDGs): infrastructure (transport, energy, telecommunications), basic services (healthcare, education, water and sanitation), finance (lending, leasing, insurance) and agribusiness. And whether by directly acquiring equity interests or via FISEA, Proparco will be contributing to the AFD’s €300m social and solidarity-based economy initiative.

Proparco already has extensive involvement with French companies, and will continue to encourage them to invest in developing countries. The institution takes advantage of its strong local presence to disseminate and share its international expertise.

This approach not only allows French companies to benefit from Proparco’s experience with specific industries and business networks; it also helps export French know-how in support of projects for which that know-how is in great demand.

Proparco and the AFD will also continue with their efforts to strengthen the “Group offer” so that they can promote innovative partnerships, while striving for maximum consistency between public policy and private-sector initiatives in partner countries.

during the period, equal to roughly 50% of our activity.

Dedicate 25% of our activity to least 03 advanced, low-income, transition or postcrisis countries.

the weight of equity and quasi04 Increase equity investments and subordinated loans in our portfolio from 14% to 30%.

up our education and health work 05 Ramp to a total of 7% of our portfolio by 2019.

our clients enhance their 06 Help environmental and social performance and governance, in particular by providing technical assistance.

our social business offer by 07 Develop funding more companies active in the inclusive economy.

€

€115 m

invested in equity, quasi-equity and subordinated loans to support the growth of private companies operating in developing economies.

?

up to 10% of our equity 08 Devote investments a year to early-stage companies.

results and impact of projects 09 Measure we finance to assess their contribution to development.

our partnerships with our 10 Strengthen fellow development finance institutions and stakeholders.

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Our mission Strengthen the private sector’s contribution to achievement of the Sustainable Development Goals (SDGs)

Our tools Loans — Equity and quasi-equity investments — Investment funds — Guarantees — Technical assistance

Our added value + Expertise spanning multiple sectors and geographies + Ability to organise complex projects + An international network + Catalyst role (arrangement, syndication, credit facility management) + Effective risk management (credit risk, environmental and social risks, etc.) + Financial strength (as part of the AFD Group)

Our areas of involvement Agriculture and agribusiness Banks and financial markets Climate Education Health Industry

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

P R O PA R C O A C T I V I T Y R E P O R T 2 015

How Proparco invests For Proparco, a “good project” is one that is in line with its mandate and strategic direction, that is led by a sound client and that will have a social and environmental impact on local development.

Investment conditions and principles

Targets

Additionality

Knock-on effect

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

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

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

Development impact

Client reliability

Project profitability

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

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

Projects cannot last unless they are profitable. Profitability is critical to the business model of Proparco and to its ability to win over additional providers of funding.

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P.13

P.18

P.20

P.41

SPECIAL FEATURE

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Tunisia

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On the ground WITH THE PRIVATE PLAYERS

ACCESS TO ENERGY

H I G H E R E D U C AT I O N

620 million Africans with no lighting ����������������������������������������� P.13

Serving the general interest �������������� P.31

LOW-CARBON INFRASTRUCTURE

Toilets in Nairobi’s slums ������������������� P.37

S A N I TAT I O N

The land of the Incas is going green ����������������������������������������������P.18 AGRIBUSINESS

Business acumen and social commitment as keys to success ��� P.20 ACCESS TO CREDIT

Sound financial systems: the backbone of Africa's economic development ���������������������P.28

SPECIAL FEATURE

Tunisia

Betting on entrepreneurship ������������ P.41

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ACCESS TO ENERGY

620 million Africans with no lighting A F R I C A – Universal access to reliable, affordable, clean energy is one of the major challenges on today’s development agenda.

In 2011, the United Nations launched the Sustainable Energy for All initiative with the aim of bringing together stakeholders from governments, business and civil society to eliminate energy poverty. This is a field in which Proparco has been active for years.

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ACCESS TO ENERGY

AFRICA

O

ne billion four hundred million people get by without electricity. Another three billion are dependent on coal and traditional biomass sources such as wood and crop waste to meet their lighting, cooking and heating needs.

In energy terms, Sub-Saharan Africa is the world’s most deprived region. Over half of the population – 620 million people – lacks access to electricity, particularly in the countryJust 3% of global electric side. Africa has the same electric power investment power output as Germany, although its population is thirteen times projected over the next larger. Moreover, the average price two decades would be per kilowatt-hour is higher south of the Sahara than elsewhere: $0.14, enough to ensure access compared with $0.04 in South Asia, of all to energy. for example.

Energy poverty in the region is clearly an obstacle to human, social and economic development. Its adverse impact on schooling for children and the agricultural value chain (production, processing and storage) is particularly well-documented.

To make matters worse, 1,400,000 people die every year from inhaling toxic fumes given off by cooking fuels. Malaria is responsible for fewer deaths.

1. The poorest inhabitants of the African countryside spend up to $150 a year on batteries, candles and mobile phone recharges.

2. Lighting alone can significantly enhance learning by enabling children to go on studying after nightfall.

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UNIVERSAL ACCESS TO ELECTRICIT Y IS NO PIPE DREAM The goal of the Sustainable Energy for All initiative is to provide universal access to modern energy services, double the share of renewable energy in the global energy mix and double the global rate of improvement in energy efficiency by 2030. But that goal will not become a reality without involvement by all the stakeholders, starting with those in the private sector, who can deliver solutions as investors, producers and distributors.

Changing the global energy landscape will require pioneering public-private partnerships, substantial private investment and joint efforts by governments, businesses and civil society to strengthen markets.

This strikes some people as a challenge, others as an opportunity – the opportunity for financial and technological innovation, with new markets, new industrial partnerships, more jobs and income.

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A FUND TO COMBAT ENERGY POVERT Y “Connecting a rural home to the power grid repre­ sents a high investment for electric power companies,” explains Emmanuel Beau, the co-founder of Energy Access Ventures (EAV), a venture capital firm. “Most African States don’t have the resources to cover the cost, particularly as power consumption often boils down to scattered lighting, which offers a limited return on investment. So the main focus is still on urban areas and business users.”

EAV is the only investment fund in Sub-Saharan Africa dedicated to financing (€250,000 to €4m) and

assisting SMEs that offer energy access solutions to households in the region’s rural and semi-urban areas. Initiated at the behest of the French company Schneider Electric, which covered a third of its resources, EAV also received funding from the AFD Group. In 2015, the latter invested €5m through its Support Fund for Businesses in Africa (FISEA), a unit advised by Proparco. The Fonds Français pour l’Environnement Mondial (French Facility for the Global Environment – FFEM) likewise invested €1.5m, and additional financing was provided by CDC (Proparco’s British peer), the European Investment Bank

0,14 dollar per kWh

south of Sahara: three times higher than in South Asia

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ACCESS TO ENERGY

3

AFRICA

3.-4 OGE develops and markets solar systems coupled with batteries that can be connected up to LED lamps, phone chargers and other electrical appliances.

The company offers leasing arrangements to cover the cost of solar equipment and enables customers to control how and when they pay via mobile money.

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Emmanuel Beau, co-founder of Energy Access Ventures (EAV)

“Who can live today without lighting?”

EAV co-founder Emmanuel Beau is someone who takes the long view.

He aims to make clean, affordable power available to a million more Africans by 2025. And that requires mobilizing investors and raising funds.

Laid-back, self-confident, Emmanuel Beau gets passionate when he talks about EAV, energy access and Africa. In his late twenties, Beau considers it a matter of necessity to provide Africa’s rural dwellers with lighting, above all from renewable sources. Necessity in this case means “reinventing the world we live in, starting with our approach to producing, distributing and consuming energy”. Before becoming a manager of a €54.5m investment fund, Beau gained valuable experience on the ground. He turned a workshop in the

Senegalese bush into a social enterprise that leases out solar power systems under hire-purchase schemes (managed and supported by rural microfinance institutions) to individual and collective users, for example, and managed social impact energy investments in Africa for Schneider Electric. He belongs to the up-and-coming generation of bold French entrepreneurs and investors who believe in taking action to “change the world”. But because naive optimism isn’t his style, he stresses the need to raise “loads” of capital to achieve that. “The mobile money boom, with Africa leading the way, has combined with progress in solar energy technology to make low-cost individual energy access solutions a reality. As a result, business models that foster the emergence

“Changing the global energy landscape will require pioneering public-private partnerships, investment and efforts by governments, businesses and civil society to strengthen markets.”

(EIB) and the OPEC Fund for International Development (OFID).Proparco and the FFEM also co-finance technical assistance to provide training and expertise in management, corporate governance and recycling to companies in the EAV portfolio. Schneider Electric in turn makes its engineers, marketing specialists and consultants available to the firm.

PREPAY BY PHONE To bring electric power service to people in rural areas, EAV takes advantage of mobile money options and the emergence of “plug-and-play” solar power kits. “They offer an easy way to cover simple needs and prepay power use,” says Emmanuel Beau.

of viable venture capital firms are gaining traction. Most startups in the sector are in the experimental stage, but in Tanzania, for example, OGE has gone from 10,000 installations a year to over 10,000 a month.”

EAV’s goal is for “those startups to break even and start turning a profit so that they can scale up and demonstrate the maturity of the market”. For that to happen, support from Proparco and other development banks is “essential to ‘de-risking’ the business model and attracting capital”, Beau explains. Driving his determination to see the companies in his portfolio succeed is the belief that their success is “the prerequisite to replicating their business model across Sub-Saharan Africa and perhaps at that point to make electricity available to 620 million Africans”.

In 2015, EAV made an inaugural $2m investment in Off.Grid:Electric (OGE), a San Francisco and Arusha, Tanzania-based company that develops and markets solar systems coupled with batteries that can be connected up to LED lamps, phone chargers and other electrical appliances. OGE offers leasing arrangements to cover the cost of solar equipment and enables customers to control how and when they pay via mobile money. Every month, the company “turns the lights on” for thousands of people in Tanzania and Rwanda.

It plans to reach the one-million customer mark by 2017 and branch out into others countries in the region. Further EAV investment deals are under examination or soon to be clinched.

1,405 megawatts of power capacity will be installed,

including 695 MW from renewable energy sources, through Proparco financing in 2015.

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LOW-CARBON INFRASTRUCTURE

The land of the Incas

is going green As the country hosting the 2014 Climate Change Conference, Peru ambitiously lifted its renewable energy target for 2018 to 60% of total electric power output.

The thinking behind that move was the need to prepare for depletion of Peru’s gas reserves and make its hydroelectric plants less vulnerable to climate change.

PERU –

Located 500 km south of Lima in the coastal desert in Nazca Province, the Marcona wind farm has 16 turbines with a rated power of 2 MW each.

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eru ranked near the bottom of the Human Development Index in 2000, but has since experienced a “golden decade.” Between 2003 and 2013, GDP grew by better than 6% a year on average. And while growth has slowed recently, Peru still boasts one of South America’s most vibrant economies. From an energy standpoint, this has made electric power increasingly available to the population. The level of coverage rose from 45% in 1990 to over 91% in 2015. During the same period, however, energy consumption surged by nearly 80%, and the trend shows no signs of abating, either. The government expects demand to increase 10% a year until 2019. This highlights the urgent need to boost production capacity.

JUST 2% OF POWER COMES FROM SOLAR AND WIND FACILITIES Peru’s electricity generation capacity is evenly divided between hydroelectric and geothermal sources; the country produces natural gas. Solar and wind power account for less than 2% of the national energy mix, although Peru has substantial, as yet unexploited renewable resources. For example, its wind power potential has been estimated at 22,000 MW – compared with installed capacity of 142 MW. To make the most of this asset, the government has introduced legislation that is highly supportive of investment in electric power from renewable energy sources (biomass, wind power, geothermal power, tidal power and hydropower). The private sector currently covers 70% of total renewable energy investment.

In connection with the COP21 conference, Peru committed to a 30% reduction of its greenhouse gas emissions by 2030.

In 2015, Proparco extended a $10m loan and a $19m loan to the companies Parque Eólico Marcona and Parque Eólico Tres Hermanas (a Cobra Group subsidiary) to build and operate two wind farms in Nazca Province. Through a joint financing facility with its German and Dutch peers, DEG and FMO, Proparco mobilized a total of $69m for the two projects with an aggregate cost of $335m. Additional support came from Corporación Andina de Fomento (CAF), which provided $20m, Natixis and Exim Bank

GLOBAL INVESTMENT NEEDED I N L OW - C A R B O N T E C H N O L O G Y, 2 014 - 2 0 3 5

In trillions ($tn)

Total: $35tn

Electric vehicles

Industry

2.1

1.4 Transport

CO2 capture and storage

Electricity transmission and distribution

5.9

8.1

Emissions reduction

2.1

Energy efficiency Energy generation

Buildings

4

Biodiesel

0.9 Renewable electricity

Nuclear power

8.8

1.7

NB: The figures indicate the need for investment in low-carbon technology between 2014 and 2035 in order to limit the average temperature increase in the world to 2°C. Source: IEA, 2014.

US. This is the second renewable energy project in Peru supported by Proparco after T-Solar in 2011, the country’s first large-scale solar power plant, with capacity of 44 MW. VOTED BEST RENEWABLE ENERGY PROJECT The 32 MW Marcona facility came on stream in May 2014 as Peru’s first wind farm. Together with Tres Hermanas, a 97 MW facility commissioned in January 2016, it forms the country’s largest wind farm. Thanks to the two wind farms, 428,000 tonnes of CO2 equivalent emissions will be avoided a year. Their entire output will be sold to the national power grid.

In September 2015, Proparco and its peers won the Best Renewable Energy Financing in Latin America award for this financing package from Latin Finance, an authoritative bimonthly magazine on Latin America’s financial markets.

876,000 TEQ CO2 avoided per year thanks to

Proparco financing in 2015

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T H É M AT I Q U E

AGRIBUSINESS

Business acumen and social commitment

PAY S

as keys to success

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AGRIBUSINESS

MA’s Foods, a processed foods manufacturer whose specialities are spices and coconut derivatives, has made a name for itself over the past three decades, not only in its home market Sri Lanka, but also abroad – in countries ranging from Japan to the Netherlands. Company founder Mario de Alwis owes that success to a combination of business acumen and a concern for the land and the people working with him.

SRI L ANK A —

S

SRI L ANK A

ri Lanka has long been famous for such spices as cinnamon, pepper, cloves and nutmeg. Spices, along with spice derivatives and essential oils, still account for over 50% of the country’s agricultural exports. And in that market, MA’s Foods is one of the most respected names.

Founded thirty years ago in Dambulla, a town near the island country’s largest plantations, MA’s Foods started out as a spice processing business with just five employees. The comp a n y g r a d u a l l y e x p a n d i n g i t s p ro d u c t p o r t folio to include preserved pickles, chutneys, curry paste, spice mixes and other items, with t h e re s u l t t h a t i t b o a s t s f i v e b r a n d s t o d a y.

In 2006, coconut milk and powder were added to the roster. What began as a micro-enterprise has developed into a thriving firm with a workforce of 300.

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To obtain the resources needed to ensure that expansion, founder Mario de Alwis turned to local and international investors and funding providers.

The latest is Aavishkaar, a venture capital firm in India in which Proparco acquired a stake in 2015. It has invested $2.1m in MA’s (see box, p. 27). Mario de Alwis has successfully anticipated market expectations. In 2003, for example, his company was the first in Sri Lanka to win Safe Quality Food (SQF) certification for its food safety control system. Two years later, MA’s was certified as an organic food processor in the European Union and Japan. Subsequent certifications include FSSC 22 000 (food safety), ISO 14 001 (environmental management), OHSAS 18 001 (occupational health and safety), fair trade, organic agriculture (Europe, Japan, United States) and SEDEX (ethical trade).

Small farmers are the centrepiece of the MA’s Foods business model. They are the ones who guarantee the quality of the products it sells.

1. The Dambulla factory is the “historic” location for MA’s Foods. It opened in 1986 with 5 employees; today it has 143. Over one third of them stay in on-site accommodations during the week.

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7 2. At this 25,000-tree coconut plantation, four men manually extract coconuts from their shells – up to 3,000 per day (3).

At the Dambulla factory, the process has been mechanized (4).

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4

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TH A GÉRM I BAUTSI IQNUEES S

SRI L ANK A

5 5. The MA’s Foods factory in Minuwangoda, a short distance from the Colombo international airport, processes an average of 7,000 tins of coconut milk and more than a tonne of coconut powder a day.

MARRYING BUSINESS WITH COMMUNIT Y SPIRIT The other key ingredient in the company’s success is its choice of an inclusive business model, as Mario de Alwis explains. “Right from the start, we conceived of MA’s as a company connected to its 6. Lionel, a blind employee, environment – the people of Dambulla, the plan­ has been working at the MA’s Foods factory in ters in the vicinity...” In his view, what makes MA’s Dambulla since it opened. different from other agribusiness companies in Sri Packaging is one of his main Lanka are “local roots, taking the people we work tasks. with into account. Without that, you can gain a foot­ hold in the market, but you can’t last. Some people in this industry forget that they owe their success first and foremost to the men and women who work for them. You can have the best technology and the best machines, but what ultimately counts are the planters who put their hands in the soil, the factory employees who select and prepare your products.

If you miss that point, you miss what the business is all about.”

A t M A’s F o o d s , 5 0 % o f t h e employees are women. Two of them are managers and four are Two out of every three assistant managers (compared women in Sri Lanka are with seven men). For Mario, those not part of the labour force. numbers are a legitimate source of pride in a country where two out Here, they make up 50% of every three women are not part of the personnel. of the labour force.

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6

At its factories, MA’s Foods provides employees with free food and accommodations. In Dambulla, roughly a hundred of them are housed on the premises during the workweek. That policy costs money, of course, but it also helps put the factory’s operations on a more secure footing. For the employees as well, the benefits are considerable. Rents for a one-room flat in the area range from €40 to €60 a month, and monthly food bills are just as high – whereas most workers only earn between €100 and €300 a month.

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7

8

Sri Lanka is a leading producer of cinnamon sticks, which are prepared by hand.

The outer bark (8) is first shaved off of cinnamon tree branches so that the inner bark (9) can be peeled away in thin strips. The strips are then arranged in layers (10). As they dry, they retract and turn brown (7).

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AGRIBUSINESS

How fair trade works Smallholders and workers located near the start of the value chain don’t always get a fair share of the wealth they help create. The Fairtrade system has set out to achieve greater equity in international trade. The minimum price determined on the basis of Fairtrade Standards covers the cost of production and provides farmers with a safety net at times when world market prices fall below a sustainable level.

Farmers also receive a Fairtrade Premium that is put into a community fund to finance projects devoted to education, healthcare, increasing yields and the quality of farms.

SRI L ANK A

11 11. Mrs. Shriyani is the secretary of the SafeNet sustainable agriculture planters’ association in the south of the island. She single-handedly runs her farm, where cinnamon trees and pepper plants grow at the foot of coconut trees.

That diversification ensures a steady revenue stream all year long.

THE VALUE OF WORKING THE LAND But that’s not all there is to the community involvement of MA’s Foods. The company gives precedence to sourcing from small farmers, and assists them with the adoption of socially responsible business practices. MA’s took the initiative in organising a network of planters committed to sustainable agriculture called SafeNet (Sustainable Agri-Farmers Enterprise Network). The goal is to help them meet international certification standards for free trade and organic agriculture. The company’s staff provides advisory service, technical assistance and training. Moreover, MA’s Foods covers the cost of certification. On the coconut plantations in the south of the island, the organic label has enabled SafeNet planters to sell a kilo of output for 300 to 400 rupees above the price for conventional coconut. Even so, Rajeewa Kularathna, the head of compliance at Dambulla, admits it can be an uphill struggle. “It’s sometimes hard to get farmers to change their practices and see the benefits of certification, Over particularly when you realise that it may take up to five years to get the Fairtrade label and two or three jobs for years to get organic certification.” planters will In supporting the organic agriculture be created or trend in Sri Lanka and fair trade, the maintained founder of MA’s Foods makes no in the value chain secret of his desire to help restore of agricultural farming to its rightful status. “As in projects financed by other countries, farming has become Proparco in 2015. unattractive here. Our young people

350,000

26

are leaving the countryside. To them, farming is the last option, what you do when you’ve failed elsewhere. I’m worried about the future. Fifty years from now, we’ll have to feed three million more people. How are we going to manage that if no one wants to work the land? Sri Lanka is lucky enough to have the natural and human potential to go a long way towards meeting that challenge, but so far, there have been very few attempts to aggregate all the interested parties and develop a sustainable, nationwide agribusiness sector that serves the inte­ rests of our farmers, our economy and our country.”

The response, claims Mario, is to try to give prior accomplishments a sustainable character. “After growing MA’s, we need to think about the next step.

I won’t be around forever, so it’s important to me to attend to succession,” he says. And he’s already prepared the ground. His eldest son, Maliek, is the current CEO of MA’s Foods, and his youngest son, Sheran, is in charge of compliance.

P R O PA R C O A C T I V I T Y R E P O R T 2 015

12

A FUND FOR MICRO - AND SMALL ENTERPRISES IN ASIA

Aavishkaar, or balance between social impact and return on investment Founded in 2001, Aavishkaar (which means “invention” in Hindi) is India’s leading impact investment firm. It has over $150m under management through its five funds dedicated to providing capital (from $0.5m to $5m) to micro- and small enterprises operating in agribusiness, education, energy, healthcare, water and sanitation or working to promote financial inclusion.

Its vision and mission are to catalyse economic and social development while generating commercial returns. Aavishkaar investments have helped, for example, to create nearly 35,000 jobs and make affordable goods and services available to over 28 million people in rural and semi-urban areas. Those achievements have earned the company a number of awards, including the World Business Award, which in 2006 recognised Aavishkaar’s flagship fund (AIMVCF) as one of the top ten business models in the world working towards achieving the Millennium Development Goals (MDGs).

13

12. On the 1st of May, MA’s Foods invited all its employees and their families to celebrate the company’s thirtieth anniversary at its Dambulla location. The festivities included foot races, a palm weaving contest, a bed bolster fight and a relay race for the top soda drinkers (in the foreground, Mario de Alwis).

13. Near the coconut plantations in southern Sri Lanka, Mario joined forces with Jumbo Supermarkten, a Dutch client, to help renovate an elementary school where 70 children of local planters are enrolled.

Encouraged by its success in India, Aavishkaar has moved on to replicate its “recipe” in South and Southeast Asia. Its new $45m fund, Aavishkaar Frontier Fund (AFF), was established to assist high-growth micro-and small enterprises in Pakistan, Bangladesh, Indonesia and Sri Lanka. In support of that aim, Proparco acquired a €6m interest in AFF in 2015.

AFF made its first investment in Sri Lanka – providing $2.1m (300 million rupees) to help MA’s Foods roll out new products (vegetable oils and recipe mixes), increase its production capacity, above all for export, and open an additional coconut processing plant in the north of the country, a region torn by civil war between 1983 and 2009.

27

ACCESS TO CREDIT

Sound financial systems: the backbone of Africa’s economic development With average annual GDP growth of over 5% since 2000, Sub-Saharan Africa is one the most economically vibrant regions in the world today. That trend can be attributed in large part to strong commodity exports, improved macroeconomic policies and a burgeoning middle class. But the continent needs to diversify its growth drivers, and that requires efficient financial institutions able to help businesses invest. Especially small businesses.

S U B -S A H A R A N A F R I C A –

S

ince the 1990s, Africa’s financial systems – the banks, stock exchanges, microfinance organizations and other institutions providing financial resources to the broader economy – have undergone major change. Although long-dominated by a handful of institutions, undermined by serial liquidity and solvency crises, the financial sector has gradually become healthier and deeper.

Resilient and efficient private-sector banks have taken advantage of a more effectively regulated environment to extend their reach and offer new

services and financial instruments to companies and individuals alike. Some of them have adopted regional strategies that have given them the critical mass they need to be able to finance infrastructure and other large-scale projects.

SMALL BUSINESSES – STILL CONSIDERED TOO RISK Y Half of all small businesses south of the Sahara still suffer from inadequate access to funding, however, as a number of banks continue to classify them as high-risk clients. Moreover, those 50 million African SMEs play a vital role in the local economy, generating nearly 60% of total employment and one third of the region’s combined GDP (source: IFC).

Funding for energy, water, transport, telecommunications and other such infrastructure is likewise in short supply on the continent, even as financing needs have mounted steadily to an estimated €80bn a year. Another significant indicator is that two out of three adults are “unbanked” and therefore have

SMEs in Sub-Saharan Africa generate nearly 60% of total employment and one third of the region’s GDP. Yet they have been left out of the banking system.

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no access to financial services. Yet the ability to save money, access credit and take out insurance is often a prerequisite for starting a business, buying a home and insuring against the risk of illness.

Despite noteworthy progress over the past two decades, local banks still have only limited ability to make large-long-term loans or, for that matter, to assess complex projects such as public-private partnerships. At the same time, the bond market, B A N K I N G COV E R AG E R AT E IN SUB -SAHAR AN AFRICA

2 billion unbanked adults in 2014, including

350 million in Sub-Saharan Africa

24 %

34 %

2011

2014

another source of long-term funding, has yet to move beyond the initial stage in Africa.

Only one out of three adults in Sub-Saharan Africa has a bank account.

FINANCIAL INTERMEDIARIES AS SDG PARTNERS? Financial intermediaries have a vital role to play in achieving the Sustainable Development Goals (SDGs) adopted by the United Nations in 2015, above all because they are able to mobilize resources and expand their service offer for small businesses, infrastructure projects and retail customers.

Like its peers, Proparco assists banks in making the most of that ability. The institution helps them gain a clearer view of small business credit risk by putting in place special analytical tools, provides the long-term resources (up to 20 years) in local or foreign currency (euro or dollar) needed to finance investments and supports their efforts to promote financial inclusion.

Proparco also extends dedicated lines of credit to enable banks to invest more extensively in renewable energy, agriculture and healthcare – areas that typically receive little in the way of commercial bank financing.

In addition, development finance institutions can contribute to capital market expansion by

29

ACCESS TO CREDIT

guaranteeing debt issuance. Proparco, for example, is authorized to guarantee financial market transactions in the West African Economic and Monetary Union (UEMOA). With 39 companies listed and total capitalization of €1.17bn, the Bourse Régionale des Valeurs Mobilières (BRVM), the securities exchange shared by the UEMOA’s eight member countries, was established to make it easier for companies to access the resources they need to grow.

47% MSME ACCESS TO CREDIT in Sub-Saharan Africa

Unserved

8% Underserved 3% Have access to credit 42% Make no use of credit

89% of all micro-, small and medium-sized enterprises have no access to credit and make no use of it.

S U B -S A H A R A N A F R I C A

40% DISSEMINATING RESPONSIBLE BUSINESS PRACTICES As essential participants in the African economy, financial intermediaries are also instrumental in disseminating responsible business practices among the companies they finance. Proparco therefore assists them in setting up systems for managing the environmental and social risks associated with their operations and those of the companies in their portfolios, in adhering to principles for the protection of microfinance clients and in combating money laundering and terrorism financing.

6%

Private commercial bank

State-owned bank and/or governement agency

MSME SOURCE OF FINANCING Sub-Saharan Africa

26%

28%

Non-bank financial institution

Other source

Source: IFC Enterprise Finance Gap Database.

TA N Z A N I A

The National Microfinance Bank gives priority to mobile services and SMEs Only 6% of adults and 8% of SMEs in Tanzania have access to bank credit. The National Microfinance Bank (NMB) was founded in 1997 with the aim of reversing that trend. In five years’ time, the NMB doubled the number of its retail clients and expanded its branch network into rural areas. It has become the country’s leading bank. The NMB’s current ambition is to increase its SME client base and develop new mobile banking services to facilitate transactions for people with no nearby bank branches or ATMs. The NMB also aims to extend its financial education program for school children, based on the reasoning that greater familiarity with financial products and risks will help young people understand their economic environment and make sensible choices.

In conjunction with its Dutch counterpart, FMO, Proparco made a $30m loan to NMB to support the rollout of that strategy.

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€554 m committed by Proparco in 2015 to the financial sector in the developing world

H I G H E R E D U C AT I O N

Serving the

general interest

D O M I N I C A N R E P U B L I C – To secure the future of the country and its youth, the government of the Dominican Republic aims to “democratize higher education”. However, lacking the resources to finance universities and further education for teaching staff, the authorities have turned to the private sector. The Pontificia Universidad Católica Madre y Maestra (PUCMM) has been performing a public service function for over 50 years.

31

H I G H E R E D U C AT I O N

L

DOMINIC AN REPUBLIC

ike many countries in Latin America, the Dominican Republic has seen skyrocketing enrolment at institutions of higher learning (universities, vocational schools and institutes of technology). The student body grew from 2,000 in 1950 to more than 400,000 in 2014, and the numbers even tripled between 1990 and 2011.

Sixty per cent of all Dominican post-secondary students are enrolled today at roughly 45 private schools, while the remaining 40% go to the country’s sole public university, the Universidad Autónoma de Santo Domingo (Autonomous University of Santo Domingo – UASD), founded in 1538 as the first univ­ ersity in the Americas – a century before Harvard.

1. Since 1967, over 70,000 students have graduated from the PUCMM. 2. PUCMM students are divided up between the historic Santiago campus (68%) and the capital city campus in Santo Domingo (32%).

QUANTITY AT THE EXPENSE OF QUALITY? This rapid shift to mass higher education has particularly affected the management capacity of the UASD, the quality of instruction and the value of the diplomas awarded. In a country where 40% of the population is under age 20 and where an estimated 660,000 students are expected by 2018, the logistical, financial and organizational challenges are formidable. With just 2% of GDP devoted to higher education, the Dominican government cannot meet the rising cost of mass higher education on its own.

That explains the government’s reliance on vigorous growth of private-sector organizations such as NGOs, religious associations, businesses and non-profits.

The percentage of students enrolled at private institutions thus rose from 23% in 1970 to 60% in 2016.

There has been considerable controversy over the boom in Latin America’s private schools, some of them with questionable credentials as universities or institutes, whether in Brazil, Chile or the Dominican Republic. Admittedly, institutions offering low-quality instruction that is often out of step with market needs and the problems facing young people looking for jobs have indeed proliferated, sometimes in chaotic fashion. But the fact remains that those schools are motivated by a desire to serve the public inter­est. This means that they may turn out to provide valuable assistance to the government’s educational policy and, more broadly, to the country’s economic development. In any case, this can certainly be said of the Pontificia Universidad Católica Madre y Maestra (PUCCM).

MADRE Y MAESTRA: A PRIVATE UNIVERSITY “SERVING THE COMMUNITY” During a trip to the Dominican Republic, a journalist from Haiti wrote, “I was impressed with the Pontificia Universidad Católica Madre y Maestra (PUCMM being its Spanish acronym). And I dreamt of the day when Haiti would have such a centre of learning. It is equip­ ped with all the amenities that belong to student life and places special emphasis on technology studies, which are essential to a country’s development.”

Founded in 1962, the institution so admired by the Haitian journalist is the oldest private school in the Dominican Republic.

The PUCMM is a non-profit school predicated on the commitment “to educate human resources to serve the community”.

It has two campuses today. The main, historical campus is in Santiago de los Caballeros in the north of the island; t h e s e c o n d , m o re m o d e s t o n e i s in the capital.

Between now and 2018, higher education institutions will have to accommodate 660,000 students, versus 375,000 today.

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1

2

33

3

34

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H I G H E R E D U C AT I O N

Encompassing four colleges, the PUCMM offers 42 undergraduate and as many doctoral programmes in partnership with foreign universities, above all in the United States and France (e.g., ENA and the Montpellier Business School). It also possesses up-todate infrastructure and facilities, both for education (e.g., lecture halls, laboratories, libraries) and for student life (e.g., a multi-purpose hall, a theatre, parks, sport facilities). With a student body of 16,000, the PUCMM is the country’s fourth largest university and is considered on of its best, above all its medical school. The PUCMM is held to the quality standards set by the network of pontifical catholic universities, which are increasingly becoming the norm in the country. Moreover, the Dominican Republic has joined in a drive for accreditation of the academic curricula and institutions in Latin America and the Caribbean.

The PUCMM boasts close to a 100% success rate for students entering the labour market. Over the past decade, however, enrolment levels have risen steadily; they are up by 37% in engineering and by 54% in health sciences.

4

PROPARCO AND THE AFD: TOGETHER FOR THE LONG HAUL To meet such growing demand and its own goal of “democratizing higher education”, the PUCMM needs long-ter m funding in foreign currency, something hard to come by in the country. Proparco responded to that need in 2015 by extending a $16m loan to enable the In Santiago, where it PUCMM to build and equip a new was founded in 1962, health sciences college and expand the engineering school on its Santo the PUCMM has been Domingo campus.

recognized as “the

This is the fifth loan granted by the city’s educational AFD Group to the PUCMM. In 2003, heritage”.

Proparco contributed to a major investment programme on the Santiago campus with a $12m loan. The money was used to build a school of architecture and a new centre for technical and vocational training as well as to upgrade and equip various facilities for master’s programmes, the student activity centre and the library.

5

3. The library co-financed by Proparco.

4. The PUCMM offers 42 undergraduate and as many doctoral programmes in partnership with foreign universities, above all in the United States and France. It has trained over 7,000 healthcare professionals since 1967.

5. Proparco helped finance the new school of architecture and the new health sciences college.

35

DOMINIC AN REPUBLIC

H I G H E R E D U C AT I O N

LOANS TO DESERVING STUDENTS “The university has had student loan programmes ever since it was founded,” reports Inmaculada Adames, the Vice-Provost. “They are essential to implementing the university’s philosophy, because they give deserving young people access to quality higher education, regardless of their family’s income level.” At the PUCMM, 30% of all students are loan recipients.

The AFD has also been supporting the university for ten years jointly with Proparco, extending three loans totalling €26m since 2006. That funding has served in particular to further the PUCMM’s social inclusion policy for low-income, high-achieving Dominican and Haitian students. Over 5,000 young people have already benefited.

What makes the complementarity between Proparco and its parent company so effective is that Proparco commitments to improve the quality of infrastructure and educational facilities are buttressed by AFD programmes to raise the level of teaching-staff qualification. Between now and 2018, some sixty members of the staff will attend master’s and doctoral courses. At the same time, the AFD helps the PUCMM achieve greater international scope. Ninety-five students have

6

entered a dual diploma programme with French universities and ten exchange programmes between France and the Dominican Republic have been arranged.

Because it facilitates access to quality education with national and international recognition for thousands of young Dominicans, the PUCMM not only contributes to the democratization of higher education, but also offers Dominican youth a solid educational background that is in tune with demand in the local and regional labour market. This makes it a genuine partner to the government authorities.

6. The PUCMM has developed a social inclusion policy for students from neighbouring Haiti with the aim of forging closer ties between the future elites of the two countries.

7. Women accounted for 60% of the year’s PUCMM graduates in 2014.

7

45,700 students will enjoy quality service in educational structures financed by Proparco in 2015.

36

S A N I TAT I O N

Toilets

in Nairobi’s slums K E N YA — In the slum areas of Kenya’s capital, indoor flush toilets are a rarity. Most people have to make do with plastic bags and outdoor pit latrines. To remedy the situation, a company called Sanergy has built up a network of low-cost pay toilets that are put to optimal use, given that the organic waste is converted into fertilizer and sold to farmers.

37

S A N I TAT I O N

T

his business model premised on serving the poor has the support of the Novastar venture catalyst firm, in which Proparco holds a stake.

Over 2.5 billion people around the world lack access to adequate sanitation. In Nairobi’s slums alone, the figure is 2.5 million. The inhabitants have to make do with outdoor pit latrines or plastic bags, which they leave on the streets or throw away further from home.

0.025 EURO CENT Sanergy, an American-Kenyan company, has developed toilets similar to the cubicles installed on work sites, using local materials and workers, many of them slum dwellers themselves, to fabricate them. These compact Fresh Life Toilets (FLTs) are equipped with their own waste storage cartridges. They can be installed and used anywhere. To distribute the FLTs, Sanergy franchises them out to local residents – dubbed Fresh Life Operators – who operate them as small businesses on a pay-per-use basis. There are currently over 300 such entrepreneurs.

K E N YA

They themselves set fees based on customer income: from 0.025 to 0.043 euro cent on average (from 3 to 5 shillings). Sanergy also works to get landlords to install hygienic sanitation facilities on their property. While some have raised rents to offset the cost of FLTs, most of them have experienced higher occupancy rates in

1. The 646 toilets installed in Nairobi slums are used over 30,000 times a day.

2. Waste treatment and conversion are Sanergy’s primary source of income.

1

Novastar, or believing in social business Through its Investment and Support Fund for Business in Africa (FISEA) advised by Proparco, the AFD Group has invested $5.5m in Novastar Ventures East Africa Fund. The $80m fund’s goal is to assist startups that offer innovative ways to make essential goods and services available in East Africa.

Novastar has already invested in eight companies, including SolarNow, which provides low-cost solar home systems to rural Uganda; Bridge International Academies, a chain of nursery and primary schools for underprivileged children in Kenya, Uganda and Nigeria; and Sanergy.

“Sanergy makes sanitation provision to slums profitable – and thus sustainable. Our aim is to serve half a million people in Nairobi.”

David Auerbach, Sanergy co-founder

housing equipped with toilets, with the result that they have no trouble recouping their investment. To guarantee service quality, the proper functioning of FLTs and to stimulate demand, Sanergy provides the Fresh Life Operators with support in obtaining title to property and building permits, which are complex procedures in slum areas. Operators can also get training in basic accounting skills, customer service and so forth. In partnership with Diva, an NGO that encourages Internet users to lend money to local microcredit institutions, Sanergy offers 12- or 24-month zero interest loans for the purchase of toilets for a unit price of $500. Since the programme’s inception in late 2011, 646 toilets have been installed in eight Nairobi informal settlements.

They are used over 30,000 times a day and have made it possible to collect and treat 7,500 tonnes of waste to date.

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AN INTEGRATED SANITATION VALUE CHAIN

2

4

and a half years

after inception of the project

646

toilets installed

8

slums equipped

Over

30,000 users a day

S A N I TAT I O N FACILITIES

WA S TE TR ANSPORT A N D R E M O VA L

W A S T E T R E AT M E N T AND REUSE

7,500

tonnes of waste treated

39

3.4. The waste converted into organic fertilizer is marketed to farmers. The result is an increase in crop yields of between 30% and 100%.

TA S HN ÉM I TA ATTIIQ OU NE

3

K E N YA

AN EXPERT’S POINT OF VIEW

Bénédicte Faivre-Tavignot, Associate Professor at HEC Paris, co-founder of the HEC Chair Social Business/Enterprise and Poverty

4

NEXT STOP, KIGALI, K AMPALA? Waste treatment and conversion are Sanergy’s primary source of income as well as the key to its success.

Logistics teams provide FLT maintenance and collect the waste cartridges in the slum areas. In addition, the growth of its network has even enabled Sanergy to expand that service to include food waste collection for other companies. The waste is transported to a central processing facility and converted into organic fertilizer called Overgrow, and insect-based animal feed. Those by-products are sold to over 200 farms. Overgrow is said to increase crop yields by between 30% and 100%.

David Auerbach, one of Sanergy’s co-founders, today aspires to “extend this initiative to all the big cities in the world where it can be usefully installed: Kigali, Kampala and Mombassa”.

40

Did you say social business?

“In recent years, the concept of social business has emerged as a middle road between philanthropy and the pursuit of maximum profit. The idea is rooted in a dual realization. On the one hand, governments and civil society are striving – especially in poor countries – to resolve problems such as food insecurity and insufficient access to healthcare, water, energy and adequate housing. On the other, the principle of maximizing profits is showing its limitations by intensifying pressure on resources, contributing to global warming and widening social inequality.

The private sector can provide solutions to these challenges: through social business, it supports social causes. Profit thus becomes the means rather than the end; businesses are not acting independently but in co-creation with public institutions and civil society.

From “Social business: a different way of doing business and investing”, Private Sector & Development, no.23, February 2016.

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SPECIAL FEATURE

Tunisia

Betting on entrepreneurship

FIVE YEARS AFTER THE REVOLUTION, TUNISIA IS HUNTING FOR THE RIGHT PATH – AND FOR WAYS TO KICKSTART THE ECONOMY. THE PREREQUISITE IS UNLEASHING THE POTENTIAL OF BUSINESS AND YOUTH.

41

T U N I S I A – In December 2010, the suicide of a street vendor triggered an uprising of Tunisian youth and the fall of President Ben Ali. Despite the obstacles and uncertainties besetting the country since then, Tunisia’s private sector has shown real resilience.

With the support of international backers that include Proparco, businesses have continued to invest in their own expansion. And it has paid off. Entrepreneurs, funding providers and startup creators tell the story of a Tunisia eager to move forward, and how they are already driving that movement.

T

SPECIAL FEATURE

Tunisia

unisia has accomplished great strides since the revolution. To start with, it has adopted a new Constitution that is one of the most advanced in the Arab world and democratically elected a government for the first time in its history. But the country still has to grapple with anaemic growth (0.8% in 2015) and a disturbingly high 15% jobless rate that is even higher among young people (33%), particularly the educated.

To make matters worse, the threat of terrorism discourages tourists and investors alike. None of this is good news for businesses, especially the micro-, small and medium-sized enterprises that form the backbone of the country’s economy. And yet in the past five years they have shown the kind of resilience that commands respect.

WHAT ENTREPRENEURS WANT Tunisia’s entrepreneurs don’t devote the bulk of their energy to withstanding economic and political shocks, however. All they want is to be able to grow their business, hire workers and break into markets.

But that requires adequate funding – something woefully unavailable in the country. According to the World Bank, more than half the enterprises in Tunisia remain unserved or underserved by the mainstream financial sector. “Tunisian banks lend SMEs only half the amount that Moroccan banks do,” claims Ahmed Abdelkefi, an economist and businessman. What is the explanation for that gap? “A lack of million euros were long-term local resources forces our banks to committed by Proparco raise capital in foreign markets at a high cost. in 2015 to Tunisian businesses They pass that cost on by charging prohibi­ and financial institutions. tive rates on loans to SMEs.” Mr Abdelkefi In the past 20 years, over €2.2bn also blames “the absence of structures dedi­ have been mobilized by the cated to SMEs inside banks, which lack the AFD Group for the country. expertise and experience needed to reach out to that segment”.

44

42

LEASING: A “FAST AND EFFICIENT” SOLUTION With liquidity in such short supply, whether in dinars or in foreign currency, leasing has become increasingly popular, as it has proven highly competitive. Tunisie Leasing (TL) is an equipment and property leasing company founded in 1984. It lends to micro-, small and medium-sized enterprises for the purchase of motor vehicles and the light and heavy equipment that is vital to trading, service and manufacturing companies. TL was the first firm to launch such an offer in Tunisia. Three decades later, it has 20% of the market and healthy profit margins. “Our SME niche policy is what has enabled us to respond faster and more efficiently compared with the long decision-making

P R O PA R C O A C T I V I T Y R E P O R T 2 015

Tunisia SPECIAL FEATURE

T U N I S I E L E A S I N G – P R O PA R CO

A 20-year partnership

circuits at banks,” says CEO Fethi Mestiri.

“Even with economic uncertainty and the trouble they have getting funding, small businesses have continued to invest.

When they turn to us, it’s to cover an immediate need.” In 2014, TM signed over 5,000 agreements, the vast majority of them for amounts below €50,000.

Over

1/3

of Tunisia’s MSMEs

with funding needs have never contacted a financial institution.

“The experience of Tunisie Leasing is one of the most successful in North Africa,” Mr Mestiri concludes. And in fact, its leaders have even exported their approach in the region. In 2006, they created Maghreb Leasing Algérie (MLA), with Proparco investing €3m in 2006 and 2009. Same recipe, same success story.

Proparco has a history of partnership with TL, which is also one of its oldest equity investments. The institution has assisted the leasing company in diversifying its sources of funding and developing its business with three lines of credit (in 2004, 2009 and 2015) in foreign and local currency totalling €24m.

Proparco has also helped TL expand across the region. In 2015, the two partners jointly acquired equity stakes in Alios Finance, a leasing company operating in nine countries in Sub-Saharan Africa. This dynamic process should lead to the emergence of a pan-African leasing heavyweight that can make it easier for many African companies to pay for equipment.

Today, Proparco’s technical assistance unit works with Tunisie Leasing's staff to put in place a system for managing the environmental and social risks attendant on the business of TL clients.

43

“Employment, Liberty, Dignity” was the slogan of the revolution. Five years later, the monthly minimum wage (for a 48-hour week) is only €150 and over one out of every seven Tunisians lives below the poverty line.

PAY S

SPECIAL FEATURE

Tunisia

T H É M AT I Q U E

A PLACE IN THE SUN FOR MICROFINANCE “Enda is our child. A child going on age 27.” With a touch of humour, Michael Philip Cracknell tells the story of a pioneering microfinance organization in Tunisia – the one he founded in 1990 with his wife, Essma Ben Hamida, and that has just given birth to a public limited company. In 1995, Enda served 18 clients. Twenty years later, the number had risen to 270,000 in both urban and rural areas (58%/42%), with women making up 67% of the total.

tation, along with “rigorous management and transpa­ rent practices,”, Mr Cracknell adds. He also points out that “In 2011, when the revolt led to property damage, Enda branches were defended by their customers”.

In a country where only one out of four adults has a bank account, microfinance is expanding at a great rate. With an addressable market of between 1.2 and 1.5 million clients, it is and will remain an essential contributor to financial inclusion for marginalized population groups, the fight against poverty and job creation.

Over the past decade, the “baby” has made €2m loans that add up to a total of €1bn. Enda caters to clients of all kinds: small farmers, young startup creators, “For micro-, small and people upgrading their homes, medium-sized enterprises parents with education to pay for and much more. The avein Tunisia, leasing and rage approval time is two weeks microcredit are the two for a first loan, and 48 hours for a loan renewal. primary sources of funding.”

In order to meet growing demand, Enda needs resources. “If the number of clients continues to increase by 8% a year, our primary constraint will be access to refinancing,” Mr Cracknell explains. There are limits to how much we can appeal to Tunisian banks, given their lack of liquidity. At the same time, the Central Bank believes we are too exposed to inter­ national lenders.” In 2014, Enda received 88% of its new loan amounts from abroad, including from the AFD Group, which in 2015 extended a €10m loan to help Enda develop its farm loan offer. Meanwhile, Proparco is examining a possible financing arrangement that could well go through in 2016.

Ahmed AbdelkefI, Tunisian economist and businessman

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That high degree of efficiency is what has earned Enda its repu-

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A silver and amber jewellery maker, Zeineb Ben Jaafar took out her first loan from Enda in 1998 – for 200 dinars (€200 at the time).

"Then 400, 600, 1,000, 3,000 and most recently 5,000 dinars,” she says. All told, she has borrowed over 24,000 dinars. What she terms “truly a small fortune” enabled her not only to increase her output, but also to send one daughter to the Tunis School of Fine Arts and pay for private tutoring to help her youngest daughter get her scientific A Level qualification.

“In 2011, when the revolt led to property damage, Enda branches were defended by their customers. They view Enda as part of their human environment, in a sense as part of their family.”

Michael Philip Cracknell, founder of the NGO Enda, a pioneering microfinance organization in Tunisia

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Tunisia

diploma agreements abroad, above all with French schools. ESPRIT is also “one of the first schools in Africa to obtain EUR-ACE – the European accreditation for engineering programmes”, says Mohamed Jaoua, another of the school’s initiators.

The school was created by three participants in the reform of public higher education, where they conducted their careers: Tahar Ben Lakhdar, Naceur Ammar and Mohamed Jaoua. “ESPRIT trains engineers for the business world, for the development of the country, for the creation of wealth. Our goal, our DNA, is the employability of our graduates,” Mr Jaoua explains.

The three men share a desire to “offer general-purpose higher education”. At ESPRIT, annual tuition fees are in the vicinity of €2,500 (5,500 dinars). That amount, the founders stress, should be compared with what major French and American schools charge.

“Our aim is to narrow the social divide in Tunisia; we don’t want education to be reserved for the wealthy.”

That is why ESPRIT has established “a foundation that gives high-potential young people cheques that cover up to 100% of their tuition, depending on social background”.

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TRAINING ENGINEERS AS PART OF THE FIGHT AGAINST UNEMPLOYMENT AND OBSCURANTISM The El Ghazala technopole in the suburbs north of Tunis is home to one of the country’s top schools: ESPRIT, which stands for the École Supérieure Privée d’Ingénierie et de Technologie. It opened twelve years ago, with 40 students attending. Since then, their ranks have swollen to nearly 5,000, some of them from all over French-speaking Africa. What distinguishes ESPRIT is that 85% of its students have jobs six months after graduating – in a country with an unemployment rate of over 30% for people with higher education degrees. Its slogan is “Se former autrement” (“Learning differently”). Distancing itself from the “traditional” approach to education, the school emphasizes learning through problem-solving, the aim of which “Our goal, our DNA, is to “put students in real workplace is the employability situations”, explains Naceur Ammar, its director. At the present time, 15% of our graduates.” of Tunisia’s new engineers get their Mohamed Jaoua, degrees at ESPRIT, which has ten dual co-founder of the ESPRIT school

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A tripartite shareholding structure

advise ESPRIT on its incubation model and connect their initiative to market solutions in Tunisia and across the world,” explains Bertrand Effantin, the local administrative officer. “Mercy Corps supports a similar initiative in the Gaza Strip, which has a substantial network of business mentors, but no technology mentors of the kind offered by ESPRIT. It would be good to promote sharing of experience and networking between those two incubators.”

Connecting the incubator to the global ecosystem, to investors, as well as “giving it firmer moorings in the school so that it can be of value to everyone and cata­ lyse the diversity and innovation that are already pre­ sent here” are the challenges that the ESPRIT team intends to tackle. At a time in which higher education for young people has become a crucial issue in Africa, Mr Ben Lakhdar entertains the hope that with support from institutions like the AFD Group, “The ESPRIT model can be adapted in the future to Sub-Saharan Africa, with local people taking centre stage, at a cost adjusted to income levels but without sacrificing quality”.

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AN INCUBATOR TO UNLEASH TALENT Every year, ESPRIT students win a variety of international technology competitions. Others go to work for major names in Silicon Valley. To help talented students get ahead, the school’s founders created a startup incubator on campus in 2014. “We want to give students with an entrepreneurial bent the opportunity to test out their ideas for technology solutions, to nurture them and to relate them to market needs”, explains Alaya Bettaieb, the director. Roomy work spaces, six months of mentoring and partnerships with companies like Samsung are just a few of the ingredients in a recipe that is yielding results. Among the first students to have come out of the incubator are one making the rounds in the United States, another who has joined a startup accelerator in Dubai and yet another who has succeeded in raising funds locally for his startup in Sfax, the country’s second-largest city. To help the incubator develop further, Proparco co-financed a technical assistance programme in 2015 that is managed by Mercy Corps, an international NGO dedicated to entrepreneurship and employability for youth. “Our role is to

Tunisia

ESPRIT derives additional strength from its mixed mode of governance. Its founders have succeeded in bringing on board some sixty academics and engineers (who hold one third of the shares), along with a dozen ICT firms and institutional investors.

In 2012, Proparco joined in, acquiring a €2m stake in the school.

€158 m were committed

by Proparco in

the Mediterranean and the Middle East in 2015.

Mohamed Afdhal and Aymen Hammouda have just turned 25 and are both in the latest group to go through the incubator.

Mohamed developed an on-board automatic road analysis service to keep motorists informed about traffic, roadblocks and the like; Aymen has been working on a telemedicine mobile application that provides rapid dermatological diagnosis.

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T H É M AT I Q U E

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The ESPRIT incubator was created to allow students to develop initiatives, to give them the opportunity to nurture their ideas and to whet their entrepreneurial appetite.

In late 2015, the government kicked off Smart Tunisia, a public-private partnership programme designed to make the country an attractive hightech hub. With a cohort of 600 fourth-year ICT students, ESPRIT has a fair amount of the talent needed to take up that challenge.

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Success story made in Tunisia___

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ince the revolution, Proparco has also been supporting Tunisian entrepreneurs alongside financial institutions. One of its most successful projects to date is its partnership with the pharmaceuticals lab Unimed. Addressing the niche market of sterile-injectable medication (e.g., ophthalmic and ENT solutions, eye drops), Unimed has developed a business model based on producing generic drugs sold under the Unimed brand name and manufacturing medication for international laboratories. To win supply contracts from Thea, Pfizer and other similar firms, the company has built up one of Africa’s most efficient drug manufacturing facilities, earning ISO 9001, 13485 and 1001 certification.

“NONE OF THIS WOULD HAVE BEEN POSSIBLE WITHOUT PROPARCO” In 2011, Proparco invested €4.5m in Unimed, alongside the Abraaj Group investment fund. The aim was to help the company ramp up its production capacity. Proparco also co-financed a technical assistance programme in 2013 for the installation of a high-efficiency combined cycle power production process, referred to as trigeneration. The system, which will be operational by the end of 2016, will enable Unimed to optimize its power use and “even sell excess power during

5 05 0

production peaks to the national electric power company”, admits Rached Azaiez, the Chief Technology Officer. “Unimed is engaged in a daily drive to instil a quality-based culture in its staff members and embed a process of continuous improvement. Our partnership with Proparco is also grounded in the sharing of experience. The trigeneration project, and in broader terms our efforts to streamline energy consumption, would never have come about if it hadn’t been for our lively exchanges with the people at Proparco.”

16% ANNUAL REVENUE GROWTH Unimed recorded 16% annual revenue growth in the period from 2011 to 2014. “In the post-re­ volutionary environment, which proved detri­ mental to many companies, that gives you an idea of our financial health,” comments Mr Azaiez, visibly delighted. Unimed today ranks among the top ten Tunisian manufacturers in terms of sales, with 40% of the total ear ned from exports. For the future, Mr Azaiez has two basic objectives: “Take Unimed’s specializa­ tion to a higher level and derive 50% of our revenue from exports five years down the road.” Based on the company’s track record, Proparco has elected to sell its shares ahead of the public listing of Unimed on the Tunis Stock Exchange.

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LATIN AMERICA AND THE CARIBBEAN

SUB-SAHARAN AFRICA

Central America and the Caribbean MEXICO CITY Torre Omega, piso 5, Campos Eliseos n°345, Col. Chapultepec Polanco, 11560 México D.F., México Tel.: +52 55 5281 1777 afdmexico@afd.fr Paul CENTENO-LAPPAS

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

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

ASIA North and Southeast Asia BANGKOK Exchange Tower, Unit 3501-02, 35th floor 388 Sukhumvit Road, Klongtoey Bangkok 10110, Thailand Tel.: +66 2 663 60 90 Fax: +66 2 663 60 77 afdbangkok@afd.fr Melody SANG South Asia DELHI 19 A Rajdoot Marg, Chanakya Puri New Delhi - 11021, India Tel.: +91 11 42 79 37 00 Fax: +91 11 42 79 37 01 afdnewdelhi@afd.fr Sébastien FLEURY

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

Central Africa DOUALA 96, rue Flatters Immeuble Flatters, 2e étage, Suite 201 BP 2283 Douala, Cameroon Tel.: +237 233 42 06 24 Fax: +237 33 42 06 25 proparcodouala@proparco.fr Thomas HUSSON East Africa NAIROBI Top Plaza, 4th floor Kindaruma Road, Off Ngong Road P.O. BOX 45955 00100 Nairobi, Kenya Tel.: +254 20 271 12 34 Fax: +254 20 259 29 08 afdnairobi@afd.fr Damien BRAUD Southern Africa, Mauritius and Indian Ocean JOHANNESBURG Ballywoods Office Park, Ironwood House, 1st Floor 29 Ballyclare Drive, Bryanston P.O. Box 130067, Bryanston 2021 South Africa Tel.: +27 11 540 71 00 Fax: +27 11 540 71 17 proparcojohannesbourg@afd.fr Denis SIREYJOL Nigeria LAGOS C/o Consulate General of France 1, Oyinkan Abayomi Drive Ikoyi, Lagos, Nigeria Tel.: +234 816 387 8459 afdlagos@afd.fr Olivier FOLLIN

Coordination and editing Anne-Gaël Chapuis, Karim Bourtel (pp.13-27 & 31-49), Sarah Morsi (pp.28-30), Pauline Domachowski.

Design, layout and production Entrecom.

Graphics Entrecom – Jérémy Vitté Photo credits P.12-15: Mathieu Young P.16: Mathieu Young/ Rachel Ambrose P.18: Cobra P.20-27: Reza Akram P.28-29: Baptiste de Ville d’Avray/ hanslucas.com P.31-33 and 35-36: Eduardo Muñoz for the AFD P.34 and 35: Franck Galbrun for the AFD P.37-40: Sanergy P. 42-43 and 45-49: Yosr Hmam P. 44: Augustin Le Gall

This report has been printed using vegetal and non-mineral inks. PEFC certification guarantees that the harvesting of the wood from which the paper fibres used here were made did not to contribute to deforestation and helped preserve the environmental, social and economic benefits that forests provide.

Proparco, a limited company share capital of 693,079,200 euros.

Registered in the Paris Trade and Companies Register under number 310 792 205 Copyright: June 2016

Middle East, Central Asia, Caucasus, East and South Europe ISTANBUL Büyükdere Cad. Yapi Kredi Plaza C Blok, Levent, Istanbul, Turkey Tel.: +902 122 833 111 Guillaume BARBEROUSSE

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P R O P A R C O A C T I V I T Y R E P O R T 2015

P R O P A R C O A C T I V I T Y R E P O R T 2015

Panorama

2015 P R O PA R C O

On the ground with private players

P R O PA R C O, G R O U P E A G E N C E F R A N Ç A I S E D E D É V E L O P P E M E N T Tel: +33 (0)1 53 44 31 08 – Fax: +33 (0)1 53 44 38 38 151, rue Saint-Honoré – 75001 Paris

www.proparco.fr