DBSAs 2020 Strategy Unlock R100Bn in infrastructure per annum, in - - PowerPoint PPT Presentation

DBSA’s 2020 Strategy – “Unlock R100Bn in infrastructure per annum, in partnership with key stakeholders”

BEPP Workshop

05 September 2017

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The Role of DFIs is to address Market and Coordination Failures to achieve Sustainable Development

Effect of “institutional” failure Effect of “organisation” failure Augmented DFI role – advisory, implementation facilitation and capacity building Augmented DFI role – catalytic,

• rigination,

underwriting and advisory

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Market and Coordination Failure

1 Market Failure - DFIs occupy an intermediary space between public and private investment to facilitate capital flows 2 Risk - DFIs have a higher risk tolerance than private sector actors 3 Return - DFIs have a longer investment horizon (10-15 yrs) while private sector has a short term pay- back (5- 7yrs) 4 5

• Org. failure - DFIs’ can serve to

mitigate risk where the private sector is unwilling to operate alone, as well as create viable opportunities to expand the investor base Institutional failure – DFIs create an enabling environment and overcome information asymmetry between the role players in development

Role of DFIs

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DBSA’s Mandate & Mission

“…as a development finance institution (DFI) with a primary purpose to promote economic development and growth, human resource development and institutional capacity building by mobilising financial and other resources from the national and international private and public sectors for sustainable development projects and programmes in South Africa and the wider African continent”. “The DBSA was mandated in terms of the DBSA Act, 1983 and continues to exist in terms of the DBSA Act 1997 as amended [No 13. of 1997] Mission To advance the development impact in the region by expanding access to development finance and effectively integrating and implementing sustainable development solutions to:

• Improve the quality of life of people through the development of social infrastructure;
• Support economic growth through investment in economic infrastructure;
• Support regional integration; and
• Promote sustainable use of scarce resources.

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The DBSA is a leading South African Infrastructure Finance Institution

KEY POINTS

• DBSA 100% owned by the SA Government,

reporting into the National Treasury

• Mandate – Covers entire African continent;

focus on Southern Africa

• Financially sound – R84bn Assets, R32bn

Equity, R3Bn+ sustainable profits

• DBSA foreign currency rating is Baa3

(Moody’s)

• Well governed – Achieved unqualified audits;

A+ rating from AADFI PSGRS

• Globally accredited – Global Environmental

Facility, Green Climate Fund, EU 6-pillar

VISION A prosperous and integrated resource- efficient region, progressively free of poverty and dependencies

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Overview of the Bank’s Products, Services and Sectors

DBSA’s primary market DBSA’s main focus outside of SA DBSA’s secondary (and recent) focus outside of SADC

GEOGRAPHIC FOOTPRINT PRODUCTS & SERVICES

The DBSA mostly lends to its clients directly, but also provides financing to financial institutions (particularly outside of SA)

SECTORS

Primary: Energy, Transport, ICT, Water & Sanitation Secondary: Education, Health

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The DBSA strives to be financially sustainable and while delivering high levels of development impact

FY 2015/16 Results

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The DBSA applies sound corporate governance structures and processes to deliver sustainable growth in the interest of all stakeholders

SHAREHOLDER SHAREHOLDER DBSA BOARD DBSA BOARD ARC HRNSEC IDKC BCIC CEO CEO GROUP EXCO GROUP EXCO

INFRASTRUCTURE DELIVERY

ALCO INVESTMENT COMMITTEE SCM COMMITTEE IDKC

CORPORATE SERVICES OFFICE OF THE CFO STRATEGY GROUP RISK PRICING COMMITTEE SOUTH AFRICA FINANCING INTERNATIOAL FINANCING FINANCING OPERATIONS

Board & Subcommittees EXCO & Subcommittees Divisions Board Sub-Committees meet quarterly BCIC meets monthly Board meets 6 times a year EXCO meets monthly EXCO Sub-Committees meet weekly or monthly- depending on committee i. All projects for financing are reviewed at early and appraisal stages at the bank- wide IC meetings ii. Project Preparation and Infrastructure Delivery have there

• wn committees and protocols for

assessing projects Corporate Secretariat is responsible for Board and EXCO meetings CORPORATE SECRETARIAT CORPORATE SECRETARIAT

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The DBSA has delivered strong developmental and financial performance, by focusing

• n our core infrastructure market

▪ Disbursement growth of 100%+ over past three years; asset base nearly doubled ▪ Sustainable profits approaching R2Bn for 2016/17; ROE well within 3-6% band and NPLs below 4%; core banking cost-to-income ratio well below 35% benchmark ▪ New businesses launched in project preparation and infrastructure delivery

However the DBSA’s competitive position is weakening, due to entrance of new development financiers and our increasing cost of capita The scale of the infrastructure gap in both South Africa and the continent is much greater than addressable directly by our lending capacity

▪ South Africa alone should invest an additional 2-3% of GDP – ~R100Bn annually*

Therefore the DBSA needs to reduce reliance on lending and develop/reinforce new products and services to continue to drive greater development impact

Note: *Per Prof. Adrian Saville and DBSA analysis

Our Strategic Context

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The DBSA needs to fully leverage our competitive advantages to generate increasing development impact

▪ Use our privileged role as a trusted partner to RSA and African state-owned entities, African DFIs and multilateral and bilateral agencies to source projects and concessional capital ▪ Take advantage of our ability to take greater risk-return profiles (e.g. subordinated positions) and longer tenor ▪ Deliver integrated infrastructure solutions, especially in taking early-stage risk in the project lifecycle

The DBSA will deliver an annual R100Bn in infrastructure impact* by 2019-20, while ensuring financial sustainability (ROE of 4.5%+) via:**

▪ Grow disbursements in line with inflation (~R20Bn annually by 2020) ▪ Catalyse third party financing in our lending projects (~R10-20Bn annually by 2020) ▪ Ramp-up the programme and project preparation business (R25Bn+ by 2020) ▪ Build a significant structured financing capability (R50Bn+ by 2020) ▪ Grow maintenance and project management office set-up mandates by IDD for under resourced clients (R15-20Bn in infrastructure unlocked by 2020)

Note: *’Infrastructure impact’ defined as DBSA lending, projects/programmes unlocked (pre-financing) and infrastructure delivered or maintained (post-financing). **Individual opportunities sum up to greater than R100Bn

Our Strategic Response

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DBSA’s Strategy

Sources of Competitive Advantage: Strategic Ambition:

Deliver R100Bn annually in infrastructure unlocked by 2019-20, while maintaining financial sustainability

Develop structured products and funding structures to unlock infrastructure and crowd-in 3rd parties

Paths to Victory:

De-risk project finance structures to crowd-in third party funding Greater investment in early-stage programme and project development Establish project management

• ffices and focus
• n maintenance of

public infrastructure

Integrated infrastructure solutions, including early-stage risk and delivery capability Strategic partnerships Greater risk-return trade-off andTenor Access to concessionary financing

Continue core long-term infrastructure lending activities

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The DBSA has been reorganized to ensure we are best positioned to meet

• ur clients’ needs

DBSA has a dedicated frontline team that Metros can engage with

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Summary of DBSA’s Targets – We will focus on “catalysation” to maximize development impact

12.4 20 23.5 31 36.2 39.5 54.8 73.1 20 40 60 80 100 120 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 Disbursement Catalysing

DBSA Targets

Increasing leveraging of third party funds

FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 48.6bn 59.5bn 78.3bn 104.1bn

12.4 36.2 39.5 20.0 54.8 23.5 31.0 73.1

In order to meet the Strategic Aspiration of unlocking R100 billion of infrastructure per annum by 2020, the DBSA will use its own Balance Sheet and play a Catalysing role by crowding in/ leveraging third party funds.

8.7 7.2 13 14 15 3.7 24.7 5 5.5 6

7.6 12.4 10.2

2 5 4 10 10 20 0.6 20 22 25 3.3 6.9 10.4 17.9

10 20 30 40 50 60 70 80

Disbursement Catalysing Disbursement Catalysing Disbursement Catalysing Disbursement Catalysing

South Africa Rest of Africa Project Financing / Subordinated Loans Structured Products Pre Financing Implementation & Maintenance

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Innovation – A three-prong approach

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• Develop strategic partnerships
• South Africa – Municipalities (e.g. BEPP), Provinces, Sector stakeholders
• Rest of Africa – SDIP Africa Hub (WEF/OECD partnership); SADC DFIs
• Embed innovation culture
• Program with Local Business School Faculty
• Innovation System & Hub
• Structured product solutions
• Additional initial allocation of capital
• Create leverage impact
• Executive “cover”
• Conform to Governance

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Thank You

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• Many factors contribute to low growth amongst developing countries
• According to IMF (2014)1, inadequate infrastructure is a key factor
• According to the study1 :

…“In many emerging market economies, including Brazil, Russia, India and South Africa, infrastructure bottlenecks are not just a medium-term worry, but have been flagged as a constraint even on near-term growth. In low-income countries, deficiencies in the availability of infrastructure remain glaring and are often cited as impediment to long-term development”.

1 IMF World Economic Outlook: legacies, clouds, uncertainties, Chapter 3, October 2014

There is a strong link between Public Infrastructure Spending and Economic Growth in the Short & Long Term

| Source (%) of Gross Fixed Capital Formation (1980-2014) SA public sector spending is ±5% of GFCF Public sector spending should be ±8%

Source: Prof. A. Saville (2016), StatsSA (2016), Trading Economics (2016)

3%

• The size of the SA economy is currently R3.06 trillion.
• It has been forecast to be approximately R3.35 trillion by 2020.
• Therefore R3.35 trillion x 3%= R100.5 billion
• Therefore, the DBSA’s target is to unlock R100 billion by 2020
• The size of the SA economy is currently R3.06 trillion.
• It has been forecast to be approximately R3.35 trillion by 2020.
• Therefore R3.35 trillion x 3%= R100.5 billion
• Therefore, the DBSA’s target is to unlock R100 billion by 2020

While the R100 billion is a stretch target for the DBSA, it is achievable

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How did we arrive at the R100 billion target?

| 17 0.0 0.4 0.8 1.2 1.6 2.0 10 20 30 40 50 60 70 80 90 100 110 Sustainable Earnings R billion 20 FY 2013/14 FY 2014/15 FY 2015/16 Target FY 2016/17 Target FY 2019/20 Development impact R billion 80 80 13 5 8 13 11 17 3rd party funds, R billion DBSA disbursements, R billion 16.4 18.8

Our role will organically grow and expand over the next five years

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