AfDB equity investment for East African bank
Regional financier, the African Development Bank (AfDB), has approved an equity investment of US$24 million in the East African Development Bank (EADB).
The money will strengthen EADB’s balance sheet and improve its international credit rating. In particular, US$10 million will be “paid in” with the balance in the form of callable capital.
Commenting on the transaction in a recent statement, the AfDB said mobilising significant financial resources in the East African Community (EAC) will “support capital market development, government revenue generation and foreign exchange ultimately, stimulating economic development and employment opportunities in the region”.
Established in 1967 under the terms of the Treaty for East African Co-operation, EADB is a sub-regional multilateral lender based in Kampala, Uganda, and operating in the EAC member states.
Its member states include Kenya, Rwanda, Uganda and Tanzania. The bank’s interventions mainly take the form of loans, leases and equity participations.
AfDB added that: “The project will help EADB consolidate the gains of its successful restructuring programme.
“It will assist the current business strategy of the bank by strengthening its capital base.
“This is a crucial condition for mobilising financial resources from capital markets at more affordable terms and meeting the growing demand for investment in the EAC.
“In particular, in addition to providing fresh resources to EADB, the project is expected to contribute to improve the quality of the callable capital of the bank, which is a major factor driving its credit rating.”
A technical assistance package, financed by the Fund for African Private Sector Assistance (FAPA) to reinforce institutional capacity at EADB, will complement the proposed equity investment.
FAPA is a multi-donor thematic trust fund that provides grant funding for technical assistance and capacity building to support implementation of the Bank’s Private Sector Development Strategy.
The government of Japan, African Development Bank, the Austrian Development Bank and the government of Austria are the contributors to the fund, which to date have provided US$35 million to 42 projects across the African continent.
By partnering EADB, the AfDB will exploit synergies stemming from complementary sources of comparative advantage.
EADB, with its field presence and local knowledge of the EAC market, provides a logical conduit for the AfDB to reach out to end-customers, including SMEs, by efficiently leveraging its scale.
To this extent, the project is aligned with AfDB’s East African Integration Strategy, with its focus on sub-regional development finance institutions, as well as with the key pillars of AfDB’s forthcoming long-term strategy, particularly private sector development and regional integration.