MIGA Strengthens International Lender Commitment to Agriculture and Infrastructure in South Africa
Guarantees will help increase long-term liquidity for domestic development banks, and send a positive signal to investors
WASHINGTON DC, June 13, 2017— MIGA, a member of the World Bank Group, announced two guarantees today, amounting to a combined $677.3m, for international lenders looking to strengthen South Africa's Land and Agricultural Development Bank ('Land Bank'), and the Development Bank of Southern Africa ('DBSA'). The guarantee-backed injection of capital will help both development banks expand operations, and strengthen their balance sheets.
The guarantee holders include Standard Chartered Bank and Deutsche Zentral-Genossenschaftsbank.
$448.1m of the 10-year-long guarantees cover financing to Land Bank, and $229.1m cover financing to DBSA. Both banks are key implementing agencies of South Africa's National Development Plan 2030 and National Infrastructure Plan. Land Bank supports almost 30 percent of all agricultural loans in the country, and DBSA is the leading financier of infrastructure projects in South Africa and other countries in the region.
The guarantees protect against potential losses arising from a failure by either of the banks, both of which are owned completely by the Government of South Africa, to make a payment when due.
$348.1m in guarantees for the Land Bank loan provides protection for long-term financing, and an additional $100m provides protection for a cross-currency swap. As a development bank supporting domestic agriculture, Land Banks' loans are extended in South African Rand (ZAR). The swap allows for MIGA's coverage to be exchanged to ZAR by Standard Chartered Bank, thereby enabling Land Bank to on-lend and repay the loan in local currency.
About 80 percent of DBSA's portfolio consists of infrastructure projects. Significantly, DBSA plays an important role in bridging funding gaps for infrastructure projects in municipalities, and support for secondary and under-served municipalities over the next two years is expected to increase by close to 2.5 and 3 times, respectively. In FY16, some 638,000 households are estimated to have benefited from new or upgraded infrastructure through funding committed to municipalities.
MIGA's guarantees are part of a strategic effort to help attract long-term financing for two systemically important sectors: agriculture and infrastructure development. Both sectors are constrained by nationwide weak economic growth arising from infrastructure supply shortages, low private consumption, muted new investment, and reduced commodity prices.
"We are pleased to support Landbank and DBSA's efforts, respectively, to shore up agriculture within South Africa, and infrastructure across the region," MIGA Executive Vice President and CEO Keiko Honda said. "Our guarantees enable both banks to diversify their long-term funding sources, and in turn strengthen their portfolios."
Land Bank lends to medium-scale and emerging farmers, as well as agricultural cooperatives and commercial farmers. The long-term loans to be backed by MIGA guarantees will be offered to corporate clients for purchase of land, equipment, and other agriculture-related capital expenditures. Corporate Banking accounted for about 87 percent of Land Bank's growth in FY2015. While Corporate Banking supports commercial farmers, the workers employed on these farms tend to be part of South Africa's lower-income population.
Based on Land Bank's own estimates, the bank has helped create 22,130 jobs, and helped maintain 267,649 jobs in FY16. This includes poor farm workers employed on commercial farms.
Surya Bagchi, Global Head of Project & Export Finance, Standard Chartered Bank reiterated the value of the transaction, saying "Standard Chartered Bank is delighted to partner with MIGA to facilitate further development in two key sectors; agriculture and infrastructure development. These transactions are yet another example of how local market knowledge, paired with our global expertise in delivering complex financing solutions enables us to forge partnerships which promote long term, sustainable economic development. These transactions represent our first MIGA supported financings in South Africa and third globally, which is a demonstration of our commitment to South Africa and the continent."
As of May 31, 2017, MIGA's active gross exposure in South Africa was $1.44b, most of it in support of the finance and infrastructure sectors.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war & civil disturbance; and offering credit enhancement to private investors and lenders. For more information, visit www.miga.org
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