Friday, November 27, 2020

Trade Development Bank’s Agenda of Transforming the Economies of African Nations

The Eastern and Southern Trade Development Bank (TDB) was founded in 1985. At the time, it was registered as PTA Bank. Its core objective was regional integration through the promotion of trade finance and investment in infrastructure.

Over the years, this bank has formed partnerships with other financial institutions and undertaken various projects across the African continent. Today, TDB has assets worth over $6 billion, and its influence across the continent cannot be underestimated. 

TDB has a long history, and its functions have evolved over the years, depending on the changing dynamics of the various economies. Besides facilitating trade flow in the COMESA region, TDB draws attention to projects that are likely to spur social and economic development in Africa by providing financial and technological support, as well as expertise in a bid to make the project a reality. 

Membership and Office Locations

While TDA is a financial institution with a development plan for Africa, it is also a business entity with shareholders. 22 COMESA, EAC, and SADC countries are registered with TDA. The regional partner states include Eritrea, Kenya, Ethiopia, Djibouti, Democratic Republic of Congo, Egypt, Union of Comoros, Swaziland, Madagascar, Rwanda, Malawi, Mauritius, South Sudan, Sudan, Somalia, Tanzania, Uganda, Zambia, Mozambique, Zimbabwe, Seychelles, and Burundi.

People’s Bank of China and JSC Development Bank of the Republic of Belarus also have a stake as non-regional members. TDA has also formed partnerships with at least 15 institutions, which include African Development Bank, Arab Bank for Economic Development in Africa, Africa Reinsurance Corporation, Mozambique’s Banco Nacional de Investimento, The National Pension Fund and National Social Security Fund, Uganda. 

Since TDB provides services across the African continent, it has its offices in various countries. TDB’s has its headquarters in Mauritius and Burundi. Its regional offices are in Kenya, Zimbabwe and Ethiopia. 

Sources of Funding

TDBs performance and dominance as a regional development bank have resulted in an increase in its shareholder base from 19 to 39 members in just six years. Additionally, TDB’s total assets, shareholder funds, and annual profits have continued to increase over the years. Non-performing loans are currently at their lowest at under 2.35%.

Additionally, TDB’s net interest income grew at a sustainable rate that earned the bank great international ratings. In 2018, MOODY’S gave TDB a Baa3 (stable) rating, Fitchratings raised its rating from BB to BB+ following the bank’s improved performance and rapid capitalization.
 
TDB has taken several steps to boost its investment capital. It has invested significantly in local currency bonds in various countries, including Kenya, Uganda, and Tanzania. TDB has made similar investments in the international market as well. The bonds issued are also listed in stock exchanges, which has enhanced the bank’s liquidity attributes. 

Between 2015 and 2018, the bank undertook various funding initiatives to raise short, medium and long-term loans. TDB’s investment partners have provided funding to support various projects. For example, Exim Bank China provided $250 million in 2016, and this loan was to run until 2021. This funding was to be channeled to the bank’s trade finance and infrastructure development business. Between 2015-2018, TDB had received funds worth more than a billion dollars from various financial entities in support of its projects in Africa. 

How TDB Supports Various Projects

Trade Finance

Although TDB is known to finance huge projects, it also supports small businesses, especially those that trade within the COMESA region. For such businesses, tailor-made credit facilities are made available to ensure exporters and importers continue to trade, especially when businesses are experiencing cash flow problems. The commercial entities that seek financing from TDB have to be registered or incorporated in the member states that are registered with the bank. 

Financing for infrastructure development

This is one of TDB’s critical roles. Since it is a champion for regional integration through infrastructure development, TDB provides medium to long-term financing to facilitate regional growth. 

Asset management

When the bank was first set up, its primary objective was trade finance and infrastructure financing. However, over time it opted to diversify the services it offers by including asset management to its portfolio. 

Asset management was then included in the bank’s Corporate Plan VI (2018-2022). This strategy involved fund administration services provided to development partners. One of the challenges many donors, impact investors and DFIs face is getting value for money and absence of infrastructure to allow them to find authentic and experienced on-the-ground managers. 

TDB uses its already established networks to help the various funds to keep track of their projects. They also help funds to find projects which they can co-fund in a bid to increase their investment portfolio. 

Projects supported by the Trade Development Bank.

TDB has supported various projects in Africa, both state-managed and those initiated by corporations. They include:

Hydromax Ltd – Uganda

TDB provided an extended loan facility for partial financing of this 9MW hydro-electric power plant. The funds were to support the development, construction, and operation of the power plant. This power plant is being run by an independent power producer with a 40-year concession to supply power to Uganda Electricity Transmission Company Ltd (UETCL). 

Located in Hoima, this power plant has greatly improved the supply of energy in the region, which has subsequently spurred development through the establishment of various small-scale industries. This project was worth $10 million. 

Rwandair Ltd – Rwanda

This project started in 2011 and was completed in 2018. Rwandair is Rwanda’s main airline operating regional and international flights. Trade Development Bank provided financing to facilitate the purchase of two factory-reconditioned CRJ-200 LR 43-Seater planes and two new Boeing 737-84Y aeroplanes. 

These additions to the fleet of aircrafts that Rwandair already had made it possible for the airline to expand its routes to include India and China. The additional routes have increased choice, flexibility, and convenience of passengers. The company has also increased its revenue base. 

Other than the benefit to the business entity and passengers, the investment has led to job creation and improved movement of people and cargo to various destination. These linkages have ultimately had an impact on other economies in the continent. TDB invested close to $214 million on this project. 

Eden Island – Seychelles

This man-made island covers an area of 56-hectares, and it was created through land reclamation from the sea. This project, located on a private marina in Seychelles, involved the development and construction of 578 luxury residential villas. A commercial centre was also included in the project, and they include a supermarket, Jeweler, boutiques, salons, wine shops, restaurants, pharmacies, book shops, banks, and several other businesses.

This facility has mainly served as an attraction for high net-worth tourists and has been critical in raising foreign exchange for the country. Since the visitors have substantial spending power, they keep the businesses in the area running and has helped create long term employment for the locals. The residential properties are also sold in foreign currency, which is a major investment in the country’s forex reserves. 

TDB invested 33 million dollars on this project, and the funding was provided in three phases in 2010, 2011 and 2013. The project was completed in 2013. 

Zambezi Portland Cement – Zambia

This cement manufacturing plant, located in Ndola, received $15.5 million from TDB. The funding helped boost production from 700 to 1000 tons of cement per day. This financial injection had made it possible for real estate and other construction projects to flourish since cement production is now constant and reliable. 

This company also employs thousands of people. It has also given rise to other business and employment opportunities in other sectors, such as transportation and construction. It also generates revenue for the country through the taxes it pays and the income tax generated from the employees. 

Tanganda Tea Company – Zimbabwe

This tea company produces, packs, and distributes the largest volume of tea in the country. It distributes the tea to wholesale and retail stores across the country, and some are exported to the international market. TDB provided close to 12 million dollars in three phases between 2008 and 2013. These funds were mainly for the expansion of the facility to increase production and revenue.

The funds helped the company purchase mechanical plucking machines to improve productivity, tractors, and motor vehicles. The company also re-capitalized its operations and upgraded some of the equipment in the beverage division. 

The company also used some of the funds in the agricultural division, where investments in macadamia, coffee, and avocado plantations received a significant boost to improve output. 

Peterhouse School – Zimbabwe

In 2012, TDB invested $8.4 million in Peterhouse Girls’ School and Spring Vale House. This funding was targeting increased enrolment of students by at least 60 students. To achieve this, the bank helped to expand the facilities in the school to cater for the additional number of students. 

These included three more classrooms, a multi-purpose hall, two dormitories accommodating 80 students each, tennis courts, squash courts, hockey fields, indoor sports centre, water polo pool, a new house for the headteacher, refurbished kitchen and dining area, computer labs, and a new office block. 

Besides providing education to more students, this expansion created employment for the members of the community. 

PPC Barnet Cement – Democratic Republic of Congo

This cement plant produces 3000 tons of cement daily. Located in the western region of the DRC and is responsible for hundreds of jobs in Kinshasa where the company offices are located, and the Kimpese factory site.

Additionally, the factory undertakes several corporate social responsibilities projects in support of the community where the factory is located. Some of the support goes to the local school, clinic, and a project to help eradicate mosquitoes in the area. 

This factory has directly led to the establishment and growth of small-scall businesses which supply the factory with products required in the cement production process. TDB provided $84 million in 2014 in long-term loan financing. 

Kibos Sugar and Allied Industries Ltd – Kenya

This sugar industry can crush up to 3000 tons of cane daily. Located in Kisumu, this factory is critical in meeting some of the local demand for sugar in the country. Kenya currently relies on sugar imports to meet the shortfall from the local production. 

Kibos Sugar and Allied Industries has played a critical role in reducing the gap between demand and supply of local sugar in the country. Since it relies on cane supply from out-growers, the presence of this factory in Kisumu has led to the diversification of economic activities, in a community that is heavily dependent on fishing.

Additionally, this factory is currently the single largest employer in the area, resulting in a ripple effect on the income levels of the community. This project was initiated in 2005and completed in 2007. TDB provided $10.05 million in two phases. 

Lilongwe Dairy – Malawi

This is a family-owned, profitable dairy plant whose market share is 60% of raw milk and over 70% of processed milk. Since the company collects raw milk from farmers across Malawi, it has taken steps to expand its processing plants. It also has a great rapport with farmers, and this has given it an edge over other milk processors. 

TDB invested 2.3 million dollars in long term loans between 2004 and 2011 in support of the company’s expansion plans. This has helped the company to keep creating jobs and meeting its corporate social responsibilities since it has been able to increase its revenue as it expands its market share. During months in the year when there is surplus milk, the company purchases milk from non-traditional suppliers to limit losses which are usually incurred by farmers during this period. 

Since local milk producers are guaranteed a market for their milk, they have been able to plan for their finances, and even increase milk production by investing in more cows. Malawi’s economy is ultimately a bigger winner when more of its citizens have disposable income. 

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