AfDB approves 400m Euro for LCGP
By Anthony Areh
The Board of Directors of the African Development Bank (AfDB) has approved the Lusophone Compact Guarantee Program (LCGP or the Compact), with a maximum risk exposure of up to EUR400 million.
The new Compact offers a big boost to business development initiatives for the Bank’s non-sovereign portfolio in its Portuguese-speaking African member countries.
The program is designed for new non-sovereign operations (“NSOs”) in the Lusophone countries of Africa, notably Angola, Cabo Verde, Equatorial Guinea, Guinea- Bissau, Mozambique, and São Tomé and Príncipe, ( known as the PALOP).
It enables the Bank to manage its risk capital over the next five years 2021-2025, while at the same time diversifying and growing its NSO portfolio over the medium to long-term.
The Bank has been active in the development of specialized risk sharing vehicles, initiatives and programs which can facilitate the use of risk transfer on specific types of Bank portfolios or assets.
The program is expected to increase the number of private sector and Public Private Partnership (PPP) projects in the PALOP as well as trade between stakeholder countries.
“Over the past five years, the Bank has been committed to exploring ways to increase its lending capacity while proactively managing its credit exposures and headroom more efficiently, and mobilizing additional financial resources and investors to the continent’s development,” Bank Vice President for Corporate Services, Mateus Magala, said.
As the anchor member of the Lusophone Compact, the Government of Portugal would act as the guarantor of this program, for exclusive use by the Bank.
The LCGP would allow for individual Bank projects to be covered for up to the full maturity of the loan (up to 15 years) and up to a maximum of 85% of the total Bank loan principal amount, in accordance with pre-determined eligibility criteria.
The Guarantee forms a very important pillar of the wider Lusophone Compact aimed at promoting and enhancing the use of financing, risk mitigation and technical assistance instruments, to unlock private sector financing.
The Lusophone Compact initiative is built on a five-year General Memorandum of Understanding (“MOU”) that was signed by the Bank, the Government of the Republic of Portugal (“GOP” or “Guarantor”) and the PALOP countries to attract and unlock private sector investment and trade in, and among PALOP nations.
The initiative became effective in December 2018. The PALOP remain the least economically integrated within their respective geographical regions and despite their deep shared history, even among themselves.
This new Guarantee Compact is seen as a valuable tool that will serve as an additional instrument to intensify the Bank’s efforts in the financing of critical transformative NSOs in the African Lusophone countries.