Highlights of Year 2005 Positive economic outlook and
Highlights of Year 2005 Positive economic outlook and indicators for Africa G8 adopts the Multilateral Debt Relief Initiative Mr. Donald Kaberuka assumes office as the seventh elected President of the Bank Group in September Constitution of a Presidential Task Force on Institutional Reform Bank policies and mix of products are amended to better address the needs of member countries Launch of first Botswana Pula denominated bond under the local currency initiative 2 Table of Contents 11 African Economic Outlook 22 Bank Groups Activities and Road Ahead 33 Bank Financial Profile 44 Capital Market Activities 3 11 African Economic Outlook
The combination of the positive economic outlook and greater attention from the international community should result in progress towards achieving the Millennium Development Goals in Africa 4 Africas 2005 real GDP growth rate exceeded 4.5% for the third consecutive year Real GDP Growth 6% 5.2% 4.9% 5% 4.6% Average per region 5% 4% 18 countries achieved GDP growth rates above 5 % Central Africa: 4.8% North Africa: 4.8% East Africa: 5.6% Southern Africa: 5.0% West Africa: 4.4% 4.0% 4% 3.5% 3% 2001 2002 2003 2004 2005
Drivers Macroeconomic stability Debt relief Continued global expansion 5 Significant improvement in terms of trade and export growth lead to two consecutive years of current account surplus for the first time in two decades. 13% 10% Terms of Trade 7% 4% 1% -2% 2001 2002 2003 2004 2005 -5% 2.5% 2.0% Current account as a % of GDP 1.5% 1.0% 0.5% 0.0% -0.5% 2001 2002 2003 2004 2005 -1.0% -1.5%
-2.0% 6 Improved export performance and debt relief measures have contributed to a steady decline in debt service 20% 60% Debt Service Ratio 17.8% 53.3% 50% 14.9% 15% 52.9% Debt / GDP 48.3% 13.8% 42.4% 40% 12.0% 35.7% 10.6% 10% 2001 30% 2002 2003 2004 2005
2001 2002 2003 2004 2005 7 Sound macroeconomic policies and strengthened economic management are yielding result which will allow countries to pursue second-generation reforms, such as privatization and public sector reforms. 3% Fiscal balance as % of GDP Inflation 12% 2% 11% 1% 10% 0% 9% -1% 8% -2% -3% 2001 2002 2003 2004 2005
7% 2001 2002 2003 2004 2005 8 In 2005, the spotlight of world development agenda was firmly on Africa Millennium Development Goals 1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, malaria and other diseases 7. Ensure environmental sustainability 8. Develop a global
partnership for development G8 SUMMIT ON POVERTY Multilateral Debt Relief Initiative Fight against disease and hunger: Bono, Clinton & Gates African Infrastructure Consortium Commission for Africa Still, only few African countries will achieve the MDGs by 2015 even if all existing commitments to increase aid are honoured. 9 22 Bank Groups Activities and Road Ahead In 2005, the Bank continued to build on its achievements and to reposition itself for greater effectiveness and efficiency in the delivery of its mandate 10 Providing impetus to Africas development through the three windows of the ADB Group Bank Group Vision The Development Bank is the financial development of African premier institution Africa dedicated to combating poverty and improving the
the lives of people of the continent and Access to ADB window engaged in the task of Access to ADF window mobilizing toward Access to ADB and ADF windows resources the economic and social progress of its regional 11 The Bank Groups coverage of regions and sectors is well diversified Social 11.7% Agriculture & Rural Development 18.1% North Africa 32.7% Transport 16.5% Finance 13.3% West Africa 24.2% Central Africa 11.9% Industry 5.3%
Other 2.7% Multi-sector 15.2% Water Supply 7.7% Power Supply 9.4% Multiregion 3.1% East Africa 14.8% Southern Africa 13.3% Since inception, over 3,100 approvals amounting to UA 38.6 billion (US$ 55.2 billion) as at 31 December 2005 12 The Bank Groups approvals reflect customized assistance In UA million US$ 4.3 billion 3,000 2,500 US$ 3.0 billion US$ 2.8 billion 2,000 US$ 3.3 billion US$ 2.6 billion 1,500 1,000 500 0
2001 ADB 2002 ADF 2003 HIPC 2004 2005 NTF 24 out of 33 eligible African countries already benefit from debt relief under enhanced HIPC initiative 13 The Banks Middle Income Countries Initiative in 2005 further increased the attractiveness of the ADB window COMPETITIVE PRICING TECHNICAL ASSISTANCE ENVIRONMENTAL IMPACT Commitment fees eliminated for new sovereign guaranteed loans Lending spread decreased from 0.5% to 0.4% Market risk premium eliminated for fixed rate loans MIC Trust Fund amount increased from UA 1 million (US$ 1.43 million) to UA 16 million (US$ 22.87 million) Ceiling per project raised to UA 600,000 (US$ 857,562) from UA 100,000 (US$ 142,927 ) Loan-processing procedures streamlined 14 Development of a vibrant and competitive private sector across Africa is a strategic priority for the Bank Product Type Sector Distribution Finance
55.20% Mining 6.10% Tourism 2.00% Infrastructure Funds 8.70% Private & QuasiEquity 0.8% Infrastructure 12.20% Oil & Gas 13.90% Approvals in UA million Private sector strategy focus on Creating a conducive business environment Strengthening financial systems Improving infrastructure through Public-Private Partnerships Promoting development of trade and small-and-medium scale enterprises Lines of Credit 53.6% Equity Funds 9.3% Manufacturing 0.90% Others 1.00% Guarantee 0.7% Loans 30.0% Enclave Projects 5.6%
Approvals in US$ million 350 306 300 250 200 270 255 241 192 199 257 206 164 180 150 100 50 0 2001 2002 2003 2004 2005 Cumulative approvals: UA 1.17 billion (US$ 1.67 billion) 15 ADF addresses the needs of low-income countries Approvals 2005 Activities Highlights Policy Update
UA 16.26 billion (US$ 23.24 billion) of assistance provided at end-2005 through ten replenishments of ADF Total approvals Increased to UA 1.42 billion (US$ 2.03 billion) in 2005 from UA 1.26 billion US$ 1.96 billion) in 2004 Project lending prioritized agriculture and rural development, transport, social sectors and multi-sector activities which account for 84.2% of ADF loan approvals in 2005 2005 grant approvals benefited 18 countries and almost doubled to UA 415 million (US$ 593 million) from UA 214 million (US$ 332 million) in 2004 2005 grant operations focused on water and sanitation, agriculture and rural development, the social sector and transportation ADF borrowers offered the flexibility to select the currency of their choice 16 Through co-financing and partnership, the Bank Group enhances the resources and expertise mobilised for Africa Sector Distribution in 2005 0.6% 9.5% 1.2% 18.6% From 1967 to 2005, the Bank participated in 852 co-financing operations, amounting to UA 84.2 billion
(US$ 120.4 billion). In 2005, 19 operations for UA 3.2 billion (US$ 4.6 billion) were co-financed compared to 31 operations for UA 2.9 billion (US$ 4.4 billion) in 2004. 15.7% 6.7% 47.7% Multisector Energy Sector Environment Finance Transportation Agricultural Sector Social Sector 17 The Multilateral Debt Relief Initiative launched in 2005 aims to complement the HIPC debt relief process HIPC debt relief is projected to substantially lower debt stocks and debt ratios for most HIPC beneficiaries 14 countries had reached completion point at end - 2005, 11 are at decision point and 7 are at pre-decision point Multilateral Multilateral Debt DebtRelief Relief The G8 Summit in July 2005 proposed that the ADF, IDA and IMF provide
100% irrevocable debt stock cancellation for countries that reach the completion point under the enhanced HIPC initiative 33 of the 42 eligible countries are in Africa Initiative Initiative Underlying Principles: Irrevocability and additionality of debt relief as well as preservation of the financial integrity of ADF and IDA Based on debt outstanding and disbursed at December 31, 2004, as the cutoff date, and January 1, 2006, as the implementation date, the cost of canceling the ADF debt of the 33 potential beneficiaries, after HIPC relief, is estimated at UA 5.84 billion (US$9.06 billion) in nominal terms. Donors will make new contributions to match, dollar-for-dollar, foregone principal and service charge payments based on an agreed burden sharing Heavily HeavilyIndebted Indebted Poor PoorCountries Countries Initiative Initiative 18 The Bank Group continues to champion vital initiatives on the continent Bank selected in 2005 to host the Secretariat of the African Infrastructure Consortium for which NEPAD is lead infrastructure agency. Took part in all support missions in 2004 and 2005 to launch APRM in nine countries and the actual peer review missions in Ghana, Rwanda and Kenya. Post-Conflict Country Facility Conceived by the Bank to assist countries emerging from conflicts to clear their arrears, re-engage with development partners and become fully reintegrated in the international community. At end 2005, the arrears of Burundi and the Republic of Congo have been cleared through this facility.
Global statistics initiative to meet the demand for reliable regular and comparable data, and to strengthen statistical capacity in the continent leading to increased investor confidence and private capital flows. In 2005, under the supervision of the Bank, 48 RMCs started monthly data collection, providing the Bank with the monthly price data of available goods and services for 853 products. Water Initiatives Rural Water Supply and Sanitation Initiative: (RWSSI) was launched by the Bank in 2004 to provide safe water and basic sanitation to 80% of the rural populations in Africa by 2015. It is a USD 14.2 billion initiative to be financed by ADF, donors, government resources and beneficiaries. At end 2005, 8 RWSSI programs and 2 studies were approved. African Water Facility: This USD 600 million facility seeks to strengthen water resource management in the continent. At end 2005, donor countries had pledged EUR 9.9 million in financial support. The Bank has committed EUR 1.8 million over 3 years. 19 The Bank continues to build on the strong foundation laid by past reforms to serve its regional members more effectively Invest in Bank Staff and improve business and administration processes Strengthen the Banks operations with renewed country focus and greater delegation to regional offices TASK FORCE ON INSTITUTIONAL REFORM Adapt the Banks structure to enable it to fulfill its mandate better Deepen the Banks research capacity 20 The Banks decentralization process is well under way 25 Offices to be established before the end 25 Offices to be established before the end of 2006 of 2006
Offices Logistically Operational Egypt Ethiopia Countries covered would represent approx. 89% of Countries covered would represent approx. 89% of the Banks current portfolio the Banks current portfolio Gabon Nigeria Madagascar Strengthening institutional capabilities, ensuring Strengthening institutional capabilities, ensuring greater development and making the Bank more greater development and making the Bank more client-responsive client-responsive Mali Mozambique Senegal Tanzania Field offices expected to strengthen country Field offices expected to strengthen country dialogue, country portfolio performance and project dialogue, country portfolio performance and project implementation implementation Uganda Offices Planned/ Work-in Progress Algeria Angola Burkina Faso Cameroon Chad DRC Ghana Kenya Malawi Morocco Rwanda Sierra Leone Sudan
Zambia 21 33 Bank Financial Profile The Banks robust financial position bolsters its ability to deliver on its development mandate 22 The Bank enjoys strong shareholder support for its development mandate Africa 60% Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central Afr. Rep. Chad Comoros Congo Cte dIvoire D. R. Congo Djibouti Egypt Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea Bissau Kenya Lesotho Libya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique
Namibia Niger Nigeria Rwanda S. Tome & Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Tunisia Uganda Zambia Zimbabwe Europe 21% Austria Belgium Denmark Finland France Germany Italy Americas 11% Argentina Brazil Canada USA Asia 7.3% Middle East 0.7% Kuwait Netherlands Norway Portugal Spain Sweden Switzerland
UK China Korea India Japan Saudi Arabia 23 The ADBs strong financial condition protects its bondholders 100% Leverage 61.6% 51.2% 50% 57.6% 60.3% 47.9% 0% 2001* 2002* 2003* Debt / Usable Capital* 2004 2005 Policy Limit * Not restated. The Bank defines usable capital as the sum of paid-in capital, reserves, and callable capital of countries rated double-A and above 24 Growing reserves and stable earnings enhance the Banks risk bearing capacity Net Income Total Reserves
2,266 2,187 In UA million 2005 Net income US$ 316 million 1,508 1,465 1,266 Reserves US$ 3,239 million 125 2001* 189 2002* 178 2003* 144 2004** 221 2005 * These figures have not been restated. Net income figures exclude the IAS 39 adjustment. **The total amount transferred to reserves on 1 January 2005 due to the application of the IFRS changes was UA 700.18 million. 25 allowing the Bank to allocate significant amounts from income Income Allocation In millions 250 224 199
200 170 144 150 139 115 100 77 57 50 22 28 0 2001 2002 2003 Income Allocation (UA) 2004 2005* Income Allocation (US$) * Subject to approval by Board of Governors 26 to development initiatives. Allocable income (UA) allocated to: - Special Relief Fund - HIPC Trust Fund - DRC Special Account - Post-Conflict Country Facility - African Development Fund - Middle Income Country Technical Assistance Fund 160 140 120 Income Allocations in UA Millions
15 22 11 0 2001 2002 2003 2004 2005 Proposed 27 The Banks exceptional risk bearing capacity reinforces its ability to operate in a challenging environment 2005 2005Risk Riskcapital capital Paid-in Paid-incapital: capital: US 3,018 US 3,018million million Risk capital 5,000 Reserves: Reserves:US$ US$3,239 3,239 million million In UA million 4,000 494 3,000 1,266 491
469 1,465 1,507 2,187 2,266 Non-sovereign portfolio 4% Treasury 2% Sovereign portfolio 45% 2,000 1,000 Uses of risk capital 1,948 1,983 2001 2002 2,023 2,066 Unused risk capital 49% 2,112 As of 31 December 2005 0 Paid-in capital 2003
Reserves 2004 2005 Loan loss provisions Based on the effects of the revised IFRS, effective 1 January 2005, the nature of loan loss provisions has changed from general to specific; accordingly, loan loss provisions represent a reduction in the exposure to the relevant country, not a source of risk capital. Therefore, the main components of the Total Risk Capital are Paid-in Capital and Reserves. 28 In its peer group, the Banks risk bearing capacity is unsurpassed 120% Capital CapitalAdequacy Adequacy Ratio Ratio 101% 89% 100% 80% 60% 44% 50% 40% 20% 0% AfDB AsDB IADB IBRD Usable capital / Risk assets Source: Moodys. Moodys define usable capital as all capital related payments plus reserves and unallocated net income. Risk assets are defined as loans to countries considered below investment grade by Moodys. All data is as of 31 December 2004, except for the IBRDs, which is as of 30 June 2004. 29
and the Banks concentration risk is the lowest Concentration Concentration Ratio Ratio 250% 191% 200% 165% 137% 150% 100% 86% 50% 0% ADB AsDB IADB IBRD 5 largest exposures to equity Source: Fitch All data is as of 31 December 2004, except for the IBRDs, which is as of 30 June 2004. 30 AfDBs AfDBsfinancial financial ratios compare ratios compare favourably favourablywith with those of peers those of peers Gross debt / Adjusted
112 118 Liquid assets / Total assets (%) 45 27 38 13 20 Source: Standard & Poors All data is as of 31 December 2004, except for the IBRDs, which is as of FY 2005. 31 44 CAPITAL MARKET ACTIVITIES The Bank is a flexible and responsive issuer in the capital markets 32 The Banks borrowing strategy enables it to provide cost-effective resources to African countries Funding Strategy Instruments and debt programs Public bond issues in the Global, Euro and domestic markets Private placements including structured notes Loans Unlimited Global Debt Issuance Facility Euro 1 billion Commercial Paper
Raise cost effective resources to on-lend to clients Flexible in order to address investor needs Responsive to market trends Develop and nurture a well diversified investor base Maintain a regular presence in the public international markets Currency distribution and structure of the outstanding portfolio CHF 2.6% ZAR 1.6% Uridashi 21.9% JPY 30.9% Loans 2.3% USD 44.2% GBP 1.0% AUD 2.9% BWP 0.6% SEK 0.0% EUR 5.0% CAD 11.0% HKD 0.1% Private Placements 24.4% Public Issues 51.5% UA 5,940 million (US$ 8,490 million) as of 31 December 2005 33 The Bank maintains a constant presence in the global debt market 2003 USD 1,000 million Global 3.25% due 2008 2004 USD 500 million Global 3.75% due 2010 2005 USD 500 million Global 4.50% due 2009 Investors by Geography Investors by Type
Fund M anagers 27% Banks 11% M iddle East & Africa 2% P ension Funds 5% Asia 40% Americas 43% Insurance Companies 8% Corporates 1% Central Banks 48% Europe 15% 34 Funding Strategy for 2006 leverages on the achievements of 2005 Dollar global benchmark bond issue 2005 UA 545 million (US$ 779 million) raised through: Uridashi Issue (targeted at Japanese investors) Botswana Pula Issue Private Placement Continue to expand the Banks global investor base Remain responsive and flexible in order to address investor needs
Address strategic issues in domestic and public markets Sustain activity in private placements Issue bonds denominated in African currencies 2006 borrowing program Has a ceiling of UA 850 million (US$ 1.2 billion) 35 Building on success in African currencies TANZANIAN TANZANIAN SHILLING SHILLING ISSUE ISSUE USD USD 10 10 million million linked linked to to TZS TZS 11.8% due 20 February 2007 11.8% due 20 February 2007 BOTSWANA BOTSWANA PULA PULA ISSUE ISSUE BWP BWP 300 300 million million 10% due 12 January
10% due 12 January 2007 2007 IFR Comments IFR Comments The African Development Bank (AfDB) last the transaction represented the first true Eurobond in the currency. good demand from European institutions with the paper quickly sold out, primarily on the back of the chunky 10% coupon and the positive economic story that has emerged from Botswana since independence in 1966. week opened the door to the Tanzanian shilling market with a US$10m one-year currency-linked bond EUROWEEK Comments AfDB introduces new market with synthetic Tanzanian shilling bond The African Development Bank has become the first supranational borrower to issue a bond linked to the Tanzanian shilling EUROWEEK Comments AfDB defies pessimists to launch clearable pula Eurobond The African Development Bank priced the first Botswana pula Eurobond that will be fully clearable in the currency. The Bank is monitoring issuance possibilities in several other African currencies 36 The Bank enjoys the highest credit rating
Strong Support from Member Countries Healthy Capital Position Franchise Value Quality of Management Excellent Liquidity Preferred Creditor Status Prudent Financial Management 37 APPENDIX 38 ADB: Summary financial information In UA million 2001 2002 2003 2004 2005 Approvals 987 1,068 746 1,520 869 8,873 8,197 10,034 10,792 11,601
Subscribed Capital 21,491 21,510 21,564 21,597 21,636 Paid in Capital*** 1,770 1,803 1,866 1,920 1,967 Reserves 1,266 1,465 1,508 2,187** 2,266 Net Income 125* 189* 178* 144 221 Assets net of CEAS
* These figures have not been restated. Net income figures exclude the IAS 39 adjustment. **The total amount transferred to reserves on 1 January 2005 due to the application of the IFRS changes was UA 700.18 million. ***Paid-in Capital excludes non-convertible currencies and non-negotiable notes 39 ADB: Statement of income and expenses (UA million) YEARS ENDED 31 DECEMBER 2005 2004 2003 2002 2001 324.23 155.37 479.60 (217.12) (30.77) 7.22 323.11 123.57 446.68 (197.08) (7.70) (10.35) 325.46 99.77 425.23 (219.59) (81.65) 414.82 74.01 488.83 (258.69) 37.20 447.82 121.32 569.14 (349.45) 82.30 13.85 252.78
Translation gains and losses Total other expenses, net 1.58 (31.46) (34.16) (48.80) (37.79) (40.54) Net income 221.32 143.53 96.71 226.07 207.66 OPERATIONAL INCOME AND EXPENSES Income from loans Income from investments Total operational income Interest and amortized issuance costs Unrealized loss/(gains) fair valued borrowings and related derivatives Unrealized gain/(loss) derivatives on non fair valued borrowings Provision for loan losses Net operational income OTHER EXPENSES, net Administration expenses Management fees Administration expenses - net Other income Depreciation Provision for equity investments Loss/(gain) on exchange 2004 has been restated 40 ADB: Balance sheet highlights (UA million) YEARS ENDED 31 DECEMBER ASSETS Due from banks
Demand obligations Investments Derivative asset Non-negotiable instruments Accounts receivable Outstanding loans Accumulated provision for loan losses Equity participations, net Other assets LIABILITIES, CAPITAL & RESERVES Accounts payable Securities sold under agreements to repurchase and payable for cash collateral received Derivative liability Borrowings and embedded derivatives Capital Cumulative exchange adjustment on subscriptions Reserves Cumulative currency translation adjustment reserve 2005 2004 2003 2002 2001 70.34 3.80 5,155.05 285.93 25.90 556.38 5,512.44 (194.61) 168.70 16.98 11,600.91 43.80 3.91 4,435.42 274.79 31.18 397.48 5,640.43
41 More information on the Bank Group is available at www.afdb.org Financial and Operational Analysis Documentation for Debt Programs Rating Agencies Reports Financial Products for Borrowers Exchange Rates Annual Report Financial Information in Japanese for investors is NOW available at www.afdb-org.jp 42
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