(Ecofin Agency) – BADEA, a development financing institution owned by Arab countries and operating mainly in sub-Saharan Africa, has strengthened its main tool for action, namely its own funds.
The Board of Governors of the Arab Bank for Economic Development in Africa (BADEA) has validated the increase in its authorized capital, bringing it from $4.2 billion to $20 billion. ” This increase puts the bank’s capital base and overall capital structure on par with other highly rated multilateral development banks. “Commented the institution in a press release read by the Ecofin Agency. $10 billion of capital has now been subscribed, even if only $5 billion has actually been paid out.
This development allows the institution to strengthen its own funds, and to sustainably pursue a strategy that has allowed it to date to never resort to borrowing to implement its various programs. For its eighth five-year plan in progress, it plans to increase its outstanding investment loans on public securities to 50% of the total value of its assets, against 37% at the end of 2020, period for which its financial performance is available.
Although all of its shareholders are Arab countries, BADEA operates mainly in sub-Saharan Africa, in line with the principle of solidarity that led to its creation, after the fortunes generated by Arab countries thanks to the fallout from hydrocarbons. Its economic model is based on the offer of products and services, as well as on loans which are granted with between 25 and 35 years of repayment period and interest rates of 1% to 2% maximum.
This approach has allowed him to build a highly diversified loan portfolio. However, BADEA’s profit is also due to the management of its large assets in the form of public securities whose net margins are generally greater than its cash expenditure needs. At the end of 2020, this strategy allowed it to end up with reserves of nearly $929 million.
The institution, for the first time, was rated by Moody’s, which assigned it its third highest rating on long-term default risk (Aa2). But the rating agency clarified that it is not certain that BADEA will arrive on the capital market to raise funds. However, the solidity it displays reinforces the leverage effect it induces for the benefit of the countries benefiting from its financing.
Since its creation in 1975 until 2020, the development bank has provided $22.8 billion to its clients, including $5.4 billion from equity. All the countries of sub-Saharan Africa benefit from its commitments, with the exception of South Africa. Burkina Faso, Senegal, Ethiopia, Mozambique and Tanzania together accounted for 27% of its commitments at the end of 2020.