Press Release
➢ WITH “ROOM2RUN,” AfDB LAUNCHES SECURITIZATION MARKET FOR MULTILATERAL 
DEVELOPMENT BANK SECTOR 
➢ TRANSACTION IS IN DIRECT RESPONSE TO G20 ACTION PLAN FOR MDB BALANCE SHEET OPTIMIZATION 
➢ AfDB COMMITS TO REINVEST FREED UP CAPITAL INTO NEW AFRICAN INFRASTRUCTURE 
LENDING, MAKING ROOM2RUN ONE OF THE LARGEST IMPACT INVESTMENTS EVER 
➢ TRANSACTION IS SUPPORTED BY NEW EUROPEAN UNION GUARANTEE TOOL (EUROPEAN FUND FOR SUSTAINABLE DEVELOPMENT)
OTTAWA, Canada, 18 September 2018 — The African Development Bank (AfDB), the European Commission, Mariner Investment Group, LLC (Mariner), Africa50, and Mizuho International plc today announce the pricing of Room2Run, a US $1 billion synthetic securitization corresponding to a portfolio of seasoned pan-African credit risk. Room2Run is the first-ever portfolio synthetic securitization between a Multi-Lateral Development Bank (MDB) and private sector investors, pioneering the use of securitization and credit risk transfer technology to a new and previously unexplored segment of the financial markets.
Structured as a synthetic securitization by Mizuho International, Room2Run transfers the mezzanine credit risk on a portfolio of approximately 50 loans from among the African Development Bank’s nonsovereign lending book, including power, transportation, financial sector, and manufacturing assets. The portfolio spans the African continent, with exposure to borrowers in North Africa, West Africa, Central Africa, East Africa, and Southern Africa. Mariner, the global alternative asset manager and a majority owned subsidiary of ORIX USA, is the lead investor in the transaction through its International Infrastructure Finance Company II fund (“IIFC II”). Africa50, the pan-African infrastructure investment platform, is investing alongside Mariner in the private sector tranche. Additional credit protection is being provided by the European Commission’s European Fund for Sustainable Development in the form of a senior mezzanine guarantee.
“Room2Run gives us fresh resources to invest in the projects Africans need most,” said Akinwumi Adesina, President of the African Development Bank Group. “Africa has the most promise, the greatest natural resources, and the world’s youngest population. But we also have the world’s most persistent infrastructure deficits. The African Development Bank has the strategy to address these infrastructure finance gaps—and Room2Run gives us the capacity to make it happen.”
Structured as an impact investment, Room2Run is designed to enable the African Development Bank to increase lending in support of its mission to spur sustainable economic development and social progress. In connection with Room2Run, AfDB has committed to redeploy the freed-up capital into renewable energy projects in Sub-Saharan Africa, including projects in low income and fragile countries.
“On the Impact scale, Room2Run is off the charts,” said Dr. Andrew Hohns, Lead Portfolio Manager and head of the Mariner Infrastructure Investment Management team. “Room2Run answers the call of the G20 for private sector participants to step in and facilitate development finance, providing a template for attracting significant private sector capital into urgently needed projects in developing economies.”
Raza Hasnani, Head of Infrastructure Investment at Africa50 commented, “Room2Run provides an innovative and commercially viable solution to the African Development Bank’s risk management and lending objectives, while paving the way for commercial investors to support and benefit from the growth of infrastructure on the continent. Africa50 is very pleased to participate in this landmark transaction, which is in line with our mandate to drive increased investment in infrastructure in Africa, and to create pathways for long-term institutional capital to flow into this space.”
Room2Run enjoys the support and participation of the European Commission with an investment from the European Fund for Sustainable Development, in the form of a senior mezzanine guarantee. “Only a few days after announcing our renewed Alliance with Africa for sustainable investments and jobs, I am very happy to announce that we are, together with the African Development Bank, launching Room2Run,” commented Neven Mimica, the European Commissioner for International Cooperation and Development. “This initiative is a perfect example of what we are doing to support investments in African low income and fragile countries through the External Investment Plan. Through Room2Run we provide 
an additional protection to investments in the field of renewable energy. Through our Guarantee, investments under Room2Run will translate into extending supply to many people currently without electricity whilst creating much-needed new jobs.”
Room2Run also directly responds to calls by the G20 that MDBs use their existing resources to full capacity, as articulated in the 2015 G20 MDB Action Plan to Optimize Balance Sheets, as well as calls for greater MDB efforts to crowd-in private investment. The G20 has called on MDBs to share risk in their non-sovereign operations with private investors, including through structured finance, mezzanine financing, credit guarantee programs, and hedging structures.
The Government of Canada has been a global leader in advocating for MDBs to use their existing resources more efficiently and to mobilize private capital for global development. The goal of the G20 MDB Action Plan to Optimize Balance Sheets is to catalyze significant new development financing from the MDBs throughout the real economy in key development regions. “Attracting more private capital into global development efforts is critical to building economies that work for more and more people around the world,” said Bill Morneau, Canada’s Minister of Finance, “that’s why Canada and our G20 partners have been calling on multilateral development banks to use their existing resources as efficiently as possible, and to look for new ways to attract more private capital. We are pleased to see the African Development Bank come forward with a transaction that directly responds to both of these objectives. Room2Run is an innovative solution to a long-standing challenge.”
Juan Carlos Martorell, Co-Head of Structured Solutions at Mizuho International, adds, “Compared to other synthetic securitizations, a major achievement of Room2Run has been to ensure that ratings agencies, and in particular S&amp;P, reflect the merits of the risk transfer into their rating assessments for multilateral development banks. AfDB’s leadership through this transaction has now set the stage for broader adoption of the instrument throughout the MDB community.”

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With “Room2Run,” AfDB Launches Securitisation Market For Multilateral Development Bank Sector

The African continent’s population has traditionally been polarized into two opposing groups: the impoverished and the well-heeled, with no socio-economic class to bridge the gap.
According to the African Development Bank (AfDB), the number of Africans who make up the middle class segment of the population increased to 313 million (that’s more than 34%) during the past three decades.  Steady economic growth and a move towards stable, salaried jobs—rather than traditional agricultural activities—have been cited as some of the reasons for the growth.
The AfDB has further stated that: “Over the past decade, despite a continued global food and financial crises, Africa has been growing at an unprecedented rate. There is increased optimism about Africa’s potential to win the fight against poverty even though it may take decades to arrive at that point.”
Rens Rademeyer, general manager of Bentley Motors South Africa, echoes this sentiment. “Bentley South Africa has seen a steady growth in our target market over the last 10 years. The most interesting finding is that we are attracting influential business clients who represent the core of emerging economies. These are individuals involved in the supply of infrastructure solutions, energy, mining and minerals, housing and food.
“There is no doubt that with the economic crisis in Europe and signs of an economic slowdown in the Far East, the rest of the world will look to emerging economies such as South Africa and others in Africa to invest. The steady increase in new customers for the luxury car market gives enough reason to believe that Africa is on track to meet and surpass the growth of other more established economies.”
There is clearly still a huge disparity between the haves and the have-nots. Statistics also indicate there is a ‘floating class’ of people whose hold on their stature is far from concrete. Middle class in African terms has been defined as those people whose annual income is greater than $3,900 (purchasing power), and includes factors such as education, lifestyle and aspirations.
Where the middle classes emergence has been the strongest, is in territories that enjoy a burgeoning private sector, replete with many local entrepreneurs. As a result, North Africa boasts the highest middle class contingent. Tunisia’s concentration stands at 90%, while Morocco and Egypt follow with 85% and 80% respectively (albeit a large number in these countries fall within the floating category).
Growth in the middle class population has been highest in Namibia, Kenya, Botswana, Gabon, South Africa and Ghana while Liberia, Mozambique, Rwanda, Madagascar, Burundi and Malawi represent the weakest African economies.
Africa’s growing middle class has led to an upswing in the consumption and purchasing of goods such as household items as well as leisure and transportation. According to the McKinsey Global Institute, consumer spending in Africa is set to tip the scale at $1.4 trillion in 2020.
There is also growing confidence in the continent, demonstrated in South Africa recently by the entrance of retail giant Wal-Mart. China’s motoring industry hasn’t been shy to take advantage of their gargantuan purchasing power, and have identified Africa, with its wealth of natural resources, as the perfect target for their global expansion.
Jaguar Land Rover South Africa’s managing director, Kevin Flynn, feels that South Africa greatly influences the rate of growth throughout the continent. “The global car industry has identified Africa as an emerging market and is taking the growth in the continent very seriously. South Africa plays a pivotal role in the expansion of this market, as a gateway to the continent, as well as from an investment and infrastructure perspective. Africa will play an increasing role in Jaguar Land Rover’s global strategy as new products come on stream catering for a growing and diversifying customer base.
“Owing to the constant challenges of poverty and unemployment in many countries on the continent, Africa is not expected to experience the massive growth seen in other emerging markets such as China, Russia and India. The continent will, however, provide a completely new customer to the global motor industry—those who are intent on displaying their stature and success while at the same time demanding affordable solutions.”
The phenomenal growth in sales of heavy vehicles in South Africa last year seems to indicate that economic conditions in sub-Saharan Africa are improving dramatically. Medium, heavy and extra heavy commercial vehicle sales notched up an increase of nearly 20%. Tony Twine, an economist at Econometrix, believes the demand for such vehicles stems from the need to transport goods into the rapidly expanding interior to the north of South Africa’s borders. As long as China continues with its demands for African raw materials, Twine believes this trend will continue.
Luxury brands such as BMW, Mercedes and Audi have seen a welcome increase in sales throughout sub-Saharan Africa. The BMW Group experienced a growth of 1,603 units in the last year in this territory, bringing their annual total to 32,890 units. Audi recorded an even higher growth figure of 3,887 (20,344 total units) while Mercedes logged an increase of 441 units (31,575 total units). Interestingly, Lexus actually experienced a decline of some 300 units in sub-Saharan Africa (1,500 total units sold). African sales are still far below those experienced locally, but the trends in South Africa are seemingly being mirrored elsewhere in the continent.
The best-selling BMW in South Africa is the 3-Series, with 11,035 units sold in 2011. This self-same derivative was also the most purchased BMW in Egypt (817 units) and 431 of these vehicles were sold throughout Tunisia, Algeria and Morocco. Additionally, there seems to be a growing trend towards the purchasing of large 4&#215;4 vehicles. BMW sold 113 and 112 units respectively of their X5 and X6 range in sub-Saharan Africa. This tendency is echoed by Audi’s sales figures. The most popular derivative locally is the A4, which also happens to be the most desirable Audi in Tunisia. In Egypt, Algeria and Morocco, the preferred option is the Q5, closely followed by the A6.
It therefore seems that African future and desires are inextricably interwoven with those of South Africa. The prospect of a mutually-beneficial and successful future, appear to be well underway.

Tag: the African Development Bank

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