African Development Bank (AfDB)
The continent's multilateral development bank, created in 1964 and headquartered in Abidjan, which lends to states and the private sector and guarantees private lenders against a public party's failure to perform.
The African Development Bank (AfDB) is the continent's multilateral development bank: it lends to states and the private sector and guarantees private lenders against a public party's failure to perform. The agreement establishing the African Development Bank was signed in Khartoum in 1963 and entered into force in 1964; the bank is headquartered in Abidjan, with a stretch in Tunis from 2003 to 2014 forced by the Ivorian crisis. The group brings together the bank itself, which lends on market terms, and the African Development Fund, which lends to the poorest countries on concessional terms. Its shareholders are African states, which hold the majority, and nonregional states from Europe, the Americas and Asia. For the political risk market, the tool that matters is the partial risk guarantee. It covers commercial lenders against a state or public entity failing to meet specific obligations under the project contract: payment by the public power offtaker, termination compensation, change in law, issuance of a permit. The state counter-guarantees the AfDB, so a default on the project becomes a debt owed to the bank, with what that costs a country that depends on it for its next financings. The partial credit guarantee, for its part, covers a tranche of a loan or a bond issue. In 1976 the bank was also a founding shareholder of Africa Re alongside the states, and it still is. It supports the African Risk Capacity through its ADRiFi (Africa Disaster Risk Financing) program, which finances part of the premiums some states pay for their drought cover. A CPRI (credit and political risk insurance) underwriter therefore meets the AfDB in two ways: as a guarantor that makes a project insurable by the rest of the market, or as a cofinancier whose presence weighs on a government's calculation. The caveat is scope. A partial risk guarantee answers only for written obligations, and a risk the contract does not name, a seizure disguised as a tax reassessment for instance, stays with the private insurer.
On a solar plant in West Africa, the banks obtain an AfDB (African Development Bank) partial risk guarantee against nonpayment by the state utility offtaker, counter-guaranteed by the state. The lender also buys a CPRI (credit and political risk insurance) policy for confiscation and transfer restriction, which the guarantee does not cover.
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