(Ecofin Agency) - The West African Development Bank (BIDC) was planning a strong recovery for the region after the Covid-19 pandemic. Two years later, challenges remain.
"The Bank has tried to be the top performer in the region, in line with its 2025 strategy... It now has to consolidate the gains it achieved in all areas in 2021, while prudently managing social, political, and economic pressures at the global and regional levels, to make a significant impact."
These words from Romuald Wadagni, the Minister of Economy and Finance of Benin and the President of the EBID Board for FY2021, highlight the challenge that awaited the bank in the post-pandemic period.
While the world is experiencing a period of recovery and adaptation, EBID stands at a critical juncture, bearing the weight of not only its ambitious Strategy 2025 but also the expectations of the West African sub-region for a post-COVID resurgence. Despite grappling with a complex socio-political and security landscape, the institution has demonstrated resilience and progress, as evident from the initial two years of its strategic plan, aligning with the post-COVID era.
EBID started 2021 with great momentum. During that year, it approved 24 new projects worth $709.1 million, exceeding the $240 million target set in its Strategy 2025 for that particular year. This momentum was maintained in 2022 with new commitments totaling $730.3 million for eight public-sector projects and eleven private-sector projects. The number of projects also rose from 53 in 2021 to 71 in 2022, marking a significant increase.
The plan is to mobilize $1.48 billion to fund 131 projects in the ECOWAS region by 2025. Of these projects, 85 are expected to come from the private sector and 46 from the public sector, for respective amounts of $1.063 billion and $695 million. EBID has committed to over forty projects between 2021 and 2022 despite persistent challenges in accessing market financing.
The bank actively promotes projects spanning interconnection infrastructure, intra-ECOWAS trade, healthcare, education, and agriculture. Moreover, it seeks to enhance domestic production by providing financial support to the trade in goods and services, an area that has historically received limited backing. Close to 50% of its net commitments are allocated to infrastructure development.
EBID is doing a relatively good job, but it faces major uncertainties, particularly in the context of the ongoing socio-political crises in the ECOWAS region. Nations like Guinea, Niger, Mali, and Burkina Faso, being shareholders, constitute sensitive regions for EBID, accounting for 27% of its commitment portfolio. A regional finance expert emphasizes that this exposure could potentially pose substantial risks for EBID. Mali, which represented 4.4% of the bank's loans by the end of 2022, has resumed repayments following the removal of ECOWAS financial sanctions in July 2022.
Rating agencies are projecting a deceleration in the growth of the loan portfolio, with the expectation that this slowdown "should aid in maintaining EBID's capitalization ratio at a 'Strong' level." Failure to stabilize these ratios could place pressure on the institution's credit rating. However, for this financial entity, striving to expand its balance sheet to $1.85 billion by 2025, "one of the essential means to achieve this goal is to ensure consistent growth of its loan portfolio, at an average rate of 15% over the next five years."
Despite EBID successfully preserving its financial rating in its most recent review by Moody's, it must continue to exhibit prudent and strategic resource management to reassure not only the rating agencies but also its investors and partners.
As a result, while EBID has intensified its efforts to secure resources from the markets and other donors, the mounting demands of governments, exacerbated by significant development initiatives, security concerns, global economic conditions, and the closure of global financial markets since 2022, remain huge challenges.
The Bank successfully raised a total of $498.9 million, which included $194.2 million from the regional financial market, and made significant progress in recouping capital from member states. Dr. George Agyekum Donkor, President and Chairman of EBID, emphasized that the total resources mobilized for FY2022 exceeded the Strategy 2025 target by an impressive 111.7%. However, this may still be insufficient to meet needs.
Enhancing Equity Capital
A strong capital is necessary to face the challenges. Currently, only regional investors have invested in EBID's capital. Consequently, the Bank is committed to "attracting non-regional capital over the next few years," firmly believing that the inclusion of non-regional investors will enhance its global image and reputation, especially with rating agencies.
In the previous year, the Bank decided to raise its authorized capital from UA 1 billion ($1.5 billion) to UA 2.5 billion ($3.75 billion), with this change becoming effective on January 1, 2023.