Why AfDB Group, Japan signed exchange of notes for $350 million private sector assistance loan

The African Development Bank (AfDB) and Japan have signed an exchange of notes for an eighth private sector assistance loan from Japan to finance the Bank’s private sector operations.

The loan agreement, to the tune of JPY 44.1 million or $350 million, carries an interest rate of 0.11% and a repayment period of 30 years, with a grace period of 10 years. The loan will contribute significantly to funding the Bank’s private sector operations through credit lines.

The signing took place at the Bank Group’s headquarters on Friday 17 February, between its Senior Vice President, Bajabulile Swazi Tshabalala, and Japanese Ambassador to Côte d'Ivoire, Katsuya Ikkatai.

The agreement comes under the joint initiative known as the Enhanced Private Sector Assistance Initiative (https://apo-opa.info/4181E6y) for Africa (EPSA). This provides financing for the Bank’s private sector operations through a line of credit from the Japan International Cooperation Agency (JICA). The loans are provided on concessional terms.

“This new arrangement which takes our collaboration forward, will build on the existing strong partnership we have had over the years and fits in firmly with the call and vision of our President Dr Akinwunmi Adesina to further strengthen our collaboration with Japan,” said Tshabalala following the signing.

Ambassador Ikkatai noted that the Tunis Declaration, adopted at the Eighth Tokyo International Conference on African Development, or TICAD 8, last August, emphasizes that private investment is essential for Africa's economic growth and inclusive and sustainable development. “Moreover, at TICAD 8, our Prime Minister Kishida announced $30 billion in public and private investment from Japan for Africa over the next three years. And this support signed today reflects a strong joint action of the Government of Japan and the African Development Bank which embodies exactly this policy of Japan,” he added.

To date, the Bank and the government of Japan have signed seven non-sovereign loans totalling $1.5 billion. The loans have contributed to support 51 projects, mainly credit lines and equity to regional development finance institutions, private equity funds and project finance for infrastructure public-private partnerships.

The EPSA loans for non-sovereign operations help finance the Bank’s private sector operations through credit lines (NSLs) from JICA to the Bank. In principle, although pooled with the other financial resources of the Bank and subject to normal Bank processes (including eligibility and pricing), the resources are attributed to specific projects “endorsed” by the Japanese Government.

The government of Japan is one of the Bank’s biggest contributors, participating in the sixteenth replenishment of the African Development’s concessional window, the African Development Fund, in December last year. Japan also contributed to the African Development Bank’s General Capital Increase (GCI-7) in 2019.

During TICAD8 held in Tunis in August 2022, the heads of the Bank and JICA announced the fifth phase of EPSA, from 2023-2025. It has a joint target of $4 billion, which is $500 million more than EPSA 4. An additional up to $1 billion will be provided by JICA under a new special window to promote debt transparency and sustainability reforms in Africa.