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11 October 2018

Newsletter - October 2018

The African Development Bank (“AfDB”) approves new policy for investments into non-African private sector companies.

During the last couple of years, several ambitious initiatives have been announced to tackle the challenges the African continent faces to help realize its full economic potential. The issues that need addressing include infrastructure, energy, agriculture and the development of a diversified financial sector targeting mid-sized companies such as private equity and venture capital. This undertaking requires a massive equity investment with a significant amount of these being carried out by non-African investors (e.g. Development Financial Institutions (“DFIs”), private equity houses, family offices, etc.). Due to the nature of the investments, investors are also seeking committed African co-investors, like the African Development Bank (“AfDB”).

The board of the AfDB has recently approved a new policy on non-sovereign operations (“NSOs”) which will enable the AfDB to provide direct financing and investment without sovereign guarantees to private and public entities based outside of the African Continent. Before the introduction of this new policy the only options available for non-African counterparties were either regional or international agencies or institutions. The recent change creates new opportunities for non-African private sector players.

Before the launch of the new policy, non-African private investors seeking the co-investment of the AfDB, in private equity, infrastructure or other sectors, were obliged to incorporate a joint-venture vehicle in Africa. Now European investors can structure investment platforms to implement an African based fundraising vehicle without the obligation to have a vehicle in Africa.

It is common that non-African investors implement their fundraising platform in a jurisdiction (i) where they are familiar with legal, regulatory and tax frameworks and (ii) where anchor investors, such as the European Investment Bank or other DFIs, have a large presence. Until now, many investment structures in Africa were implemented with at least a two-tier holding investment structure, with a Luxembourg based investment company (regulated or non-regulated) pooling the equity investment of Non-African investors (including DFIs) which in turn held the share capital of a Mauritius holding company enabling the AfDB to invest. This double tier structure will no longer be needed to secure the investment of the AfDB.

Three major conditions are laid out in the new policy according to which the borrower or the receiving entity should be:

  • A private undertaking or an eligible public sector entity
  • Its operations should be financially sound and
  • It should lead to satisfactory development outcomes, creating opportunities for private sector development where the funding is deployed.

The new policy strongly emphasizes the added value of funding provided including robust financial management, adherence to high ethical norms, environmental and social sustainability and solid prospects resulting in significant development for the subject countries.

The new policy does not have any impact on any existing sovereign loans or any sovereign guaranteed loans by the AfDB.

Charles Russell Speechlys comments

The new AfDB policy is a real game changer for investors seeking fast-track opportunities to invest in Africa. The new policy not only opens the door of AfDB’s funding opportunities to non-African private borrowers but also considerably simplifies and shortens the market entry phase.

Since Luxembourg is a European political centre and the home of the European Investment Bank, one of the most active Development Finance Institutions (DFIs) investing in Africa, the potential of synergies and opportunities between Luxembourg fundraising vehicles and the AfDB are significant. Furthermore, the emphasise placed on the initiatives such as environmental sustainability and adherence to ethical standards will certainly strike a positive chord in the Luxembourg financial centre where Luxflag label, growing green finance business and other responsible investing trends are gaining momentum.


Yacine Diallo is a Partner in the Luxembourg office and is a member of the Africa Focus Group at Charles Russell Speechlys LLP.

Tax structuring for investments into any African country from Luxembourg requires specific advice and careful analysis. Our team is available to discuss matters arising from this article with interested parties. Please contact Yacine Diallo on +352 26 48 68 94  or at Yacine.Diallo@crsblaw.com .

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