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This week the Board of Directors of the African Development Bank (AfDB) approved an equity investment of US $24 million in the East African Development Bank (EADB) to strengthen its balance sheet and contribute to improve its international credit rating. In particular, US $10 million will be “paid in” with the balance in the form of callable capital.
The project will help EADB consolidate the gains of its successful restructuring program. It will assist the current business strategy of the bank by strengthening its capital base. This is a crucial condition for mobilizing financial resources from capital markets at more affordable terms and meeting the growing demand for investment in the East African Community (EAC).
In particular, in addition to providing fresh resources to EADB, the project is expected to contribute to improve the quality of the callable capital of the bank, which is a major factor driving its credit rating. A technical assistance package, financed by the Fund for African Private Sector Assistance (FAPA), to reinforce institutional capacity at EADB would complement the proposed equity investment.
By partnering with EADB, AfDB will exploit synergies stemming from complementary sources of comparative advantage. EADB, with its field presence and local knowledge of the EAC market, provides a logical conduit for AfDB to reach out to end-customers, including Small and Medium Enterprises (SMEs), by efficiently leveraging its scale.
From this perspective, the project is aligned with AfDB’s East African Integration Strategy, with its focus on sub-regional development finance institutions, as well as with the key pillars of AfDB’s forthcoming Long-Term Strategy, particularly private sector development and regional integration.