Blended Finance Options for Local Development 30 August 2018

Local Development Financing Challenge Need for infrastructure to accelerate local development Most acutely felt in urban areas facing in-migration Thromdes need to generate jobs and economic opportunities Grant financing from national budget or ODA not enough

Example of blended finance Development Partner Domestic bank / Pension fund Central Government $10m commercial loan & repayment Concessionary Loan Grant Grant UNCDF Local government $0.2m access Roads $0.5m offtake contract $0.5m loan & repayment Mini hydropower $100K Project preparation

Tanzania Case Study Local Resources. Local Opportunities Project Developer: Kibaha Town Council Project: Modern Market Population growth challenges in Kibaha Town - accelerated by the expansion of Dar es Salaam (35 kms away)

What do you see changing? The project was identified due to the fact that: The KTC has no permanent and modern market; The current MKT is located on road reserve – can be demolished any time; It does not fulfill the customers’ needs due to rapid increase of the population and motor vehicle traffic; Also, the market infrastructure and layout denies KTC substantial amount of revenue that could otherwise be earned from this market.

Project in Brief Project Sub-sector: Public Service Delivery Infrastructure Project Type & Cost: Modern Market - $10.1M Domestic Capital: $7.3 million (70%) debt financing by TIB Dev. Bank Equity Contribution: By Kibaha Council - $2.8 M as land and road network UNCDF support: Seed capital, technical assistance Project Company: SPV established Contribution <%> Source Amount (USD) Equity 27% Own source (KTC) and UNCDF (Seed capital) $2,762,420 Debt (Loan) 73% TIB Development Bank $7,303,030 Total 100% $10,065,450

What were the steps? Financing Process Selection of Consultants to Develop the Project MoU with Tanzania Investment Bank Seek Consent from the Ministry (PMO-RALG) to Borrow Project Approval By Council Idea Generation Technical project development and finance expertise: preparation of financial model Enhancement of the business plan. Establish bankability status Seed capital SPV Governance structure of the project Using its relationship with PMO-RALG to assist in implementation of the transaction.

How did contribute to local development? Revenue boost for Kibaha Town Council About 835,000 people in Pwani Region and beyond served directly or indirectly by the modern market Population will trigger demand for goods and services hence emergence of trade and small business enterprises Job creation for constructors and business owners Supplementary infrastructure built to support the project (road network, water, electricity etc.) Increased local economic development Opportunity for women (farmers) to sell their produce at a modern market & own businesses Estimated 834,956 people in Pwani Region and beyond will be served by the modern market Boost revenue for Kibaha Town Council The targeted population together with daily passengers through Kibaha will trigger demand for goods and services hence emergence of trade and small business enterprises. Job creation for the people who will construct and those who will subsequently own businesses after completion of the project. The market will provide space for different operators such as banks, restaurants, retail stores, wholesale and retail traders.

Lessons and next steps Local governments can increase investments in revenue generating infrastructure Use structured project finance - cash flows from investment to service debts from financial institutions: eg. Car parks Using future grants, revenues and cash flows to service debt from financial institutions: eg. Markets and warehouses Use Public Private Partnerships to blend in private equity & debt with assets owned by local government Incentivize private investments in services – tax incentives, off take contracts and viability gap funding: eg. Waste recycling DPs are increasingly interested in co-financing debt, and supporting related TA Loans and guarantees are available as instruments that can leverage ODA and expand the impact

Suresh Balakrishnan, Regional Technical Advisor suresh Suresh Balakrishnan, Regional Technical Advisor suresh.balakrishnan@uncdf.org