AFD - 2018 Registration document

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PRESENTATION OF AFD

Activities of the Agence Française de Développement group in 2018

the Government’s shares over a five year period. The sale took place on 19 December 2017. AFD no longer holds any equity investments on its own behalf in SIDOM (with the exception of SIC), as these were sold for €20.9M. The shares still recognised in its balance sheet are held on behalf of the Government and are due to be sold within 5 years. As a result, as of the end of 2018, AFD’s equity stake in its own name in the capital of Société Immobilière de Nouvelle-

Calédonie (SIC) was down to 50%, so the company was not included in the transaction as the State had no equity interest in this property company. SIC is a social landlord whose mission is to further social cohesion and the fight against inequality and exclusion by offering housing solutions for people with the most modest means. It manages a stock of 10,700 accommodations, housing 40,000 people, i.e. 15% of the population of New Caledonia.

1.6 Activities of the Agence Française de Développement group in 2018

1.6.1 Global economy In 2018, the global growth rate appears to have levelled out at 3.7%, similar to that of 2017. In January 2019 the IMF reviewed its October 2018 growth forecasts for the next two years slightly down at 3.5% for 2019 and 3.6% for 2020. The main reasons for this additional review were the slowdown observed at the end of 2018 in some Eurozone countries (Germany and Italy) and the expected contraction of the Turkish economy in 2019. The global economic situation now faces significant risks of decline in the short and medium terms; pitfalls include a heightening of trade tensions, the prospect of a no-deal Brexit between the UK and the European Union, and a faster than anticipated slowdown in China. In 2019, growth of the American economy should continue to exceed its potential (1.9% according to the US Federal Reserve) and attain 2.5%. That said, from 2020 onwards the growth rate could slowdown significantly to 1.8% on account of the temporary nature of the provisions of the 2017 tax reform. Trade negotiations with China are ongoing (the trade war truce decided early December is due to end on 1 March). As anticipated, the US Federal Reserve increased its benchmark interest rate to 2.25%- 2.5% in December 2018 (following three increases in March, June and September). Rhetoric from the Fed has since struck a more cautious note, appearing to announce a lull in the rise in benchmark rates for 2019. According to the European Commission’s winter economic forecasts, the Eurozone saw its growth slump to 2.1% in 2018, a trend which is set to continue in 2019 when growth should stabilise at around 1.3% and inflation should remain moderate at 1.4%. The reasons for this are at once economic, with increased risk and uncertainty worldwide (trade tensions, a slowdown in growth in China and in the United States) and across Europe (social tension in France, Italy, Brexit), and also more structural in nature now the business cycle has become more mature. In October 2018, the ECB confirmed it was stopping its net asset purchase programme in January 2019, after reducing the value of its monthly purchases from €30bn to €15bn. Benchmark interest rates, on the other hand, should remain at their current levels (around 0%) at least until, and maybe even beyond, summer 2019. In the UK , the uncertainty over Brexit is weighing heavily on prospects for growth, which the Bank of England has revised

to 1.5% for 2019. Economic climate surveys are pointing to a downward trend in January with a composite index very close to the business contraction zone, while household confidence reached a 5-year low. On 15 January the British parliament rejected the agreement between the EU and Theresa May’s government, signed at the end of November. It then voted on a series of amendments to the draft agreement at the end of January, which led Theresa May to try to reopen negotiations with the EU on the issue of the Irish border. The IMF has reviewed the growth prospects for emerging and developing countries (EDCs) which is down slightly on the October 2018 figure at 4.5% for 2019. Oil prices were revised downwards for 2019 and 2020 to less than $60 a barrel, as were metal prices which were expected to fall by more than 7% year-on-year. In 2019, emerging and developing Asia is set to grow by around 6.3%, due to the slowdown in China, despite the budget boost announced by the Chinese authorities intended to mitigate the effects of the US raising its customs tariffs. India, on the other hand, should benefit from the fall in oil prices and a freer monetary policy than anticipated, coupled with lower inflationary pressure. The Latin America and Caribbean region should see its growth rate gain momentum, reaching 2% in 2019. The gradual recovery of Brazil, which accounts for over two thirds of the region’s GDP, should continue now that the election uncertainty has been lifted. A reform of the uncontrollable public expenditure (including the pension and payroll system) is still required to ensure the viability of public finances and a return to the path of sustainable debt. In Argentina the economic situation has slumped considerablywith the disruption of the financial markets leading to a substantial depreciation of the peso, an increase in real interest rates, and the budget consolidation provided for in the IMF programme. The Argentine economy should therefore experience another year of recession in 2019. Economic activity in Mexico is bolstered by exports and the transfer of migrants but the country remains vulnerable to financial market turbulence on account of its financial integration and the tightening of US monetary policy. One of the risks facing the region - deterioration of the social and economic situation in Venezuela - has led to a humanitarian crisis and an increase in emigration, mainly to Colombia and Brazil.

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REGISTRATION DOCUMENT 2018