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This is the ADB…
- By Nik Ogbulie
- Published March 15th, 2010
- MoneyWorld
- Unrated
Africa’s foremost development bank, the African Development Bank (AfDB), sees the challenges posed by the Global Financial Crisis as the opportunity it has been waiting for which will prompt its stakeholders to reconsider the question of strategic capital increase. DONALD KABERUKA, president of AfDB reveals.
THE African Development Bank is firmly rooted in Africa, the inextricably linked with Africa’s fortunes. For much of the last decade Africa made solid if unheralded progress, resulting from sound macroeconomic policies and sustained programmes of reform, diversification, and better and more accountable public management. The investment climate improved, an energetic private sector developed, and some African countries were beginning to access capital markets.
The financial and economic crisis has changed the landscape. The transmission of the crisis to our shores was not so much financial but rather through the real economy: lower export earnings, reduced investment flows, weakening of fiscal positions and current accounts; and of course contraction in private sector activity especially, were strongly dependent on international demand. Countries whose economies depend heavily on mining suffered significant shocks.
It threatens to set back in less than a year the gains so painfully made. Prior to the crisis African averaged over 6 per cent growth. This year it is likely to see only 2 per cent. Access to capital markets has disappeared and trade credit shrunk. African export volume growth is expected to decrease to 4 per cent in 2009, translating into a 45 pr cent loss in export value. We expect to see some recovery next year to over 3 per cent, but this is well short of the figure needed to reduce poverty headcount in Africa. Nonetheless the continent has shown a remarkable resilience, unimaginable say fifteen years ago. The reforms have built a solid foundation. The situation varies from region to region, but in the midst of it all you have countries and regions that are non oil, and non mineral dependent still posting 6 per cent growth per year!
Climate change, however, is already adding new costs. Africa contributes less than 4 per cent to global emissions but bears a disproportionate amount of the burden in adapting to climate warming. Whilst much of the international attention in Copenhagen is about reducing overall emissions, Africa’s more pressing need is for more energy. All of sub-Saharan Africa has the same installed electricity generating capacity as Spain.
Africa’s financing needs are considerable: for instance, some $75 billion per year over the next 10 years for Sub Saharan Africa alone, to close its infrastructure gap; or anything up to $30 billion a year to adapt to global warming. But these pale against the sums already committed by the G20 in their own fiscal stimuli.
Of course the fundamental macroeconomic imbalances which underlie the crisis must be addressed, current account and fiscal deficits must be reduced. But these preoccupations in the G20 should not mean neglect of the poorer countries and of Africa. We should look to the potential of a continental of 1 billion consumers, younger than those in any other region of the world, with the same aspirations as their peers elsewhere. That means we have to take a longer view, deliver on existing commitments and sustain new investment, public and private.
That was essentially the view taken two years ago by a high level panel when it set out its vision for the African Development Bank in the 21st century. They argued that to sustain growth, to realize its potential, Africa must be more integrated, equipped with the necessary infrastructure, skills, and with capable states. They concluded that Africa needed appropriate continental institutions. They said the AfDB should become the motor of economic integration, the premier development institution in Africa, and a voice for Africa internationally. It recognized that the Bank was not yet there, but recommended the steps to be taken to achieve that position.
This remains our, and our shareholders’, long term objectives and was encapsulated in the medium term strategy agreed last year. We have a clear strategic framework with explicit priorities; economic integration, infrastructure, private sector development, development of higher level skills, governance, and support of fragile states. These are areas where we have experience and expertise, and can add value.
We made good progress. We have increased our capacity, are more responsive to our clients, and results continue to improve. Our ability to lend to both public and private sector borrowers enables us to implement innovative structures and to provide a complete package of services. We can leverage our position to crowd in investors and our AAA rating goes a long way in mitigating risks. Our role and standing, our franchise value, has been transformed.
We have taken exceptional measures in response to the crisis. We frontloaded commitments, speeded up implementation, restructured our portfolio in order to release resources. We introduced new quick disbursing instruments, including a $1 billion trade finance facility. We have convened African ministers of finance and Central Bank governors to monitor the impact of the financial crisis and to help present the African perspective to the international community. I attended both the London and Pittsburgh G20 summits as part of the African delegation.
The crisis has not deflected us from our strategic priorities, but inevitably in responding to the crisis we have consumed our resources much more quickly than anticipated. We serve all African countries and they are demanding more from us. The question is whether we will have the resources to deliver. We have therefore begun urgent discussions with our shareholders. First, for a general capital increase to strengthen the balance sheet of the bank and enable us to continue to meet the demands from sovereign, sub-sovereign, and private sector borrowers. Without it we will have to reduce by more than half the level of commitments we were able to make this year. Second, to replenish the African Development Fund, our soft loan window accessed by the poorer countries. It is replenished every three years; 2010 will be the final year of ADF-11 but we have less than 20 per cent remaining to be committed.
We should invest in Africa’s future now. African countries want to stand on their own feet, to earn their own way. They want to move away from any reliance on aid. Governments remain committed to reform, to improving the investment climate, to maintaining macroeconomic stability. Investing in Africa is still good business. Africa has the potential to resume higher rates of growth quickly. Out mission remains uniquely to help to build these foundations.
THE African Development Bank is firmly rooted in Africa, the inextricably linked with Africa’s fortunes. For much of the last decade Africa made solid if unheralded progress, resulting from sound macroeconomic policies and sustained programmes of reform, diversification, and better and more accountable public management. The investment climate improved, an energetic private sector developed, and some African countries were beginning to access capital markets.
The financial and economic crisis has changed the landscape. The transmission of the crisis to our shores was not so much financial but rather through the real economy: lower export earnings, reduced investment flows, weakening of fiscal positions and current accounts; and of course contraction in private sector activity especially, were strongly dependent on international demand. Countries whose economies depend heavily on mining suffered significant shocks.
It threatens to set back in less than a year the gains so painfully made. Prior to the crisis African averaged over 6 per cent growth. This year it is likely to see only 2 per cent. Access to capital markets has disappeared and trade credit shrunk. African export volume growth is expected to decrease to 4 per cent in 2009, translating into a 45 pr cent loss in export value. We expect to see some recovery next year to over 3 per cent, but this is well short of the figure needed to reduce poverty headcount in Africa. Nonetheless the continent has shown a remarkable resilience, unimaginable say fifteen years ago. The reforms have built a solid foundation. The situation varies from region to region, but in the midst of it all you have countries and regions that are non oil, and non mineral dependent still posting 6 per cent growth per year!
Climate change, however, is already adding new costs. Africa contributes less than 4 per cent to global emissions but bears a disproportionate amount of the burden in adapting to climate warming. Whilst much of the international attention in Copenhagen is about reducing overall emissions, Africa’s more pressing need is for more energy. All of sub-Saharan Africa has the same installed electricity generating capacity as Spain.
Africa’s financing needs are considerable: for instance, some $75 billion per year over the next 10 years for Sub Saharan Africa alone, to close its infrastructure gap; or anything up to $30 billion a year to adapt to global warming. But these pale against the sums already committed by the G20 in their own fiscal stimuli.
Of course the fundamental macroeconomic imbalances which underlie the crisis must be addressed, current account and fiscal deficits must be reduced. But these preoccupations in the G20 should not mean neglect of the poorer countries and of Africa. We should look to the potential of a continental of 1 billion consumers, younger than those in any other region of the world, with the same aspirations as their peers elsewhere. That means we have to take a longer view, deliver on existing commitments and sustain new investment, public and private.
That was essentially the view taken two years ago by a high level panel when it set out its vision for the African Development Bank in the 21st century. They argued that to sustain growth, to realize its potential, Africa must be more integrated, equipped with the necessary infrastructure, skills, and with capable states. They concluded that Africa needed appropriate continental institutions. They said the AfDB should become the motor of economic integration, the premier development institution in Africa, and a voice for Africa internationally. It recognized that the Bank was not yet there, but recommended the steps to be taken to achieve that position.
This remains our, and our shareholders’, long term objectives and was encapsulated in the medium term strategy agreed last year. We have a clear strategic framework with explicit priorities; economic integration, infrastructure, private sector development, development of higher level skills, governance, and support of fragile states. These are areas where we have experience and expertise, and can add value.
We made good progress. We have increased our capacity, are more responsive to our clients, and results continue to improve. Our ability to lend to both public and private sector borrowers enables us to implement innovative structures and to provide a complete package of services. We can leverage our position to crowd in investors and our AAA rating goes a long way in mitigating risks. Our role and standing, our franchise value, has been transformed.
We have taken exceptional measures in response to the crisis. We frontloaded commitments, speeded up implementation, restructured our portfolio in order to release resources. We introduced new quick disbursing instruments, including a $1 billion trade finance facility. We have convened African ministers of finance and Central Bank governors to monitor the impact of the financial crisis and to help present the African perspective to the international community. I attended both the London and Pittsburgh G20 summits as part of the African delegation.
The crisis has not deflected us from our strategic priorities, but inevitably in responding to the crisis we have consumed our resources much more quickly than anticipated. We serve all African countries and they are demanding more from us. The question is whether we will have the resources to deliver. We have therefore begun urgent discussions with our shareholders. First, for a general capital increase to strengthen the balance sheet of the bank and enable us to continue to meet the demands from sovereign, sub-sovereign, and private sector borrowers. Without it we will have to reduce by more than half the level of commitments we were able to make this year. Second, to replenish the African Development Fund, our soft loan window accessed by the poorer countries. It is replenished every three years; 2010 will be the final year of ADF-11 but we have less than 20 per cent remaining to be committed.
We should invest in Africa’s future now. African countries want to stand on their own feet, to earn their own way. They want to move away from any reliance on aid. Governments remain committed to reform, to improving the investment climate, to maintaining macroeconomic stability. Investing in Africa is still good business. Africa has the potential to resume higher rates of growth quickly. Out mission remains uniquely to help to build these foundations.
