Africa 50: Business as usual will not finance the infrastructure projects needed

Africa 50: Business as usual will not finance the infrastructure projects needed

Donald Kaberuka.

By Donald Kaberuka

Posted Saturday, August 17 2013 at 11:21

In Summary

• The global economy is slowing down. The big question we need to ask is whether or not in this gloomy environment Africa can maintain the pace of the past decade.
• No country in the world has been able to maintain seven per cent GPD growth and above sustainably unless the infrastructure bottleneck is overcome.
• My own assessment is that Africa can still maintain the momentum if we emphasise inclusive policies.

The progress Africa has been making is in some measure a reflection of our collective efforts in our respective mandates, from peace building, entrenching governance, regional integration and financing infrastructure.

The global economy is slowing down. The big question we need to ask is whether or not in this gloomy environment Africa can maintain the pace of the past decade.

My own assessment is that Africa can still maintain the momentum if: We emphasise inclusive policies, which are not only good politics but also excellent economics; there is greater integration; and there is faster progress on global value chains.

The one thing that can really stop the recent performance in its tracks is infrastructure. No country in the world has been able to maintain seven per cent GPD growth and above sustainably unless the infrastructure bottleneck is overcome.

We are today, all sources combined, hardly able to put together $45 billion a year for infrastructure, leaving an annual gap of a similar volume. We are all doing different things in our respective regions with new initiatives and funds being created, but let us face it, there is limited additionality and no critical mass.

We have not come to a dead end, but we are at a fork in the road. The ongoing initiatives will not bring us to scale.

Business as usual will not finance our infrastructure. Our governments are doing more as they raise more revenues.

This is encouraging; many projects will still require public money, which is why greater efforts at mobilising domestic resources are key. Development partners will continue to be needed.

But the tight financial situation they face is real. Go out there and get ratings. Accessing capital markets, as many countries are doing, is commendable. More countries should get out there and get ratings, provided we can invest wisely and manage debt.

But of course there will be limits. And with the end of quantitative easing, markets at some point will be tight.

The current natural resources boom provides an opportunity for those who have them, provided the taxes and other sources of revenues due are paid. Building on our track record
in infrastructure, we at the African Development Bank have at been reflecting on how to create a vehicle to complement existing instruments.

Study after study has shown that there is a reasonable pool of savings in Africa that can help in funding our development. Those funds are typically invested in European or US paper and are available only if the business proposals are attractive.

Those managing the funds are fiduciaries and they will part with the money only on clear commercial considerations. If that is true for Africa’s pool of savings, it is also true for external savings.

There are three problems: One is the perennial problem of lack of ready-to-go projects.

Secondly is the even larger problem of finding those that are commercially viable and bankable. Lastly, there is the need for a vehicle that does the necessary risk mitigation, credit enhancement, provides investors with assurance of a good return, security and, in the case of central banks, liquidity as well.