I was in Mombasa, yesterday at the Kenya Institute of Management’s Africa Leadership Forum. There, we were discussing issues related to sustainable development, wealth creation and job creation in Africa. I expressed my belief that despite the turbulence around us, Africa could be on the verge of a transformation journey, as China was thirty years ago, South Korea fifty years, India and Vietnam and Brazil, twenty years.
Four factors are in our favor:
* Favorable demographic dynamics;
* A second generation national resource boom;
* A rising Asia wage, with Africa, or most of it at 20% of the China wage;
* Africa’s profiled risk ;
But, of course, nothing is preordained. We will have to do the right thing as other elements are not in our favor:
* Sudden and often unpredictable political and even economic reversals;
* Exogenous shocks in the global economy;
* Natural disasters;
* Idiosyncratic events; and
* The infrastructure gap
As one can see in Mali, the light at the end of the tunnel is still a long way. We are not yet out of the woods on issues of instability that reverses gains sometimes for generations.
As for the global economy, and the shocks emanating thereof, the right response can only be one of strengthening resilience especially, deepening Africa’s economic integration and the internal market of the 54 countries.
Time has come to end the zero-sum calculus on economic integration, especially at a time when multilateral solutions seem to be on the wane. We missed the bus of closer integration in 1964. But we have come a long way since. A little more effort is needed on policy harmonization, common services, talent, mobility and of course goods and capital.
It is on the infrastructure gap, where a paradigm shift is now needed. The African Development Bank commits 60% of all its resources to infrastructure; that is about 5 billion US dollars per year. But that is a drop in the ocean for a gap identified as 94 billion dollars per annum and unlikely to be closed by traditional funding.
The Bank in the context of the G20 Working Group on Infrastructure put forward some proposals on tapping into surpluses of emerging markets for High Return Infrastructure in Africa.
No African country can resolve its challenges individually. Time has come for Africa’s financial sector to mobilize its resources to support economic transformation in countries. Charity should begin at home!
Together, we have a good starting point for financing our own infrastructure development. Collectively, Africa’s foreign reserves in 2012 total 450 billion US dollars. Those reserves are mostly invested abroad, presumably for good security and return. In reality, the security is relative as we saw in 2008, and at this moment, the return is a meagre one.
The African Development Bank is a AAA rated institution. We provide the security, the track record and experience. Our Bank staff are working on a package of instruments that can certainly yield a good return – in any case, higher than what is obtainable at the moment.
I am glad that increasingly, African Central Banks are investing in our bonds, as have Central Banks of OECD countries for years. Bank staff have been working hard on a proposal for an “African Infrastructure Bond: by the African Development Bank reserved solely for Africa’s infrastructure.A safe, secure, high return “Emergent Africa Bond” or “Emergeafrica” as they propose to call it.
Suppose we begin with only 5% of each country’s reserves; that would be at least 22 billion dollars. That is easily equal to three times what both the World Bank and African Development Bank commit to Sub-Saharan Africa each year. Now imagine if we bring along the non-bank financial institutions, pension funds, insurance and other providers of long-term capital.
As the famous Chinese philosopher, Lao Tzu said, “a journey of a thousand miles begins with a single step”.
At the Annual Meetings of the IMF/World Bank in Tokyo in October, we will explore these proposals further with the African Finance Ministers and Central Bank Governors. I am not underestimating the political, operational and especially, the psychological obstacles that we may have to overcome - even those of common perception, to get to this apparently logical outcome.
Can Africa do this for itself? Is our money safe?
I have no doubt in my mind, the time is now for a 22 billion US dollar EMERGEAFRICA FUND.
- Extracted from: Unlocking Africa’s Financial Muscle: The Kenya Example - Dr. Donald Kaberuka, keynote address at the Kenya Bankers 50th anniversary celebrations, 7 August 2012.