Africa’s way out of the crisis

www.the-african.org

The global economic crisis is having a devastating

effect on Africa: exports are suffering, mines are

closing down and thousands of jobs are being lost.

It now also emerges remittances to Africa are being

cut by up to 30%.

Liesl Louw-Vaudran spoke to

Mr Donald Kaberuka, president of

the African Development Bank, in Tunis

Initially there was the impression that Africa

would be isolated from the global financial crisis?

 

In the beginning people were saying: this crisis is

not for us, it is for others.

My thinking then was no, this crisis will reach us

through secondary level channels.

It will take time to reach us, but it will.

So we set up a committee of five ministers and

five governors of central banks.

This committee met twice in Cape Town and

Dar es Salaam and drew up recommendations which

we gave to the British Prime

Minister Gordon Brown and which we fed into the G20.

 

The analysis is very clear of what has happened

between November and now: real GDP growth on

the continent has been cut by half, to 3.5%.

This might look like an innocuous number,

but it means two things:

§   In many African countries population growth

is 2 to 3%.

If you have economies growing at the same rate

that basically means there is no growth,

because whatever growth you're having

is being eaten up by a growing population.

§   The second implication is that for Africa to attain

the Millennium Development Goals (MDGs); you need

a growth rate of 7%.

So if you fall below that 7%

the MDGs are compromised.

Are all countries in Africa going to be hit by

the crisis in the same way?

Africa has 53 countries and the number

I'm giving you is an average.

However, one of the most worrying aspects of

the crisis is that the large economic engines of

the continent have been the hardest hit: Nigeria,

South Africa, Egypt, Kenya

and others. Why is this important?

 

Nigeria is 60% of ECOWAS. Slow down

the economy of Nigeria and you slow down

the neighbourhood.

These engines were hit through several

channels, but mainly through exports; i

n the case of South Africa minerals, Nigeria oil

and in Kenya it was mainly tourism

and other exports like flowers.

 

I was in Zambia recently and I requested

the president Rupiah Banda to visit the Copperbelt,

which I did. What I found was $8000

a ton of copper in November, and now $3000 …

there has been a huge impact: the mines

are struggling badly. Energy and

transport costs are high and at $3000

it is hardly worth it.

So if people say the crisis is not for us,

they should look at the figures.

What about the banks?

We have not had a banking crisis or

banking failure because the banks are

not exposed to toxic products.

But if the private sector starts to suffer – in

the oil sector or the mining sector – there is

no way the banks can escape it.

Banks lend to these clients and as

the clients fail to pay,

they have less money to lend.

How has the ADB reacted to the crisis?

We have done three things: we are practically

doubling our lending; we provide

trade finance and we make liquidity available.

But in the end what we are doing is

a drop in the ocean. I will give you

some confidential information.

Though I'm not sure how you give

confidential information to journalists? (laughs)

The requests we are getting at the bank for

urgent help is something I have

never seen before.

And the requests are from

unexpected countries.

Some are coming to look for a billion,

some half a billion to support the budget,

because the drop is sudden.

So I'm going to ask our governors to give us

additional instruments that are best

adapted to times of crisis.

The instruments we have at the moment

take time: you submit your proposal and

you get your funds in six months.

However, the requests we have now

are very urgent.

You said you are going to double

your lending. What is the state of

your balance sheet and how far

can you stretch it?

All the strategic areas of the bank are still

in the comfort zone, unlike the Asian

Development Bank, for which the G20

is asking a 200% capital increase.

For the American Development Banks,

and for us the resolution says: demonstrate

the need.

My answer is as we stand now,

true, we still have headroom.

Without the financial crisis, we would not

have needed a general capital increase until 2013.

But now we need a general

capital increase much earlier.

Commercial banks seem so reluctant

to give loans.

Are you talking to them to find

some kind of solution?

Or is that not your mandate?

We certainly are investing in banks – second

and third tier banks, because these are

the ones we are interested in – and we

encourage them to lend to small businesses.

Commercial banks must decide for themselves

what are the risks.

But I disagree with you that they

haven't been lending.

It's a question of concentration, they've only

been lending to certain sectors.

That's what we're trying to change.

Many of these companies on the continent

have to find the balance between debt

and equity and I'm not sure if piling debt

on them is the best solution.

They should be more selective.

Are there any indications of when the crisis will end?

I've been in this business for a long time and if

there is someone who knows when we hit the bottom,

I'd be very surprised.

I've heard figures from one to five years.

There are some imponderables here: the first is

whether all these fiscal stimuli are actually

creating confidence that will get

credit moving again?

Are they creating confidence fast enough?

I don't know.

The second imponderable is whether

the internal demand in the Chinese economy

can move fast enough to compensate for

weakening international demand.

The Chinese economy was very much driven

by export demand but it has plenty

of internal potential.

What lessons can we in Africa learn

from the current crisis?

There are definitely lessons to be learnt.

One issue, which is very important to note is

that if this crisis happened 20 years ago

it would have found a continent in great crisis.

However, many countries internally have over

the last number of years been doing the right thing.

They are better placed to deal with the crisis

than what would have been the case 20 years ago.

I'm saying this so we don't draw the wrong conclusions

from the crisis.

We shouldn't now abandon market reforms,

abandon integration, abandon globalisation ...

these things have made the continent

much stronger in the face of external shocks.

The deficits are much more contained and

the banking is better capitalised

to withstand these shocks.

But Africa has certain structural problems.

Firstly, there is an excessive reliance on commodities.

Zambia depended on copper in the seventies,

it still does.

When there is a recession they suffer.

The same goes for Katanga and other regions.

Secondly is the very poor state of infrastructure.

The mines I saw in the Copperbelt not only

suffer because of low prices, but also because

of power outages and bad roads.

On this same road I travelled to Ndola,

what do you see?

Trucks and trucks transporting copper.

You can't carry copper and expect

the roads to last.

When they depend on world prices and

profit margins decrease, this becomes a problem.

We must definitely reduce the cost

of doing business because

we can't control international prices.

Thirdly is this issue of internal trade,

this definitely has to improve.

On the last point, you were at the launch of

the North-South Corridor last month in Lusaka.

Do you believe these initiatives

can make a difference?

These initiatives are absolutely marvellous.

We have pledged $600 million in the next 5 years

on the North-South corridor.

However, what worries me about these corridors

is the slow progress on man-made barriers – papers,

bureaucracy…

The second concern is maintenance.

We need more road maintenance.

We are told that to construct 1km of road on

an easy terrain costs $600 000 and $1 million

on complicated terrain.

So imagine if there is no maintenance

what it costs to rebuild these roads every year?

At the same time we are told that to construct

1km of rail is $1 million.

I believe we really need

to rehabilitate our railways in Africa.

Have the big projects like

the promised huge Chinese infrastructure

projects in Angola and the Democratic

Republic of the Congo

gone ahead despite the crisis?

Many projects large and small have

been cancelled or scaled down and we,

as the Bank, have in many cases

picked up some of the projects.

However, I remain optimistic: one aspect

of the crisis is that for years people have

been saying Africa is high risk, but more money

was lost on Wall Street than in Africa in

the last two or three decades.

It is clear there has been a systematic

undervaluation of Africa's assets because

we are supposed to be so high risk.

We're hoping that when the markets

recover we will continue attracting

investment.

Our banks are safer,

we are better regulated.

What about remittances from those

in the Diaspora sending money

back home to their families?

Remittances are definitely hit by

the crisis. For some countries

like Ghana for example, remittances

are more important than the combined

value of foreign aid and exports.

They're also much more predictable

and politically insulated.

The figure we've received is a decline

of up to 30%.

However, we have to wait until

the end of the year to see

a clearer picture of this decline.

Apart from the present crisis, are you

concerned about the impact of

global warming and environmental

change on African economies in the longer term?

We are the continent most affected

by global warming.

What I find regrettable is that

much attention and resources has

gone to financing mitigation – reducing emissions

or their rate of increase – and

not enough to adaptation.

What we need in

Africa is adaptation.

For example, in Bangladesh the sea levels

are rising and the paddy farms

are being flooded.

They're now being adapted

to become prawn farms.

In Africa the challenges are huge,

but we don't have the same resources.

The second issue to be addressed

in Copenhagen (the United Nations

Copenhagen Conference on Climate

Change in December 2009) is the ability

to develop hydropower – whether it is

the Nile or the Zambezi or the Congo River.

We have enormous difficulty raising money

for these big projects.

The third issue is Africa's forests.

We have a programme here at the bank on the

Congo Basin to fund agriculture so that

the Congolese and others don't cut down

their forests.

There is nothing in the Kyoto protocol

that makes provision for that.

Looking at Zimbabwe: you said that

unless there's a proper government

you're not going to give a dime to Zimbabwe?

I've said just the opposite.

I've said that the agreement in Zimbabwe

between the parties is the best

we can get under the circumstances.

It's a compromise accepted by

the international community..

It is showing signs of beginning to work.

My judgement is that the international

community should stop sitting

on the fence.

We are part of that community.

However, we do have to figure out

a way out of Zimbabwe's debt problem.

It is around $400 million.

And we are working at it.

Zimbabwe's debt is not the biggest debt

settlement we've had to deal with: we've done

the Democratic Republic of the Congo and

we did the Ivory Coast, which was concluded

only last month.

Now that economic laws are coming back

to Zimbabwe, there is multicurrency income

coming into Zimbabwe.

I hope it doesn't take too long.

It took us two years to settle Liberia's debt and

it took us a few months to sort out

the Ivory Coast's debt, which was bigger

than that of Zimbabwe.

 

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             J-L K.
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