AfDB to make economic growth an inclusive transformation for Africa

Finance ministers, central bank governors and bureaucrats will this week converge on Kigali for the 49th annual meeting of the African Development Bank (AfDB) and the 40th meeting of the African Development Fund focusing on the theme “The next 50 Years: The Africa we want”.

READ: AfDB summit to put Kigali on global map

The president of AfDB, Donald Kaberuka spoke to Berna Namata about the operations of the bank and issues affecting the continent.

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A debate is raging on to define what course Africa should follow to achieve economic transformation. International lending institutions like the World Bank have recently come under criticism for their policies in the developing countries.

Gone are the days when international institutions thought they could define the agenda of countries. Now it is about what countries want to do. Each country and region is different: at the end of the day countries have their own agenda and our role is to support that agenda.

Emerging and developing economies are increasingly pushing for reforms of the Bretton Woods Institutions to reflect the ongoing global power shift. When the World Bank named Korean-born Jim Yong Kim as its new president in 2012, there was criticism that the role had once more gone to a US-nominated candidate. What is your view on this issue?

The last time, there was a candidate from the developing world (former Nigerian finance minister Ngozi Okonjo-Iweala) and this process should continue because the world has changed very much since 1945. Global institutions formed after World War II were formed to deal with the problems of the time.

Now, we need global institutions for the 21st century and this requires deep reforms including in the United Nations, the United Nations Security Council — it has to be fundamental reform.

Some institutions are showing examples of what can be done. I’m Rwandan, and Rwanda is not a large shareholder in the African Development Bank but I won the presidency with 78 per cent of the votes because the choice of leaders at the African Development Bank is competitive, open and democratic — this is the way to go.

Despite recent gains in economic growth, political risk remains high across the continent as a result of conflict. To what extent is this undermining growth prospects on the continent?

It is the biggest risk. There is economic growth but Africa is also undergoing other changes such as massive urbanisation, a rising population of young people, the impact of information technology, increasing rate of investment, increasing domestic consumption all these forces generate positive tensions but also create issues.

This means in terms of political management of the massive changes going on the continent — we need to be sure that we understand them. And the place to start is to give young people a voice and opportunity because they are the majority on the continent.

Why is Africa so vulnerable to conflict and what can be done?

There is a need to find ways of building this human capital of the continent so that it becomes an economic dividend.

Many of the tensions on the continent revolve around three issues — frustrated, marginalised people who think they have nothing to lose frustrated young people who see no opportunity for themselves and inequality — you have wealth co-existing with massive poverty. This requires political management — ensuring that everybody is involved.

Every government must do what it can to avoid creating what we call a “coalition of permanent losers.” No one should belong to a category where they believe they will be permanent losers. Everybody must feel they have a stake in the economy when they feel they have a stake in the economy, they will protect it.

State fragility remains a major constraint to Africa’s development. What needs to be done to help such countries such as South Sudan back to stability?

The African Development Bank has established a special panel to aise the institution on expanding its strategy for engaging with fragile states. The High Level Panel on Fragile States led by the President Ellen Johnson Sirleaf of Liberia will be launching a new report on this issue during the annual meetings.

In the forthcoming report, it is clear that fragile states are not an island of countries who can be recognised as such. Every single state in Africa has elements of fragility. It could be a badly run election, frustrated young people, poor management of resources or a failed constitutionalism — all these kinds of weakness exist.

READ: Will Africa keep booming or collapse again? Here’s how to create our own future

Are we seeing a specific trend in conflicts and fragility in Africa?

In the case of South Sudan, people say it is tribalism. I do not agree. The conflict in South Sudan to put it bluntly, is about rent seeking, it’s about who controls the petroleum and the natural resources. But the conflict is about nation building, and it is the same for the Central African Republic.

Then we have a new phenomenon where international terror groups identify those kinds of local domestic frustrations like in northern Mali and the Horn of Africa and they take them over for their own agenda.

What these terror groups like Boko Haram in Nigeria and Mali do is to identify marginalised groups in some country and take them over and radicalise them. This is a phenomenon we must combat, a feeling among people that they have nothing to lose.

Standard Poor’s projects that the 17 sub-Saharan African states that it rates will borrow an equivalent of $61 billion from long-term domestic or global commercial sources in 2014. This would be a 49 per cent increase in long-term commercial debt issuance compared with 2013. What should countries bear in mind as they borrow?

We have to go country by country, look at their debt sustainability and overall debt profile. At the moment, the majority of the countries are in positive debt profile conditions and frankly, I think they should be encouraged to go out and access capital markets.

All nations historically have developed by mobilising resources from the capital markets. Greece is going back to the capital markets but is it more creditworthy than African countries?

However, having said that, there are three golden rules to avoid getting into debt relief. First, borrow but borrow carefully. Second, build domestic debt management capability, third, invest wisely.

Any country with a good debt profile which can respect the above golden rules have no problem. But if the country has a poor debt profile and it is borrowing or is borrowing but cannot respect the three golden rules, then there is an issue.

SOURCE: The East African

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