Sierra Leone Telegraph: 5 June 2012
When the African Development Bank – Africa’s premier bank for investment in the development of infrastructure and industrialisation, announced the launch of its 2012 Report on the continent’s economic progress last week in Arusha, Tanzania, few expected the flurry of initiatives that came pouring out of the vault of the Bank.
Africa needs investment in its private sector in order to stimulate and accelerate the pace of economic growth and job creation. The global economic and financial downturn has restricted the amount of foreign direct investments entering the continent in the last four years.
Hence, many budding entrepreneurs and high growth potential businesses in Africa, welcome the proactive approach being taken by the African Development Bank, acting as a catalyst and pump-primer of vital investment capital needed to revive the continent’s struggling economies.
The president of the African Development Bank, on the 2nd June, announced the official launch of the African Guarantee Fund (AGF), said to be ‘a market-friendly guarantee scheme aimed at easing access to finance for African small and medium-sized enterprises (SMEs).’
The AGF is designed and funded by the AfDB in partnership with the governments of Denmark and Spain. It will provide financial guarantees to financial institutions to stimulate financing to SMEs and unlock their potential to deliver inclusive growth in the region.
The AGF is a public-private partnership, and it is expected that other donors, development finance institutions and private investors would get involved in providing additional capital and scale up its operations.
According to the AfDB, SMEs are the best candidates to achieve inclusive growth in Africa, as they contribute significantly to income generation and job creation. However, access to financial capital is consistently reported as one of the major obstacles to SME’s growth and development.
Only 20 percent of African SMEs have a line of credit from a financial institution. The AGF will help fill this gap.
Launching the AGF in Arusha, Mr Kaberuka – the AfDB Chief, praised the Danish and Spanish Governments for their continued support for the initiative, especially in times of fiscal austerity.
The launch also marked a two-year long successful partnership, triggered by the Africa Commission’s recommendation in 2009 to implement the AGF as one of the initiatives to address youth unemployment in the continent.
Mr Kaberuka said that; “The African Development Bank is strongly committed to promote inclusive private sector-led growth and employment creation across the continent. Accordingly, it always looks at innovative and efficient modes of financing to reach out to SMEs.”
“The AGF will contribute to rationalize the provision of financial guarantees for the purpose of mobilizing financial resources for SMEs. Likewise, the AGF will complement other Bank’s products and services for private sector development through SMEs,” he promised.
He also urged the development community and the private sector to join the AGF and contribute to its success.
The launch was witnessed by African and international entrepreneurs, representatives from banks, financial institutions, investment funds, central banks, and government agencies.
The continent’s Civil Society Organisations also received a special attention from the African Development Bank last week in Arusha. A forum, which brought together the AfDB in collaboration with the civil society, unveiled key areas of interests:
Firstly, there is a significant mutual interest in working on common development objectives.
Secondly, the strengthened engagement with Civil Society Organizations will require a paradigm shift in the way the Bank has been working with Civil Society.
Thirdly, the discussions highlighted the diverse opportunities offered by the green economy for reducing unemployment, notably as it pertains to youth unemployment, through innovative activities.
“The constructive suggestions made by the CSOs on topics ranging from the Bank’s long- term strategy, to our engagement in the Rio+20 negotiations and the pertinent views on Africa challenges and opportunities in the green economy, holds promise for mutual interest engagement for a brighter future on the continent” – says Ms. Ginette-Ursule Yoman, Manager, Gender and Social Development Monitoring Division.
The Forum concluded with discussions on the institutional framework for the Banks’ engagement with Civil Society Organizations – a platform for dialogue with key partners.
The Forum for Civil Society Organizations, with more than 60 representatives from regional networks and reputable institutions, demonstrated a unique commitment from CSOs working on the continent.
In conclusion, AfDB President, Donald Kaberuka, while receiving the CSO delegation in Arusha last Friday, said the Bank will organize a special forum with civil societies to continue the discussion on key African challenges and how the two sides can work together to improve living conditions on the continent.
But much earlier in the week – 1st June, there was another new headline grabbing initiative announced by the African Development Bank, when it signed an ISDA Master Agreement with IFC – a member of the World Bank Group, to enter into cross-currency swap transactions that will facilitate local currency lending and bond issuance in Africa.
It is the first ISDA Master Agreement either institution has signed with another multilateral financial institution.
The agreement will enable IFC and the AfDB to collaborate and benefit from each other’s local currency bond issues, enhancing their local currency funding capacity to support their clients’ development projects.
Local currency bond markets provide long-term, local currency finance for projects, protecting them from foreign exchange risks. These markets are a vital potential source of finance, particularly in the wake of the global financial crisis, when foreign capital inflows to Africa have diminished.
Last year, the Group of 20 called for a concerted effort to develop and strengthen local currency bond markets in emerging markets.
The agreement is the first step in an initiative for greater collaboration among multilateral institutions to accelerate local capital market development and increase local currency financing options.
”Expanding long-term currency initiatives is a cornerstone of IFC’s strategy to strengthen capital markets in developing countries,” said IFC Vice President and Treasurer – Jingdong Hua.
“Helping to establish and strengthen such markets allows us to work with regulators and local institutions to ensure that capital market regulations are effective and entrepreneurs are able to grow and create jobs.”
AfDB Vice President for Finance – Charles Boamah said that; “Promoting the development of local capital markets in Africa is paramount to successful, sustainable economic development. This agreement supports our African Financial Markets Initiative, which aims to further the development of domestic African capital markets, enlarge the investor base, and reduce African countries’ dependence on foreign currency denominated debt.”
In Africa, IFC has issued local currency bonds in Morocco, the Western CFA zone, and the Central CFA zone, and has obtained approvals to issue local currency bonds in Kenya and Nigeria.
Under its Pan-African Domestic Medium-Term Note Program, IFC is working with authorities in Botswana, Ghana, Kenya, South Africa, Uganda, and Zambia to obtain consent to issue local currency bonds.
IFC is also working with eight members of the West African Economic and Monetary Union to establish local currency bond programs. Since 2007, IFC has committed more than $650 million in 17 different local African currencies through a combination of swaps, bonds, and structured finance products.
For its part, since 2005 the AfDB has issued bonds denominated in or linked to the Botswana pula, Ghanaian cedi, Kenyan shilling, Nigerian naira, Tanzanian shilling, Ugandan shilling, and Zambian kwacha.
The AfDB is also a regular issuer in South African rand (ZAR), its third largest lending currency. Since 2005, the AfDB has issued more than ZAR 25 billion in the ZAR domestic and Euro markets.
The AfDB has also received authorizations to issue bonds denominated in the currencies of more than 15 African countries including, Cameroon, Egypt, Gabon, Mauritius and Senegal and is currently seeking authorizations from several more.
The AfDB is currently in the process of launching an inward listing off its Global Debt Medium Term Note Program in Uganda. The Program will provide readily available local currency financing for the AfDB’s projects in the country. The first issue under the Note Program is expected in the coming weeks.
Last week was a very busy week for the African Development Bank, signalling what promises to be an exciting future for job creation and private sector development in the African continent.
But much remains to be done to build the capacity of small and medium sized enterprises to be able to take advantage of the enormous investment potential, now being offered by the AfDB and its partners.