The Sierra Leone Telegraph: 18 November 2013
Leaders of West Africa’s financial institutions, policy makers and economic development ministers were in Accra, Ghana on the 28th October, 2013, where they discussed the mobilisation of new sources of financing, particularly for infrastructure development. (Photo: Ghana’s President Mahama).
Africa is at a crossroad. The need to balance fiscal propriety – amid challenging domestic and global market conditions, against achieving developmental aspirations, calls for tough decision-making by governments.
The prioritisation of anti-poverty programmes though necessary, is increasingly taking a back seat. African governments are committing billions of dollars on infrastructure development, which they argue is a prerequisite for economic growth and prosperity.
With very low taxation base and declining export revenues, the financing of large-scale infrastructure projects has to be supported through borrowing or donor funding.
But in the aftermath of the global financial meltdown, external financing sources have been rationalised, and now comes with much tougher conditions.
This is having a significant impact on West African countries, whose external debt burden has risen exponentially – relative to GDP.
“Reversal of international capital flows may limit state infrastructure financing. Therefore development of new sources of infrastructure financing is critical”, says an IMF Survey.
It is with this backdrop that conference delegates in Ghana, met to discuss financial sector integration under the auspices of the IMF and the government of Ghana, who co-hosted the conference for the Economic Community of West African States (ECOWAS).
“At a time of rapid and positive economic change in Africa, financial integration has emerged as an increasingly important factor that can help lift the region to the next stage of development,” said Naoyuki Shinohara, IMF Deputy Managing Director, who co-chaired the event.
“This is certainly the case for the countries of West Africa, where a dynamic financial environment offers considerable promise – but also some risks.”
The one-day event in Accra, put a spotlight on the Opportunities and Challenges of Financial Sector Integration in West Africa, and examined in detail many of the issues that this rapidly developing region faces.
West Africa has recently seen an impressive growth in its financial sector, accompanied by the rapid rise of African banks with cross-border operations. This dynamic expansion has contributed to stronger competition – including, with foreign banks in the region. But it has also widened the spectrum of risks.
At the Ghana conference, policymakers examined the central issues they face in the coming years, as they move to forge stronger domestic and regional supervisory arrangements that can help mitigate those emerging risks.
Financing for infrastructure
Another crucial challenge facing West Africa as it builds upon its recent economic gains is the mobilization of long-term financing for infrastructure development.
The conference examined the approaches to creating a regulatory environment that can enable developers, investors and financiers to raise the capital needed to advance West Africa’s plans for expanding its transportation, energy and related infrastructure networks. (Photo: Ghana’s Akosombo electricity generating Dam).
Sub-Saharan Africa has been one of the world’s economic bright spots in recent years, posting the second-fastest rate of growth after emerging Asia.
Regional output is expected to expand 5 percent in 2013 and 6 percent next year.
Going forward, sustaining this performance will require overcoming such constraints to growth as those imposed by infrastructure gaps. Regionally mobilized long-term financing could help fill those gaps.
Speaking at the opening of the conference, Ghanaian Vice President – Kwesi Amissah-Arthur, said that “the development of sources of infrastructure financing is critical at a time when a reversal of (international) capital flows may constrain the capacity of governments to financing infrastructure needs.”
He called on the conference to draw lessons from other regions that have mitigated risks associated with financial sector integration.
IMF Deputy Managing Director – Naoyuki Shinohara, said that the conference reached important conclusions that will have to be taken forward by the participating governments.
“International experience tells us that more complex financial systems require more sophisticated supervision to maintain financial stability,” he said.
“Countries in West Africa are now host and home to financial institutions that can only be supervised effectively if countries cooperate closely in all aspects of supervision.”
Attract Private Sector
Shinohara also highlighted the importance of financial sector development in creating a business and regulatory environment that attracts private sector investment.
IMF officials underlined the importance of the institution’s technical assistance in this area, drawing upon the experience of other regions.
To support this capacity development effort, the IMF says that it will open a new technical assistance centre based in Accra in early 2014. The centre will assist six of the ECOWAS countries. A centre based in Cote d’Ivoire already supports other countries from the grouping.
African officials highlighted the importance of cooperation in developing regional integration. “The issues discussed at the conference, clearly show that we have some way to go to deepen that cooperation,” including information sharing and bank resolution, said Ghana’s Central Bank Governor – Kofi Wampah, at a closing press conference.
But, as the curtain falls at the close of the Accra conference, the European Union took the opportunity to announce a €6.4 billion funding support package for West Africa’s development and integration.
A welcoming news for West African governments, the EU Commissioner for Development -Andris Piebalgs made the announcement following a round of discussions with Ministers and other authorities from the region, on the priorities to be funded for the next seven years: 2014-2020.
This €6.4 billion Euros funding will give a much needed boost to the sub-region’s development aspirations, especially in tackling joblessness among the youths.
In particular, it will stimulate economic growth and job creation for the 300 million citizens of West Africa.
Commissioner Piebalgs said: “Our new support reflects our ongoing commitment to investing in West Africa. But we want to see the region and its countries in the driving seat. I believe working together in such a partnership, we can continue making major progress towards increased development and prosperity for this region.”