African economies have “passed stress test”

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African economies have shown resilience in the face of global financial adversities, have passed the stress test and can be expected to achieve economic growth this year, says Donald Kaberuka, president of the African Development Bank (AfDB).

Addressing African finance ministers April 26 in Washington, Kaberuka acknowledged that the global financial crisis has done some damage, but said African economies are expected to average 5 percent economic growth in 2010 and 6 percent growth in 2011, with some countries forecast to achieve an even higher rate.

In many African countries, he said, the crisis has “only been a setback.”

The entire continent has been subjected to a “stress test and has passed,” he told the ministers, diplomats and finance experts, many of whom were in Washington for World Bank and International Monetary Fund meetings.

For sub-Saharan Africa, Kaberuka said, capital inflows to the region swelled from $10 billion in 2001 to $53 billion just before the economic crisis in 2007. He acknowledged however, that much of the inflow has been concentrated in a few countries and dependent on factors such as the size of the market, the level of political stability, the depth of financial markets and the availability of natural resources.

The AfDB president said while the region’s four largest countries accounted for about 88 percent of those capital inflows, there was a “broadening out” of the recipient base just before the crisis.

As conditions improve and investors see more of the changes they like to see — political stability, accountability and economic transparency — Kaberuka predicted, “I think we will see a change.” He added that Africa is changing right now, but acknowledged that many people are not yet seeing it.

As an example, he pointed to Cape Verde, calling it a “miracle” country in Africa. Cape Verde has gone from being very poor to being a middle-income country. It is no longer receiving soft or concessional loans from the AfDB, he said, but is now borrowing money at market rates. Even though it is still in need of foreign aid, investment and tourism, he said, Cape Verde has made great strides through remittances from its expatriate community and by making good choices.

The African Development Bank has worked hard to stimulate development in Africa, he said. Financing activities by the AfDB have increased from a modest $300 million in 2005 to $1.6 billion in 2008 through direct lending and equity participation.

The global financial crisis presented the AfDB with challenges but also the opportunity to innovate, he said, adding that the goal of the AfDB is to make every dollar it puts into the African economy count for five dollars in real terms to help stimulate economic growth and development.

Kaberuka told his audience that he is convinced that “the macroeconomic reforms that took place in Africa in the 1980s — mainly in the areas of public finance and exchange rates — have provided a very firm foundation [on which to build]. Now what we need are reforms in the microeconomic areas and the efficiencies of institutions.”

Questions are often raised about how much more aid can be given to Africa, he said.

“There is another way to look at this problem,” he said, and he identified lack of infrastructure as the biggest hindrance to Africa’s development and a factor “beyond any country or firm” to confront singlehandedly.

He said the explosive growth of telecom markets in Africa has stepped up demand for fiber optics and satellite communication facilities to meet a substantial need. “At the same time,” he added, “growing businesses large and small are hampered by power outages, poorly maintained roads and dilapidated railways.”

Africa — a continent with 1 billion people, 40 percent of whom live in urban areas and are in need of housing, telephones and services of all types — needs infrastructure. And this need for infrastructure is transforming Africa. In response to these needs, he said, 60 percent of AfDB’s financing in Africa goes to infrastructure — roads, rails, water, broadband, etc.

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