General Capital Increase: AfDB Braces to Meet Commitments

13/05/2010
Share |

As the global financial and economic crisis spread pain and suffering across the globe, many knew that Africa, a continent that was posting some impressive growth rates, would face many challenges.

The continent’s growth had, in part, been driven by soaring commodity prices and confidence in the continent had increased as governance and the business environment showed signs of improvement.

During this time, the African Development Bank (AfDB) Group, the continent’s lender of choice, had carefully crafted, a medium-term strategy for the 2008-2012 period to chart the way forward. That strategy did not envisage a General Capital Increase (GCI) till 2013 at the earliest.

It was, at the same time, a strategy predicated on continued solid growth in most African countries and the role of the Bank in supporting that growth through better infrastructure, stronger private sector, more robust institutions and greater economic integration.

As the global economic turbulence reached the continent’s shores, the Bank had to innovate to support its regional member countries in their efforts to mitigate and minimize the impact of the crisis. The Bank had to respond quickly and effectively to requests by its regional member countries to enable them maintain crucial investments, thereby mitigating the worst effects. Given this situation, the continent’s leading development finance institution had to call for a capital increase to enable it play the counter-cyclical role the G20 had requested of MDBs.

As demand from regional member countries surged, AfDB resources were utilized much more quickly than envisaged in the medium term strategy and it became clearer that a GCI, which was not expected till 2013, had to kick in sooner rather than later to avoid breaching prudential ratios.

The alternative, without such a GCI would have been to drastically scale back operations, both to sovereign borrowers and the private sector, an undesirable path given the continent’s needs.

Today, there is a consensus on the need for a general capital increase as recommended by the institution’s Governors Consultative Committee (GCC) which met on April 23, 2010, in Washington, D.C.

As justified by the institution’s president at a conference on financial flows to Africa hosted by the Hudson Institute and the Whitacker Group on Monday, April 26, 2010, in Washington D.C. a general capital increase will give the institution the means to continue to meet the continent’s infrastructure demands – not just traditional infrastructure like roads, bridges, water, sanitation, and power, but also – and increasingly important – information infrastructure.

The plea has struck the right note, but it comes with more responsibilities and commitments. But the AfDB is already working hard to meet these commitments.