La BAD au FEM 2011-Une région, l’Afrique. Trois défis, de la vision à l’action

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On 4 May 2011 at the World Economic Forum on Africa in Cape Town, the African Development Bank (AfDB) participated in a session entitled “One Region: Africa – Three Challenges.  From Insights to Action”.

The following is some AfDB information regarding the subject.

Africa can transform through progress on investment and regional integration, and ensure investment reaches the right places.

The private sector’s interest infrastructure investment is growing.  But regional investments carry increased commercial and political risk that act as a barrier to entry.

Political economy issues – particularly sovereignty issues - are a major obstacle to investment.  Africa can learn from initiatives made in other regions such as the European Union, Asia and Latin America.  

The focus should be on issues such as harmonization of standards, legal and regulatory frameworks, enforcement, and build capacity with regional regulators to leverage investment.

African partners must tackle difficult reforms and mobilize more domestic resources.

The AfDB can use aid innovatively to help facilitate and address market failures, particularly legal and regulatory issues, or political and commercial risks.

Private sector, infrastructure and regional integration are the AfDB’s core business.  We can offer independent expertise, knowledge and finance to help design and implement difficult reforms.

We can also increase infrastructure financing, particularly for cross-border investments.  Additionally, the AfDB can use existing and emerging instruments to leverage resources, and use its influence and ability to mobilize partnerships for development policy, financing and coordination on priority projects at national and regional level.

General points

The general consensus is that regional cooperation and economic integration are an integral part of a development strategy aimed at boosting economic growth, structural transformation, and poverty reduction. Integration is vital to overcome the problems of fragmentation and small markets, promote intra-African trade, boost Africa’s export competitiveness, and promote diversification and inter-linkages among production units in various countries and promote industrialization and economic growth and job creation.

Institutional challenges for investment to support shared and inclusive growth:

  • Building political consensus:  Political obstacles can seriously hamper economic and financial investment, particularly issues of national sovereignty.  These must be dealt with and a high level of trust is needed.
  • Setting priorities for regional investment: Due to a daunting investment agenda, better sequencing and priority setting of regional projects has sometimes been elusive. PIDA will come up with a priority and consensus list of projects for endorsement by African Heads of State in January 2012.
  • Developing and enforcing regional regulatory frameworks: Physical integration of infrastructure networks can only be effective with harmonized regulatory frameworks and administrative procedures to allow the free flow of goods and services across borders. This includes enforcement by regional authorities, and the right incentives need to be found.   
  • Facilitating project preparation and cross-border finance: A shortage of bankable projects is a key bottleneck for delivery of transformative projects.  The scale and complexity of regional infrastructure projects makes them costly and time-consuming to prepare.  
  • Establishing effective regional institutions: Regional institutions have to facilitate agreements, enforce legal and regulatory frameworks and negotiate compensation where necessary.  We need a focused effort to build up core capacities and skills of regional bodies to leverage investments.
  • Procurement, environmental and social issues also create challenge:  Procurement capacity remains mixed across the continent, which not only hampers ability to deliver on national investments, but also exacerbates problems on regional projects with procurement delays creating problems for investors.  Environmental and social issues such as resettlement need to be adequately addressed to create incentives for sustainable investment.

Changing the internal practices within the Development Partners

The G20 Action Plan is discussing certain areas.  One is the development of PPP policy, legal and institutional frameworks and e-procurement rules.  Another is debt sustainability and a review of credit policies.

Development partners can play a catalytic role in financing projects, but developing Africa’s infrastructure will require substantial financing from domestic sources, both from the state and the private sector.

Innovative Financing Mechanisms and Instruments

Processes include: Innovative structuring of projects to address investor’s needs, particularly commercial risks  Amending MDB credit policy resources.  Use of local and foreign currency bonds  Private equity participation. Sovereign wealth funds.  Participation by emerging South partners. 

Mitigation of commercial and political risk. First loss portfolio guarantees.

Other Instruments for AfDB

  • Programming Instruments: RISPs are the main instrument for delivering the Bank’s support to RI, and to complement the CSPs, which address country level development constraints.
  • Financing Instruments: ADF Country Resources; ADF Multinational Operations Window; ADB Resources; Private Sector Window,  MIC Trust Fund, EU ITF (AfDB UK nominated financier on the blending instrument).
  • Co-financing, other Financing Instruments, and Mobilization of Other Financial Resources: The Bank will step up co-financing and seek to explore various avenues (including utilization of trust funds such as the NEPAD IPPF and AWF, the MIC Trust Fund, and mobilization of financing from the Gulf States and emerging donors such as India, China and Russia as well as from the not-for-profit NGOs, and use of instruments such as guarantees, and other credit enhancement mechanisms) to secure other concessional and semi-concessional resources that can also benefit the ADB-only countries to facilitate implementation of the Regional Integration Strategy.
  • Additional Instruments: Advocacy, Policy Dialogue, and Knowledge Product.

Addressing Country Specificities

The Middle Income Countries (MICs) have the potential to serve as catalysts for regional integration, and in line with the Bank’s MIC Strategy.

In the island countries, the promotion of financial integration and the development of infrastructure projects have regional dimensions and impact, especially on trade.

Fragile States will also be given special capacity building support and other assistance through grants and technical assistance to facilitate their participation in regional integration initiatives.