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Capital Increase Will Enable AfDB Meet Africa’s Infrastructure Demands

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Tunis, 28 April 2010 – The African Development Bank (AfDB) Group President, Donald Kaberuka, has said that Africa’s infrastructure needs will benefit most from a general capital increase as recommended by the institution’s Governors Consultative Committee (GCC) on 23 April in Washington D.C.

A general capital increase will give the institution the means to continue to meet the infrastructure demands of the continent – not just traditional infrastructure like roads, bridges, water, sanitation, and power, but also – and increasingly important – information infrastructure, he said.

President Kaberuka made these remarks at a conference on financial flows to Africa hosted by the Hudson Institute and the Whitacker Group on Monday, 26 April 2010 in Washington D.C. The conference focused on the importance of remittances, and showed the full scope of financial flows to Africa in recent years.   

Highlighting the need for continued financial flows to Africa, Mr. Kaberuka made the point that “Africa is too often viewed from the prism of foreign aid and these types of non-official transfers – whether remittances, foreign direct investment, and even portfolio investments – are not given enough weight.”  In mentioning the importance of remittances, Mr. Kaberuka pointed to Cape Verde – his next destination from Washington – as a country that has seen significant per capita income gains largely from remittances.

He discussed the Bank’s response to the financial crisis, and the importance of the GCC’s strong recommendation to triple the capital resources of the Bank to USD 100 billion.  

The Bank was able to respond to the severe disruption of financial flows by using new fast-disbursing instruments and budget support where needed, as well as a trade financing facility in cooperation with the IFC – a financial instrument not traditional to the Bank.

Mr. Kaberuka also discussed the Bank’s catalytic power in generating additional private sector funds – as opposed to displacing the private sector.  Instead of “crowding out” the private sector, the Bank is focused on “crowding in” the private sector, to the point that every $1 of Bank financing results in about $5 of private sector financing.  And the Bank has also used its convening power to bring private equity investors to the table to help find opportunities to grow the private sector on the continent, he said.

The AfDB President reflected on what few would have predicted going into the crisis: that African countries demonstrated remarkable resilience.  The Bank’s response helped to make that happen, but also because many countries in recent years have strengthened their macroeconomic positions and adopted good policies that helped them to be more resilient.  As President Kaberuka put it, “It was like the entire continent was put to a stress test – and it passed.”

Some setbacks occurred – an important reason why new resources are required – but Mr. Kaberuka noted that the continent was rebounding. According to the most recent IMF projections; in 2010 Africa will grow by 5%, and in 2011 by 6%.  Although, President Kaberuka noted that the external flows to most African nations were modest – with the four largest countries accounting for 80% of the inflows.  An important goal of his is to see more countries seeing greater private sector inflows.  

Putting Africa in the context of the world economy, President Kaberuka compared it to India – a nation he has recently visited. Both continents have about a billion people, but the difference with India is that the country now has a very large and growing middle class.  

That has to be the goal in Africa, he said, stressing two important keys to getting there: greater long-term stability and a strong focus on the growing infrastructure needs of the continent. About 60% of the Bank’s financing now goes for infrastructure development.

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