‘There’s no cooking like home cooking’: Harnessing the power of local capital to finance Africa
“It seems we are all agreed that the solutions lie within Africa,” said Charles Boamah, Acting First Vice-President and COO of the African Development Bank, and moderator of a panel debating the power and potential of African local capital markets on Day 2 of the Africa CEO Forum in Abidjan. The panelists were unanimous that Africa has the means to finance its own development needs, and the discussion focused largely on the methods. With necessity the mother of invention, Africa has been reinventing itself to fund its own needs, said Boamah, but more needs to be done and it has to be done faster. The task at hand for the panel therefore was to unpack and unpick how best the continent should continue along this track.
Luc Rigouzzo, Managing Partner of Amethis Finance, had set the scene. “Is Africa really so dependent on the rest of the world for its economic fortunes?” No, he said, the evidence suggests otherwise, and in particular the resilience of non-resource-rich African countries in the face of the recent global commodity downturn and economic headwinds has shown us that. As to whether Africa has reached the necessary maturity in terms of its own financing, he answered “Yes”. African financial flows are already significantly African, and total external financial flows in fact amount to less than 8.4% of Africa’s estimated annual US $2.5-trillion economy. The external flows which are Eurobonds (0.6%), portfolio investments (0.7%), remittances (2.6%), overseas development assistance (2.2%) and foreign direct investments (2.2%) account for less than 10% of total annual financial flows. Meanwhile domestic credit to the private sector accounts for at least 36%, and endogenous tax revenues at least 22%.
Ngozi Okonjo-Iweala, former Nigerian Finance Minister and World Bank Vice-President and now a senior adviser at Lazards, said that Africa’s and the world’s development financing needs are indeed huge, and that raising current African tax revenues of approximately one fifth of GDP to the OECD rate of a third of annual GDP will be transformative, as will be the effective channeling of the estimated $380 billion of African pension fund resources into infrastructure and productive investments. However, sound macroeconomic policies, she said, remain the foundation for consolidating gains and spurring growth.
The Vice-President and Treasurer of the International Finance Corporation, Jingdong Hua, drew lessons from the Asian financial crisis of 1997 where policy-makers from across a number of South East Asian countries made the firm decision never again to rely on flows from foreign capital markets, but rather to concentrate on developing local capital markets. The results today, he said, speak volumes. One form of local finance to be mobilized, said Jean Kacou Diagou, President of the Federation of West African Employers Associations, NSIA, is insurance. “It’s not part of our African mentality,” he said, “and it needs to be. With the right regulatory environment, Africans will begin to take out insurance and save for the long term.”
Ade Ayeyemi, Group Chief Executive Officer of Ecobank, alighted on the issue of inbred ideas. “Saving and sourcing locally is grounded in our culture,” he said. “With the right conditions, we must encourage saving for the long term, and with the confidence of investors knowing they will get a decent return and that the value of their savings will not be eroded by inflation. We need confidence, confidence, confidence for our investors .... and that means discipline, discipline, discipline, from our governments.” Henri-Claude Oyima of BFGI Bank, crowned African Banker of the Year by the Africa CEO Forum the night before, reinforced the theme. “It is strong banks and strong institutions that generate credit.”
In one word, asked Boamah, what will ensure the success of African capital markets? Freedom, to invest ... and the state trusting the private sector to do so, said Oyima. Confidence, generated by both government and people, said Ayeyemi. Encouragement, for local savings and local companies, said Diagou. Localisation, said Hua: concentrating on local capital markets, and borrowing and using local currency. Discipline, said Okonjo-Iweala: sticking to the macroeconomic disciplines that have served Africa so well for a decade, and going further to reduce the perception of risk that still dogs African growth. Jingdong Hua was succinct: “It is a necessity, not a luxury, to develop local capital markets.”
The fourth edition of the Africa CEO Forum, the foremost international meeting for African CEOs, bankers and investors, is taking place March 21 and 22, 2016, in Abidjan, Côte d’Ivoire.
For more information, visit http://www.theafricaceoforum.com