Blitz Bureau
NEW DELHI: African Development Bank (AfDB) President Sidi Ould Tah, who took office last September, proposed the New African Financial Architecture for Development (NAFAD) to help Africa “raise development finance at scale, at speed, and at lower cost, primarily from its own resources.
He was speaking at the premeeting of the African Development Bank’s annual gathering in Nairobi on May 25. The continent faces shrinking aid flows and an Ebola outbreak. Overseas development aid from the world’s richest nations to poorer countries dropped by nearly a quarter last year to $174.3 billion. The US led the cuts, including reduced funding to the concessional lending arm of the AfDB – Africa’s largest development lender.
“Africa needs long-term finance for energy, food security, climate adaptation, infrastructure, and jobs for a growing and anxious population,” the AfDB said in a statement. “That chasm demands audacious solutions.”
Backers of the NAFAD
plan, including African governments, say the continent has $4 trillion in institutional capital – including in pensions, sovereign wealth funds and savings schemes – which could be tapped to fund development. At the moment, however, much of it is fragmented and invested in a disjointed manner, they say. “There is capital in Africa, but Africa’s development projects remain starved of financing,” said Kenyan President William Ruto at a conference in Nairobi earlier this month.
NAFAD aims at pooling financial resources to finance viable projects in areas such as infrastructure, he said. Critics say the stocks of capital cited by officials are already invested, arguing that governments should instead focus on boosting savings rates.
Savings rates
Sub-Saharan Africa’s savings rate is about 18 per cent, less than half the global average, World Bank data shows, reflecting low incomes and a young population.
“The size of the continent’s developmental needs means that domestic savings and other forms of domestic capital will not be able to do the job,” said Jacques Nel, head of Africa macro at the Oxford Economics advisory firm. “Focus should be on leveraging domestic capital to catalyse foreign capital inflows (and) … Derisking projects by providing some forms of guarantees.”
