The African Development Bank (AfDB) will be receiving the swagger Dr. Akinwumi Adesina brought to Nigeria’s agriculture sector, as he begins his term as president today. He takes the helm in times that are significantly different from when his predecessor, Dr. Donald Kaberuka got his start, and present their own set of challenges and opportunities, some of which I will cover here.
The Bank is Operating in a Different World
For six of the ten years President Kaberuka served as AfDB president, the US Federal Reserve was implementing its policy of quantitative easing. During QE, we saw investors’ risk appetite and willingness to place money in developing markets increase, creating an environment for several African countries to dip into the debt markets to finance infrastructure development and address deficits.
Now that QE is over, there is concern we could see a reversal depending on how aggressively the Fed hikes interest rates and to what extent emerging market growth slows. The Institute for International Finance projects that 2015 private capital inflows to Sub-Saharan Africa should still increase, though slightly.
If this proves accurate over the next several months, it would have been a cause for relief for countries like Ghana that have dipped into the debt markets, but are experiencing significant fiscal struggles and have been trying to figure out how to maintain investor confidence.
The Bank is Different
The AfDB is a much different bank than it was 10 years ago. The AfDB was issuing about $400M in lines of credit when President Kaberuka began his first term. Now, it issues more than $3 billion. Over the course of his tenure, the AfDB has approved $28 billion in infrastructure projects, $10 billion more than the bank had approved between the bank’s creation in 1964 and 2004.
Further, the AfDB worked on incorporating the private sector into its business model, increasing the number of public private partnerships it involved itself with, and a large reason for the growth in the bank’s lending portfolio.
These two developments, along with a concerted focus on integrating African countries at a regional level serve as significant opportunity areas for driving the continent’s growth further.
Back in 2009, the World Bank came out with data that about $93 billion annually over ten years was needed to bring Africa’s infrastructure up to a competitive level. It would be interesting to see what progress has been made against this figure. If the $93 billion need holds true, there will be plenty of room for the AfDB to engage new project development around energy, transportation, and agriculture, which will require private sector participation and often planning at a regional level.
Developing Country Development Banks Are On The Rise
The World Bank missed an opportunity to reshape the global power structure between developing and developed countries with the election of Jim Kim to be its president in 2012, rather than candidates from developing countries like Nigeria or Mexico. The following year, Brazil, Russia, India, China, and South Africa formed the BRICS bank, now known as the New Development Bank.
China is also setting up the Asian Infrastructure Investment Bank (AIIB), whose primary focus is Asian countries, but could expand to African countries. The more the merrier according to President Kaberuka, per his recent remarks at the Brookings Institution, suggesting that the AIIB would do well to invest in Africa. We will have to see how China’s continued economic right sizing impacts ventures like the AIIB.
What Dr. Adesina Will Be Working On
Dr. Adesina has stated several times that he will be building on the already strong work President Kaberuka had done over the past ten years. A lot of his focus areas echo those sentiments. For example, he has talked about developing regional centers of excellence to help support natural resource development capacity, and complement the Africa Legal Support Facility’s efforts to help African countries negotiate better deals in the extractives industry.
Building on the scale the AfDB has reached in its infrastructure investments, Dr. Adesina campaigned on building “integrated smart infrastructure,” to ensure the bank can measure its impact. This will complement the work of the Africa50 fund, another legacy of President Kaberuka. The $3 billion fund is focused on accelerating infrastructure investments across the continent to close Africa’s aforementioned $930 billion infrastructure gap with the rest of the world.
This focus area should also feed into other parts of his vision for the AfDB’s work, including the development of resilient cities and building the continent’s agriculture value chains.
Potential Risks on the Horizon
The continent’s two largest economies – South Africa and Nigeria – have faced challenges with energy and fiscal matters. The Nigerian government continues to deal with falling oil oil prices, among other challenges, all while President Muhammad Buhari has just begun to announce his cabinet after several months in office. South Africa is continuing to deal with the fallout of rolling blackouts, though it too should continue to see a rise in capital inflows.
As the AfDB pushes for regional integration, the ripple effects of challenges in individual African economies will grow. The Greek debt situation has not been pretty to watch and something like that happening to an African country would be really frustrating.
Further, it is difficult to see how the country can break from a cycle of loan repayments. The cautionary rAfrican countries will approach each step in integrating their economies with caution.
The importance of African countries communicating their growth strategies is paramount, especially now that the QE program is over. This is especially true for fragile countries as the AfDB pushes for more inclusive growth on the continent.
Keep Your Eye on the Bow Tie
Dr. Adesina delivered impressive results in Nigeria’s agriculture sector by closing loopholes for corruption in the country’s seed market, setting up a $100 million private equity fund, and boosting rice production, as a few examples. I look forward to seeing where he takes the AfDB.