Omar Kabbaj, president of the African Development Bank, discusses with The Banker the core issues of growth and poverty reduction in AfricaKey challengesWhat are the key challenges facing Africa and the African Development Bank?
The big problem in the continent is achieving sustainable and broad-based economic growth, and reducing poverty. More than 50% of the people in the region are living below the poverty line and have huge needs in terms of water, electricity, etc. Recent studies have shown that Africa would have to pull 4% of its population out of poverty each year to meet one of the Millennium Development Goals – that of halving the proportion of people living in extreme poverty (less than $1 a day) by 2015.
The rates of growth required to achieve such a reduction of poverty vary from country to country but we need to reach 6%-7% growth overall and only a few countries are doing that. The latest estimate shows that since 1995 Africa’s trend growth rate has been 3.3%, only half of the 6%-7% required.
As in the previous year, however, the growth in 2002 was unevenly distributed across the 53 countries. A prominent feature of 2002 is that, while the number of countries with growth rates in excess of 5% declined from 19 in 2001 to 13 in 2002, the countries with 3%-5% growth rates increased from 12 to 14 in 2002, and those between 0%-3% also increased from 16 to 19. Only five countries registered negative growth in 2002.
The three factors that accounted for the relatively poor performance were: first, the adverse external environment, which affected exports and tourism in north Africa; second, the drought-affected agricultural production in east, northern and southern Africa; and third, socio-political conflicts, particularly in central and west Africa.
The main responsibility lies with the countries themselves, which need to create the right environment for private sector development. The role of the international community in helping this process is critical because historical savings rates of below 20% are unlikely to allow these higher rates of growth to be achieved.
International help
How can the international community help Africa to achieve its objectives?
Help from the industrial countries is required and we appeal to them in three broad areas. In terms of overseas development assistance, Africa needs to receive $50bn a year, more than double the $20bn it receives now.
Good initiatives have been made recently that can make a dent in this $50bn: the announcement at Monterrey by President Bush and the EU amounts to $16bn but this is a long way short of the $50bn needed. The G8 summit at Evian in early June restated this same figure.
While the $16bn is a large figure in itself, it is small compared with the amount that developed countries spend on subsidies, which is more than $300bn.
In terms of debt relief, a lot of progress has been made under the HIPC (highly indebted poor countries) debt relief initiative: 22 countries have already reached agreements thereby helping with poverty alleviation. Seven other countries are expected to qualify for debt relief in 2003. The problem now is that in recent years the HIPC initiative has been dented by trade losses through low commodity prices for such primary exports as coffee, whose price has fallen sharply.
In practice, in many of these countries what we have given in terms of debt relief has been wiped out by the decrease in commodity prices and relief cannot compensate for these losses.
The third key area is trade. Two initiatives are important: the US African Growth and Opportunity Act (AGOA) and the European Union’s ‘Everything But Arms’. But these initiatives, we believe, are not enough. We had high hopes for the Doha trade negotiations [of the World Trade Organisation] but Doha has not worked as it was designed and has been dormant.
We appeal to the international community to take the Doha development round seriously and to address the issues of subsidies. The issue of farm subsidies is very important for African countries because agricultural exports are a major part of their exports and these are hampered by the subsidies of the West. We are asking for support for developing countries and for special treatment under Doha. This special treatment is a general issue but applies to trade and medicines for example, especially for countries with a limited number of export commodities.
We appeal to our development partners to seriously consider removing the many tariff and non-tariff barriers, as well as the various forms of subsidies that prevent the emergence of a level playing field for African exports.
Private sector role
How do you see the role of the private sector and of foreign banks in developments in Africa – the activities of the commercial banks, for example, appear to be limited?
Yes, the role of the commercial banks is very small but this is linked to the key issue of attracting the private sector. The African countries need to make big improvements in the environment for the private sector and that includes banks. By accelerating privatisations and by improving countries’ legal and judicial systems, which is important, much better protection can be given to property rights.
African countries need to privatise their financial sectors more than at present. Some are well advanced, some are not. The Africa Development Bank (ADB) is pushing privatisation in general, including that of the financial sectors. We are strongly in favour of it and we are financing many such operations.
Obviously, the more advanced are South Africa and the north African countries. There is good penetration of international banks but not at the level we think it should be. In regards to Ethiopia [which has no foreign banks by law], we are concerned and are pushing there but they are going about it at their own pace. We believe that countries will lose by not following our approach.
ADB prospects
How would you describe the African Development Bank’s financial position and its future?
We have a strong financial position, our capital ratios have improved since 1996 and our net income improved in 2002. We have an AAA rating from three rating agencies and, in 2002, all three windows of the Bank Group earned healthy incomes, as has been the case in the past five years.
The bank, in particular, registered a strong increase in its operating income, reaching $257m, a 63% increase on the $158m reported for 2001.
Furthermore, I wish to stress that for the ADB all financial performance indicators improved in 2002, with most comparing favourably to our sister multilateral development banks.
In 2002, Bank Group approvals, including HIPC, amounted to $2.8bn and ADB approvals totalled $1.2bn in the year, the highest level in eight years. In 2002, the Bank Group was able to mobilise $3bn in co-financings, including a $500m three-year global bond for which it was ranked 12th among the world’s most successful 500 bond issuers by The Banker (November 2002, p23). This $500m global transaction, mandated to BNP Paribas and Daiwa Securities SMBC Europe was the ADB’s first public bond issue since March 2000.
This year we intend to raise $3bn in the international markets, depending on market conditions, and we intend to raise $1bn in a global issue soon.
HQ move
The bank has been forced to move its operational headquarters away from its troubled HQ in the Cote d’Ivoire to Tunisia. How has this been done and what are the prospects of moving back to Abidjan?
The move in February this year was unprecedented and we are now reconstituted in Tunis as if it did not happen. But the official HQ remains in Cote d’Ivoire and we will return once the conditions are suitable.
The move to Tunis has been approved for two years and will be reviewed every year.
We will not go back for two years, with an additional one year’s notice – so not before 2006 at the earliest.
