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Closing Africa’s infrastructure funding gap should be primary goal, says regional bank chief

Africa’s “primary task” is to close the $50 billion annual infrastructure funding deficit, which costs the region at least 2% in annual gross domestic product growth, the head of the African Development Bank (AfDB) has said.

AfDB group president Donald Kaberuka said private capital will be a “large part of the answer” in closing the financial gap in the form of foreign private equity, debt and the “untapped resources” of African pension funds and capital markets.

“The continent needs to achieve real regional economic integration through the building of road, rail and air linkages, opening up borders and eliminating needless ‘soft’ regulatory standards hindering trade,” Kaberuka said.

Kaberuka also called for the “better management” of Africa’s natural resources to ensure that it takes advantage of “the current strong cycle of commodity prices”. However, he said “commodities should not be sold on the cheap... instead they should be processed in value chains and exported on fairer trading terms”.

There will be challenges in supporting African states that are “still experienced the fragility” inherent in the development process, Kaberuka said. However, “at the root of all these challenges is the gap in African infrastructure, which is both the means to trade and the route to economic and social development”.

Kaberuka said. “The key is to take the risk out of the equation. Today, the prerequisites are in place in the policy and regulatory areas, the public-private partnership frameworks, and independent regulators. The tools of risk mitigation, such as credit guarantees, are also in place, giving comfort to investors, especially in ‘high-risk’ and low-income countries.”

Kaberuka said: “Africa is no longer the place for ‘business as usual’. Today, it offers a different value proposition, as it moves towards economic transformation.”

Africa’s economy “has grown fourfold” since the turn of the millennium and sub-Saharan Africa is “out-performing the rest of the world in terms of economic growth and at long last banishing any doubts about the continent’s upward trajectory”, Kaberuka said.

The emergence of a “multi-polar economic world bringing new investment sources and export destinations” is among key trends that are now influencing the continent, Kaberuka said.

Africa’s “human capital” of a young and increasingly-urbanised continent of one billion people, which is expected to double to two billion by 2050, is another key factor that can spur development, Kaberuka said.

Meanwhile the “continuing discoveries of large amounts of natural resource wealth”, couple with Africa’s ability to “leapfrog”  more developed regions in sectors such as technology and mobile communications are also among “big trends” that can increase investment and development throughout the continent, Kaberuka said.

According to the Africa Economic Outlook 2014 (317-page/7.12 MB PDF), compiled by the AfDB, the Development Centre of the Organisation for Economic Co-operation and Development and the UN Development Programme, foreign investment in the continent, direct and portfolio, has “fully recovered from the effects” of the financial crisis and is projected to reach a record $80bn this year.

Africa’s growth is projected to accelerate to 4.8% in 2014 and 5-6% in 2015, levels which “have not been seen since the global economic crisis of 2009”, according to the report.

A ministerial-level International Monetary Fund (IMF) conference was told this year that the creation of a “large portfolio of bankable infrastructure projects” in central Africa would trigger increased contributions from the sub-regional banking sector and the capital markets. However, the IMF said infrastructure development must be accompanied by structural reforms to “promote a strong private investment climate”.

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