A New Capital Equation
Thursday 11th June 2009 - 10:45am - 12:00pm
Obiageli Katryn Ezekwesili•
Linah K. Mohohlo•
Moderated by •
Thursday 11 June
The global economic crisis has led to sharp reductions in each of Africa’s major sources of development capital: export earnings, foreign direct investment and remittances. While multilateral lenders such as the World Bank and the IMF have promised to offset part of the financing gap, most developed countries show little appetite for expanding official development assistance. Clearly, noted moderator
Raenette Taljaard, Executive Director, Helen Suzman Foundation, South Africa; Young Global Leader, the continent will need to seek out alternative sources of capital, both domestically and abroad.
Donna Oosthuyse, Managing Director, Chief Operating Officer, Citi Africa Division, Citi, South Africa, cited widespread concerns about a trend towards “financial nationalism”, which could further restrict the availability of foreign capital – at a time when bank liquidity is already constrained and global investors are demanding dramatically higher risk premiums. This highlights the importance of encouraging domestic savings and developing African capital markets as outlets for those savings. To a certain extent, Oosthuyse explained, African exchanges face a chicken-and-egg dilemma: Local companies are unwilling to list their shares as long as there is a lack of investors; while investors are unwilling to invest in local shares as long as exchanges remain small and thinly traded. In the end, she argued, African governments need to break this logjam by facilitating the creation of new pools of long-term investment capital, such as pension funds.
Africa’s most immediate capital need is to fill an estimated US$ 40 billion shortfall between required infrastructure spending and the funds currently available to finance such investments, said
Obiageli Katryn Ezekwesili, Vice-President, Africa Region, World Bank, Washington DC. She estimated that the continent could add two percentage points per year to its GDP and raise average productivity by 40% simply by improving basic infrastructure to the same level achieved by Mauritius. The needed funds – or US$ 20 billion – could be raised by eliminating waste and corruption and improving the efficiency of existing infrastructure budgets. “The opportunities the continent has with its existing resources are huge,” Ezekwesili said.
Linah K. Mohohlo, Governor of the Bank of Botswana, seconded Oosthuyse’s call for further development of African capital markets. Much of the continent’s available capital, she said, sits in bank deposits and other short-term cash instruments, leading to excess liquidity that greatly complicates monetary management. African governments with relatively strong credit ratings, she said, should expand their use of bond financing to soak up this liquidity. This would also produce side benefits, such as creating yield curves that could serve as benchmarks for pricing private loans and improving the competitiveness of Africa’s financial services industry. “Once we do that, and the private sector takes an interest, there’s no question we will be able to boost our domestic stock exchanges,” Moholo concluded.
Treasure Maphanga, Chief, Office for Africa, International Trade Centre (ITC), Geneva; Young Global Leader, urged policy-makers, investors and international donors not to ignore the “soft infrastructure” needed to boost productivity and competitiveness. This includes leveraging existing technologies, such as mobile communications, to provide rural populations with better links to global supply chains, and building more effective public-private partnerships. She also encouraged African governments to reach out to educated professionals who have emigrated to the developed world, saying this diaspora constitutes a “precious resource” that could be tapped for investment and technology transfer. “People often lament the brain drain, but the people on the other end of the remittances are also our natural partners for development,” Maphanga said.
• African countries need to prepare themselves for the possibility that the global economic crisis could lead to a longer term reduction in global capital flows to the continent. The encouragement of domestic savings and the development of local capital markets are both urgent imperatives.
• The cheapest way to generate capital is to reduce the wastage of existing resources. This includes improving the efficiency of infrastructure spending and deterring corruption and illicit capital transfers.
• While seeking to curb the migration of educated and technically skilled workers to developed countries, policy-makers should engage with the diaspora to promote development and technology transfer.
Senior Lecturer, Public Policy, University of Cape Town, South Africa
Raenette Taljaard is an Adjunct Senior Lecturer in the Political Studies Department of the Universit...
Obiageli Katryn Ezekwesili
Senior Economic Adviser and Public Policy Analyst, Open Society Institute, Nigeria
Studies in Business Admin.; 1987, Master's in Int'l Law and Diplomacy, Univ. of Lagos; 2000, Master'...
Linah K. Mohohlo
Governor and Chairman of the Board of the Bank of Botswana
Studies in accounting and business, economics, finance and investment, University of Botswana, Georg...
Director: Capital Markets, JSE, South Africa
1978, graduate (Hons), Duke Univ.; 1982, MA in Latin American Studies and Economics, Georgetown Univ...
Member of the Governing Council, United World College of Southern Africa, Swaziland
1989, BA in Economics, Trent University, Canada; postgraduate studies, UNISA Graduate School of Busi...
President of Namibia (2005-2015)
Formerly, SWAPO Election Campaigner. 1990, Member of Parliament. Formerly, held portfolios of inter...