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“Africa is rebounding” says Kaberuka

By Nicholas Norbrook
Posted on Wednesday, 11 August 2010 15:15

Sub-Saharan African economies have grown at healthy rates over the past year, despite the dire warnings announced by analysts when the global economic crisis first broke in the US in 2008. Donald Kaberuka, the AfDB President is not surprised.

The Africa Report: Are gains in capacity across the continent, for example in macroeconomic management, the real success story of the last decade, with the proof of this being resilience to the recent downturn?

Donald Kaberuka: Absolutely. It’s amazing. Since last year, I’ve been saying that the rebound of Africa is essentially due to two things. First, the cumulative effects of these reforms, which were maligned but which have delivered fundamentals which are very, very solid. It is not a crisis that has found us with a huge fiscal deficit or government deficiencies in macroeconomic management. It found a continent, apart from a few exceptions, that was on a fairly sound base. That was important. In terms of risk management and risk appetite, with debt levels that had fallen below critical thresholds, all this combined to give the signals to investors that Africa was a safe place to put money.

Second is the huge growth in regional trade. Did you know that Kenya trades more with its neighbours than with the outside world? And it’s not surprising that this part of ?Africa that is not resource-rich or mineral-rich has been the most resilient. Internal dynamics, the internal demand, is everything and its diversity has acted as a shock absorber. So, first of all, stable initial conditions, and then this buffer of regional trade.??

Have banking reforms played an important role in the response to the crisis?

Biography: Donald Kaberuka

1951 Born in Byumba, Rwanda

1997 Appointed ?minister of finance and economic planning by President Paul Kagame??

2005 Elected as the seventh president of the AfDB??

2009 Helped coordinate the response to the economic downturn with the Committee of 10, comprised of representatives from Africa’s top economies

The financial system has been very interesting. People say the financial system of Africa is not very integrated into the rest of the world, but that has not been the issue. The ?issue has been that our countries were, for the last 10 years, able to have good recapitalisation, good regulation and good governance. I think that even if there were a shake-up in some countries, you would find that there were banks that didn’t even feel the heat at all. It was not a question of integration. It was a question of what kind of banks you have.

Are you making the case to African governments that they continue with these sort of reforms?

This is why at the beginning of the crisis I was very quick to convene a meeting here [in Tunis]. I had two concerns. One was to ensure that they were participating in this international search for solutions at the G20. The second was that we don’t see a return to populist policies and the jettisoning of good policies. As rich countries began to nationalise banks and bring back old policies, I saw the threat. And here we said no, what the Americans and the Europeans are trying to do is deal with a very specific problem. What we have done has served us well, let’s continue doing it. This message has continued to be delivered at the G20 and in the C10, the committee that does the surveillance of the crisis. And the message was well taken.

‘Capacity building’ seems to be a mantra that needs unpacking. Does one size fit all?

You have a middle-income country that goes into conflict, say Liberia or Zimbabwe. Or you have a country that was already a very poor country, like Burundi. When you come to building up capacity, you have to ask yourself: ‘To do what?’

In the case of Burundi, it is to do nearly everything. But above all, to manage well-meaning international support. And that is often the problem. I saw it happening in Haiti almost immediately. You have to begin to boost the capacity of the state to manage those inflows but also to collect its own modest revenues so that it does not become eternally dependent on foreign aid.

When you take the case of Rwanda, you see exemplary behaviour from the direct-funding institutions around 1997-1998 because they worked with Rwanda to build the country’s ability to collect its own revenues, which went from 7% of GDP to almost 14% of GDP now.

But for a middle-income country, the challenges are a little different. You want to build up confidence quickly, to build up state institutions which support the private sector, so that again the country becomes dependent on itself rather than on outsiders.

This article was first published in the June-July 2010 issue of The Africa Report.