Africa’s risk seriously overpriced, says Kaberuka
In the Know features an interview, opinion or analysis on the events making the news in Africa each week
Donald Kaberuka was unanimously re-elected as president of the African Development Bank on 27 May at its annual meeting in Abidjan. He spoke to Nicholas Norbrook about risk, bonds and new blood at the Bank.
The Africa Report: Will the crisis in the Eurozone change risk perceptions about Africa?
For far too long, there has been a very serious overpricing of Africa’s risks, with African bonds being rated B, B-, and Greek bonds being rated AA, just because the country is in the Euro. But people don’t look at the fundamentals of Greece, which were much weaker than some African economies.
I hope this crisis – be it the crisis of banking, or sovereign debts, or these huge deficits – encourages people to look at the African risk differently. Because this is a continent where the reforms on these issues have gone a long distance. Whether it is banking regulations, whether it is labour markets, whether it is pension reform, whether it is taxation, we have come a long, long way. So the more people look at Africa, understand the risk, price it properly, I hope that there will be more investment coming to us.
The desperate search for domestic sources of finance during the Asian crisis convinced Asian countries club together to launch domestic regional bonds. How far is Africa down this road?
You have to go back to the 1990s, the debt crisis in Africa, where countries had debts at 80-90% of GDP. So issuing bonds at the time was out of the question. It was when countries started clearing their external debt that the ratings agencies started to take a look at them again.
Take Ghana for example. They did HIPC [Heavily Indebted Poor Countries debt initiative] in 2000. After a period of five years, as their books were good, they went to market. Now you are going to see many more I suspect. It’s an area that we have been working on for a few years, and the chief economist and I have just hired specialists in capital markets.
The Governor of the Central Bank of Nigeria, Lamido Sanusi, has argued that the Bretton Woods structural adjustment programmes (SAPs) were responsible for de-industrialising Africa. Do you agree?
I disagree here with my friend Governor Sanusi. The only country where I make an exception is Zimbabwe, which had a genuine manufacturing sector before it went through its adjustment plan in the 1980s. The kind of industrialisation that we were embarking upon is called import substitution. And that was a dead end, going nowhere. While the rest of the world was doing export-led industrialising, making shoes, clothes and so on, we were closing off our markets with high tariffs and it was not working. So the idea of stopping this kind of industrialisation, I agree with.
Where the mistakes were made in the SAPs was in agriculture. All over the world, from Japan, to Europe to the USA, agriculture was receiving support from the state; from irrigation, the roads, the subsidies were across the board. You can then after a while let these agricultural industries go on their own, but you cannot tell a peasant to go sell on the market, because the markets are not functioning.
There seem to be successive waves of youth coming into the AfDB, bringing fresh ideas. Looking back over your five-year term, how has this process of managing change evolved?
It’s a continuous process, but I believe the bank has taken a quantum leap. When I arrived in 2005, the bank was financially sound but there was some strategic drift. The bank wasn’t sure of what it should do. So some choices had to be made, refocusing the bank on infrastructure and the private sector amongst others.
But to deliver this I needed the human capital. I convinced the shareholders of the bank that we need to build up the staff to have the capacity to deliver real results for Africa. Between 2005 and now the amount of staff has grown by 48% and operations of the bank have doubled. Though the number of loan operations has doubled, the quality has improved. Non-performing loans were at 14% when I arrived, they are now at 4%. Our risk profile is declining. And that is all because of the quality of the people that we have got into the bank.
I also decided that I wanted a younger bank including inexperienced people who were highly-qualified. So I have a bit of the old, a bit of the new, and like any large organisation, the key is getting them to work together. Around 40% of staff have been hired within the last three years.