‘Build fis­cal buf­fers against shocks’

Lesotho Times - - Business -

NEW YORK — African na­tions, stung by plung­ing com­mod­ity prices, should set up more sov­er­eign wealth funds to help with­stand the next down­turn, said Akinwumi Adesina, the African De­vel­op­ment Bank’s new pres­i­dent.

The funds “will al­low coun­tries to have fis­cal buf­fers and liq­uid­ity buf­fers to this kind of shock,” said Adesina (55) who took charge of the len­der on Tues­day. “It’s not the only one we’re go­ing to see, there’s still go­ing to be a lot of dis­quiet in the mar­ket go­ing for­ward.”

Adesina re­placed Don­ald Kaberuka at a time when low oil prices threaten to deepen eco­nomic crises in Nige­ria and An­gola, the con­ti­nent’s largest crude pro­duc­ers, African cur­ren­cies are trad­ing near all-time lows and stock and com­mod­ity mar­kets are reel­ing af­ter China de­val­ued the yuan this month. The Bloomberg Com­mod­ity In­dex, which tracks 22 raw ma­te­ri­als, slumped to its low­est level since 1999 on Aug. 26.

The West African na­tions of Nige­ria, An­gola and Ghana, also an oil pro­ducer, have sov­er­eign wealth funds, while coun­tries in­clud­ing Kenya and Tan­za­nia, in the east, are con­sid­er­ing the idea to store sav­ings from oil and gas ex­ports as they de­velop de­posits on a com­mer­cial scale.

Crit­ics of the wealth funds ar­gue that the rev­enue can be squan­dered for po­lit­i­cal gain by African gov­ern­ments that of­ten aren’t trans­par­ent, rather than be in­vested over decades for fu­ture gen­er­a­tions, or the money is bet­ter spent on im­me­di­ate pri­or­i­ties, like in­fra­struc­ture and so­cial pro­grams. Im­me­di­ate Im­pact The re­cent fall in Chi­nese stock mar­ket prices was an “as­set repric­ing is­sue” that isn’t ex­pected to cause greater eco­nomic tur­moil in Africa be­yond the im­me­di­ate dif­fi­cul­ties, Adesina said in an in­ter­view on Aug. 28. China has be­come Africa’s largest trad­ing part­ner, with the value of trade ris­ing three­fold to $166.3 bil­lion in 2012 com- pared with five years’ ear­lier.

“We have to make sure that we are able to mit­i­gate against those shocks,” he said. “It’s clear that mar­kets are re­bound­ing, but it doesn’t take away from the fact that we’re maybe look­ing at a new nor­mal here.”

Eco­nomic growth in sub-sa­ha­ran Africa will prob­a­bly slow to 3.5 per­cent this year, com­pared with an av­er­age of 5.5 per­cent be­tween 2000 and last year, Re­nais­sance Cap­i­tal economist Yvonne Mhango said in a note on Aug. 28. The out­look has dimmed in Nige­ria, where growth slowed to 2.4 per­cent in the sec­ond quar­ter, from 4 per­cent a quar­ter ear­lier, and South Africa,

whose econ­omy con­tracted in the three months through June.

“Our goal is to max­i­mize Africa’s eco­nomic pros­per­ity and build growth that is in­clu­sive and sus­tain­able,” Adesina told re­porters in Abid­jan on Tues­day af­ter his in­au­gu­ra­tion. “We want to un­lock Africans’ po­ten­tial by giv­ing them the means to cre­ate, in­no­vate and pros­per.”

Weak­en­ing African cur­ren­cies have in­creased the cost of ser­vic­ing for­eign-cur­rency bonds, Adesina said. The bank will pro­mote an ex­pan­sion of re­gional bor­row­ing to help coun­tries raise money to build in­fra­struc­ture and de­velop more so­phis­ti­cated in­dus­tries.

“We can do a lot more in terms of do­mes­tic re­source mo­bi­liza­tion that re­duces the need to post a lot of for­eign cur­rency-de­nom­i­nated bond is­suance,” he said. — Bloomberg.

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