Poor access to finance is threatening to jeopardise the project investment programmes of many African countries, leading policymakers have told GlobalMarkets.
“We need to access longer maturity resources.” said Malado Kaba, finance minister of Guinea. “We have very important investment needs. We have a mismatch between our long-term needs and short-term resources,” she said. “Guinea is a poor West African country that has suffered the double blow of the Ebola crisis and the collapse of commodity prices.”
Investment programmes have supported economic growth in countries like Ethiopia, Guinea and Cote d’Ivoire, but they may become at risk if access to capital does not improve, a senior World Bank official has warned.
“The tightening of financial conditions is certainly affecting our countries, said Albert Zeufack, Africa chief economist of the World Bank, in an interview with GlobalMarkets. “There is an issue with the perceived risk for Africa. There is empirical evidence that the perception of risk in Africa is always exaggerated,” he said.
“If you look at sovereign bond spreads, they have shot up in the past six months. Countries like Ghana now have spreads above 1,300bp, this is extremely high. It is limiting fiscal space. For us it is a worry because the last thing we want is for countries to stop investing. The issue of access to capital for infrastructure is critical.”
PENSIONS FUNDS
He said there was more than $3tr in sovereign funds that were getting close to a zero interest rate. “Pension funds have a lot of liquidity across the world in a low interest rate environment,” he said.
“These resources can be converted into longer term maturities to finance infrastructure in Africa. There is evidence that the return on investment in infrastructure in Africa is actually very high. It is comparable to other international bank loans,” he said.
The World Bank has been using more guarantees to help African countries address the issue of risk. “Although we know there is serious tightening on the international financing landscape, we hope countries will continue these investments in infrastructure and this would be likely to keep growth at higher levels,” he said.
The World Bank has just slashed its 2016 growth forecast by almost half to 1.6% (from 3% in April) mainly due to the “terrible situation” in the continent’s largest economies in Nigeria, South Africa and Angola, which account for 60% of Sub-Saharan GDP. “This is worrisome because this is the lowest level in more than two decades. It is even lower than population growth. For the first time in two decades, income per capita is going to grow at a negative rate,” said Zeufack.
Declining commodity prices have crippled the economy of many countries. Others economies that are dependent on agriculture have been hit by “one of the strongest El Niños” and drought in southern Africa, said David Hedley, Africa economist at the Institute of International Finance.
There also risks ahead. Countries that are more vulnerable to a rise in US interest rates are those that have a high volume of capital flows in their balance of payments, according to Zeufack, such as Kenya, Nigeria and South Africa.