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Emerging Markets

Kaberuka urges funding action

AfDB call for more capital comes as second shareholder poised to raise contribution

African Development Bank president Donald Kaberuka has urged members boost the bank’s capital base, as demand for loans has soared in the wake of the financial crisis and brought it close to running out of resources.

In an interview yesterday with Emerging Markets Kaberuka said that he was “99% certain” that another shareholder nation, which he declined to name, would soon raise its capital contribution.

This follows Canada’s commitment, given at the G20 summit in Pittsburgh, to boost its callable capital by an extra $2.6 billion – which will triple its capital contribution to the bank.

Emerging Markets revealed in May that the AfDB is hoping to triple its capital base to roughly $98.4 billion.

Kaberuka said in an interview that the AfDB is fast approaching its lending capacity, as it has been faced unprecedented demand for resources in the wake of the global financial crisis.

“We have come very close to our lending headroom,” he said. Canada’s support “gives us more headroom pending the conclusion of the negotiations with other shareholders.

“I hope other countries will follow... Another country will make a similar announcement this week.”

The big capital push, announced earlier this year, comes at a time when the pressure for resources has intensified. The AfDB’s pre-crisis lending stood at $5.9 billion per year but demand has since shot up to over $12 billion.

“Before the crisis, we planned to increase lending from $5.9 billion to $7 billion per year by 2012,” said Kaberuka. The crisis has placed new demands on the bank, which is now sometimes called on to “fill gaps”.

“Countries that have seen their projects scaled down want us to be countercyclical,” he said. “The demands are 2.5 or 3 times [higher than] our original lending scenario.” If the global crisis is prolonged, he said, the demand may reach $15 billion per year.

This new role has forced the bank to reinvent itself. “Trade finance has never been our role in the past. Our mission was to finance long term projects, but because trade finance had become scarce, we came in,” said Kaberuka.

A fresh $1 billion in trade financing had been brought to the continent, half each from the AfDB and the IFC, under its global trade liquidity programme.

The AfDB has also intervened to support infrastructure projects at risk of being scaled down or abandoned, such as an airport in Tunisia. The bank has about $3 billion of trade, infrastructure, and energy loans in the pipeline.

Kaberuka said he is now “bullish on capital flows” and “much more optimistic now” than last year, but added that it was “too early to be relieved”. “The crisis was major setback,” the former Rwanda finance minister said, and had caused a drop in real income per capita this year in Africa.

Uncertainty about the global economy’s future is also a big threat to recovery in Africa. “Fiscal stimulus needs to be maintained until the recovery is sustained,” Kaberuka said. “We need an extra effort to bring low income countries into the global stimulus.”

Olivier Blanchard, chief economist at the IMF, told Emerging Markets: “Africa as a whole is still too small a continent to make a major difference to world growth”, but African economies would benefit from increased demand for commodities if the global economy gains momentum.

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