{UAH} PLUGGING AFRICANS FUNDING. Because they are daft not to Consider Bonds.

AfDB steps in to plug funding gap for African countries

William Wallis in Addis Ababa

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©Issouf Sanogo/AFP/Getty Images

Akinwumi Adesina

The African Development Bank is poised to expand lending across Africa in response to the sharp decline in earnings faced by many states and the rise in the cost of borrowing on international markets, the bank's president says.

Africa's main commodity exporters have been hit hard by the slump in demand for natural resources from China and the drop in the price of oil and other minerals, with many countries struggling to plug growing budget deficits.

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Nigeria, the continent's largest economy, is dependent on oil for about two-thirds of state revenues and is among the worst affected. This week Abuja announced it was in talks with the World Bank and the AfDB to secure a $3.5bn loan.

Akinwumi Adesina, who took control of the AfDB in September, says multilateral finance institutions are ideally placed to plug the funding gap. "The current situation is an opportunity for us at the African Development Bank," he told the FT.

He acknowledged that in recent years the influence of multilateral finance institutions had diminished as a growing number of countries tapped capital markets and accessed financing from China. He added: "The multilateral banks are the cheapest source of finances for countries to tap into. I see us expanding and lending support because the interest rates to borrow on international capital markets are extremely high and they can't afford that."

Although Nigeria and other African countries, including Kenya, are debating whether to issue new sovereign bonds in 2016, they can expect to pay nearly twice the 5-7 per cent range they were able to attract until recently. Ghana's latest eurobond launched last year at a 10.75 per cent coupon rate.

The cost of servicing debt, most of it contracted when interest rates were still low, is also rising as currencies depreciate. Mr Adesina said some of the more cash-strapped countries have begun issuing bonds on domestic markets to service their external debt, a strategy he described as "highly risky".

Nigeria courts World Bank and ADB loans to escape bailout

Adeosun looks to fund huge budget deficit widening in wake of oil price collapse

The bank is stepping in with budget and balance of payments support, he added, much as it did in 2009 when it doubled loans and grant approvals to $8bn to help mitigate the effects of the global recession on African economies. The bank tripled its capital base the following year and has maintained its triple A rating.

Many states are less well prepared for a downturn this time, with lower foreign reserves and significantly higher debt levels. Mr Adesina insisted African economies are far from unravelling. He predicted GDP growth of 4.4 per cent this year across the continent, with growth in east Africa projected at more than 6 per cent and just under 6 per cent in west Africa.

As well as addressing immediate macroeconomic difficulties, Mr Adesina said the bank's priority would be to promote investment in infrastructure by acting as a catalyst for private sector financing and by mobilising domestic savings.

"Put together, all the pension funds on the continent are worth nearly $1tn but we are not investing our pension funds in infrastructure but in treasury bills," he said.

The AfDB will soon be closing a billion dollar infrastructure fund, raised with the bank's own funds and with contributions from 25 African countries. It will also spend $12bn over five years on electrifying the continent, with the aim of leveraging four times that amount from the private sector using credit enhancement schemes and partial risk guarantees.

"We want to use our own balance sheet in smarter ways to de-risk investments, help to develop projects that are bankable and help to attract capital into that space," he said. "Africans are tired of living in the dark."

Tolerance is a stage in civilisation!

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