The President, African Development Bank, Mr. Akinwumi Adesina, says huge capital is available in Africa.
Adesina, therefore, urged the continent’s governments to boost tax revenue and steer clear of international borrowing as the region grappled with its worst economic slump in more than a decade.
Adesina told the Financial Times that he expected the downturn in Africa, which was triggered by the slump in commodity prices and the slowdown in China, to last for up to another three years.
Africa was facing a debt “challenge” rather than crisis, he said, but warned that “there has to be a lot more fiscal consolidation”.
During the commodities boom, Africa was home to many of the world’s fastest-expanding economies. But growth in resource-dependent nations has stalled with Nigeria, Africa’s most populous country, sliding into its first recession in more than two decades.
The International Monetary Fund forecasts that sub-Saharan Africa’s gross domestic product will grow at 1.6 per cent this year, a sharp decline from 3.5 per cent in 2015, and well below the average of 5-7 per cent over the past decade.
Many nations are struggling with dwindling revenues, rising debt and wide budget deficits in the low growth environment after taking on foreign debt during the boom years.
Zambia, Ghana and Mozambique were among a raft of African states that took advantage of low global interest rates and high commodity prices to issue billions of dollars of debt as international investors hunted for yield.
African governments sold $12bn of eurobonds last year, compared with about $26.5bn between 2006 and 2014, according to the AfDB. The weakness of many African currencies has meant debt service costs have soared in local currency terms, while several commodity producers are battling foreign currency shortages.
Adesina, who took over as the bank’s president in September last year, said that expanding the tax base and improving the efficiency of tax administration would be the easiest ways to boost public finances.
He said the tax-to-GDP ratio in sub-Saharan Africa was about 14.5 per cent, compared with more than 30 per cent for most developed nations.
He said, “So, a lot more needs to be done to expand the tax base in Africa. Today it’s about $500bn a year [for the region], which is much better than it used to be, but we need to expand that.”
The AfDB chief said not only was it risky for governments to borrow overseas because many African currencies were weakening and the US Federal Reserve appeared set to raise interest rates again this year, but also unnecessary.
“Instead of African countries running off to raise a lot of eurobonds, I think there’s huge amounts of capital available more locally that we must tap for Africa’s development,” Adesina said.
He added that borrowing should only be undertaken to finance projects that enhance economic growth.
Adesina said African pension funds had a pool of $334bn, sovereign wealth funds $164bn and there was some $56bn of foreign direct investment looking for bankable projects.
However, he acknowledged that “there’s a lot of work that needs to be done to unlock that capital,” particularly in improving legal and regulatory environments.
The AfDB — which has taken an increasingly prominent role in providing budget support to governments and financing infrastructure projects — intends to invest $12bn over the next five years in energy projects.