African countries should withdraw foreign exchange reserves deployed in foreign markets and use the money to fund infrastructure projects at home where returns are better and risk is improving.
“It really doesn’t make sense to be buying the bonds of developed countries and funding their fiscal deficits when the needs are great here and the returns are so low,” Professor Leonce Ndikumana of the University of Massachusetts said at the annual general meeting of the African Export Import Bank in Lusaka, Zambia on Wednesday.
The United Economic Commission for Africa estimates the continent’s 54 central banks hold an estimated 500 billion largely in dollars, euros and the Chinese yuan as a risk measure at a time when Africa has an infrastructure financing gap of $93 billion.
With global benchmark bonds including US treasuries and German bunds yielding less than three per cent, African countries are missing a huge opportunity for better returns while fixing a key sector hobbling growth, Ndikumana said in a paper looking at mobilizing resources for export diversification.
In some cases, the same money was recycled back to Africa as higher cost loans, he said. While previously these reserves were held offshore as a risk measure, the 2008 global financial crisis had exposed the fallacy of some of the risk assumptions and perceptions, Ndikumana said.
On their own, African countries could help reduce the funding gap by selling infrastructure bonds and using domestic resources residing in sovereign wealth funds and pension funds.
Capital flight, estimated to have cost the continent some $1.3 trillion since 1970 could also be plugged by improving governance, Ndikumana said. Justin Lin, a former World Bank Chief Economist, said successful economies developed competitive market systems with the state playing a facilitation role.
“Poor development performance in Africa is due to the fact that the governments’ policies for development and transition were shaped by inadequate ideas,” he said. “With right ideas, African countries can grow as dynamically as other successful economies in the world.”
Afreximbank, as the bank is known, has approved $35 billion in credit facilities since 1994, with $4.5 billion being disbursed in 2014. It’s holding its 22nd annual general meeting in Lusaka as Jean-Louis Ekra, its president for the past decade, steps down.
Ekra, an Ivorian, has overseen an expansion of trade across the continent which saw trade worth $1.4 trillion in 2014 versus $260 billion when the bank was set up in 1993. Under his leadership, the bank received an investment grade rating from Moody’s, Standard & Poor’s and Fitch. He has also pushed to diversify the continent’s exports away from raw materials.
Former African presidents Olusegun Obasanjo of Nigeria, South Africa’s Thabo Mbeki and Joaquim Chissano of Mozambique are among hundreds of delegates attending the three day meetings. The bank is also holding seminars of its Advisory Group on Trade Finance and Export Development in Africa.