Banking competition, mobile technology, and other financial products can all help African nations fund new capacity for power generation and other critical infrastructure, senior banking and financial experts said at a meeting on Friday.
Africa’s lack of electricity is a major constraint on growth and wealth creation. Boosting the power generation is a critical priority, even if that means increasing the continent’s use of fossil fuels, participants said at the meeting, organised by the Africa Progress Panel.
Indeed, Africa will need to adopt a judicious mix of fossil and renewable energy. It certainly has considerable renewable potential, including wind, solar, and geothermal.
Whatever mix of fossil fuels and renewables that African nations go for, one key constraint is likely to be a lack of available finance. And this was the key question for the meeting’s participants, including senior representatives from the African Development Bank, IMF, World Bank, and private sector.
The meeting is a key stepping stone on the road to next year’s Africa Progress Report, which will analyse Africa’s climate, energy, and agriculture issues. The report will use key ideas from the meeting to highlight some of the ways in which Africa can meet its needs for energy, growth, and agriculture.
And with international aid unlikely to increase in the foreseeable future, Africa must find new ways to tap private finance, including domestic savings, the participants said.
Lower oil prices, new banking regulations, and a volatile global economy make the investment climate more uncertain. But African infrastructure projects offer high rates of return. High investor perceptions of risk must be reduced, participants said.
Africa’s domestic savings offer a key opportunity to raise investment, as was the case with East Asia. African banks could play a critical role, but their high interest rate spreads stifle investment and savings. Regulators must encourage more competition. Banks in Africa need a shake-up, participants said.
And ultimately technology, including mobile technology, may offer some of the most exciting opportunities for tapping into domestic savings, allowing peer-to-peer lending so that banks no longer play an intermediary role, participants said. Other financial products such as insurance, leasing, and credit could also contribute, they agreed.
Participants also discussed the relative role of governments. On the one hand, government regulation blocks private sector dynamism. On the other hand, some governments have played a catalytic role in transforming their countries, participants said.
Governments can certainly do more to encourage regional cooperation, generating larger markets and reducing barriers to trade, participants agreed. Region-wide initiatives, such as the African Development Bank’s Africa50 initiative, help increase the number of bankable infrastructure projects and offer a coordinating mechanism for finance too.
In the meantime, falling oil prices offer significant political opportunity to remove expensive fuel subsidies, allowing governments to remove subsidies without consumers feeling the pain. Major Asian economies such as Indonesia and India are already discussing the removal of subsidies.
African nations are demanding payments for loss and damage caused by climate change. Participants said the world must establish more effective carbon markets, including agreement on the price of carbon.
Participants in the meeting were:
- Michel Camdessus, Panel Member, Meeting Chair
- Bertrand Badré, Managing Director and World Bank Group Chief Financial Officer
- Max Bankole Jarrett, Deputy Director, Africa Progress Panel
- Steve Kayizzi-Mugerwa, Acting Chief Economist and Vice President, African Development Bank
- Caroline Kende-Robb, Executive Director, Africa Progress Panel
- Abebe Selassie, Deputy Director, IMF Africa Department
- Bernard Mensah, Global Head of Emerging Markets and Trading Bank of America Merrill Lynch