A recent meeting of 7 high profile banking and financial experts spanning the Africa Progress Panel, the World Bank Group, Bank of America Merrill Lynch, International Monetary Fund (IMF) and African Development Bank (AfDB) identified banking competition, mobile technology, and other financial products as major pathways to help African nations fund new capacity for power generation and other critical infrastructure.
The meeting was a precursor to next year’s Africa Progress Report, which is expected to analyze Africa’s climate, energy, and agriculture issues, and will feed the report with key ideas and insights, highlighting some of the ways in which Africa can meet its needs for energy, growth, and agriculture.
Africa’s infrastructure gaps, especially in the area of electricity, is a major constraint on growth and wealth creation. Boosting the power generation capacity of the continent is a critical priority identified by all the participants, even if doing so would entail increasing the region’s use of fossil fuels.
Obviously, Africa will need to adopt a prudent mix of fossil and renewable energy. Its renewable energy potential, including wind, solar, and geothermal, is significant and can contribute immensely to bridging the power gaps. However, a big constraint facing the power industry, whether for renewable energy alone or a mix of renewable and fossil fuels, is the lack of readily available funding.
As international aid is unlikely to increase in the near future, Africa must find new ways to tap from private financing, including domestic savings, the participants agreed. Also, the emerging investment climate ushered in by a combination of lower oil prices, new banking regulations, and a volatile global economy is filled with uncertainty. However, African infrastructure projects offer high rates of return on investment, thus investments could still be acquired if investor perceptions of high risk are reduced.
According to the participants, 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 stifle investment and savings. Therefore, regulators must encourage more competition going forward, and this is where the participants agreed that the banks in the region need a shakeup.
Apart from banks, there is the role of technology, especially mobile technology, that may offer some of the most novel opportunities for tapping into domestic savings, allowing peer-to-peer lending so that banks no longer play an intermediary role. This, in combination with other financial products such as insurance, leasing, and credit could also contribute, they agreed.
Finally, the relative role of governments was discussed. Governments are a double-edged sword as on the one hand, their regulations can block private sector dynamism while, on the other, some governments have played a catalytic role in transforming their countries. The participants agreed that Governments can do more to foster more regional ties by generating larger markets and reducing barriers to trade.
By Emmanuel Iruobe
