Yemisi Izuora/Agency Report
For Nigeria’s agriculture minister and new president of the African Development Bank’s Akinwumi Adesina has urged African nations to set up more sovereign wealth funds to help withstand the next downturn,
The funds “will allow countries to have fiscal buffers and liquidity buffers to this kind of shock,” said Adesina, who took charge of the lender on Tuesday.
“It’s not the only one we’re going to see, there’s still going to be a lot of disquiet in the market going forward.”
Adesina replaced Donald Kaberuka at a time when low oil prices threaten to deepen economic crises in Nigeria and Angola, the continent’s largest crude producers, African currencies are trading near all-time lows and stock and commodity markets are reeling after China devalued the yuan this month.
The West African nations of Nigeria, Angola and Ghana, also an oil producer, have sovereign wealth funds, while countries including Kenya and Tanzania, in the east, are considering the idea to store savings from oil and gas exports as they develop deposits on a commercial scale.
But critics of the wealth funds argue that the revenue can be squandered for political gain by African governments that often aren’t transparent, rather than be invested over decades for future generations, or the money is better spent on immediate spending priorities like infrastructure and social programs.
The recent fall in Chinese stock market prices was an “asset repricing issue” that isn’t expected to cause greater economic turmoil in Africa beyond the immediate difficulties, Adesina said.
China has become Africa’s largest trading partner, with the value of trade rising threefold to $166.3 billion in 2012 compared with five years’ earlier.
“We have to make sure that we are able to mitigate against those shocks,” he said. “It’s clear that markets are rebounding, but it doesn’t take away from the fact that we’re maybe looking at a new normal here.”
Economic growth in sub-Saharan Africa will probably slow to 3.5 percent this year, compared with an average of 5.5 percent between 2000 and last year, Renaissance Capital economist Yvonne Mhango said .
The outlook has dimmed in Nigeria, where growth slowed to 2.4 percent in the second quarter, from 4 percent a quarter earlier, and South Africa, whose economy contracted in the three months through June.
Weakening African currencies have increased the cost of servicing foreign-currency bonds, Adesina said.
The bank will promote an expansion of regional borrowing to help countries raise money to build infrastructure and develop more sophisticated industries.
“We can do a lot more in terms of domestic resource mobilization that reduces the need to post a lot of foreign currency-denominated bond issuance,” he said.