Recently elected to the Presidency of the African Development Bank, Akinwumi Adesina, in an exclusive interview with Fortune during the 26th Summit of African Union, shared the Bank’s “high five” priorities for African Development. They are energy, agriculture, industrialization, regional integration and improving the quality of life for Africans. SOLIANA ALEMAYEYU, FORTUNE STAFF WRITER, explores with Adesina, the AfDB’s vision and Ethiopia’s role in realising it on his watch. Adesina, the first Nigerian national to hold the post, previously served as Nigeria’s Minister of Agriculture and Rural Development for five years. Before that, he worked at the Rockefeller Foundation from 1988 onwards until he became the South African area representative to the foundation from 1999 to 2003. He received a bachelor’s degree in Agricultural Economics from the University of Ife in Nigeria, and a PhD in Agricultural Economics from the American Purdue University in 1988.
Fortune: A few months into your presidency, filling the big shoes your predecessor has left, what makes up your priority list?
Akinwumi Adesina(AA) I focus strongly on what I think are important, electricity. Africa is simply tired of being in the dark. Africa has 650 million people without access to electricity; 700 million people without access to clean cooking energy, and 400,000 women dying every year because of lack clean cooking energy. That’s why I picked electricity and developed a New Deal on Energy, to get universal access to electricity by 2025. The AU summit too has endorsed the deal. For this the Bank plans to put 12 billion dollars in the energy sector in the next five years and triple its climate finance to five billion [dollars] a year by 2020. We expect to leverage about 50 billion dollars from the private sector.
The other is agriculture, feeding Africa. The continent spends 35 billion dollars to import food while everything you need for agriculture is there. AfDB, will support countries to implement agro-allied industrialization that creates inclusive growth by putting Africa at the top of the value chain for its agricultural products. So far, we have 19 countries on board. I have no time, I have no patience for slow things about development.
The third is to industrialize Africa. Currently Africa’s contribution to global manufacturing is 1.9pc. It has to increase its share and add value to what it does. We are pleased with the direction Ethiopia is taking in this regard.
The fourth priority issue that the Bank will push is regional integration to expand markets. Therefore connecting African countries through rail, air and transnational highways and ICT is crucial.
The final – the fifth part of it is what we call improving the quality of life. Africans must feel the impact of democracy in economic growth in their lives. Making sure we have a slum-free Africa. I don’t believe in operating slums. There is nothing like a five-star slum.
These are the high fives of the Bank: light up and power Africa, feed Africa, industrialize Africa, integrate Africa and improve the quality of life for Africans.
What role do you expect Ethiopia, as a country investing in renewable forms of energy, to play in lighting up and powering Africa?
I am very excited about what Ethiopia is doing. The Prime Minister was with me when we launched the transformative partnership on energy for Africa in Davos, and strongly supports the New Deal on Energy for Africa. I think what Ethiopia is doing is financially exciting because the country has the Renaissance Dam, in which the government put a lot of money. I was particularly excited that Ethiopians had a sense of nationalism – to put their money into that. I understand it will generate about 7,000MW in excess of its demand. It will be a net exporter of electricity. The AfDB is supporting Ethiopia in putting in place the transmitter lines for connectivity between Ethiopia and Kenya and other neighbouring countries.
There is a lot more focus on renewable energy that we can do here in Ethiopia – in terms of small hydro dams, solar and wind energy. But don’t forget that today, if you look at the energy deficit map of Africa, Nigeria has 90 million people that don’t have access – connectivity to the grid. Ethiopia has 70 million and the Democratic Republic of the Congo has 60 million people. Without connectivity We focus on the big countries that have high populations that is not connected whether by improving the grid, mini-grids, or the off grid systems. So there is quite a large strategic role that Ethiopia can play in the energy map.
You mentioned getting the private sector involved in the high five pillars. How is that possible in a continent known for its unfriendly investment climate?
To the contrary, the investment climate in Africa is on the upward swing. The cost of doing business is going down. Macroeconomic stability is improving. Africa has been growing at five to six per cent – the GDP growth rate for the last 10 years. That’s the fastest growing region in the world. Foreign direct investment is close to 70 billion dollars. The message is that Africa is not in any kind of economic crisis. It has some economic shocks. Africa in 2016 is projected by IMF to grow at 4.4pc. Europe is growing at 1.9pc. The developing countries are going to grow, So Africa is still the place to invest in.
To improve the private sector actual investment, first, mobilize huge amounts of domestic capital. Whether pension funds in Africa today – that run close to a trillion dollars and sovereign wealth funds – close to 134 billion dollars which can go into infrastructure.
AfDB has also developed a new vehicle, a financial vehicle called Africa 50. It is a private sector driven initiative to mobilise an additional 10 billion dollars in the private sector for infrastructure for the next 10 years.
The financing is there. It’s just to make sure that we de-risk it to let the private sector invest. We also do core financing arrangements with investors. At the same time, we have partial risk guarantees, partial credit guarantees, credit enhancement facilities, and we also provide technical advice and assistance to developing projects that are taking them to bankable levels.
I am very bullish about Africa. With a population of 1.2 billion people, a rising middle class, a lot of young people – it tells me that this is where things have to be.
The private sector was one of your prioritized commitments when you were trying to get elected. Is the private sector taking advantage of what AfDB offers?
I think so. What we have seen is that no government alone can do anything in development without the private sector.
The private sector wants to know the regulatory, legal and policy environments. They also have some high perceptions of risk of investment – any kind of risk. The role of the Bank is to continue to de-risk investments entirely. That’s why we have a private sector facility that helps to do this. The future really belongs to the private sector and that is why the Bank will continue to support it.
In a recent speech that you gave in Paris, you spoke about how the rush of African countries to issue eurobonds could be a double-edged sword. What is the source of your worry and are African countries heeding your warnings?
When interest rates are almost zero in some of the developed countries because of weak growth, it a party for everybody to come and borrow. And because the cost of borrowing money is so low, because of the need for many African countries invest heavily in infrastructure they borrowed and issued eurobonds. But the challenges have come, not because of that, but exogenous shocks that have happened – weakening demand continued in Europe. You also had weakening demand from China – industrial slowdown in China. And since Africa was exporting a lot of primary commodities to China, it meant that the market for Africa was habitually shrinking. So what really happened then – the implication, is that the amount of foreign reserves the countries had, started depleting causing currencies to depreciate. It was hard for them to service their debt at a high cost. That’s why I have said that it is very important for African countries to avoid being indebted. It is very important for them to have stronger macroeconomic and fiscal stabilization.
Rein in public expenditure because you can’t continue to expand expenditure when your income is going down and your debt service is actually going up.
There is also need to diversify the economy. We just have to wake up and grow the size of the regional market. The larger your participation in a regional market, the lower your exposure to global volatilities.
It’s also important to not have export market concentration. If you’re exporting to only one country, of course your risk gets to be to larger. So also expand your base.
The role of the Bank is to help African countries with direct budget support, balance of payment support.
The Commercial Bank of Ethiopia had expressed its intent to issue close to two billion dollars in eurobonds in the next month or so, what do you say to that?
Well I think one has to look at the general macroeconomic condition. Make sure that the debt to GDP ratio doesn’t continue to rise and that one keeps an eye on what the export markets are towards Ethiopian exports because that determines what’s going to happen in terms of a current account deficit. I think it all comes down to proper macroeconomic management. The country has done very well in terms of macroeconomic management and I hope that can continue. But in my view, it is important to watch some of these challenges that we currently have today, as interest rates are rising. If you look at the yields on many of the eurobonds today, it’s a race to the top of the yield curve because the cost of the borrowing now continues to rise.
How much of an effect will China’s slowdown have on Africa and what should be done to mitigate the impact?
China is a different world. When China was growing at 10pc, all of the world economy went ooh. And so Africa got hit by a contracted China because of a weakening demand for export commodities – raw materials, 85pc of which African countries export to China. China has excess industrial capacity and needs to externalize it- so there is a real opportunity for Africa in that. I also think, however, there may be a challenge in the sense that the weakening of the Chinese currency, could also work the other way because it can make exports to China a lot cheaper for African countries. This may undermine the industrialization. All in all, it’s a question of how you balance their gains.
Multilateral development banks (MDB), critics say make lots of promises, and in the case of AfDB there is the claim of its engaging in wide areas. Some experts argue that MDBs in general have only one leverage – money. What do you say to that?
I disagree. The MDBs don’t just look at money. Here are the things they do: first is policy advice. Macroeconomic and fiscal policy, are important to have stable economies. We also provide a lot of technical institutional capacity building for countries. Everything has to be built in. The AfDB builds institutions all the time. The third area is helping with a significant amount of cheap capital. It is an extremely cheap source of finance. That is what the MDBs do quite a lot. MDBs, in fact, saved COP 21 in Paris. We all came together and put up 62 billion dollars out of the total 100 billion dollars promised at COP 21. So without the MDBs, COP 21 would not have been a success. You need more MDBs to do more.
Do MDBs act in the shadow of Big Brother – the World Bank?
The AfDB was created by African leaders to drive Africa’s development with a home grown approach. We support African governments in an African-driven agenda. We don’t do policy conditionalities, but encourage governments towards developing the right policies. I think a lot of that came out of the structural adjustment era. I like to break things down very simply – you can’t spend money you don’t have. And you also can’t borrow money if you are indebted to so many others. Sometimes people think that MDBs need this kind of advice – that they are not trying to be helpful but it’s all about prudent financial management. And we had a multilateral debt relief initiative. We also had debt cancellation for many African countries.
I said at the Paris Club, just two months that I do not want to go to Paris to go and negotiate another debt relief. We have to manage our economies better – be more prudent in fiscal management, mobilise our resources, reduce the illicit capital outflows out of Africa. Have better governance of our infrastructure. That way, Africa can use its resources based on its own priorities and develop on a trajectory that it wants, not that which dictated to it by others.
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