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Where should Africa turn for funds?

November 24, 2009

A few days back, I had the pleasure to moderate a lively debate on investment prospects in Africa involving private sector panellists and representatives of the World Bank and International Monetary Fund.
 
The tone was upbeat, but discussion turned heated when it came to debt restructuring in Ivory Coast.
 
While it might sound obscure (and I won’t go into all the details) it raised broader questions about the role of the international financial institutions in Africa and how that may be reinforced by the global financial crisis.
 
The concern of some in the private sector was that foreign investors with exposure to local debt in Ivory Coast looked set to suffer the same restructuring terms that holders of foreign debt would have to bear – with the approval of the IMF. Their argument was that this would discourage foreign investors from buying local bonds in Africa.
 
The IMF came back robustly, saying it was only playing by the rules in Ivory Coast and suggesting that investors make closer checks before putting in their money.
 
But private sector participants were unclear where this might leave them in future, particularly at a time many African states are eyeing bond markets again.
 
Some voiced broader concern over how the international financial institutions see the private sector’s role.
 
Before the credit crisis, a number of African countries had begun turning to international capital markets. But Eurobond plans were put on hold when global markets seized up and the institutions stepped back in to provide emergency help to hard-hit countries. Amounts have been substantial even compared to the $10 billion in concessional financing promised by China over three years. The IMF board approved a $1.4 billion standby loan arrangement for Angola this week. 
 
The question now is how this may change the longer term balance in sources of finance for African states.
 
Is the private sector overly wary of institutions that are simply doing their best to give emergency help now and fend off future debt crises? Or are those institutions muscling back in to impose their dominance in telling African states how they should go about managing their debts and getting the finance they need? How will Chinese money affect the balance?

Pictures: A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, January 13, 2009. REUTERS/Akintunde Akinleye; Dominique Strauss-Kahn, managing director, International Monetary Fund (IMF), is introduced at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi

Comments

Maybe it is more a question of ‘Where should Investors turn for opportunities ?’ The funding should go to economic blocks rather than individual countries to ensure unfettered influencing. Maybe it should first be determined what the specific needs are and then sign treaties with superpower joint ventures. Africa varies by region and should be assisted in a professional manner in this context. NGO’s have no bite, by the same token, project management skills are available, but out-affirmed.

Posted by ANON | Report as abusive
 

Perhaps it’s time to have the World Bnk relinquish its role as default lender to the developing world. As their loans are fundamentally motivated by geopolitics and not economics, their capital participation distorts the financial structure of a given economy. Much is said of “globalization” and, “global financial intermediation” yet, if this is true, the role of the World Bank and its affiliates should have over time, be reduced, not increased. Having an advantage in their cost of funds, perhaps it is time to rethink their role or more fundamentally, rationale for existence. Today, it might be called, not the World Bank but, the “Maginot Bank”, addressing issues that are no longer relevant.

Posted by futuresmkt | Report as abusive
 

I think the World Bank is doing quiet well in granting loans to the developing countries, especially in Africa, but as some of my colleagues said, their loans are driven more by geopolitics instead of economics. A lot of strings are attached to these loans that make it difficult for the recipients to operate freely with the loans. The World Bank should relax some of the strings they attach and give the recipients some room to operate with the loans.

Posted by Dboat | Report as abusive
 

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