BUSAN, South Korea — Bolstered by two decades of economic growth, the African continent must now boost infrastructure development, hasten regional integration, and improve its investment climate — all of which garnered discussion at the African Development Bank’s 53rd Annual Meetings in Busan.
By Kelli Rogers
In South Korea’s bustling port city, African leaders took note of their host region’s successes while charting their own path forward, quickly adopting the refrain of “innovation rather than imitation.” Still, there is no country better suited to both host and represent the meeting’s theme of “accelerating industrialization,” AfDB President Akinwumi Adesina told the meeting’s participants.
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“Korea’s incredible success over the last 60 years provides a perfect model to the African Development Bank to redouble its efforts towards Africa’s economic development,” Adesina said.
“Africa is a tremendously blessed continent, but it needs to industrialize, create lots of jobs, and be more competitive in the global market.”
Accelerating Africa’s industrialization is a prominent pillar of AfDB’s High 5 agenda, which calls for the development of the continent with a focus on smart industrial policy and a move toward processing raw materials into value-added products — goals the bank has allocated $1.2 billion to achieve.
In 2017, with bank disbursements climbing to a record $7.6 billion, AfDB provided 14 million people with access to transport, built or rehabilitated 2,500 kilometers of roads, and helped 210,000 small and micro businesses access finance, according to the bank’s 2018 Annual Development Effectiveness Review released during the meeting.
Though there was plenty of focus on hard and soft infrastructure, it is agriculture that offers countries on the continent — which hosts 65 percent of the world’s uncultivated arable land — the fastest way to move up the value chain, several speakers stressed throughout the week.
At the close of the meeting, here are some of the key conversations that took place inside the BEXCO conference center.
1. A green light for capital increase discussions
While industrialization strategy dominated public sessions, it was the capital increase that ruled behind-the-scenes talks. The bank has “gotten the green light to start discussion on a capital increase,” Pierre Guislain, AfDB vice president of private sector, infrastructure, and industrialization, told Devex.
Adesina, who last year called for a general capital increase sometime in the “near future” in order to make a dent in Africa’s enormous demand for financing, confirmed in a final address at the meeting of the board of governors that the board has asked the bak for a general capital increase.
There is no firm agreement yet, but the coming months ll see further discussion on the amount of the increase, the timing, and what the bank’s shareholders want to see prioritized. Bank representatives declined to comment further to Devex as to what the deal would entail.
In the meantime, “we were really encouraged by the broad support … the recognition that we needed more capital, which was pretty much a unanimous recognition,” Guislain said.
2. Industrialization isn’t as simple as adding value
Processing the continent’s raw materials into value-added products came up in nearly every session.
Adesina kicked off the meetings by asking: “Why should Africa export raw cocoa and get only 2 percent of the $100 billion market value of chocolate?”
Despite strong economic growth, Africa’s “deindustrialization” is blamed on its exportation of unprocessed commodities — such as coffee or cocoa — that add relatively little value.
But industrial growth won’t be as simple as saying, “We produce the iron, why don’t we produce the pots and pans. We produce the gold, why do we not produce the jewelry?” said David Kaplan, economics professor at the University of Cape Town.
“Just the fact that you produce the raw material doesn’t give you an advantage downstream … This area has been much exaggerated as an area for Africa’s production,” he said during a session on the subject.
One strategy that does hold promise, he added, is building stronger value chains to link locally-produced products to supermarkets. And if agriculture can be developed alongside the entire value chain, it would boost the manufacturing sector and create jobs.
Supporting agro-industries remains at the top of the bank’s priorities: On Monday, AfDB signed a memorandum of understanding with the United Nations Industrial Development Organization to facilitate cooperation in agro-industry development, eco-industrial parks, and investment in innovation and technology, among other efforts.
3. Climate finance on the rise
The bank continues to ramp up its investment to address climate change impact. In 2017, AfDB dedicated 28 percent of its commitments — $2.35 billion — to climate finance. By 2020, the bank is aiming for 40 percent.
“When projects are designed, at the beginning we see how we can mainstream climate change into those projects — agriculture, transport, it doesn’t matter, we do it,” AfDB Director for Climate Change and Green Growth Anthony Nyong told Devex.
The bank has also established the Africa Nationally Determined Contributions Hub to help countries turn the targets they ratified as part of the Paris Agreement into bankable and implementable projects. Often, these NDCs don’t align with national development strategies, and haven’t attached enough importance to adaptation and resilience building, Nyong said.
The AfDB and the Global Green Growth Institute signed a memorandum of understanding on Friday that will see a joint study on green growth readiness in Africa, as well as explore ways to align both organizations’ activities with the implementation of the Sustainable Development Goals and NDCs.
In 2017, the AfDB announced that 100 percent of its energy investments were in renewables — something the world isn’t hearing enough about, Nyong said: “Africa’s emission is not from coal, it’s not from energy — it’s from deforestation and poor land uses, and we’re tackling this at the root, stopping deforestation, and creating alternative livelihoods.”
During the meetings, the bank presented its disaster risk financing facility and signed a letter of intent to launch the Korea-Africa Energy Investment Facility, which will support preparation, construction, and operations through a mix of financing and technical assistance.
4. Investing in fragile states
The AfDB identifies private sector development, which makes up about 37 percent of its portfolio, as one of its fundamental areas of focus. Increasingly, the bank is also looking at how to operate in fragile states or transition countries that come attached with higher risk and higher financing.
AfDB’s Guislain pointed to one recent example of an innovative mechanism in the form of blended finance for regional airline Air Côte d’Ivoire. By using a $5 million allocation from the African Development Fund, the bank was able to issue a $20 million dollar guarantee that allowed commercial banks to come in and provide $110 million in financing for the airline to modernize and expand its operations.
“So we’re leveraging $110 million through a $20 million dollar guarantee that only ‘costs’ $5 million [to the Côte d’Ivoire government]. Without the guarantee, banks would find it too high risk, they wouldn’t do it,” he said.
The next step is to set up a “more structured capacity to do this at more scale — and in particular to do more in difficult country environments and with small and medium enterprises,” Guislain told Devex.
5. No time like the present to invest in Africa’s people
Aside from basic infrastructure, lack of appropriate skills is one of the main constraints Africa faces in its quest to leapfrog, said Adesina.
Rising skills mismatch, low productivity in the informal sector, and unemployment and underemployment among a large youth population are issues the bank is seeking to tackle.
In March, AfDB approved a $30 million loan to support the establishment of the Rwanda Innovation Fund, aiming to promote the innovation economy in Rwanda and throughout East Africa. One-third of that loan will go toward training for skills development, such as how to write a business plan, Dr. Abdu Mukhtar, director of industrial and trade development for AfDB, told Devex on the sidelines of the meetings on Wednesday.
And while it was Korea’s infrastructure investment that most African leaders were looking to hear more about, World Bank President Kim pointed them in a different direction. Most of the countries that have risen from poverty and graduated from middle income to high income can trace their success to investment in education, according to Kim, who was born in South Korea and is the first World Bank president to attend an AfDB annual meeting.
Far too many countries think: “First we’ll get rich and then we’ll invest in people,” he said. “That’s the wrong way to go.”