AfDB urges innovative financing to drive Africa's industrialization

Source: Xinhua| 2018-01-26 23:49:03|Editor: Mu Xuequan
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ADDIS ABABA, Jan. 26 (Xinhua) -- A new report by the African Development Bank (AfDB) has urged innovative ways of financing infrastructure in Africa towards industrialization that could help generate employment for the 12 million young people who join its labor force every year.

The bank launched the report "African Economic Outlook 2018: Innovative financing for infrastructure development" on Friday on the sidelines of the 30th African Union (AU) summit at the headquarters of the pan-African bloc in Ethiopia's capital Addis Ababa.

According to the report, one of the key factors retarding industrialization has been the insufficient stock of productive infrastructure in power, water, and transport services that would allow firms to thrive in industries with strong comparative advantages.

The report estimated the continent's infrastructure needs an amount of 130 to 170 billion U.S. dollars a year, with a financing gap in the range between 68 and 108 billion dollars.

Infrastructure finance in Africa has declined in recent years, said the report.

Between 2012 and 2016, commitments to Africa's infrastructure from all reported sources averaged 75 billion dollars, with 2013 recording the highest commitment at 83.3 billion dollars.

According to the report, commitments declined to 62.5 billion dollars in 2016, the lowest level in five years, and overall commitments fell by 16.4 billion dollars from 2015 to 2016.

African governments, whose contributions to infrastructure financing were sharply curtailed in 2014 after the commodity price shock, increased their share slightly from 24 billion dollars in 2015 to 26.3 billion dollars in 2016, down from the peak of 43.6 billion dollars in 2014, read the report.

With an estimated infrastructure gap up to 107.5 billion dollars a year, and urgent needs in health, education, administrative capacity, and security, Africa has to attract private capital to accelerate the building of critical infrastructure needed to unleash its potential, emphasizes the report.

Africa needs massive investment in infrastructure, said Abebe Shimles, Acting Director of Macroeconomic Policy, Forecasting and Research of the AfDB, during the launch ceremony.

Global saving glut and Africa's thirst for development finance are the tragic mismatch, he said, adding that global economy boasts 100 trillion of dollars savings in rich countries chasing investment opportunities.

The report notes that matching the excess savings and the investment opportunities beyond national boundaries would create win-wins for all players.

The excess savings in many advanced countries could be channeled into financing profitable infrastructure projects in Africa, it said, adding that this mutually profitable global transaction is not taking place is one of the biggest paradoxes of current times.

"More than 100 trillion U.S. dollars is managed by institutional investors and commercial banks globally. African countries seeking financial resources now have a wide variety of options, well beyond foreign aid," said the report.

Many new financing mechanisms could be implemented in all African countries, taking into account the specific economic circumstances and the productive structures of national economies, it said.

"Countries should better leverage public funds and infrastructure investments, while encouraging private sector participation. But the different stages of development of African countries mean that the policy approaches need to be country specific," the report said.