You are here
Home > BUSINESS > Africa should deploy Sovereign Wealth Fund in infrastructure — Adesina

Africa should deploy Sovereign Wealth Fund in infrastructure — Adesina

Africa should deploy Sovereign Wealth Fund in infrastructure — Adesina

Please follow and like us:

  • 0
  • Share

Shortly after the 2018 Annual Meeting of the African Development Bank in Busan, South Korea, President of the bank, Dr. Akinwumi Adesina, spoke with EVEREST AMAEFULE on various issues hampering development on the continent and the lessons from South Korea’s giant strides

What is the significance of hosting the meeting in Busan? One may want to conclude that Africa had lost some money because of what it must have cost all participants to travel from Africa to Busan.

The bank is made up of 80 members, comprising 54 African countries and other countries outside Africa. Statutorily, the bank has to hold its annual meetings alternately in African countries and the non-regional members. Last year, we had the meeting in India. This year, it is Busan. Next year, it will be in Malabo, Equatorial Guinea. So, it is statutory. That is what we do.

If it is done alternately and India hosted it last year, it means that it should have been Africa’s turn this year. So, what happened?

There is a process for bidding for the hosting. We had a back-to-back bid from India and Busan.

The significance of having this meeting in Busan is to examine the case of Korea. In 1965, the per capita income of South Korea was about $165. Today, the per capita GDP is $30,000. Growing up in Nigeria, I remember that while Korea was coming out of the ashes of war, Nigeria sent food to the country. Look at them today. If you look at them in terms of manufacturing industry, they are the leaders in the world in terms of Internet-based technologies.

They are leaders in power. If you look at the television industry or the telecommunication industry, it is most probable that your phone is Samsung or LG. So, the question that came to our minds when we were coming to Busan is: What are the things that helped them to be among the 11th largest economies in the world?

Korea is smaller than Malawi. It is smaller than Mali. It is about one fifth of the size of Algeria. Korea is smaller than Benin Republic. So, what is it – we wanted to find out – that helped them to be able to do what they have done and what are the lessons that one can learn? I could not think of any better place than Korea.

The Deputy Prime Minister, Dong Yeon Kim, said even though countries could learn from each other, industrialisation had to be driven by the internal and cultural contexts. What do you have to say on that?

When it comes to development, my own approach is that unless you are ashamed of something, you are not going to change it. I think in many cases, Africa has become comfortable with poverty. Poverty has become a norm. There is no reason Africa should be where it is today. So, for me, development would start with pride. Things should not be the way they are. For me, that is what makes countries to develop.

We have lagged behind for too long.  Our people need to have access to electricity. Take a look at it today: 655 million Africans do not have access to electricity. You cannot develop in the dark. No industry can function without electricity. The Small and Medium Enterprises cannot survive without electricity. Young people are leaving the continent, getting on rickety boats going to the Mediterranean Sea. Why? This is because they cannot find opportunities.

I believe that Africa must first look itself in the mirror and say, ‘I have to change the picture that I am seeing.’ Africa must develop and industrialise with what it has, not what it does not have. Africa is blessed. God has been good; perhaps too good to Africa. We don’t have snow; we don’t have cyclones; we don’t have earthquakes; we have so much land, a lot of water, cheap labour. If you throw anything up, before it hits the ground, it grows.

The point is that we have mineral resources and land – 65 per cent of all arable land left to feed nine billion people in the world by the year 2050 is not in Asia; it is not in Latin America; it is not in Europe; it is not in the United States. It is in Africa.

The problem is that we have not turned this into wealth because we are constantly exporting raw commodities. Those that are making the money are the ones that are processing it. So, the key to getting Africa out of poverty is to change the fact that we are exporting these things. We must industrialise and add value to the things that we produce.

Why is it that we produce oil and we don’t have Liquefied Natural Gas? Why is that we produce cocoa and we are importing chocolate? Why is it that we produce crude oil and we are importing petrol? It’s crazy. These are the things that actually bleed Africa.

So, for me, I think it is very important that we develop from what we have. Korea actually doesn’t have natural resources at all. So, they felt that how to develop was through science, technology and innovation. So, here is the lesson: Develop from what you have; add value with what you have. Be the best at it.

The knowledge industry rules the world, and you are making a case for agriculture, why?

It doesn’t matter what you do, your population has to eat. There is no nation that can call itself a decent nation that has been able to develop that has not been able to feed itself. Agriculture is linked to the economics of industrialisation.

When the prices of food are very high, your nominal wages are going to be very high. Therefore you are not going to be competitive. But if you are able to feed yourself and the prices of food are low, the level of inflation is going to be low. Your real wages are going to be high. Your nominal wages don’t have to be that high; that makes you more competitive. So, agriculture is linked to the whole industrialisation process.

The second thing is that agriculture is an industry. If it is not an industry, why are we spending $35bn a year as a continent importing food? And if we don’t change that, it will rise to $110bn by 2025. The size of the food in Africa will be $1tn. So, do we want to be the market for others or do we want to be the market for ourselves. So, I really believe that agricultural industrialisation is what will allow Africa to industrialise, produce what it needs and lift millions of people out of poverty.

Africa today produces 75 per cent of all the cocoa consumed in the world but we account for only two per cent of the total revenue from chocolate in the world. That is $120bn a year. What is the rocket science in producing chocolate?

Now, when you talk of Africa, therefore, I believe that what you will find is that the price of cotton always falls. But have you seen the price of textile or garment falling? The price of cocoa beans always declines but never the price of chocolate.

The price of coffee beans always falls but if you go to Starbucks to go and buy special coffee, you pay a lot of money for a small cup like that. So, there is a lot of wealth that we must make for ourselves in agriculture.

Another point, which is very important, is that Africa today is leading the world in terms of mobile payments. Africa today has more mobile phones than many European countries. It is very important for Africa to also accelerate its industrialisation through the digital industry.

Take the case of mPesa, the mobile money in Kenya, which has more than 30 million subscribers. Through it, millions of dollars are moved every day in Kenya. This has allowed Africa to change the world of mobile money globally. AliPay in China moved $26bn in one day. They learnt that technology building on the experience of mPesa in Kenya.

So, what I am saying is that Africa needs to take advantage of the digital industry because already we have quite a lot of innovations. Our young people are very good in developing applications. That is why the AfDB is supporting a lot of innovations. We are going to support the setting up of 230 computer coding centres that allow young Africans to know the world of computer coding and so on.

We believe that Africa must have the digital infrastructure. That is why we invested in technology parks in many countries, including Cape Verde, Senegal, Ethiopia, Kenya and Rwanda. These allow young people to be within an industrial park where they can actually grow their own businesses. We must be part of the Fourth Industrial Revolution where new skills are required in Information and communication technology, robotics, artificial intelligence.

Let’s even take the world of pharmaceuticals. To make a lot of anti-malaria drugs that you find, you need artemisinin. You find artimisinin in plants that are all over Africa. You find 90 per cent of all the incidents of malaria in Africa but we import the drugs. What stops us from making the drug from these plants that we have in abundance?

So, all I am saying is that God has given every part of the world what it needs to succeed.  It is what you do with it or what you don’t do with it that determines what you become.

The AfDB is now proud that it has achieved 100 per cent in renewable lending in its energy lending. Is this not pandering to Western hypocrisy? They are generating energy from coal, for instance, and they don’t want Africa to generate electricity from this source that we have in abundance in countries such as Nigeria.

Renewable energy is not Western deceit. We have more sun than the rest of the world. Go all across the Sahara, your skin would burn in some parts. So, why are we not turning sun rays into solar power?

The fact of the matter is that we base a lot of our development on the old ways of energy pathways in the world. They are very polluting energy pathways.  There are renewable energies that allow you to power yourselves in the same way that is environmentally sound. For the bank, we want to be at the forefront, and we are already in terms of renewable energy.

Let’s take the Sahel for example. We have launched in AfDB a major effort to help light and power the entire Sahel from the sun. It is going to be 10,000 megawatts of power going from Niger to Mali, to Burkina Faso, Chad, Mauritania, Senegal and also covering some parts of northern Nigeria.

Take the case of AfDB; we invested in Morocco, the world’s largest power bank. We financed that. We invested in Kenya, Africa’s largest wind power station. We helped to finance it. We are investing in geothermal. That is not all that we do.

In South Africa, we helped the country in its coal-based power plant but that was a few years ago. We think that the price of renewables is coming down very fast.  Power technology is changing so fast.

You can provide energy today through renewable at about three to four cents per kilobyte hour. So, it is about the economics and the technology. We cannot be laggards again. That is why as a bank, we are driving this.

Now, in Nigeria, we are also investing to support the country in the transmission of energy. We are investing in transmission lines. We are investing also in hydropower stations. So, you’ve got wind, hydro and solar. We also invest in thermal power plants. So, the issue really is that the enormous potential of renewable has not been tapped at all in Africa. So, why shouldn’t we use what have?

Should that include coal, which we have in a large quantity?

I am not talking about one particular source. Coal is not the only source of energy that we have. In fact, Africa has more gas today than coal. Look at the amount of gas that they have in Mozambique. Mozambique exports coal from one of its provinces but they just discovered 180 trillion cubic feet of gas. That is the largest gas reserve in the world.

We also have to understand that the world is moving away from polluting technology. We all have recognised that. Even the oil that we have, we are concerned about that. People are going to be dependent on using solar to power their cars. So, we must move with the time and we must be ahead of the curve.

Talking about learning from Korea; one thing I remember is that Nigeria started its steel industry about the same time that Korea started. Today, Korea has a standard steel industry, which formed the basis of its auto industry and other industries. In Nigeria, there is still a debate whether to support concession of Ajaokuta Steel Company or invest to complete it. What is wrong with Nigeria?

I am not one of those who like to give excuses for lack of development because development takes discipline. The Koreans were disciplined. Let us go back a little bit. They don’t have iron ore by the way. They have to import the iron and make the steel. How do you explain that? That is why I was telling you that it takes vision. It takes consistent redevelopment of industrial policy that is consistently executed regardless of who is in power.

The problem that we have is that a government comes in, puts in a long-term plan, another government comes in and trashes that. That policy reversal is the reason why we can’t grow. It’s like you wanted to build a skyscraper but you are constantly rebuilding the foundation all the time. You can never get anywhere.

If you look at Korea, they were consistent. The national development plan was clear and they maintained it consistently. So, I think discipline and consistency are very important.

The other thing I think that is very important for them is that they built skills that allowed them to industrialise. If you check in many African countries, we look at education and say, ‘My friend went to the university to study law or philosophy; I have to also go there.’ That was okay in the past when people were working for government but now it is the skill set that you have that is linked to the industry that matters.

That is where I am concerned because today, only about three to five per cent of all our graduates in Africa are in engineering, science, maths and technology. These are the jobs of the future. No wonder we have huge amount of unemployment.

What the Koreans did was that they supported so much education in engineering, science, and technology. These are the people that helped them build the industries that they have.

The other thing they had was that they had a big vision of competing globally. If you think small, you will always be small. If you think big, you will do all that is necessary to do to make yourself big. They figured out that they could compete in the world.

Let’s take the case of Samsung. The Samsung that you see today was set up in the 1930s. They started with $25. Late in the 1960s and early 1970s, Samsung was exporting human hair. Samsung made its money exporting wigs. The Korean women cut their hairs and they sold them through Samsung. You see how they moved off from there. Now, Samsung has dominated the whole world.

So, all I am trying to say is that one has to really have a vision. I think that African countries can do it. I think it takes the right leadership, the vision, the right industrial policy, consistent execution for a long period of time for Africa to get there.

You are advocating the use of Sovereign Wealth Funds and pension funds for the roll-out of infrastructure in Africa. Will that not defeat the purpose of the initiative?

Just take a look at the case of Norway. Norway has the largest in the world in terms of Sovereign Wealth Fund. They have oil, just like Nigeria and they have so much in terms of SWF but they used their funds to invest in their development.

What sense does it make if I take my SWF and I am investing it outside? I am making money on the fund but I don’t have power; I don’t have roads or rails. I don’t have anything. How can you compete? You can never compete. The places you are putting the money have those things. So, it makes absolute great sense to invest SWF in assets.

There should be regulatory conditions that say you must invest X per cent of your portfolio in infrastructure in Africa. That is why I fully believe that SWF can play a big role. At the AfDB last year, we did our highest annual disbursement – way over $7.2bn. The money, as significant as it is, is not enough. So, we have to mobilise a lot more domestic resources.

So, rather than SWFs investing outside where they are earning real negative rate of return, why can’t they invest in fixing infrastructure in their own continent to make Africa where other countries will want to put their SWFs?

What is your thought on foreign exchange reserves?

Foreign reserves are not just something you take and just keep. You must be able to generate foreign reserves all the time. The way you do that is for your economy to be growing fast.  Today, the infrastructure gap in Africa is between $68bn and $108bn per annum.

If we close that gap – there is electricity; invest in ports, in rail, transnational highways and aviation – it is going to make us very competitive that we will be able to earn foreign exchange. I don’t think we are growing at the rate that we can. We need double digit growth rate sustained for a very long period of time. So, I believe that if Africans are not investing in their own continent, why do you expect somebody else to do that?

Some development agencies believe that Nigeria lacks the capacity currently to service its debts. What is your thought or the thought of AfDB on this?

I think that the critical thing is that African countries, especially the natural resources-dependent countries, have been hit by external shocks and they are always hit by external shocks – declining commodities’ prices. As those commodities’ prices decline, what you have is that many of them run current account deficits. They also run domestic account imbalances. So, to try and cope, they try to borrow money domestically – short-term money at very high interest rates.

Now, the domestic debt is very high. In the case of Nigeria, the bulk of the debt is domestic debt at very high interest rate, which is where the challenge is. Nigeria’s debt to GDP ratio is not high for a country of its size. That is not where the challenge is; it is that the state governments and the Federal Government, over time, have accumulated so much domestic debts, and trying to service them has been a real challenge.

I also think for us at the AfDB, when Nigeria went into recession, we strongly stood by the country. We provided $600m budget support, which the Minister of Finance said helped Nigeria come out of recession and helped them to be able to go to the international capital market to raise Eurobonds. That is our role. We have real confidence in Nigeria. That is why we did it.

The point I am trying to make is that in general, every nation takes some debts. It is not your taking debts that is my concern; it is what level of debt that you have, your ability to service that debt and what you use the debt for. If you use the debt to deal with things that are basically recurrent expenditure (filling gaps in your budget), that is not the wise way to use debts.

Are you satisfied with how Nigeria has used its debts in the last five years?

I don’t want to get into the specific issues of one year. The most important thing is the quality of public expenditure and what has been invested in and the revenue profile that allows you to implement that.

That applies to whether it is Nigeria or any other country. That is what we have to keep our eyes on: making sure that you have sustainable debt situation – good public financial management. You are not taking debt in foreign currency and you are investing it in domestic assets that will earn for you a stream of revenue in local currency that will have a mismatch with the amount that you have to use to service the debt.

You are asking your shareholders to recapitalise the bank. Your shareholders are the same African countries that come to you to borrow funds. Is that not contradictory?

It is not contradictory. Just for clarification – we are not recapitalising. We are not in any form of financial distress. We are having a general capital increase. The bank, in the last two years that I have been directing the affairs, posted (last year) the highest transfer to our reserves in the history of the bank since 1964.

We turned out the net operating income of the bank. The highest we had before was in 2009. Last year, we disbursed $7.4bn. It is the highest in the history of the bank. We maintain our triple A rating of all the rating agencies globally.

The reason why we want a general capital increase is because of where you started – the need of Africa is a lot. We need electricity, roads, ports, rails; we need to create more jobs for our young people.

So, we want to accelerate development on the continent. That is why we are asking for a general capital increase. I think the Board of Governors coming out of here is strongly supportive of discussion on that. I think that is a great thing.

Copyright PUNCH.

All rights reserved. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from PUNCH.

















Facebook Comments

Please follow and like us:

  • 0
  • Share

Leave a Reply