Long-Term Finance in Africa: The Focus of Discussion in Addis Ababa
Africa’s sustained economic growth is dependent on the ability of Africa’s financial systems to provide long-term finance to support job creation and improved infrastructure that the continent needs.Addis Ababa, Ethiopia, July 13, 2015 - This was the focus of a panel discussion on "Long-Term Finance in Africa: The Next Frontier", organised by the Making Finance Work for Africa Secretariat (MFW4A) and the African Development Bank (AfDB) in the margins of the Third International Conference on Financing for Development (FfD3) in Addis Ababa on 13 July. In his opening remarks, Prof. Njuguna Ndung'u, a former Governor of the Central Bank of Kenya, highlighted the contribution of improvements in the policy environment and financial inclusion to Africa's economic growth in the last 15 years. However, some challenges persist, including inequality, vulnerability to commodity price fluctuations, and increasing debt burdens. "Sustained growth in Africa requires a heavy infusion of public investment at both the national and regional level", Prof Ndung'u said. "The next frontier is how these investments can be financed whilst maintaining sustainable debt levels". This means mobilising additional domestic resources, including long-term savings, which can only be achieved through further improvements in financial inclusion. For his part, Chair of the Africa Pension Funds Network, Mr. Dave Uduanu emphasised the opportunities created by pension reform in countries like Nigeria, where assets under management by the pensions industry have grown from US$7 billion in December 2008 to US$27 billion in October 2014. Similarly, Ghana's pension industry is expected to expand by up to 400% over the next four years. However, he noted that a combination of regulatory, capacity and other hurdles - including a lack of suitable products, and crowding by high government borrowing means that these long-term savings are predominantly invested in government paper and other short term instruments. Ms Rhoda Mhango of the African Private Equity and Venture Capital Association underscored the role of private equity in providing growth capital to the private sector, especially in the context of Africa's illiquid and shallow stock markets. She further noted that there has been unprecedented private equity activity in Africa in recent years, with $4.1 billion raised and $8.1 billion invested in 2014, driven international investors seeking returns in a low interest environment and opportunities linked the continents strong economic growth. Looking forward, AVCA sees further opportunities, particularly in agribusiness, financial services, infrastructure and real estate. In his closing remarks, Dr Issa Faye of the African Development Bank, (AfDB) said that financial sector development, and long-term finance in particular are priorities for the Bank. AfDB is working to promote improved risk management in financial institutions, develop local capital markets, and catalyse innovative financing. However, he notes that success depended on sound policy frameworks, and string partnerships between policymakers, the private sector and development partners. Some of the key messages that came out of the discussion include:
- Improved financial inclusion in Africa has been critical for financial sector development, and provides the basis for addressing the continents challenges in providing adequate long term finance;
- Africa's development agenda is crowded with opportunities waiting for appropriate financing and risk management strategies. Addressing these needs requires innovative financing solutions and appropriate regulation which provides the necessary system stability without stifling innovation; and
- There is need for financial sector development policies at the national level, encompassing all areas of finance, including inclusion, financial literacy and capital markets development in order to support long-term finance in Africa.