Swazi B. Tshabalala, chief finance officer and currently acting senior vice president at the African Development Bank Group, discusses the bank’s efforts to help countries ravaged by the Covid-19 pandemic and the how the continent can jumpstart economic development.
Global Finance: The African Development Bank has been proactive in helping African countries tackle the Covid-19 pandemic. Has this been deliberate and what have been the impacts?
Swazi B. Tshabalala: The African Development Bank considers itself the continent’s bank. Therefore, it is the responsibility of the bank to respond swiftly any time there is a severe challenge to the economies of African countries and regions as well as the social welfare of its peoples.
We are helping countries deal with the pandemic starting with the $10 billion Covid-19 Response Facility, which was launched in June and is being disbursed to member states to meet liquidity needs. This was followed by a $3 billion social bond floated on the London Stock Exchange to help provide funds for increased access to health services and other essential goods, services and infrastructure.
We were not going to have debt management issues interfere with this exogenous shock, of which Africa and Africans are victims, having played no role whatsoever in its making. Therefore, as the continent’s bank, we actively and deliberately pursued an approach based on partnership and put the priorities of the people and governments above all else.
GF: How much has AfDB disbursed to African countries so far?
Tshabalala: We have been working closely with the governments to accommodate their needs. By mid-August, the bank had approved $3.4 billion, representing 38% of the target $9 billion for sovereign operations. We believe these funds have helped to compensate for some of the losses resulting from the economic slowdown. They have also contributed massively to sustain the ability of the governments to function properly and provide needed public services.
GF: How does AfDB plan to help in the journey to economic recovery?
Tshabalala: We are working with member countries to chart a course that will help with the recovery. We believe these plans will help them initiate new and needed reforms and accelerate earlier momentum for infrastructure development, ICT connectivity and linkages, regional trade and investment, financial market integration and many other areas in which progress needed a jolt.
This exogenous shock has awakened in many the need to do things differently: to focus on industrialization within Africa, development of regional value chains and greater market development, so that we are less vulnerable to such economic hardship when future shocks occur. We believe we will be able to look back in five to 10 years and say that 2020 was a terrible year but Africa came out of the pandemic stronger and more unified.
GF: Which sectors does AfDB consider to be critical for interventions to speed up economic recovery?
Tshabalala: For us, much of the emphasis is on discarding needless barriers, such as non-tariff barriers that impede trade and investment. In other cases, businesses and governments both want simplification and streamlining of permits and procedures to create a better business environment and create more jobs, particularly for our youth. Therefore, an overarching focus of the recovery is on a better business environment for the private sector to capitalize on opportunities and grow.
There is also the need to invest in infrastructures and support value chains, both within countries and on a cross-border basis, to promote industrial scale. Africa is a major producer of raw materials, yet we have very little value-added products. This must change.
GF: What are the systemic threats that impede development in Africa?
Tshabalala: Africa faces fundamental challenges that are broadly systemic. First, most economies depend on one or two commodities for a significant amount of foreign exchange inflows. These funds are typically the majority of revenues for governments and they fluctuate wildly based on global market conditions.
A crash or shock like Covid-19 causes prices to plummet, with ripple effects like sharp drops in foreign exchange and local currency value, declines in fiscal resources available for public needs and a drop of at least one notch in sovereign bond ratings, triggering an increase in risk premium, which adds to borrowing costs. All of this tests resilience and makes it difficult to sustain the progress needed to resolve these conundrums.
GF: How critical is AfDB lending to African countries and has your lending policy contributed to the debt problem that many of them face?
Tshabalala: Given the African continent’s substantial financing needs, the AfDB’s development assistance remains critical, especially in light of the Covid-19 pandemic and its related economic fallout. Our lending policy is often coordinated and provides substantially better value for money to developing nations than other sources of financing. We source for funding on highly competitive terms and pass on more favorable terms to our member countries than they would be able to secure themselves.
GF: How does the AfDB see its future in a continent where global multi-lenders are fighting for space?
Tshabalala: The AfDB recognizes that Africa’s financing needs are too extensive for a handful of institutions to fulfill. According to our estimates, the financing required annually for Africa to fully achieve its development objectives varies widely, with estimates ranging from $200 billion to $1.2 trillion a year. This is, of course, an enormous sum and, taking infrastructure alone, our estimates suggest that the continent’s infrastructure needs amount to $130 to $170 billion annually, with a financing gap of between $67 billion and $107 billion a year.
In light of these very significant numbers, the gap cannot be met by any one institution. As such, the emergence of new lenders is most welcome as this would accelerate the progress required to help the continent achieve its development objectives.
GF: How important is its Triple-A rating for AfDB?
Tshabalala: The AfDB is rated triple-A by all the major international rating agencies, reflecting the bank’s very strong financial profile and the extraordinary support of its shareholders. A triple-A rating signals to investors in the bank’s bonds that the institution is highly creditworthy, with an exceptionally strong capacity to meet its financial commitment to investors and will not be adversely affected by foreseeable events. It allows the bank to borrow on the best terms possible to on-lend to its clients.