6th UNCTAD Debt Management 6th UNCTAD Debt Management ConferenceConference

Stefan Nalletamby Stefan Nalletamby

African Development BankAfrican Development Bank

1919thth November 2007 November 2007

New Lenders and the Effect New Lenders and the Effect on the Marketson the Markets

Concessional Lending – Practice of the Concessional Lending – Practice of the Past?Past?

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3.6%

4.2%

5.5%5.2%5.4%

4.6%

3%

4%

4%

5%

5%

6%

6%

2001 2002 2003 2004 2005 2006

Real GDP GrowthReal GDP Growth

23 countries achieved GDP growth rates of above 5 %

17 countries achieved GDP growth rates between 3% and 5%

Terms of TradeTerms of Trade

Fiscal Balance as a % of GDPFiscal Balance as a % of GDP

Fiscal balance has

improved

High oil and commodity prices led to continued favourable terms of trade

InflationInflation

Recent economic trends in Africa have been favourableRecent economic trends in Africa have been favourable

Inflationary pressures have

remained relatively contained

Source: African Economic Outlook 2007Source: African Economic Outlook 2007

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However economic challenges ahead may differHowever economic challenges ahead may differ

Source: African Economic Outlook 2007Source: African Economic Outlook 2007

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Progress towards reaching the MDGs remains slow

Source: African Economic Outlook 2007Source: African Economic Outlook 2007

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While financing needs remain significant While financing needs remain significant

Financing MDGsFinancing MDGs

• Several independent studies estimate the additional financial needs between USD 50 to 100 BN per annum until 2015 (source: World Development vol.

35, 2007)

• Basic infrastructure financing needs for Africa are close to USD 10 BN per annum (source: Commission for Africa)

Need for Increased Need for Increased

Development Development

Assistance Assistance

• Multilateral and Bilateral development partners have been sole providers of development assistance on concessional terms.

• In 2006, 42% of total ODA, USD 107 BN, was dedicated to debt forgiveness and emergency aid (source: African Economic Outlook, 2007)

• Multilateral Debt relief for many African countries is now complete.

• Other forms of aid are needed to rise very quickly to compensate for this financing gap.

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Non-Traditional lenders are playing an increasing role on the Non-Traditional lenders are playing an increasing role on the continentcontinent

More ProminentMore Prominent

BilateralBilateral

RelationshipsRelationships

Private SectorPrivate Sector

InvestmentsInvestments

Charitable and Charitable and

PhilanthropicPhilanthropic

OrganisationsOrganisations

• China: Trade with Africa has risen six fold since 2001 to USD 28.6 BN in 2006. Africa still runs a trade surplus with China of USD 2 BN

• India: Trade with Africa has also risen sharply to USD 9.14 BN in 2005.

• Korea: Will increase bilateral aid to USD 1 BN by 2010

• Foreign Direct Investments doubled between 2004 and 2006 to USD 36 BN, driven by South South investments

• Private Equity Funds: Actis Capital, Aureos Capital, Citibank Africa Fund

• International Bond Fund Managers

• Public/Private Equity funds: Pan African Infrastructure Development Fund; Atlantic Coast Regional Fund

• Charitable and Philanthropic foundations donations rose to over $11 BN in 2004

• GAVI initiative : Has received pledges for USD 3.2 BN (04/07)

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This has shed light on the different approaches to financing (1)This has shed light on the different approaches to financing (1)

ADVANTAGESADVANTAGES

CONCESSIONAL LENDINGCONCESSIONAL LENDING

DISADVANTAGESDISADVANTAGES

• Contributes to filling the financing gap

• Cheaper source of financing

• Longer tenors with grace periods

• Promotes international best practices

• Limited in size

• Hindered by political influences

• Loan conditionality

• Slower responsiveness and speed of delivery

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This has shed light on the different approaches to financing (2)This has shed light on the different approaches to financing (2)

ADVANTAGESADVANTAGES

NON - CONCESSIONAL LENDINGNON - CONCESSIONAL LENDING

DISADVANTAGESDISADVANTAGES

• No or low loan conditionality

• Better flexibility

• Market driven

• Increased speed of delivery

• Greater transparency in pricing

• Costly

• Lumpy

• Selectivity

• Could threaten International best

practices

• Risk of leading to unsustainable

indebtedness of countries

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The AfDB looks to reconcile these two approachesThe AfDB looks to reconcile these two approaches

Maximizing Strategic Fit

Public Private

Strategic Strategic FitFit

• Promotion of Public Private Partnerships

(PPPs) as method of financing

• Ensures an appropriate institutional

framework is in place

• Provides suitable incentives to both public

and private parties involved

• Major role of public institutions: governments,

regional organisations and donors, inspires

confidence among partners

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Water Initiatives

Post-ConflictCountry Facility

……and continues to champion development initiatives across the and continues to champion development initiatives across the continentcontinent

Investment Climate Facility

(ICF)

• Lead agency on both infrastructure development and financial and economic reforms.Over USD 1.2 BN loans and grants approved in 2006.

• Rural Water Supply and Sanitation Initiative (RWSSI): A USD 14.2 BLN initiative to provide safe water and basic sanitation to 80% of rural populations by 2015.

• Africa Water Facility (AWF): strengthen Water resource management

• Hosts the Secretariat to the Infrastructure Consortium for Africa: USD 7.7 BLN committed to infrastructure financing in 2006

• Created by the Bank to assist countries emerging from conflicts in clearing their arrears. Has been instrumental for 5 « pre HIPC » countries.

• Launched at the World Economic Forum 2006, a Public Private Partnership to improve the « business climate » in Africa

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In conclusion …In conclusion …

• Financing needs for development in Africa are significant: new lenders are welcome!

• Neither the Public sector nor the private sector alone can meet all these needs;

• Public - Private Partnerships (PPPs) is one way to enhance the benefits of a collaborative approach to development between the Public and Private sectors;

• Governments, Development Finance Institutions and the Private sector should work together to provide the most adequate funding and institutional framework for a sustainable development.

Conclusion

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Thank YouThank You