African Development Bank (Tunis)
17 November 2007
interview
Tunis — The African Development Bank Group, the World Bank and other partners are working on a major initiative aimed at strengthening the financial sector's contribution to economic growth and the well-being of the continent's population. The AfDB Director for Governance and Financial Reform, Gabriel Negatu, sheds light on the Partnership for Making Finance Work for Africa in an interview with the AfDB's internal e-newsletter, Bank in Action, on the sidelines of the 2nd African Economic Conference, held in Addis Ababa from November 15-17, 2007.
Question: You have made a presentation at the African Economic Conference, a gathering of researchers and policy-makers. Do you think that this kind of conference can foster good economic governance in Africa?
Answer: It is a very important issue. As you know, the theme of the African Economic Conference was "Opportunities and challenges of development for Africa in the global arena". Within that context, my presentation was on "the Partnership for making finance work for Africa". The main component of the presentation was to introduce a new partnership that has been created by the AfDB, the World Bank and DMZ to mobilize resources for Africa's development by strengthening the financial sector. This is very much consistent with the African Development Bank's view on economic and financial governance. We are of the view that the development of the financial sector will be an important way to finance Africa's development work whether it is infrastructure, agriculture or any other sector; while ODA will be a main component of Africa's development financing, we also believe that if the financial sector in Africa is organized and enabled to prosper, then that would be another domestic source of financing. Our focus is on making sure that the financial sector through good governance of institutions and policies and knowledge and partnership is strengthened so that African finance is used for Africa's development. The Partnership for Making Finance Work for Africa is a major initiative to support the efforts of African countries to accelerate economic growth and reduce poverty. The partnership is based on the recognition that financial sector development can be a strategic driver of private investment, employment generation and economic growth. The partnership, therefore, aims at scaling up resources for the development of the financial sector in Africa and enhancing the sector's contribution to economic growth and poverty reduction.
Question: The African financial sector does not play such a strong role as in other regions of the world. Has your study on making finance work for Africa outlined the weaknesses?
Answer: Indeed, that is one of the main conclusions of our presentation.
There is now an agreement that it is an African priority that the financial sector in Africa be strengthened and that good financial governance means strengthening the financial sector whether it is banking or non-banking, intermediation, micro-credit, credit to the private sector, credit to households, credit to sector development. All of these have to be strengthened and the way to do this is of course partly to attract private capital but there is also a wealth of African resources that need to be organized and capitalized also. Our main conclusion is that there is a new partnership between Africa and its partners to strengthen the financial sector as a way to finance Africa's development.
Question: AfDB Group President, Donald Kaberuka, recently pointed at high remittance costs as an obstacle to remittances is channeled to development work. Does the Partnership for Making Finance Work for Africa initiative address this issue?
Answer: Yes, definitely. One of the components of this new partnership is to improve the efficiency of the financial sector in Africa. Today, it costs more money to transfer resources to Africa or from Africa: whether you are living in the country's capital and you want to send money to your relatives in the village, it costs more; when you want to borrow, it costs more. With regard to credit availability, only 20% of Africa's population has access to credit, whereas in Asian countries, the rate is close to 50%. The efficiency of the financial sector will improve money transfers that President Kaberuka talked about. If Africans in the Diaspora want to send money, we will want to make sure that the systems are efficient, accountable, and reliable by reducing the transaction cost. People will then have more confidence and more access to financial services. There is a very strong linkage to making finance work for Africa and the comments that President Donald Kaberuka gave on money transfer from the Diaspora to the continent.
Question: Apart from strengthening financial sectors, would you also recommend widening the array of financial services African banks offer to their customers, including advice on interest rates, considered very high in Africa?
Answer: Well, this will need to be addressed based on a country-by-country approach. There is no single approach that works for all countries. Part of this new partnership is knowledge generation. One of the things we are going to do is to take stock of the financial sector development in each country. There will be a mapping exercise to generate knowledge and to understand where the gaps are. Therefore, if the issue is efficiency, then we will work with those countries to improve efficiency; if the issue is policy, then we will work with those countries to improve policy and if the issue is capacity, then we will work with those countries to improve their capacity to make the financial sector efficient, accountable and accessible to all.
Question: Any countries in the pipeline?
Answer: Yes, some countries have shown willingness to reform. Several countries in the UEMOA (the West African Economic and Monetary Union area), countries like Tanzania, Rwanda, Ethiopia, Kenya, as well as countries in Southern Africa. There are several countries that are already beginning to reform their financial sectors. Now, what we are aiming at is to make sure that there is a coherent strategy to make sure that the financial sector's development is a priority at the country level, bringing the private sector, academia and researchers together because these are all stakeholders. It is not just a government challenge. The private sector clearly has a role and needs to be involved, academia needs to make the research and bring the knowledge forward; civil society through micro-credit. We need the participation of all stakeholders to make sure that we address two major issues facing financial services: access and depth, "access" referring to the number of people having access and "depth" referring to the depth of services and products that you access. When you talk about micro-credit, for example, you have to bring the civil society, because it is very active.
There is a whole range of stakeholders who need to come together to make sure that there is a coherent national strategy to make this happen.
Question: Can you name the countries you are going to start with?
Answer: I think it is premature for me to start naming the countries. We have about 15 international partners in the Partnership for making finance work for Africa: the World Bank, IMF, DFID all the major partners have joined in the initiative, and we are going to find out what each partner is doing in each country. Then, based on the gaps that have been identified, we will launch knowledge generating activities.
Several partners have expressed an interest, and we are working very closely with the office of the Bank's chief economist in the generation and dissemination of knowledge from the AfDB side.
Question: Are you going to involve local researchers or economic research institutions in country studies you will carry out?
Answer: Absolutely. The AfDB cannot do it all, but the AfDB can play a critical leadership and catalytic role. Early next year, there will be a secretariat for the new partnership called "Making Finance Work for Africa". The secretariat will be hosted at the AfDB governance department. It will be a light coordination secretariat. It will not be implementing, but it will identify the gaps, the needs and the partners.
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