Keynote speech by H.E. Erastus Mwencha Deputy Chairperson African Union Commission

CEO Forum of the World Federation of the Development Finance Institutions

(WFDFI)

Gaborone, Botswana

3^rd November 2016

Keynote speech by

H.E. Erastus Mwencha

Deputy Chairperson

African Union Commission

Economic Affairs Department

Your Honor the Vice-President of the Republic of Botswana, Mr. Mokgweetsi Masisi;

Honorable Cabinet Ministers;

Leaders of the opposition;

Excellencies members of the Diplomatic Corp;

Honorable Members of Parliament;

Chairman of the World Federation of Development Finance Institutions and ADFIAP, Mr Fernando Arjun;

Chairman of the Association of African Development Finance Institutions, Mr. Partick DLAMINI;

CEO of CEDA, Mr Thabo Thamane;

CEO’s of Development Finance Institutions;

Distinguished Ladies and Gentlemen,

1. I am delighted to be here today to add my voice to this CEO Forum of the World Federation of the Development Finance Institutions, on behalf of the Chairperson of the African Union Commission, Dr. Nkosazana Dlamini-Zuma.
2. At the onset, I would like to thank the organizers of the Forum, the Citizen Entrepreneurial Development Agency (CEDA) and the government and people of Botswana for the invitation and warm welcome in this beautiful city of Gaborone. I would like to acknowledge the presence of the World Association of Development Finance Institutions, the African Association of Development Finance Institutions and all their affiliated members.

Excellencies Ladies and Gentlemen,

3. This is an exciting time for Africa.
4. As you may be aware, since the beginning of the 2000’s, Africa’s growth rate has more than doubled from just above 2 per cent in 1980s and 1990’s to above 5 per cent between 2001 and 2014. This economic performance was favored by an increased domestic and international demand; high commodity prices, public investments on infrastructure; tighter trade and investment linkages with emerging economies such as China and improving global economic and continental business environment.    
5. But today, the situation has dramatically changed. This Meeting is being held at a time when most of African countries are confronted to difficulties related to the sharp decline of commodity prices, particularly oil and metals with an impact on declining revenues. In addition, China’s growth slowdown to below 7% and its transition from investment and export of industrial goods towards consumption and service has also heavily impacted Africa’s economic performance. Further, climate change in the form of severe drought and floods has ravaged countries affecting electricity generation and food security.
6. Despite this economic headwinds, Africa is still the second fastest growing economic zone, with an economic growth rate estimated to above 5% in 2016. This estimation by the African Development Bank places the continent above the global average of 3.2% and the estimated 1.7% and 2% for the Euro Zone and the US respectively. The continent is also still posting good performance in terms of attractiveness of foreign direct investments inflows estimated to reach USD 55-60 billion in 2016. On a regional note, although intra-African cross-border investments have risen, they only accounts for 19% of total investment to Africa and just 12 % of Africa total foreign investment compared to 33 % in Asia.
7. On the social front, Africa has made steady progress in addressing some of the key socio-economic challenges. In many countries, the incidence of extreme poverty has declined. Attending primary school has become the norm, with most countries having achieved universal primary enrolment (above 90 per cent). Nearly one half of African countries have achieved gender parity in primary school. Health has also seen major gains: under-five mortality declined from 146 deaths per 1,000 live births in 1990 to 90 deaths in 2011, a 38 per cent decrease. Similarly, the maternal mortality ratio fell from 745 deaths per 100,000 live births in 1990 to 429 in 2010, a 42 per cent decrease.
8. But Africa’s growth episode has not been sufficiently inclusive and diverse because it is still mainly based on natural resources exploitation and export without added value, and therefore no opportunity to maximize the share of wealth drawn from its vast raw materials for Africans. It is in this context of seeking inclusive and sustainable growth that the African Union has responded by developing Agenda 2063 for the “Africa We Want”.
9. Agenda 2063 which embeds the global Sustainable Development Goals (SDGs) is a forward-looking vision that projects Africa over the next five decades considering it as "an integrated and prosperous continent, where growth is inclusive; a continent at peace with himself, playing an active role on the global scene".
10. Agenda 2063 reflects the aspirations of the entire African continent; a prosperous continent with high-quality growth that creates more employment opportunities for all, especially women and youth.
11. In this vision, sound policies, better infrastructure and energy will drive Africa’s transformation by improving the conditions for private sector development and by boosting investment, entrepreneurship and micro, small and medium enterprises.
12. In the context of Agenda 2063, transformation means diversifying the sources of economic growth and opportunity in a way that promotes higher productivity, resulting in sustained and inclusive economic growth. It also means supporting the development of industries that increase the impact of the existing sources of comparative advantage and enhance Africa’s global competitive position.

Excellencies, Distinguished Ladies and Gentlemen;

13. Achieving Agenda 2063 and its flagship programmes will require a collective effort by all African stakeholders and to that end, the role of African Development Finance Institutions cannot be overemphasized.
14. Under Agenda 2063, we see Development Finance Institutions (DFIs) as powerful institutions that can invest in sustainable private sector projects with the twofold objective of spurring socio-economic transformation and development in African countries while themselves remaining financially viable.
15. These financial institutions will be instrumental for the sustainable financing of continental projects in agriculture, agribusiness and industry, infrastructure and energy in the perspective of unleashing the development potential of the African private sector.
16. On the infrastructure side, of the US$ 93 billion per year the World Bank estimates that Africa needs to invest to close its infrastructure gap, just under half is currently financed, with major sources being African governments, multilateral and bilateral sources of finance, Official Development Assistance (ODA) and the private sector. According to the Africa Infrastructure Country Diagnostics (AICD), these sources together contribute approximately US$ 45 billion per annum, leaving a gap of about US$ 48 billion per annum to be financed.
17. With regard to energy, it is estimated that the lack of energy combined with lack of infrastructure holds back Africa’s growth by 2% each year and constitute a major constraints to doing business.
18. In that continental interplay, Development Finance Institutions has an important role to play to help reducing the infrastructure gap and solving the power problem. Addressing these two challenges will open great opportunities for agriculture development and industrialization through a shifting of labor from lower to higher productivity sectors.

But how can DFI’s contribute to the achievement of these goals?

19. There is an imperative need to revisit the role of African Development Finance Institutions with a view to reinforce their development potential and address their poor performance recorded over the last decade. In fact, over the last decade, African Development Finance Institutions have shown low levels of profitability, with an estimated 2.4 percent return on average assets, and a high level of loan impairment, with a 15.8 percent of impairment loans to gross loans.

Excellencies Ladies and Gentlemen,

20. To avoid the repetition of this disappointing performance of African Development Banks, let me underline policy actions that can help Development Finance Institutions remain relevant partners in achieving socio-economic transformation in Africa.
21. First, there is need to create an enabling business and regulatory environments for the attraction of both foreign direct investments and the scaling up of cross-border investments. Creating an enabling environment will significantly contribute to de-risking investments in critical sectors of infrastructure, energy and agribusiness for Africa transformation if the continent is to reach the level of 33 % of intra-regional foreign investments recorded by Asia. Achieving this will require policy interventions to strengthen macroeconomic stability and promote institutional, regulatory and legal reforms that favor good governance and accountability to avoid microeconomic distortions. DFIs should therefore be integrated into the financial system to deepen financial inclusion and operate along commercial lines with a flexible mandate to take advantage of the new dynamics.
22. Second, government intervention should support rather than distort incentives for the private sector. To that end, our efforts should unlock the transformative potential of the private sector through increased access to finance and deepening of financial inclusion. A particular attention should be placed on lengthening financial contracts by providing a trading platform for the expansion of African capital markets. 
23. Third, government should also put in place arrangements for Development Financial Institutions to be assessed on a regular basis against an agreed set of financial and social development objectives. As governance in all its dimensions, ranging from political stability and accountability in the control assets to the rule of law, has been a continuous challenge over the last few decades, there is now an urgent need to strengthen financial stability and to fight against illicit financial flows to significantly reduce the risks perceived by investors. De-risking the African financial system will, I am convinced, attract more foreign investors and scale up regional cross-border investments for Africa’s transformation.
24. Fourth, government should capitalize development banks adequately to allow them to play a more proactive role in financing Africa’s socio-economic transformation.
25. Fifth, rather than concentrating on national priorities, Development Banks should operate in a regional base. This will be of great importance to find optimal solutions to regional challenges and fast-track Africa’s integration agenda as encapsulated in the Abuja Treaty. Co-financing, by forming consortia will significantly contribute to enhancing implementation of cross-border projects.  

Excellencies Ladies and Gentlemen,

26. In conclusion, let me reemphasize that to achieve Agenda in 2063, Development Finance Institutions are relevant actors and investors in sustainable agricultural and industrial production if we are to meet the challenge of structural transformation. And through innovation and investment in infrastructure, energy and resource-efficient solutions, the Development Finance Institutions will have a major role in spurring inclusive economic growth.
27. To achieve this, the African Union Commission looks forwards to work with you. I am confident that this Forum will find a strong and compelling voice to identify the areas of our cooperation.
28. As a way forward, I would like to take this opportunity to cordially invite you all to attend the African Economic Platform, scheduled to be held in Mauritius in March 2017. The African Economic Platform is the African Union dedicated high-level Public-Private Business oriented platform that brings together the public and the private sector to discuss ways of boosting investments in Africa at this critical time. A one minute promotional video will be presented just after my intervention.

I thank you for your kind attention.