By Our Reporter
Carlos Lopes, the Executive Secretary of the Economic Commission of Africa (ECA) has challenged African Central Banks to finance the continent’s development. According to him, these banks must realize their potential in transforming Africa.
Lopes was addressing a group of Central Bank governors and development financing experts today at the Joint Annual Meetings of the African Union Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration and the ECA Conference of African Ministers of Finance, Planning and Economic Development which took place in Addis Ababa.
“US$ 1 trillion of capital has not been put to work to finance Africa’s transformation. US$ 1 trillion is dormant in the coffers of pension funds, Central Banks, Commercial Banks and other holders of remittances in Africa. Controlling the finance is the key to fulfilling our aspirations and it is primarily you who can put this money to work,” he said.
Experts and policy makers agree Africa’s development must be financed from local sources.
Joseph Enyimu, member of the Intergovernmental Committee of Experts on Sustainable Development Financing, confirmed that savings are on the rise on the continent but the challenge was channeling those savings into meaningful investments.
During the first meeting of the Caucus of Governors in Abuja in 2014, the participants acknowledged the narrow mandate of Central Banks but agreed on the need for the banks to promote economic transformation.
However, the question of the manner of involvement and expansion of central banks’ traditional mandate of price and financial system stability invariably produces different answers.
The discussions showed different countries have taken different approaches to development financing, with many participants citing the examples of Ghana and Nigeria in co-financing big infrastructure projects and Kenya and Uganda’s bond schemes as good practices.
On the question of conservative versus activist central banks, Louis A. Kasekende, one of the co-chairs of the meeting and the current Deputy Governor of the Bank of Uganda, pointed out some central banks have begun to undertake innovative schemes where they work together with commercial banks to improve the loans and bond conditions for business, especially for small and medium enterprises.
Despite the general consensus that business cannot continue as usual for central banks and that there is room for significant contribution, Jean-Baptiste Compaore, the Deputy Governor of Central Bank of West African states, warned “a central bank shouldn’t overstretch itself.”
Increasing the maturity structure of bonds and offering different bond market schemes were given as examples of positive involvement as evidenced by some central banks issuing infrastructure bonds or designing new bond schemes as done by the Kenyan central bank.
The ECA recommends central banks to, “include critical developmental roles with effective support to the fiscal authorities, within a macroeconomic policy framework that focuses on structural transformation and that controlling the finance is the key to fulfilling our aspirations,” says Lopes.
For this to happen, it is crucial for Africa to pull on all its resources such as savings, remittances and pensions; stamp illicit financial flows; institute innovative tax laws and improve the business environment.
Jacob Oduor, the Principal Research Economist from the African Development Bank reminded participants that, “Africa can finance its development. The private sector is key to development with partnering between controlling the finance is the key to fulfilling our aspirations.”
Nyambura is a senior journalist based in Kampala