AfDB moves to raise capital to support member states

BY: Emmanuel Bruce
Prof Kevin Urama

THE African Development Bank (AfDB) has begun negotiations with its Board of Governors for the amendment of regulations around the African Development Fund (ADF), which is the lending arm of the AfDB Group.

The amendment is aimed at granting access to the ADF to allow it leverage its resources to raise additional money from the capital markets and on-lend to African countries at a cheaper coupon rate.

Speaking in an interview with the Graphic Business on the side lines of the just ended AfDB Annual Meetings in Accra, the Acting Chief Economist of the AfDB, Professor Kevin Urama, said the ADF was specially created to support vulnerable countries in Africa.

He said the fund, over the years, had been very instrumental in helping the continent, especially countries who do not have access to capital markets.

This year, the ADF turned 50 years, and in the 50 years, it has provided over $45 billion in support of African countries.

In Ghana, some of the projects that have been financed with this fund include the Kotoka International Airport and the recently commissioned 4-tier Pokuase road interchange.

Professor Urama said although the fund had done tremendously well over the years, the continent’s rising challenges such as food insecurity, poverty and climate change meant that the fund must be replenished to be able to do more.

“Considering what is happening now, climate finance is not even going to African countries because of the structure of the economies.

“So replenishing the ADF to provide more concessional financing for highly vulnerable countries that are buffeted by climate change, Russia/Ukraine war and all the other challenges is just the human thing to do now.

“We are requesting for a change of the charter of that fund to allow the fund to go to the capital market and leverage every dollar we receive by about four times so that these countries will receive more than the donor communities are providing,” he explained.

Need for additional financing

Earlier in his closing remarks at the annual meeting, the President of the AfDB, Dr Akiwuni Adesina, said nowhere was the need for greater additional financing more than for the low-income countries and fragile states that relied on the ADF.

He expressed his appreciation to each ADF donor country, stating that “you have stayed with the Fund, you have supported the Fund, and your countries have been partners in the journey of hope of the countries that are supported by ADF”.

“However, to give greater hope, to cope with increasing challenges, the ADF countries need greater resources. One way to achieve this is to allow the ADF to use its accumulated equity of US$25 billion to leverage US$33 billion,” he stated.

He said the fund will be able to deliver more, be more sustainable and generate more income if this was done.

“The Fund will reduce debt of countries, as it will deliver much lower concessional lending rates compared to very high interest rates the countries get on the global capital markets. Then together, we will build more equitable growth and development from the middle-income countries to the low-income countries and fragile states,” he said.

Addressing present challenges

Ghana’s Finance Minister and outgoing Chairman of the Board of Governors of the AfDB, Ken Ofori-Atta, for his part, said the AfDB must be free from restrictions to provide competitive financing for its members.

“We must lend support to the proposed reforms in respect of the regulations around ADF funds to enable the bank leverage these funds to raise more funds and on-lend at lower coupon rate.

“The landmark 18th Replenishment of the International Development Association (IDA18) by the World Bank serves as a topical example,” he noted.

He said it remained puzzling that the ADF was not in a position to come to market.

“We must rethink and address this in the face of the present challenges that confront us. On the ADFs 50th anniversary, our aim must be to raise a further $50 billion within the next five years in the capital markets. Such an ambition is bold, courageous and necessary to signal a new dawn,” he pointed out.