Regional banks in Africa need to partner to address the effects of pandemic and climate change

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Africa’s public development banks (PDBs) need to work together, improve their governance structures and be well-capitalized if they are to address emerging challenges such as pandemics and climate change.

Speaking on the second day of the 2021 African Economic Conference (AEC) taking place in Cabo Verde, panelists agreed that while public development banks were expected to play a critical role in helping Africa recover from the pandemic, most of them lack the necessary financial and technical capacity. 

Michael Awori, Chief Operating Officer, Trade and Development Bank (TDB), noted that the pandemic placed a heavy burden on PDBs to help roll back the negative health and economic effects of the pandemic.

“I think it is too big for any one entity to solve on its own. This, for us, just highlights the importance of partnerships,” said Awori, adding that for a long time the TDB has partnered with the African Development Bank (AfDB).  

The panelists also highlighted the need for public development banks to have stronger governance structures, and be well capitalized to perform their key functions.

Ibrahima Diouf, Special Adviser to the President of the West African Development Bank (BOAD), said the regional development banks on the continent need to lobby for the special drawing rights (SDRs) reserves from the International Monetary Fund to finance African economies’ recovery from the pandemic.

Almost all of the panelists agreed that the SDRs that were recently allocated by the IMF could be used by national governments to capitalize regional development banks. Most governments are shareholders in these banks.

Diouf noted that in light of the Covid-19 pandemic, there is also a need for a sector approach. As an example, BOAD has come up with new products for health, education, gender and social housing.

“So that we don’t only react when we have these pandemics but also anticipate them,” Diouf added.

Stefan Nalletamby, the Director of the Financial Sector Development Department at the AfDB, noted that with the pandemic the Bank had shifted its focus to support governments in the fight against the outbreak.

“The AfDB is also working on developing robust healthcare infrastructure in Africa in order to ensure that Africa is ready to combat future pandemics,” said Nalletamby.

It also emerged that most of the development banks have difficulties mobilizing finances domestically, with most of the funds flowing in from the international market.

“Domestication of the funding base is still an issue when it comes to financing Africa’s post-Covid-19 development,” according to Tony Okpanachi, CEO of the Development Bank of Nigeria.

The AEC, taking place both physically and virtually, has been organized by the African Development Bank, the United Nations Economic Commission for Africa (ECA) and the United Nations Development Programme (UNDP).

For the second year, the forum is being held against the backdrop of the Covid-19 pandemic which has plunged African economies into recession for the first time in two decades.

The 2021 African Economic Conference is being held in a hybrid format, with key delegates gathering on the Cabo Verde island of Sal, as well as virtually. It brings together a wide range of stakeholders, including policymakers, development institutions, the private sector, and researchers, to discuss ways to sustainably grow the continent’s development funding sources.

Public Development Banks are a mixed group of institutions, with varying ownership structures, business models and mandates. There are both national and regional public development banks.

Most of them extend cheap, long-term financing to riskier borrowers such as micro, small and medium enterprises (MSMEs) that struggle to get loans from commercial banks.

In 2018, there were 95 PDBs in Africa. With the exception of Somalia and South Sudan, every African country has at least one PDB, and many have more.

The combined total assets of African PDBs were estimated at US$131 billion in 2018, or 2% of global PDB assets.

The top 5 African PDBs have total assets of US$71 billion. The mandates of African PDBs mostly include SME development, agriculture, housing, and export and import financing. Nigeria has the highest number of PDBs, with 11, followed by South Africa, with 7. Source: UNECA