Sub-Saharan Africa Growth to slide by 4.5%

The African Development Bank (ADB) will play an unprecedented counter-cyclical role to offset the negative effect of the global financial crisis and recession on African economies, the bank's president, Donald Kaberuka, said over the weekend.

The head of the ADB said this during a meeting with finance ministers and central bank governors of a number of African countries to discuss the effect of the crisis on the continent and to articulate a common position on achieving greater representation for African countries on world forums such as the G-20, the International Monetary Fund and the World Bank.

Kaberuka told a south African news paper on the sideline of the meeting that the countercyclical initiatives envisaged by the bank included the launch of a $1,2bn emergency liquidity facility to provide capital for the African financial sector whose access to foreign capital markets had either dried up or become too expensive. The bank would also become active in trade and project finance to fill the gap left by risk-averse foreign banks.

Kaberuka said normally development banks did not act counter cyclically, instead focusing on project finance for infrastructure. However, this had become necessary because the crisis threatened to destroy the significant gains made by Africa over two decades of economic growth and reform. "What we are seeing already is the cancellation of infrastructure projects because of the lack of financing. International banks are opting out and we are trying to be countercyclical by providing project finance to ensure that those projects go ahead. We are also seeing trade financing facilities drying up or becoming very costly."

Whereas a 5,1% growth rate in gross domestic product this year was forecast for sub-Saharan Africa in November, this was expected to fall because of low oil and mineral prices and lower world demand. Kaberuka predicted that growth could slide to 4,5% this year.

He said the ADB might have to seek more share capital from its shareholders (40% are developed countries) if it was to play this countercyclical role.

"We can either proceed as business as usual, in which case we have enough resources, but if we try to compensate for the shortfall in trade and project finance and liquidity we will have to go to our shareholders and ask for additional capital."

Kaberuka said it was difficult to estimate how much would be needed as it was impossible to predict how the global economy would react to the stimulus packages.

However, the bank was planning on using $2bn of its own funds for trade, liquidity and project funds.

With a risk capital utilization rate of about 50% and total risk capital of about $7bn the bank had a "huge capacity" to respond to the crisis, he said.