New Delhi: Africa faces the risk of financial aid to the region being cut because of the economic contraction in donor countries of the West. The region is already battling a decline in export revenue because of a slump in demand for its commodities. African Development Bank (AfDB) Group president Donald Kaberuka, who visited India this month, signed an agreement with Export-Import Bank of India (Exim Bank) and discussed cooperation prospects with officials in railways and information technology (IT). In an interview, Kaberuka discusses the challenges Africa faces. Edited excerpts:
Promoting investment: AfDB Group president Donald Kaberuka. Ramesh Pathania / Mint
You signed a memorandum of understanding with Exim Bank. What is it about and how much fund infusion will it lead to?
Trade and investment between Africa and India have been growing very rapidly over the last 10 years. In fact, at present, trade balance is in our favour. Many Indian business people are investing in the continent. So, the agreement with Exim Bank of India is to provide facilities to expand this trade and investment. Exim Bank will co-finance infrastructure projects, especially in energy, transport and IT.
You also met the railways officials here. What cooperation do you expect from the Indian Railways?
At the moment we have a significant programme of upgrading our railways, rehabilitation and bidding new lines. I was keen to seek from the Indian experience what we can do together in terms of investment and management model. State-owned railway in Africa was not very successful and then we moved to privatize our railways. But that has not done well either. As you know Indian Railways has a subsidiary, which has been doing some concessioning for some railway projects in Africa and we are working to see what is the experience.
What exactly will be the new role of Indian Railways?
We are looking at all aspects. We are interested in technological know-how, the equipment, the management model. It will vary from country to country. But we are very much interested in the experience of Indian Railways. There is no particular agreement signed at this stage, but we are looking forward to it.
How did the global economic crisis impact Africa and the anti-poverty measures that are under way?
At the beginning of the crisis we knew that it is not going to be a financial crisis as such because of our limited integration with the global market. It was going to be a crisis in the real economy, in particular demand for our commodities. Now that has happened. There has been decline in export revenues both in volume and value. As you know, many of the countries in Africa depend on (export of) one or two commodities. So that was a major setback. Because of contraction in real sector activities, the rate of real GDP (gross domestic product) growth declined by half, from 7% to 3.5%. In Africa, the population is still increasing by 2.5-3%. So, that is why there is not much increase in per capita income and consequently the fight against poverty suffers. However, next year looks much less sombre. It looks like in 2010 the economy will get back to 5.5% and by 2011 we will get back to 7.5%. We are working towards that objective.
Has the crisis impacted the financial aid that Africa used to get and the fund flows into African countries?
It has not so far. But going forward I see two risks. First, many of these rich countries are having serious unemployment problems. They are having significant hard choices. So in some countries aid resources might be cut. Second risk is that in many of these donor countries, they determine their aid resources as a proportion of GDP, say 0.7% of GDP. So, if GDP contracts in a particular year, it means the level of resources available in that particular year are low. We are hoping that this should not happen to a large extent.
At present what role are India and China playing in the development of Africa?
Growth in Chinese and Indian economies is quite important in driving demand for our commodities such as oil, minerals and soft commodities. All of that has increased because of growth in their economies. We have also seen significant increase in foreign direct investment from India and China, particularly in infrastructure, banking and information and technology.
Do you see India playing a bigger role than it plays at present in Africa?
Indian companies know the African continent, they know how to measure and price the risk. I met several Indian companies who have been in Africa for 30 or 40 years. We will continue to promote more investment into the region and this is why our agreement with the Exim Bank is important.