WEF: African countries punished by paying higher interest rates
CAPE TOWN – The perception that capital markets are a cheap way to finance infrastructure in sub-Saharan Africa is wrong – these countries pay much more for debt than developed countries, Vivienne Yeda Apopo, the director-general of the East African Development Bank, said yesterday.
Sub-Saharan African countries have some of the fastest growing economies in the world, but many also fall within the poorest and rely on donor funding for much of their fiscal requirements. Of 47 least developed countries in the world, 33 are sub-Saharan.
Most also have to rely on borrowings from capital markets to fund their infrastructure projects.
Speaking on the fringes of the World Economic Forum (WEF) yesterday, she said African countries usually pay 5 to 6 percent interest to borrow on the capital markets, but developed countries often secure funding at close to zero percent.
Some countries are forced to borrow at 10 percent a year, “which is an extremely expensive and 'not a prudent way' to finance infrastructure projects,” she said.
The higher interest rates are due to higher perceptions of risk on the debt.
She said that sub-Saharan African economies should not be experiencing financial problems, given that they are resource rich, and until the nature of its resources exploitation are structurally adjusted, the fiscal shortages will continue, she said.
Patrick Dlamini, the chief executive of the Development Bank of Southern Africa, said the governments of sub-Saharan African countries did not have the money to finance infrastructure projects on their own.
It was, therefore, essential that infrastructure projects be commercially viable so that the private sector could participate, and contribute financially in the project.
Dlamini said the states in sub-Saharan Africa had “fragile” economies, and would often need to ask donor funder permissions to embark on large infrastructure projects. He said “creative ways” needed to be found to fund infrastructure projects.
Industrial Development Corporation chief executive Tshokolo Nchocho said there was a shortage in the project funding market, for the financing of infrastructure and other projects in the early operational stages.
Saif Malik, the regional co-head of global banking, Africa and Middle East, Standard Chartered Bank, said the private sector struggled to find big bankable private sector projects with a successful track record in Africa, when the financing of new projects gets considered, and there was a dearth of new private sector projects on the continent, “even though we would like it to be more”.
Malik said President Cyril Ramaphosa had pledged to ramp up fixed investment in South Africa, but at present the number of projects and levels of financing were still declining in the country and the region.