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AfDB urges fiscal responsibility among African countries

By Chijioke Nelson, with Agency Reports
30 November 2015   |   1:01 am
From African Development Bank (AfDB) came a timely reminder to Nigeria and other economies in the continent on the need to remain fiscally responsible amid increasing debt obligations. Besides, AFDB stressed the need for on the economies to repay dollar-denominated debts raised in recent years, as weak currencies push up servicing costs as oil and…

AfDBFrom African Development Bank (AfDB) came a timely reminder to Nigeria and other economies in the continent on the need to remain fiscally responsible amid increasing debt obligations.

Besides, AFDB stressed the need for on the economies to repay dollar-denominated debts raised in recent years, as weak currencies push up servicing costs as oil and commodity revenues tumble.

Meanwhile, AfDB and LAPO Microfinance Bank Limited (LAPO MfB) have signed a loan agreement worth N2.364 billion (approximately US $12 million), to support inclusive growth and local Small and Medium Enterprises in the country.

LAPO MfB has 1.1 million customer base and 327 branches currently operating in 26 out of 36 states in the country.

A statement from AFDB noted that from oil-rich Nigeria and copper producing Zambia to fast-growing Rwanda and Ghana, African nations have taken advantage of historically low yields and strong investor appetite to issue Eurobonds or raise other funds on international markets.

Africa’s foreign currency bond issues between 2000 to 2014 totalled $20.5 billion, with $7.4 billion of that raised in 2014 alone, Akinwumi Adesina, said.

“You are going to be financing high-cost debt using a devalued currency — it just means it is more difficult for you to finance your debt. One does have to make sure that it is within sustainable debt limit. We have to manage our finances well,” he said

An expected interest rate hike by the U.S. Federal Reserve has strengthened the dollar globally and hit emerging market currencies, including in Africa, where many governments are also feeling the squeeze from low commodity and oil revenues.

While in Addis Ababa for talks with African Union Commission’s Head, Nkosazana Dlamini-Zuma and Ethiopian Prime Minister, Hailemariam Desalegn, he urged African states to manufacture more rather than rely so heavily on volatile raw commodity exports.

“I personally believe that the way to address this is to first and foremost make sure that African countries stop exporting primary commodities. I have not seen any country in the world that has prospered from this.

“African countries need to develop value chains whether it is in oil and gas, minerals or metals, or whether it is agriculture – everything that Africa has,” he added.

Adesina said greater trade within Africa, which now stands at 10 per cent of total trade on the continent, would help reduce exposure to global fluctuations.

However, given LAPO MfB’s history of a group-lending model based on a community-based approach, LAPO predominantly focuses on low-income households and women (with females comprising over 90 per cent of its total client base) by providing an average loan size of $190.

The corporate AfDB loan will support a proposed expansion project of LAPO MfB to achieve its goal to serve five million clients by 2017 in Nigeria focusing on low-income individuals (predominantly women) and micro/small enterprises by providing affordable access to finance, saving, credit and insurance in urban and rural areas as well as by expanding its geographic coverage and number of branches.

With AfDB’s funding, multi-faceted development outcomes are expected for LAPO MfB to increase the proportion of poor households and small businesses with access to financial services in Nigeria; deepen its financial sector infrastructure, as it plans to expand their branch network across the country; and promote an inclusive microfinance model that works for the poor.

Other expectations are to stimulate product development aimed at meeting diverse needs of low-income households and local enterprises including a soft loan scheme to provide clients a more convenient and safe lighting (solar power lanterns); enhance financial inclusion of women and female entrepreneurs; and support increased revenue of poor households involved in profitable microenterprises and also generate more jobs across states in Nigeria.

Despite lower-income client base, LAPO’s total loan portfolio exceeded USD 200 million in December 2014 thanks to its efficient decentralised banking model as well as wide coverage and deep penetration of rural areas.

LAPO has successfully achieved its goal to reach over 1 million clients by end of 2013, faster than planned, and targets to reach five million clients by the end of its five-year business plan (2013-2017).

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