Capital remains the binding constraint to attaining the African economy’s full development potential, the President and Chairman of the Board of Directors of African Export-Import Bank (Afreximbank), Prof. Benedict Oramah has said.
He explained that the marginal cost of capital is high, yet large amounts under management by the sovereign wealth funds and central bank reserves get into markets where they earn next to nothing.
Speaking at the 4th yearly meeting of the Africa Sovereign Investors Forum (ASIF) in Abuja, he said African sovereign wealth funds collectively manage over $100 billion in assets, which grows yearly.
Painting a picture of the crisis, Oramah said Africa has the resources to fund its development projects.
He cited pension funds, which hold a staggering $600 billion across key markets, especially Nigeria, South Africa and Kenya, including remittances, all pointing to the possession of significant capital to finance Africa’s development and trade.
“The real problem is that most of these funds, including about 400 billion US dollars in foreign exchange reserves held by African central banks, are stashed outside of Africa based on neo-colonial ideas embedded in our minds, and which filtered into the policies of these institutions, that our assets are safer with others than with ourselves,” he said.
Oramah noted that the African multilateral financial institutions have formed the habit of saving funds in overseas financial institutions.
He explained how he turned this tide Afreximbank saying: “Afreximbank was advised as it sought international credit ratings, that to achieve AA or above ratings, its loans to total assets should not be more than 30 per cent. The remaining 70 per cent of assets should be held in so-called high-quality AA to AAA liquid instruments, in other words, U.S. Treasuries and European-issued bonds.
“A decision was made that since the mandate of the bank did not include any target ratings we should focus on what the bank was created to do, ensure no less than an 80 per cent loan-to-assets ratio and that we target a rating band consistent with these. If our board did not make that decision, 60-70 per cent of the bank’s funds would have been financing those who do not need the financing.”
The economist submitted that the true challenge was not in amassing capital, but in deploying it with purpose, ingenuity, a questioning mind and an unwavering commitment to Africa’s transformation.
He argued that the African sovereign wealth funds must evolve beyond mere custodians of surplus to become dynamic catalysts of structural transformation, actively mobilising, de-risking and syndicating capital for industrialisation, wealth creation and regional integration.
He insisted that the actual risk in many African markets is often overstated or disproportionately viewed.
He added that little consideration is given to the fact that investing a significant share of the funds in their home country may help mitigate some of the risks and perhaps help grow the size of the funds.
“Tragically, when African Sovereign Wealth Funds and Pension Funds prioritise offshore investments, they inadvertently perpetuate this skewed perception of risk. This signals a lack of confidence in our markets, which discourages both domestic and international co-investors,” he explained.
On his part, the Managing Director of Nigeria Sovereign Investment Authority (NSIA), Aminu Umar-Sadiq, said the forum must collectively co-create a sustainable investment vehicle that can mobilise global capital at scale to channel towards propositions that offer as much emphasis on commercial returns as on social returns.
