Business
ADB cautions African States against international borrowing
Publish Date: Jul 24, 2014
ADB cautions African States against international borrowing
President Museveni contributing during a discussion about Africa’s future during the ADB 50th anniversary/annual meeting in Kigali Rwanda in May. Kenya’s deputy President William Ruto (right), Paul Kagame (2n L) and Ali Bongo in attendance. Photo/PPU
  • mail
  • img
newvision

By David Mugabe

The African Development Bank (ADB) has cautioned African countries against high borrowing rates on the international market saying it could push them back to the 'debt disgrace.'

“These monies are not cheap; they get a coupon rate of 8%, it is good because they provide discipline but at that rate, this is not the way countries will develop,” noted Dr Kayizzi Mugerwa, acting vice president and chief economist at ADB. he made the remarks at the launch of the 2014 African Economic Outlook in Kampala.

The latest country to issue a sovereign bond is Kenya. In 2013, six African states issued international bonds among them Tanzania ($600m), Rwanda ($400m), Nigeria ($500m), Ghana ($1b) and Mozambique ($500m) all attracting interest rates in the range of between 6-8%.

“There must be other ways of cheaper money,” cautioned Mugerwa.

East African Development Bank (EADB) boss, Vivian Apopo also weighed in on the high cost of borrowing from the international markets which translates into higher interest spreads for financial institutions and thus the final borrower getting money at a very high cost.

“This is not sustainable, we want local businesses to participate in their economies,” said Apopo.

Apopo observed that overall in the region, investments seems not to be going to the productive sectors.

Deputy Bank of Uganda governor, Louis Kasekende, observed that in the short term, funding government infrastructure needs like roads means borrowing including on the domestic market is inevitable.

The 2014 African Economic Outlook indicates that majority of the fastest growing economies in Africa are post conflict meaning the continent is reaping peace dividends and every effort must be made to maintain peace.

Over ten countries will experience growth of over 7%.

Generally growth is on the rise with almost no negative growth except in Equatorial Guinea (-5.2%) because of suppressed investments.

Sustained growth across the continent is driven by remittances, portfolio investments foreign direct investments as well as overall rise in economic activity (GDP).

Remittances have played a major role in Africa’s resource basket but ADB believes they could be made higher if the cost of transferring money was made cheaper.

Apopo noted that remittances that have been a bedrock for capital inflows can dry up, while FDI pursues certain sectors and once they are exhausted they dry up.

But the report also paints a picture of a continent that has failed to translate growth into reduced poverty like Asia and specifically China did in the past few decades.

“Sadly, inequality in Africa seems to be rising,” noted Mugerwa.

The continent also faces risks like political fragility that is flaring up in Central African Republic, Sudan and Somalia which hurt growth and the potential for investments.

For Uganda, after two years of high inflation and lukewarm growth, 2013 saw the consolidation of macroeconomic stability and the recovery of economic activity in Uganda.

The bank also cautioned the continent to take seriously the issue of environmental disintegration.
 

The statements, comments, or opinions expressed through the use of New Vision Online are those of their respective authors, who are solely responsible for them, and do not necessarily represent the views held by the staff and management of New Vision Online.

New Vision Online reserves the right to moderate, publish or delete a post without warning or consultation with the author.Find out why we moderate comments. For any questions please contact digital@newvision.co.ug

  • mail
  • img
blog comments powered by Disqus
Also In This Section
Inflation rises to 1.4%
Consumers paid sh1.4 more for manufactured goods in October compared to the same period in 2013 as the sector struggled to recover from the lag-effects of the 2011 economic challenges, amid volatilities in foreign exchange....
Kukustar: New vaccine against newcastle to empower farmers
It was the welcoming smiles. Not the long distance from Mbale town. Not the shrubby path to Mary Goretti Mboizi’s humble home in Bunamwera village, Kibuku district that struck me as I settled down to listen to her story....
Uganda is debt sustainable, says finance ministry
By March, China had lent Uganda over $336m (8% of the total debt) while India had lent over $50m (under 2%)....
Partnership seeks to boost television penetration
PCS and a regional pay television service provider enter a partnership expected to boost television penetration in areas without access to hydroelectricity....
Govt allocates sh20b for restocking
THE Government has allocated sh20b for livestock restocking in West Nile, Acholi, Lango and Teso sub-regions in the 2014/15 financial year...
Power extended to Masaka sub-counties
The sub-counties benefiting from the project are Kyesiga, Lwankoni, Kyanamukaka and Kabira with a total population of about 60,000 people...
Do you agree with the ban on the export of maids?
Yes
No
Can't Say
follow us
subscribe to our news letter