CAIRO: The African Development Bank (AfDB) is ready to commit around $1.4 billion to Egypt over the next 18 months, in addition to its ongoing portfolio, the bank’s president said.
Earlier this week, the bank announced a $550 million loan to finance a new gas-powered energy plant in Suez, which will add 650 MW to Egypt’s national electricity grid.
“If the Egypt’s economy is going to grow and create jobs, it must generate enough energy from gas, green sources…and we are happy to be one of the major investors in energy production in Egypt,” AfDB President Donald Kaberuka said.
At the end of a two-day visit to Cairo, Kaberuka told Daily News Egypt, “In all African countries…whether you’re a small or large business, availability and access to energy is critical.”
“Our commitment to the energy sector in Egypt goes back a long way, and it is long term. This [Suez] project was approved by the [bank’s] board of directors earlier this year. Now we’re preparing many more projects of this nature,” he added.
The bank is interested in supporting plans to promote small businesses in Egypt, ongoing infrastructure projects in cooperation with the private sector, as well as enhancing access to microfinance.
Kaberuka met with Prime Minister Essam Sharaf and the ministers of finance, international cooperation, energy and social solidarity as well as ambassadors, business leaders, donors and civil society organizations in Egypt.
He sees the challenges facing Egypt’s economy mirrored in other North African countries, all of which need to focus on creating wealth that is broadly distributed.
“North Africa is confronted by three problems, first and most important is to have economies that are growing and creating jobs. Over the last seven years, these economies were growing but not creating enough jobs,” he said.
In a recent commentary, Kaberuka wrote that average annual GDP growth in the region was at 4.6 percent for a decade, but it was deceptive and masked numerous problems.
“The benefits of economic growth must reach as many people as possible,” he said. “[Also,] it is important to figure out how to expand innovation, especially Egypt, in business, education, science and technology, because this is what will carry Egypt to the next stage.”
He is optimistic that the incoming governments of Egypt and Tunisia — home to the bank’s headquarters — will work to respond to the demands of the people who took to the streets to demand political and economic change.
“The leaders I’ve met, all of them, have an encouraging, positive attitude towards the changes which have taken place here.
“They understand that it is a complex transition — revolutions are always complicated, and I think that the mood is very positive, very bullish as we say in the market, and so we see our role as being supportive of this new situation,” he said.
Borrowing to invest
After Nigeria, Egypt is the second largest African shareholder of the AfDB, and one of its founding members.
“We as an African institution don’t have an agenda, only to help the country and its people move forward,” Kaberuka said.
Asked his thoughts on Egypt rejecting a loan fro the International Monetary Fund, he said, “What the government has told me about IMF loan is that they did not want to commit the future government to be elected with additional debt. They feel that as a transitional government, they should let the elected government decide the future policy.”
Secondly, when nations borrow money from outside, it should go towards investment in infrastructure and education, as opposed to propping up the national budget, he said, which is what differentiates the AfDB loan from others.
“The kind of loan we signed [this week] is for investment, to produce power for Egypt for years to come. It is not money that is going to the budget to pay government expenditure. The balance between consumption and investment, their [Egypt’s government] choice is very good,” he added.
Still, since Egypt is a member of the IMF, he said, “it has a right to get resources from the IMF. This facility was called a standby facility, it is there for you to drop on if your balance of payments are under pressure and you want to use its resources. I think Egypt should not deny itself from using resources from organizations to which it belongs, but it is also important that they negotiate the conditions. “
Going forward, it is vital to bring Egypt’s levels of production back to normal “so it can continue borrowing money in the capital markets, and attract investment, that’s how you create jobs, not by depending on foreign organization,” Kaberuka said.
Global crisis, African potential
As global markets falter, impacted by the aftermath of the US downgrade as well as the Euro zone debt crisis, further pressure is being added to Egypt’s already sluggish economy.
“We’ve gone from a [global] banking crisis in 2009 to a crisis of national finances. In 2009, national finances were able to bail out the banks. Now the national finances themselves are in trouble,” he said.
One of the main ways to tackle these problems on the long term is to create global economic growth. “The US and EU are not growing fast enough, only growth is in China, India and Brazil.
“Rich countries have to begin looking for solutions in Africa, because this continent has potential, to compensate for slower growth elsewhere, by allowing more trade and investment.”
During his tenure at AfDB, since 2005 and expected to end in 2015, Kaberuka has been promoting African economic integration.
He cited the East Africa railway project undertaken by a subsidiary of Egypt’s Citadel Capital as one of the biggest projects on the continent, linking Kenya to Uganda.
“This is the best way to encourage inter-African investment flows. This is Egyptian skills and investment, funded by [AfDB with $40 million]. …there’s potential during this crisis for inter-African trade flows and investment,” he said, adding that a lot of leaders he spoke to in Egypt are keen to work closer with African neighbors.
Changing times
Asked about cooperating with previous governments that have been ousted by popular uprisings in Egypt and Tunisia, Kaberuka said, “We as a bank support countries as they are. We don’t go to countries to change their governments, we go in to help the people. Roads, schools, etc…not supporting particular regimes.”
Speaking of Egyptian officials he has met with, Kaberuka said, “I’ve been impressed by analysis they make about what was one of the major weaknesses in the past, which are the dangers of crony capitalism. …These are some of the few leaders that admit this, and this is true in Tunisia as well.”
There have been extreme circumstances where the bank has cut off relations with a country. “In Guinea-Conakry, where military government shot peaceful demonstrators in the stadium, we cut off contact with the government until it was removed from power,” he said.
As far as North Africa is concerned, the bank currently supports Egypt, Morocco, Tunisia and Mauritania. “In Algeria and Libya we support reforms, but in Libya now it’s impossible to operate,” he said.