AfDB wants $22bn fund for African infra

The African Development Bank is calling on African countries to set aside 5% of their foreign reserves to create a fund that would invest in a new class of bonds being engineered by the bank to finance African infrastructure.

The African Development Bank (AfDB) has issued a rallying cry to African countries to pool part of their foreign reserves to help plug the continent’s $94 billion-a-year infrastructure gap.

In a speech in Kenya, AfDB president Donald Kaberuka proposed that African countries set aside some 5 percent of their foreign reserves, or $22 billion, to create a dollar-denominated fund that would invest in African infrastructure through a new class of bonds being created by the AfDB.

“Collectively, Africa’s foreign reserves in 2012 total $450 billion,” president Kaberuka started. “Those reserves are mostly invested abroad, presumably for good security and return. In reality, the security is relative as we saw in 2008, and at this moment, the return is a meagre one.”

He continued: “Suppose we begin with only 5 percent of each country’s reserves; that would be at least $22 billion. That is easily equal to three times what both the World Bank and AfDB commit to Sub-Saharan Africa each year.”

Karebuka’s idea would be to then invest those foreign reserves in an “'African Infrastructure Bond' [being developed] by the African Development Bank [and] reserved solely for Africa’s infrastructure. A safe, secure, high-return ‘Emergent Africa Bond’ or ‘Emergeafrica’ as they propose to call it. I have no doubt in my mind the time is now for a $22 billion US dollar Emergeafrica fund,” he concluded.

The AfDB is Africa’s marquee infrastructure lender and currently channels 60 percent of all its resources, about $5 billion per year, to help fund African infrastructure.