Look south for growth

Look south for growth

Moving away from a reliance on developed countries for funding and assistance and towards south-south co-operation is key to sustainable growth, the First Joint CEO Forum is told.

DG-M-Lekhethe Developing countries in Africa and Asia should take advantage of the current financial crisis in Europe to take their growth into their own hands, and not rely on financial aid from developed countries.

Speaking at the official opening ceremony of the First Joint CEO Forum at Indaba Hotel and Conference Centre on 15 November, the deputy director-general: international and regional economic policy in the South African National Treasury, Mmakgoshi Phetla-Lekhethe, said developing countries should never allow the economic woes of Europe to affect their development.

“It is important to note that things are not looking good. We are living in the worst economic situation.” However, even though Europe may be experiencing a crisis, Phetla-Lekhethe said medium term growth of the African economy looked promising, with some countries recording reduced budget deficits and growing gross domestic product because of higher commodity prices.

She said Africa should redefine its economic strategies and place greater emphasis on alliances with like-minded friends, referring to south-south co-operation with developing countries in Asia.

AADFI chair, Peter M NoniThe First Joint CEO Forum brings together the Association of African Development Finance Institutions (AADFI) and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) in an effort to strengthen relationships across Africa, Asia and the Pacific.

In his welcoming address, Geoffrey Qhena, the chief executive of South Africa’s Industrial Development Corporation, said holding the Forum against the backdrop of the global financial crisis was apt. “We are having this Forum when the recovery from the global financial crisis – a glitch in the financial sector – is still very fragile. [However], this makes this Forum very opportune.”

Qhena said that nations experiencing any growth in their economy were developing countries. This brought the role of development finance institutions (DFIs) centre stage. DFIs should come into play and ensure that infrastructure needs were financed, and that agriculture projects, manufacturing activities and capital was affordable.

“The Forum is the appropriate platform to iron out these issues,” he said. “This is the first forum of its kind that we are holding with ADFIAP and I am confident this is not the last time.”

On a lighter note, Qhena urged visiting delegates to use this opportunity to network, learn from each other and make friends. “Feel at home. As we engage with each other please find time to see other parts of South Africa. Even buy that wooden giraffe to take home as a memento.”

Moono Mupotola, the manager: regional integration and trade division at the African Development Bank (AfDB), said the bank was particularly satisfied that this workshop had brought together about 200 CEOs and senior managers from African and Asian DFIs for a south-south knowledge exchange on how to improve agricultural value chain financing.

“I trust that the free exchange of your valuable knowledge and experiences will greatly benefit all of us, and provide some useful ideas regarding the design and implementation of value chain financing … AfDB recognises the strategic importance of supporting SMEs [small and medium enterprises], particularly in the agriculture sector, as a way of promoting Africa’s export competitiveness, inclusiveness and regional integration.”

adfiap-chair-wan-azharHighlighting the importance of value chain financing and related challenges, Mupotolo said interest in the financing model was not new to African and Asian governments. She said India had been using value chain analysis for years to formulate and implement competitive strategies.

“As in other developing countries, value chains are generally regarded in India as a key framework for understanding how a product moves from the producer to the consumer to enable business to increase productivity and competitiveness.”

More recently, Asian and African governments and their development partners were devising interventions along value chains that repositioned entire industries, built business competitiveness as well as facilitated upgrading of others to generate greater returns, promote foreign direct investment programmes and spur economic growth.

Mupotola said value chain had also been used as tool for SME development, with new methods of linking SME suppliers and service providers to the value chains of lead processors or marketers. “Access to VC financing is regarded as part of a sound environment for SME and rural development,” she said, adding that value chain financing was cheaper than traditional finance.

The role of the AfDB in promoting regional financial integration in Africa is to promote sustainable economic growth and reduce poverty in Africa. It sees regional integration and financial inclusion as fundamental to its objectives. In supporting rural and SME development, the bank makes use of financing and non-financing instruments, including SME financing, leasing, SME guarantees, private equity and technical assistance.

Mupotola said the bank had introduced a trade finance facilitation programme that could be used to support SMEs’ capacity development for export competitiveness. Its support of the Nigeria Export-Import Bank and its co-operation with the Cocoa Board of Ghana were cases in point.

Datuk Wan Azhar Wan Ahmad, the ADFIAP chairman, said the First Joint CEO Forum was “a milestone event”. Its aim was to provide a platform to exchange and share knowledge between AADFI and ADFIAP.

Touching on the role of DFIs in economic development and job creation, he said development institutions were unique entities and were expected to be sustainable and profitable. “They have to be recognised for good measure and as instruments for economic growth.”

M-Mupotola-AfriDev-BankThe challenge for DFIs was to adopt innovative mechanisms in development finance in the face of the current financial crisis, like exploring the value chain financing model. Also, in Asia, most governments had taken a new approach to growing SMEs by creating conducive eco-systems and transforming SMEs to be globally competitive.

Peter Noni, the AADFI chairman, said the journey to the Forum was a product of the memorandum of understanding (MOU) signed between AADFI and ADFIAP in 2010 in Malaysia. The MOU was aimed at strengthening relationships and promoting an enlarged window of opportunities for learning and experience sharing on best practices in development financing.

“The objective of the CEO Forum is to develop a closer working relationship among DFIs and senior executives of DFIs in Africa, Asia-Pacific and the Caribbean. To share and learn best practices in development financing operations and develop a network of cross border financing and investment promotion by DFIs on the continents.”

The theme of the gathering, “Enhancing export competitiveness through value chain finance”, provided an opportunity to examine the challenges of SMEs in Africa, which were predominantly small scale farmers in rural areas.

Noni said 90 percent of African agriculture production was from small scale farmers. “Lack of funding to the small scale farmer has led to a stagnation of farm productivity and has partly hindered growth of exports.”

A sustainable solution to the predicament of small scale African farmers, he added, could only be found through a value chain approach that would review and address all requirements from producers to consumers.

“The theme of this workshop provides an opportunity for AADFI members to learn from the Asian experiences and see how these can be applied in the transformation of the small scale African farmer.”