The G8 initiatives and the many complex and well-intentioned proposals for debt-relief on Africa are the number one issue for a refreshed global liberalism. We need attention to the quality of government of the type focused on by Transparency International (www.transparency.org). We also need economic assistance that is targeted and accountable to agreed success criteria as the private social entrepreneurship funds are doing. . But we also need something else: an African-run capital market that creates both a longterm stake for Africans in the commercialization of their resources (a pension fund) and a capacity to use the revenues from the commercialization of their resources for the creation of new enterprises.The challenge of creating efficient capital markets was a constant problem in the management of privatization in the EBRD-zone in Eastern Europe and the former USSR. The European Bank for Reconstruction and Development (www.ebrd.org) was, I would argue, another highly successful investment banking innovation.
A few years ago, I was looking at Canadian-based companies investing in African resources there were no African institutional investors, i.e. pension funds, investment banks to facilitate deal-making with global mining companies. A relatively small amount of capital could have purchased significant equity in these companies, enhancing African economic prospects and creating better deal-structures for the foreign investors. However, there was no African institutional investor with the financial resources, skills and mandate to accomplish this. There still isn’t.
Those of us who grew up in Quebec know the singular significance of the CDP (formerly Caisse de Depot) in ensuring that Quebec’s capital base (the pension-system) was used to facilitate economic growth and, as importantly, concentrating Quebec’s young MBA talent on an exercise which facilitated their developing world-class investment skills. Despite the acknowledged issues of the Caisse model in today’s economy, few would argue that Quebec’s economic growth from 1970-1990 would have been as successful without it. In Africa, the creation of a professionally-managed fund which took equity in mining companies and resource projects and converted that equity into dividend-granting financial instruments and new sources of investment is essential for the positioning of the African economy to benefit from globalization.
The challenge for Africa is to fuse the CDP and EBRD models into an appropriate institutional investor to participate in the creation of efficient African capital markets. Such an institution would be able to galvanize financial skills in the African communities, ensure an income for all African citizens from their share of the resource rents that are coming about as a result of the commercialization of Africa’s geological resources. It could provide Africans with a stake in globalization and the balance and traction necessary for the successful alchemy of transforming participation in the global economy into sustained economic prosperity.
As international investment bankers try to come to grips with energy financing in the current environment and development bankers look at the lessons learned from Arabian oil financing for the Chad-Cameroon pipeline and the Gulf of Guinea initiative, this is the next step. An African version of the EBRD, www.ebrd.org , formed with a capital base derived from converting some debt to equity and a portion of the African ownership of resources is a proposal needed to create sustainable growth.
In the next decade, the Gulf of Guinea will become one of the major sources of petrodollars in the global economy. The next stage of attention to Africa requires the development of an investment capability to ensure that the management of the sale of these resources into the global economy produces longterm benefits to the countries involved and the African development project as a whole. An African Bank for Reconstruction and Development, ABRD, which managed a portion of this capital and converted it into dynamic investment, is essential if we are to move the debate about Africa forward. Africa is a rich continent; it simply lacks the capacity to turn bonanzas into longterm structural growth .