20100406
allafrica

The African Development Bank (AfDB) is setting up a political risk guarantee scheme that will cushion private investors in economies across Africa.

The scheme, which will undertake to cover potential risks such as political upheavals, is expected to provide investors with the confidence to put in their investments to spur economic growth in Africa.

"AfDB is setting up a political risks guarantee scheme that will provide cushion against loss of investment by private sector and this is expected to spur investment for economic growth", Aloysius Uche Ordu, AfDB vice-president for operations, said in an interview with the Business Daily on Monday.

Mr Ordu indicated that the scheme is expected to minimise the risk exposure to investors, giving them the confidence they need to put in their funds in Africa.

For Kenya this is critical as it edges toward the 2012 general election where investors are likely to be nervous, fearing a repeat of the 2007 election violence which led to massive destruction of properties, looting of businesses and deaths of over 1000 people.

With the coalition government still pulling in different directions, the recent ruling by the International Criminal Court (ICC) to allow formal investigations into the post election violence and the expected referendum on the new constitution the political environment is likely to get charged as we move toward the next general elections.

"Political stability is critical to enhancing trade and a conducive business environment and we recognise the critical role of the private sector player in employment and wealth creation for economic growth", said Mr Ordu, adding that investors require a stable environment to realise return on their investment.

AfDB Bank scheme joins that of the Africa Trade Insurance Agency (ATI) and Multilateral Insurance Guarantee Agreement (MIGA) of the World Bank in providing political risks cover to businesses in Africa.

Mr Ordu reckons that the AfDB Bank scheme is provided as a realisation that investors are shying away from African economies especially those with minimal commodity resources and experiencing political instability denying them the room to improve their overall economic well-being.

Innocent victims

The scheme is expected to provide additional support to African economies which are recovering from the aftermath of the global economic crisis which impacted their growth momentum.

"Africa economies were innocent victims of the global economic and financial meltdown and suffered immensely through decreased remittances, falling commodity prices, lower number of tourists visits and inability to access credit and other fundings", said Mr Ordu.

The move comes at a time when AfDB bank is putting in more resources to enhance infrastructural development of countries affected by civil war.

A case in point is Burundi which is emerging from decades of civil war which has locked out investors.

The country, according to AfDB, requires $5.8 billion to address its weak infrastructural facilities such as roads, energy, water and sewerage and telecommunication.

The infrastructural projects which are estimated to cost $4.6 billion as capital expense with $1.2 billion dedicated to maintenance is expected to enhance regional trade through easy access to markets both in and out of the country, link the country to other major existing East African infrastructural facilities and reduce the cost of doing business.

Lowering the cost

The drive to enhance linkage into the East African Community is part of the broader drive by AfDB bank to leverage on the Africa regional trade blocs to boost trade among member countries.

"We need to enhance trade between member countries by lowering the cost of doing business through improved and interconnected infrastructural facilities such as power, railway, roads and telecommunication", said Mr Ordu.

For instance Mr Ordu indicated that it costs up to $230 to transport a tonne of fertiliser from the port of Mombasa to Burundi but with improved infrastructure especially railway, the cost can be reduced by a third or $100 per tonne.