Struggling state power company Eskom is “too big to fail,” and the continent’s new free-trade deal will help Africa dodge the worst of a global economic downturn, the head of the African Development Bank said.
Eskom, struggling under the weight of about $30bn in debt, has been hurt by poor management, not lack of investment, according to Akinwumi Adesina, president of the AfDB. The keys to its revival include cutting costs, shifting to renewable energy and selecting a skilled chief executive officer, he said.
In an exclusive interview at Bloomberg’s New York headquarters, Adesina touched on everything from global trade tensions to criticism of China’s lending model to a capital raise at his own bank, the continent’s largest multilateral lender.
Why Eskom is too big to fail
“Eskom is the lifeline for the southern African region. We have to make sure that it’s better managed. I really commend what the South Africans, President Cyril Ramaphosa, are trying to do.”
“We’ve already put a lot of money into Eskom. The issue is not so much money into Eskom but improving the efficiency of the utility.”
Trade war’s threat to Africa
“Something that keeps me awake at night is the headwinds to African growth. I’m excited about African growth. We predict GDP growth this year at 4%. When you look at countries, you have 20 countries growing at 3% to 5% and 21 countries growing well above 5%, so Africa is actually doing well. However, Africa must grow faster due to population growth. We have to keep our eyes on headwinds such as trade tensions between the US and China. These are big markets for Africa.”
“There’s an African phrase - ubuntu - ‘I am because we are.’ We all need each other. We need to be sure that we all benefit from the growth process.”
The $1.3 trillion free trade pact
“Africa has to export more intra-region and build bigger markets. The free trade area is a phenomenal development. Africa has a $1.3 trillion free trade zone, the largest in the world since the creation of the World Trade Organization.”
China’s lending role to Africa
“What’s important is that African countries get into deals that are transparent with terms of engagement that are clear.”
“If there were cases where some folks got away with deals in the past because others aren’t around the table to help negotiate well - that’s changing. I don’t think any African nation should trade away its future for immediate gains. We want fair and transparent transactions.”
Concerns over borrowing binges
“Africa has absolutely no debt crisis.”
“The issue has always been around debt service ratio. In 2015 that debt service ratio was 15% and now it’s 24%. The fact it is going up doesn’t mean there’s a debt crisis. Of course, some countries have more difficulties than others.”
AfDB’s balance sheet
“When it comes to capital for the bank, we’re at a phase where we’re actually talking to our shareholders about a capital increase. That conversation started almost two years ago and it’s going very well. As president of the bank, I’m delighted with the confidence our shareholders have in the bank. The bank maintains its AAA rating. We’re the cheapest source of capital on the continent.”
“I’m hopeful by the end of October or early November we’ll know” about the capital increase. “The momentum and confidence is strong.”