Governor of the Central Bank of Nigeria, Godwin Emefiele on Tuesday urged financing institutions to work out financing structures that allow using local currency denominated funding for infrastructure as foreign funding continuously becomes more expensive.
Emefiele make the call in Abuja during the opening session of the 2017 Africa Finance Corporation (AFC) conference tagged AFC LIVE 2017 and titled, ‘The Infrastructure Revolution-Connect, Engage, Innovate.’- the second in the series on the institution’s annual summit.
“At a time when we have faced commodity price shocks, you will find that taking foreign currency facility to fund obligation domestically created some form of credit risks, you find situations where the obligor is unable to really the facility,” the governor stated.
“That means that in a changing world like we have right now, there is a need for our institutions to think about how to structure domestically denominated facilities where currency shocks do not impact on the repayment and performance of that facility.”
Emefiele also announced that the AFC invested $4bn in various development projects in Africa over the past ten years it was set up,
Those investments centred around 26 projects across 30 African countries in five main sectors , including power, transportation infrastructure, telecommunications, natural resources (oil, gas and mining) and heavy industry.
AFC was founded in 2007 mainly by the Nigerian government as a public-private partnership with a vision to be the leading Africa organisation focused on financing infrastructure development on the continent.
At that time, Africa saw consistent growth rates in excess of 5 per cent annually and investor interest in the continent was strong.
But global economic conditions since 2015, when oil prices began to fall have exposed the vulnerabilities of many African economies, especially those heavily reliant on commodity export for revenues, like Nigeria.
Emefiele said among many other lessons, the commodity crisis of 2015/2016 has thought that dollar denominated financing in emerging markets create risks that make investors very nervous and acts as a major obstacle to financing projects
He said much more needs to be done to develop local currency financing solutions and the conversation resonated that the AFC summit where issues were raised on longer term, cheaper capital.
“We have seen situations where institutions like the IFC have come up to say they want to raise naira bonds of facilities and deploy them into facilities. That should be encouraged.”
He said there is need to continue to encourage such ideas and that the CBN will give every support to ensure that such processes are successful.
Joseph Nnanna, CBN Deputy governor, Financial Sector Stability regretted that most African currencies are not tradable except the South African rand, saying that it now behoves on the continent to develop policies that encourage foreignPortfolio and Foreign Direct Investments.
“The shortage of tradable currencies to finance infrastructure is a challenge,”
He however assuredNigeria is tackling the problems squarely especially through CBN’s recent foreign exchange policy.
But he said what Africa needs most is peace and stability.
Andrew Alli, Chief Executive Officer and President of AFC noted at the event that one of the huge challenges facing the continent was lack of infrastructure.
“There was a clear recognition that if Africa did not adress this infrastructure deficit, then growth would not be optimal, and in some cases, would not be sustainable,” Alli told the audience.
Onyinye Nwachukwu, Abuja