The African Development Bank on collaborating with China

World Finance speaks to Angela Nalikka, Chief Investment Officer at the African Development Bank, about the organisation's co-financed fund with the People's Bank of China

July 31, 2014

Africa’s biggest trading partner is preparing to get further entrenched in the continent. The People’s Bank of China, the central bank of the Republic of China, has co-financed a $2bn fund with the African Development Bank. World Finance speaks to Angela Nalikka, Chief Investment Officer at the latter, to find out more.

World Finance: Angela, what do you say to China observers who believe it’s only investing this money to hit back at those critics, who argue it strikes one sided deals in resource extraction projects – what do you make of that argument?

Angela Nalikka: China is not unique among our partner countries that have come up with funds for the banks to manage. We have the Nigeria Trust Fund that the bank has been managing for the last 40 years; it invests alongside the bank.

The Arab World Fund that was set up the 1970s, it has recently closed. In addition, African Development Bank is not alone in benefiting from China’s funds. China set up a similar fund with the Inter-American Development Bank, as well as the International Finance Corporation.

The African Development Bank’s rich experience and competence makes it the most suitable partner for China’s engagement
in Africa

World Finance: But Angela don’t you every worry that getting involved with China, and establishing funds such as the one we are taking about now, in any way tacitly acknowledges the fact that China is indeed striking these deals?

Angela Nalikka: China has signalled a shift in its engagement in Africa; it favours the more lateral approach. The African Development Bank’s rich experience and competence makes it the most suitable partner for China’s engagement in Africa.

We are considered the honest brokers for the African countries, and the private sector. These new resources will enable the bank to do more in the infrastructure space – especially in the fragile states and the low-income countries.

World Finance: And do you think that these opportunities would not exist, if your bank weren’t overseeing this sort of fund development?

Angela Nalikka: For Africa to maintain the current growth rates, we would have to invest upwards of $60bn per annum. The limited budgets that the countries have are unable to meet a big portion of this amount. The Development Finance Institution by itself cannot meet this amount. So we have to look at the private sector, to help fill this gap.

World Finance: The fund is intended to support sovereign and non-sovereign guaranteed development projects. Can you give me examples of non-sovereign projects that are now taking off? Which countries are they coming from, which industries do they represent and what key demographic factors are leading to their success?

Angela Nalikka: The Africa Growing Together Fund is just starting off, and we expect it to do a lot of activity by the end of the year. We are looking at a number of regional transport, rail and port infrastructure projects, as well as renewable energy projects; mostly in the non-sovereign space.

World Finance: Now in that non-sovereign space, are the main actors who are taking advantage of the funds, Africans?

Angela Nalikka: The non-sovereign projects by their definition imply that they will not attract any government guarantee. Private sector could be African or non-African; the criteria is that it should be majority owned by the African country. And the project should be limited regarding cost, mostly project finance projects.

World Finance: Have you been happy or satisfied with the breadth of companies that are coming forward to take part?

Angela Nalikka: We would like to see more coming to Africa. We need to develop the inter-country links to the sea. We need to encourage regional trade among countries, in a number of sectors. We need to get our mining resources to the sea, and we need to help manage all these business linkages.

World Finance: In speaking about some of these local countries of course, we are looking at a vast disparity in terms of stability. Whose responsibility is it to make sure that these countries remain stable, and thus be able to promote economic development – does it lie with the bank or with the local governments?

Angela Nalikka: Primary responsibility is with the local government. The bank is a tool for all these countries. The bank is owned by the 54 African countries and the 25 non-African countries. We operate on international best practice norms. We do consider governance; it’s a lynchpin and one of the deciding points, when we do decide to engage in a country.

World Finance: The bank of course has been criticised for seeding much of its sovereignty to some of the external donor countries. Do you think this is the case with China’s involvement in the Together Fund?

Angela Nalikka: China has been Africa’s biggest trading partner over the last three years. In fact, China has had a relationship with the bank that dates back to 1985. The fund marks an important milestone in the African Development Bank and China’s relationship. It will help the bank do more in the private sector.

The fund will co-finance alongside the African Development Bank, it will be managed by the African Development Bank. It will benefit from the bank’s own policies and procedures, as well as integrated safeguards for the environment and social impacts.

Nigeria is and continues to be one of the most attractive investment destinations in the continent

World Finance: Your job Angela of course is to create economic development opportunities that sustain local development as well as bridge the disparity divide.

Now given this task, let’s look at Nigeria. Despite being an economic powerhouse of late, the country still faces widespread economic disparity. Do you ever worry that your work is thwarted by the mismanagement of foreign investment by the local governments, that your development work is expected to economically uplift?

Angela Nalikka: Nigeria is and continues to be one of the most attractive investment destinations in the continent, mostly because if its potential in all aspects of business. The recent unbundling and privatisation of the private sector demonstrated this.

The African Development Bank on its own part, approved about $400m to help Nigeria guarantee the off-tick for many of these companies. The infrastructure gap is huge, the opportunities for new businesses are huge, as well as the business linkage that emanate from the infrastructure space.

World Finance: In order to do your job, does there have to be a kind of turning a blind eye to what is happening locally?

Angela Nalikka: I work in the private sector. The private sector will not go to a place or a country where the business environment is not well defined, where there are no rules set up. They have to be sure that they will get their returns, and should they need to refer to the courts; the courts are competent enough to deal with that.

Most importantly the rules of the game will not change half way, the countries are away of this. They are also aware of the infrastructure gaps and the needs of the population.

World Finance: Now we have seen how destabilising militant activity by Boko Haram is for the country. Do you ever worry that China or any foreign investors are going to lose confidence in the country, and the continent over the long term?

Angela Nalikka: On the contrary. We are seeing a lot more activity on the Nigerian and Kenyan stock exchanges. We believe the opportunities that these countries in particular offer, far outweigh any risks any private sector company would want to think about, because of the rewards. In addition, with more infrastructure investment there will be more development, and probably less insecurity.

World Finance: Angela, is there going to be a day when you and I are not talking about some of the systemic infrastructure issues that are plaguing development, and Africa is going to no longer be seen as this place riddled by some of those problems?

Angela Nalikka: Africa is right on cue. On average the African countries are 50 years old. America is 200 years old; it did go through growing pains. Africa is going through growing pains. The most important thing is that there is communication. Africans know what they want; Africans are trying to get what they need.

World Finance: Angela, thank you so much for joining me today.

Angela Nalikka: Thank you for having me.