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    InterviewAfDB pushing for liberalization

    AfDB pushing for liberalization

    Date:

    Pierre Guislain, a high-profile Belgian banker and economist, has been vice president of the African Development Bank (AfDB) since December 2016.  In that capacity, he leads the private sector, infrastructure and industrialization divisions brining in his vast skill and expertise from the World Bank Group where he held many portfolios, the most recent being as director of transport and ICT. At AfDB, Pierre is responsible for reforming mainly the telecom sector where the bank engages many stakeholders in Africa. He says he prioritizes five major intervention areas where AfDB has put more focus. During a three-day visit to Ethiopia early this week, Pierre met up with government officials and CEOs of private companies. He says that the private sector in Ethiopia has benefited the least from the bank’s services. Birhanu Fikade of The Reporter caught up with the new vice president to discuss issues pertinent to Ethiopia and beyond. Excerpts:

    The Reporter: Since joining the bank, what basic reforms have you been able to initiate at the bank?

    Pierre Guislain:  2017 is an important year for the bank. As you may know, we have launched the High 5s project last year, which is the bank’s top priorities. The High 5s are: light up and power Africa, feed Africa, industrialize Africa, integrate Africa, and improve the quality of life for Africans. So, what we did generally is that we reorganized the bank to strengthen our capacity to deliver on these High 5s priorities. Currently, we are in the process of strengthening our regional offices. For instance, Ethiopia is part of the east Africa region, and Nairobi is our hub. We have a strong country team based in Addis Ababa. We are strengthening our local teams to have tight and improved dialogue with our clients in a country that includes both the government and the private sector. The other important point I need to mention is that to achieve the High 5s, we need to leverage our resources. The AfDB has a reasonably small capital base which we hope to raise in the near to medium term. But to have that impact, we really have to partner with other financiers to leverage additional resources. What does that mean? That means that a country like Ethiopia we will increasingly do projects together with other co-financiers; which we do already but will do more of that now. Increasingly, we will also see how we can get the private sector to step up more actively. Hence, we will see more opportunities for us to support the private sector. To do that alongside other financiers, crowding in additional money to support the major development goals that Ethiopia and other countries have. Your investment needs are huge. We are key players but we will be only impactful if you are also able to bring others to the table and contribute to your development. That is some of the big picture in terms of the specifics of what I want to focus on under my area: private sector, infrastructure and industrialization complex. In that regard, Ethiopia is one of the countries in Africa that has made the most progress in industrialization. Hence, we keep supporting that progress but we are also interested in seeing how the achievements of Ethiopia in that area can benefit all the countries in the region. Industrialization is a top priority that includes for us helping investors from one African country do business in another country. Another key aspect is supporting industries that add local value. Basically, it’s the downstream of different value chains. Another area I am particularly keen on to integrate Africa under High 5s is logistics. Logistics in Africa is not as efficient as it could be. It increases the cost of international and domestic trades. With reasonably small investment, including typical policy and regulatory reforms, one could have bigger impact in the economy. I look at logistics as a sector with a particular focus to support industrialize Africa and integrate Africa’s High 5s.

    Speaking of industrialization in Africa in general and Ethiopia in particular, there are industrial park development programs. The government has launched the development of both industrial parks and agro-processing parks. Is AfDB considering financing these projects?

    We are keen to find opportunities for financing. The thing one should be aware of is that in the public sector, we are constrained due to limited capital resources in our Africa Development Financing (ADF). From the public side, the questions are what are the priorities of the government to deserve our support? For that we are discussing with the government but this is one of the areas we are very keen to support if it is a government priority. To have impact you need to focus and selectivity is going to be critical in moving forward but we certainly are eager to look

    into it. More generally, we are eager to look at opportunities to increase local value addition in the agricultural value chain in Ethiopia.

    You came here for a three-day visit. You have met with both government officials and private sector CEOs. But your meeting with officials, I think, is part of a drive to secure increased investment or share-holding ratio in the bank, is that right? 

    Basically, the way it works is that first our governors that are our shareholders need to decide whether they consider their shares should be increased. We hope to start discussions with our governors in the coming weeks. We certainly hope that our governor from Ethiopia will be supportive of that request and I understand that should be the case. When the time comes then the different shareholders will come together to decide how much to increase our capital by, what the modalities are and how much each country would contribute. Based on my discussions here, the quality of our relations with the government is very strong and I know that we can certainly count on the government’s support to give us the financial means to address the opportunities that lie ahead and to implement Agenda 2063 (a strategic framework for the socio-economic transformation of Africa over the next 50 years), the High 5s and the Sustainable Development Goals (SDGs) in Africa.

    One of the High 5s you just mentioned is “Light and Power Africa. Does that coincide with the previous Power Africa initiative that President Obama introduced back in 2011?

    The two are related. I am not in charge of the other program. We have a special vice president for energy who focuses on energy and climate change. But the initiatives are related amongst the development community in general. It’s a top priority for AfDB, the World Bank Group, the EU and the US. It’s clear that unreliable power supply on the continent is holding back development. You can’t industrialize without reliable energy. For instance, if a company needs its own typical diesel generator as a backup, such investment for energy doesn’t make many companies to be competitive. A reliable power supply is absolutely necessary. One of the great things happening at the AfDB is supporting alternative sources of energy. You have solar, wind or thermal energy, which are becoming very competitive. They are enabling both the off-grid and mini-grid solutions. They are quite innovative and usually don’t require huge investment through large national power companies. The potential for growth in the power sector that meets environmental standards is significant. I am not responsible for the power sector but it’s one of the areas we are active in Ethiopia where we have a number of ongoing power projects critical to the country and to the continent.

    The telecom sector is one of the areas you oversee across Africa. You are tasked to reform as many of the telecom business in Africa that are under a monopoly system. In the case of Ethiopia, the state holds a monopoly. Do you see that as a challenge going forward in your endeavor to transform the sector?

    Telecoms are part of information communications technologies (ICT) and that sector, more than any other, has seen the biggest innovation globally in the past two decades. Ethiopia is aware of that. There is a bit of a risk in staying outside of this global development. It would not sound right if one doesn’t open up to what’s happening around the world. Hence, today the potential of the ICT industry and the convergence between different technologies make me hope eventually will generate opportunities that require Ethiopia and other countries to open up the sector further. For example, financial inclusion today is mostly done through mobile phone access. The more mobile access there is, it is clear that competition is what derives prices down. Hence, the more access there is, there is more opportunity for financial inclusion. That is just one example. There is a whole set of new opportunities that technology is offering through the internet in terms of changing the way education is delivered, including in remote areas. It helps to provide contents with much higher quality to local areas. There is also an opportunity to the transport sector to optimize. It’s not just Uber-like companies that create efficient taxi services. But there are areas the technology enables to have more efficient transport or mobility systems and traffic management. These all applications that I mentioned come back to cell phones that can provide this interphase between the user and the provider with myriads of new opportunities. Ethiopia is currently well advancing in the accession process to join the World Trade Organization (WTO). Liberalization of telecom services is one of the basic requirements, and discussions are ongoing. If you want to reach local, rural or poor people with government services and access to finance, there is a real need to create opportunities.

    But how do you assess the government’s concerns of security and of shielding infant industries until they become fit to compete?

    Let me share some personal views here. If you look at how security is managed internationally, in the most competitive environments security services have ways. You do not need to own an infrastructure to control what goes through the telecom services the country provides. There are much efficient ways to handle that. We see from the news reports how hacking, spinning and all those kinds of things happening on a daily basis. The technology allows that. Hence, ownership of a network in no way shields you from malicious intruders. You have to make some tradeoffs. If you look at Ethiopia and its mobile penetration and other sets of services available via the mobile network, 15 years ago it was roughly in the middle of the pack of African countries. But now it’s at the bottom. It’s only through competition that you can actually develop the service and meet demands. I honestly believe that there are security solutions for all types of network, including highly competitive networks. I don’t think security concern is a strong reason not to open up.

    Did you have opportunities to discuss such issues with officials during your visit here?

    We haven’t been asked. Right now, we don’t have a dialogue with the government on telecom issues or ICT-related topics. AfDB is a client bank, and we work with the government on areas they want us to work with them. We would be very happy if the government is interested to take up such topics with us.

    If I am not mistaken, AfDB has recently launched a USD 900 million initiative for the agricultural sector. What is being planned for infrastructure and, specifically, for the telecom sector?

    For us, “Feed Africa” is one of the top five priorities. Agricultural productivity and integration of agriculture into the national, regional and global value chains requires not only transport infrastructure but efficient logistics systems as well. Today, 40 percent of food produced in Africa gets spoiled due to transports and logistics problems. It is, therefore, clear that one way of developing a more efficient agricultural value chain to increasing the livelihoods of farmers in Africa is to improve transport and logistics. I will emphasize logistics because it’s cheaper and doesn’t require huge investment. But it can have big impacts and save a lot of money. Opening up the logistics sector and making sure we have effective logistics operators that can operate in the agri-value chain, that have cold chain, can bring huge opportunities. These are part of the “Feed Africa” strategy.

    It’s interesting you said that it’s cheaper to invest in the logistics sector. But it’s one of the costly areas where, for instance, in Ethiopia, transportation and logistics costs raise the value of goods by 30 percent.

    If you bench-mark that against other countries, you can see that this cost can be reduced significantly. The share of transport cost in Ethiopia and many African countries, unfortunately, is too high but can be reduced with a limited amount of investment. Building roads or rails requires millions of dollars. But logistical solutions are typically easier to invest in and implement.

    At a press conference, you said that Derba Cement Company is the only entity in Ethiopia that has secured a USD 55-million loan from the bank. Is there any private company in Ethiopia under the pipeline to secure a loan from the bank?

    That is really one of the purposes of this visit. I think we are not well known as a private sector lender. We are mostly known as a public-sector lender, and that is not bad. We need to reach out to the private companies here. We need to promote ourselves and make known what we do. We plan to organize a workshop for the private sector as well as the public sector to share what the AfDB could do to support the private sector in this country. Indeed, the loan provided to Derba Cement is the only financing for the private sector that we’ve provided in Ethiopia. But we have also provided financing for Ethiopian, though it’s a public company. But we are very keen to develop relations with the private sector. The way we lend to the private sector is very much upon request from them. We don’t go out and knock at their doors and ask them if they wanted to borrow some money.

    What about the hospitality and tourism sector; any plans to finance projects there?

    The answer is yes. But we need to be selective. It might be a priority sector in some countries, but on the part of the private sector. We do have a number of hotel investment projects in many countries of the continent. What we want to do is help tighten regional links within Africa and put a major effort in a sense to support those African companies in the private sector to reach out to cross borders.

    At the conclusion of your visit here, what would you say has been achieved?

    What I find extremely satisfying is the quality of contacts we have here with the government; to know how satisfied government officials are with us. The ministers I saw have a high regard for the partnership they have with AfDB. That’s very rewarding. This government believes its Second Growth and Transformation Plan (GTP II) needs some major help in a number of areas and we are keen to help in those areas. That to me is very important.

    DO you think projects you finance in this country are in sync with the values and principles of the bank? At times, we hear civil societies echoing concerns where people are displaced due to road projects?

    I can only speak to the projects we finance. We have a very stringent environmental and social safeguard compliance mechanism. Clearly, we understand that when you build a new road or rebuild an existing one, some people might be affected. Hence, our environmental and social safeguard mechanisms require that these people should be consulted, engaged and, if affected, they need to be compensated by the government. That is extremely important for us. For example, we are discussing a project where we are ready to move to the next step of implementation but the government first needs to complete resettlement of affected people. One area I would like to emphasize is the importance of quality of consultation with the local population. That is very important for us. When you consult local communities while designing a project, you can hear what their concerns are and can make adjustments with minor costs. Consultation should not stop there. There might be issues during implementation. Channels of communication should remain open during the entire implementation of the project. We must be sure that those negatively affected by the project are properly compensated, and then move on.

     

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