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Statement at the Annual Meetings of 44th AfDB / 35th AfDF (Dakar, Senegal / May 13, 2009)

Japanese

Mr. Naoyuki Shinohara,
Vice Minister of Finance for International Affairs,
Ministry of Finance of Japan, and Temporary Governor for Japan,
At The Forty-Fourth Annual Meeting of The African Development Bank and
The Thirty-Fifth Annual Meeting of The African Development Fund,
Dakar, Senegal- May 13, 2009

 


1. Introduction
     
    Mr. Chairman, Mr. President, distinguished Governors, ladies and gentlemen:
 
    It is a great honor to address the Forty-fourth Annual Meeting of the African Development Bank and the Thirty-fifth Annual Meeting of the African Development Fund. On behalf of the Government of Japan, I would like to express my sincere gratitude to the Government of Senegal and the people of Dakar for their warm hospitality.
 
2. Overview of the African region
 
 The African region recorded a growth rate of around 6.0% per annum over the past five years thanks to the economic reforms taken by the Regional Member Countries (RMCs) as well as favorable external economic conditions. I would first like to sincerely commend their unflagging enthusiasm towards reform.

 The situation, however, has dramatically changed due to the global economic and financial crisis since last fall. The global financial market turmoil has spilled over into the real economy, lowering the economic growth forecast of both the developed and the developing countries. This is a global economic down-turn, and all countries must unite in tackling this challenge.

 Here in Africa as well, the frontier and emerging economies with market access such as Egypt, Nigeria and South Africa were first hit by the global credit crunch. The deterioration of the real economy is now being widely observed in the whole African region, due to worldwide contraction of demand, significant decline in commodity prices, and decrease in foreign direct investments.

 In fact, the latest IMF’s World Economic Outlook projects the real GDP growth of Africa in FY2009 at 2.0%, and IBRD indicates that Africa lags behind on all Millennium Development Goals (MDGs). If left unaddressed, these situations might end up in jeopardizing the past achievements towards MDGs that have been attained thus far through the policy efforts both by African countries and their development partners. We must make every effort to prevent this.
 
3. Japan’s policy efforts to date under the economic and financial crisis
 
(1) Policy measures for maintaining the international financial order and stabilizing macro economy

 Since last summer, in response to the deterioration of the economic and financial situation, the Japanese government has adopted a series of packages of stimulus economic measures. By the end of 2008, the total size of these packages had reached 75 trillion Yen (approx. $750 billion), including 12 trillion Yen (approx. $120 billion) of fiscal stimulus measures. On top of this, the government has decided to formulate an additional stimulus policy package, and announced on April 10, new economic measures, totaling 57 trillion Yen (approx. $570 billion), with fiscal stimulus of 15 trillion Yen (approx. $150 billion), or the equivalent of 3 % of the nominal GDP, the biggest in Japan’s history.

 Japan has also been providing a variety of external supports aiming at stabilizing the global economy, such as a lending agreement of up to $100 billion with IMF to augment its capital base, assisting developing countries in the recapitalization of banks, trade finance and environment-related investments through the Japan Bank for International Cooperation (JBIC).

 We would like to continue to do our best in assisting the developing countries ride through the crisis, in cooperation with Multilateral Development Banks (MDBs).

(2) Follow up of the TICAD IV and Japan’s additional contribution

 The forth Tokyo International Conference on African Development (TICAD-IV) in last May adopted the Yokohama Action Plan, aiming "Towards a Vibrant Africa.” It designates “Boosting Economic Growth” and “Achieving MDGs” as its priority areas, and provides prescriptions effective even in the face of the current crisis.

 Many have expressed concerns that Japan might abandon its pledges made at the TICAD IV, worrying about the damages on Japan caused by the financial crisis. I hereby express a firm determination that Japan will definitely follow through with its pledges. More specifically, I reconfirm that Japan will provide up to $4 billion worth of yen loans over the next five years.

 In addition to these, Japan will provide grant aid and technical assistance worth $2 billion over the next two years. These are a part of our crisis response, and we intend to provide them as quickly as possible.

 Our Foreign Minister Nakasone declared Japan’s additional assistance to Africa on the occasion of the TICAD IV ministerial follow-up meetings held in Botswana this March. Japan pledged to provide around $300 million for food crisis and humanitarian relief aid and decided to contribute around $200 million to The Global Fund to Fight AIDS, Tuberculosis and Malaria.

 Let me also mention that on the 2nd of April at the G20 London Summit, our Prime Minister Aso urged the international community to enhance their support to Africa, that was heavily hit by the crisis.
 
4. Challenges Facing the African Development Bank Group
 
Responding to the financial and economic crisis: the highest-priority

(1) Responding to the contraction of private capital flows

 The African region is now observing a precipitous decrease in private capital inflows due to the financial and economic crisis. Ghana and Kenya have postponed their respective external borrowing plans, and external financing for businesses corporations and banking sector is being depleted in South Africa and Nigeria. Also, Foreign Direct Investments (FDIs) to the African region this year is estimated to decline to nearly half compared to the level in 2008. Western African countries, in particular here in Senegal, are allegedly facing a decrease of remittances from workers resident in Europe.

 AfDB needs to promptly respond to the funding needs in the region, until private capital flow has been normalized again. To that end, we expect that the Emergency Liquidity Facility (ELF) approved by the Executive Board in March this year will be fully utilized.

 For the same reason, we also expect that the Trade Finance Initiative (TFI) which has just started its operation will make good progress. We find it appropriate to operate this Initiative on a pilot basis for the first year, given that the Bank does not have any expertise in this area. We expect that AfDB provide effective support through this initiative, while appropriately coordinating with IFC and other MDBs as well as trade facilitation agencies.

(2) Private sector assistance and infrastructure development

 As the world economic structure is going through a dramatic change under the current financial and economic crisis, economic growth objectives for developing countries and development agendas in achieving them would inevitably need to be reviewed accordingly. We expect AfDB to properly envision the world economic situation after the crisis and continuously review its strategies in assisting African development.

 Whatever development objectives are to be pursued, private sector would play a central role and would be a source of economic vitality. This should be true even after the crisis. Private sector is an engine for sustainable economic growth that enables poverty reduction, ultimately allowing countries in Africa to achieve economic independence.

 In this respect, infrastructure developments that would remove a bottle neck of economic activities are critically important to help prepare for future economic growth. We expect the AfDB to properly envision the areas of infrastructure development that will be needed, while carefully looking at impacts that the current crisis will have on economies of individual countries, and to steadily implement infrastructure projects accordingly.

(3) Enhanced Private Sector Assistance for Africa (EPSA for Africa)

 In order to assist private sector development in Africa that is now facing difficult circumstances due to the crisis, Japan will enhance the EPSA initiative. EPSA is an initiative that Japan launched with AfDB in 2005 to support private sector development in Africa by providing concessional resources.

 I am pleased that a significant progress has been made through EPSA. Since its inception, 6 sovereign loans totaling $236 million, non-sovereign loans of $436 million and 20 technical cooperation projects totaling $16.3 million have been implemented. Through these projects, private sector operations have been firmly taking root in AfDB. We will coordinate with the AfDB’s ELF and TFI to promote further use of EPSA. We welcome that the Board of Governors approved resolutions to allocate part of AfDB’s net income to the Fund for African Private-Sector Assistance (FAPA), a technical cooperation wing of the EPSA, for two consecutive years despite its tight budgetary conditions. We take this as a sign of AfDB’s firm determination to make efforts towards “poverty reduction by private sector-led economic growth.”

 Japan has also contributed $20 million to FAPA, as announced at its inception. In light of the current economic crisis, Japan will provide additional $10 million to FAPA.

 We expect that the enhanced EPSA will help revitalize the African private sector, which is now facing very severe situations.

(4) Assisting the poor: the most vulnerable to the crisis

 The poor who are already socially vulnerable will be hit hardest by the current financial and economic crisis. In order to protect human lives, livelihood and dignity, it is critical to promote a comprehensive human security approach, which not only protects individuals and communities, but also enhances people’s ability to cope with the crisis through capacity development.

 AfDB group places enhanced support for AfDF countries as one of the main pillars of its crisis response. Accordingly, it will review the existing portfolio and loan operation programs, and examine the possibility of introducing guarantee products by AfDF. To protect the poor from suffering deeper hardships, the Bank should progress these works further and strengthen its works on projects and capacity building activities that directly benefit the poor.

 As the global financial and economic crisis drags on, adverse effects on AfDF countries would be even severer. I urge the Bank group to understand the challenges facing the vulnerable and reexamine the operational priorities of the AfDF XI, as necessary, at its Mid-Term Review to be conducted next October.

Reviewing the AfDB’s capital

 MDBs must focus on responding to the economic and financial crisis by meeting urgent financing needs of their member countries, making full use of their existing resources. In this context, the Bank should review its overly restrictive financial policies and regulations, to maximize the use of its existing resources.

 The Board of Governors made a resolution to review the necessity of the General Capital Increase (GCI). We urge the management to report not only emergency needs but also medium to long-term regional financing needs as well as the analysis as to how best the Bank addresses regional development challenges. I strongly hope that the report will provide a sound basis for our objective review.

 At the same time the Bank needs to enhance its governance. In particular it is essential for the Bank to further enhance human resource management, risk management and sound budget execution.

 Should it become apparent that a capital increase is indeed needed due to a large increase in lending in response to the current financial and economic crisis, Japan intends to fulfill its role as a main shareholder of the AfDB.
 
5. Conclusion
 
    I sincerely hope that all African countries fully demonstrate their strong “ownership” and promote their own development policies to overcome the current crisis, while at the same time further strengthening the partnership with the international community.

 I would like to call on other development partners and the International Financial Institutions (IFIs) to join us in refraining from reducing their assistances to Africa and implement them even more actively.

 I expect the Bank to continue to respond to the borrowing countries’ developing needs and fully play its role as a leading regional development bank. Japan stands ready to support the Bank in anyway it can.

    Thank you for your kind attention.