Promotion of private enterprises key

Story: Boahene Asamoah

A DIRECTOR at the African Development Bank, Mr Gabriel Negatu, has called on Development Financial Institutions (DFIs) to promote private entrepreneurship by nurturing them to grow.
He said “this sector is now widely recognised as the main engine of growth”, adding that “DFIs must, therefore, promote its growth more energetically by identifying and nurturing local entrepreneurs”.
Speaking at the annual Association of African Development Finance (AADFI) forum for Chief Executive Officers on the framework for implementation of standards and guidelines in Accra yesterday, Mr Negatu again called on DFIs to also launch studies on industrial structure and financial packaging, and assist borrowers with project formulation.
He said despite financial sector reforms in many African countries, risk-averse private banks were still unable to meet the demand for term loans.
“The ability of African entrepreneurs to harness and take advantage of global market opportunities depends in large part on the availability of affordable and accessible financial instruments and products,” he stated.
He added that despite the potential of DFIs to make significant contributions, many DFIs had failed financially.
“They also appear generally to have failed to achieve their development objectives,” he added, stating that there was no doubt that if DFIs were to contribute to national development, they needed to be empowered, strengthened, and to operate in a transparent manner.
Mr Negatu stated that firm surveys showed that access to finance was one of three biggest constraints on enterprise growth in Africa.
He said it was estimated that increasing the level of credit going to the private sector from 14 per cent of GDP to 25 per cent would provide more than US$70 billion of additional investment resources to African households and firms.
Mr Negatu said the fast globalising financial sector invariably posed a great challenge not only to the growth and efficiency of the African financial system, but also on the system's ability to provide the stimulus for sustainable growth at national and regional levels.
He suggested that African countries and development partners should build stronger and integrated domestic financial systems by ensuring macro-economic stability, strengthening financial institutions, and introducing innovative banking and non-banking instruments and products.
Additionally, he called for the need to develop appropriate and cost-effective mechanism for responding to the credit and service needs of small and medium enterprises and also build a conducive public and private policy environment, and restore investor confidence in domestic banking systems.
He said despite the importance of the financial sector to Africa's economic growth, this potential remained largely untapped, and its contribution to date remained largely marginal.
The Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu, in a speech read on his behalf by the Chief Director of the ministry, Nana Siriboe Juaben Boateng, said the challenge for members of the association would be to tailor standards and guidelines to suit individual countries.
“Though we accept that it is imperative for the association to have a code for the operations of its members, there are different challenges in each country and sub-region,” he stated.
He stated that profit making should not be the only motive of development banks at the expense of the overall development of the nation, adding that “if indeed commercial banking is highly viable, then some of the profits should be channelled into development banking where long-term funding is needed for industrial growth”.
The Managing Director of the National Investment Bank (NIB), Mr Daniel C. Gyimah, stated that research had revealed that the call for the abolishing of DFIs was misplaced.
He said the role of DFIs in the economies of most African countries had been tremendous. He, however, conceded that there had been difficult times.