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Submitted by Patrick Mwangi on
As infrastructure continues to be one of the main inhibitors of economic growth in Africa, governments are being forced to become more innovative in raising the required funds. This is also exacerbated by the political and civil society pressure for urgent solutions to the challenges in rehabilitation and expansion of the Water, Transportation and Electricity infrastructure amongst others. The latest approaches by Uganda, Kenya and others have involved the issuing of high yield bonds in the financial markets targeting the domestic arena. In the case of Kenya the Infrastructure (Treasury) Bonds are currently at offer with a 12.5 % annual yield. The effect on the Kenyan fledgling local financial markets and overall access to credit will inevitably be negative. Why? The local credit will increasingly be expensive given the pressure of the global financial crisis in addition to this competition for funds through the bonds. As mentioned the weak financial markets (e.g. stock markets) will also continue to further weaken as investors opt for the ‘guaranteed high yield’ bonds. In Kenya interest rates are now pushing 21%. If the Infrastructure bonds do attract local investors then we will see 25% - 30% commercial bank interest rates sooner than later. This will be a return to the 90s when credit was in accessible in Kenya and hence stunted growth. One of the ways in which this unfortunate and unfolding scenario can be mitigated is through alerting the multilateral and bilateral partners of African economies that infrastructure finance needs a high financing priority. Use of IBRD/IDA resources in expanding the limited IDA grants for low income African countries MUST BE rethought (Grants for the World’s Poorest, Steve Radelet, 2005). It is no longer sufficient to push the policy and economics arguments of IDA grant vs IBRD/IDA loans resources. If IBRD /IDA loans can stem-off the eminent financial collapse of African financial markets then we may want to consider availing them to low income countries. Infrastructure in Africa urgently needs more IBRD/IDA investments if their local economies are to survive the global financial crisis and political turmoil. The World Bank group needs to act now!