By Omoh Gabriel, Business Editor
AfricanÂ Â governmentsÂ with large foreign reserves in western banks have been urged to keep such reserves with African Financial Institutions (AFIs).
The call was made by The President of the African Export Import Bank (Afreximbank), Mr. Jean-Louis Ekra, and the Assistant Minister of Finance and Development Planning of Republic of Botswana, Mr. Keletso Rak-hudu, on Saturday in Gaborone, Botswana, at the meeting of the advisory group on trade finance and export development of Afreximbank.
Also at the meeting was Nigeriaâ€™s Minister of State for Finance, Mr. Remi Babalola. Rakhudu asserted that the current arrangement regarding the management of the continentâ€™s foreign exchange reserves does not serve the interest of African economies well.
He said â€œAfricaâ€™s foreign exchange reserves have been growing rapidly in recent times. In this regard, from a level of $41.6bn in 1995, Africaâ€™s reserves grew steadily to $461bn in 2008.
â€œDespite the sustained growth in the continentâ€™s foreign exchange reserves, many African countries continue to face balance of payment difficulties, especially during the present challenging times of global economic and financial crisis. Their trade, especially imports have been cut as a result.
â€œOn the other hand, some African countries with large foreign reserve holdings with non-African (Western) banks are also receiving very low returns on such high reserves as a result of the present low rate of interest in international credit markets.â€
The minister advised that an arrangement should be made to ensure that part of the external large foreign reserve holdings of some African countries were harnessed to support African trade in the challenging global financial times.
He regretted that foreign exchange was unavailable to finance trade, especially essential imports, of small and vulnerable African economies.
The Afreximbank president emphasised the need to make Africa â€™s foreign reserves work for the continent and its people.
He also canvassed the use of reserves held by surplus African countries to bridge balance of payments difficulties faced by deficit countries. â€œFor many small and vulnerable African economies, especially those with limited foreign reserves and/or limited access to external credits, importation of essential consumer and capital goods has been sharply scaled back with dire consequences for consumption and investment demand.
â€œWhile many foreign exchange deficit African countries would be willing to pay attractive interest rates to surplus countries for use of their reserves to bridge temporary balance of payment difficulties, including trade financing, surplus countries have been placing their reserves with non-African institutions in mature economies that pay very low rates on them.
â€œThis arrangement does not help surplus African countries since their reserve holdings, at the current rate of interest on deposits, attract close to nothing as return on such reserve holdings with non-African banks,â€ Ekra explained.
He urged African governments to optimize the potential benefits to be derived from the continentâ€™s large and growing reserve holdings. The Head of Research, Planning and International Cooperation Department of Afreximbank, Dr. Francis Mbroh, who delivered a paper titled â€œAfricaâ€™s Foreign Exchange Reserves â€“ Evolution, Characteristics, Country Distribution and Stabilityâ€, also faulted the current placement of Africa â€™s external reserves with foreign banks.
â€œIt doesnâ€™t make sense for African countries with foreign reserves to have them stashed away in foreign banks, while many African countries are finding it difficult to finance their imports. The reserves should be used by African countries to promote trade finance and export development in the continent,â€ said Mbroh. Nigeriaâ€™s foreign reserves, which peaked at over $64bn in 2008, have dropped in recent times to about $50bn.