African economy, finance and planning ministers, businesses and economists attending a conference in Dakar, Senegal, have made an impassioned case for a complete overhaul of the global financial architecture.
The Conference of Ministers (CoM2022) – organized by the United Nations Economic Commission for Africa (ECA) and hosted by the government of Senegal – heard from economists and executives who argued that these global arrangements, ostensibly meant to maintain stability in the international financial system, were outdated and unfair to many developing countries.
In Africa, they are “not fit for purpose,” said Vera Songwe, UN Under-Secretary General and Executive Secretary of UN Economic Commission for Africa.
Giving the keynote speech at CoM2022, President Macky Sall of Senegal, said Africa was being dictated to although it had over a decade of good growth, only suffering a reversal, like the rest of the world, because of the coronavirus pandemic.
Funds are loaned to African countries at a higher rate of interest than other comparable countries and their credit-worthiness hinges on the decisions of opaque credit ratings agencies. “Sometimes we feel sad,” President Sall said. “We ask ourselves: what can we do, where do we stand, what is our place?” He said African countries had asked for a re-allocation of Special Drawing Rights (SDRs) but “they said they couldn’t re-allocate. So we now have to ask for new ones…They talk about deficits and debt ratios while we need money like Covid patient needs oxygen.” Extending the analogy, the President said “and then they say they don’t have the instruments” like a patient denied oxygen because the instruments to administer it aren’t available.
There was consensus among participants at CoM2022, including Michael Camdessus, the former managing director of the IMF, that fundamental change was required. Mr. Camdessus said reform of the global financial architecture was “crucial for Africa. We cannot be paralyzed by the texts of our statutes.”
Concluding CoM2022, ministers said their targets for the 2030 Agenda for Sustainable Development as well as Agenda 2063 had suffered “significant setbacks”.
African countries’ annual expenditures just to meet the Sustainable Development Goals (SDGs) are expected to rise by $154 billion because of the pandemic. An additional $285 billion will be needed for the next five years to ensure an adequate response to COVID-19. Ministers attending CoM2022 pointed out that the continent also needed between $130 billion and $170 billion annually for infrastructure projects and about $66 billion a year to invest in health systems and health infrastructure.
Apart from the pandemic, economic recovery is being hampered by rising food, oil and fertilizer prices caused by the war in Ukraine. 29 African countries are expected to face a severe food crisis.
To add to these needs, over $3 trillion is required by 2030 to address the challenges of climate change. And with 640 million Africans lacking access to electricity, they said energy infrastructure was urgently required.
In a communiqué issued at the end of the conference, the 26 ministers acknowledged that bilateral and multilateral support had been forthcoming during the pandemic. But they argued it was “grossly inadequate” for lower-income countries and too narrowly targeted to help vulnerable middle-income ones.
They urged G20 countries to extend the Debt Service Suspension Initiative (DSSI) for two more years to help “create fiscal space for urgent spending”. They also asked for the Common Framework to be modified to make debt restructuring effective and broad-based to include commercial creditors.
A key demand was that developed countries support the recycling of $100bn in Special Drawing Rights (SDRs), of which they said $60 billion should be allocated to the Poverty Reduction and Growth Trust (PRGT) and to the new Resilience and Sustainability Trust (RST).
In addition, they asked for new SDRs and drew attention to the ECA’s Liquidity and Sustainability Fund (LSF), which they said should be established to allow African countries to use SDRs to improve liquidity, stabilize currencies and reduce the costs of credit.
CoM2022 questioned the surcharges imposed by the IMF on countries with large borrowings, which they pay in addition to interest payments and fees. Ministers said these are estimated to be in the range of $4bn for African countries this year alone and have asked the IMF to waive them for another 2 to 3 years during the war in Ukraine. In addition, they urged the IMF to use its Catastrophe Containment and Relief Trust (CCRT) to offer debt service relief to poor countries.
There was an admission from ministers present that the continent simply loses vast amounts of domestic funds. The communiqué said ministers were “deeply troubled” by illicit financial flows (IFFS). An estimated $83billion is siphoned out of Africa, denying the continent desperately needed resources that it could have used “for the people”. It also acknowledged that Africa had underdeveloped capital markets, “due in part to a large informal sector, low saving rates and weak regulatory and governance regimes”.
But, ministers said, they were very disappointed that there continues to be an “African premium”, which ranges from 100 to 260 basis points, for funds raised in external capital markets. “Interest rates charged to our countries are higher than those charged to our peers outside our continent with similar or worse economic fundamentals,” the communiqué said. With central banks in advanced economies raising their interest rates to restrain rising inflationary expectations, these costs would rise further.
Among the demands made by African ministers to ease liquidity issues, was the on-lending of SDRs – where countries which don’t need them can loan them on to those which do. The ministers commended China for its decision to pass them on and urged other bilateral donors to follow suit. “The on-lending of $100 billion in SDRs to Africa would be a cost-effective means of financing the continent’s recovery,” they said.
On the subject of sustainable and climate financing, ministers commended the ECA and the Pacific Investment Management Company for launching the Liquidity and Sustainability Facility (LSF), which would allow African countries to attract investments in sustainability-themed-financial products, including green bonds. They also said African countries should be compensated for the efforts they put in safeguarding some of the planet’s most important carbon sequestration assets.
The ministers said multilateral and regional development banks should make climate finance more readily available, so that they could “adapt and mitigate against the growing impacts of climate change” and fund green projects. Development partners were urged to replenish the African Development Fund (ADF), and to support recapitalising PDBs among other measures, to address a looming crisis due to the Russia-Ukraine conflict.
For their part, the African ministers gathered in Dakar made a commitment to increase their efforts to mobilize domestic resources and “implement policies that create an enabling environment” to attract the private sector and institutional investors They said resources would be directed towards priority areas, including infrastructure, health, education and climate change, including renewable energy to reduce dependence on foreign oil and gas. Oil-exporting African countries were urged to use the windfall caused by the Ukraine crisis to support economic recovery.
Noting that full implementation of the African Continental Free Trade Area (AfCFTA) would boost Africa’s GDP by an estimated $55billion by 2045, ministers said countries which had ratified the agreement should mainstream it and those that had not should do so. They also promised to strengthen their efforts to implement a “comprehensive and unambiguous tax policy” and improve capacity in combating tax-motivated illicit financial flows (IFFs). The ECA was requested to continue to provide its assistance in designing tax policies and their implementation.
The ministers’ statement commended the African Export-Import Bank (Afrexim Bank) for launching the Pan-African Payments and Settlement System to support the operationalization of the African Continental Free Trade Area (AfCFTA), “enabling instant, cross-border payments in local currencies between markets on the continent” at low cost and “reducing the dependence on hard currencies”.
The Economic Commission for Africa was praised for successfully implementing its work programme for 2021 despite the challenges of the COVID-19 pandemic and was requested to assist countries to respond to the impact of the Ukraine conflict and help them prepare for the next global climate summit, COP27.
COP27, “Africa’s COP”, will be held in Egypt from 7th – 18th November 2022.
The dice is loaded against Africa: Ministers call for reform
Standard Bank Group hosts a conference for Ethiopian Corporates on accessing capital markets
As part of Ethiopia’s ambitious Homegrown Economic Reform Plan, the Standard Bank Group was honoured to offer about 100 Ethiopian executives an in-depth conference on accessing capital markets.
From 6-7 April, Standard Bank offered the Ethiopian Capital Market Conference at the Hilton Hotel in Addis Ababa, overseen by the National Bank of Ethiopia.
Ethiopia’s Homegrown Economic Reform Plan was launched by the Government of Ethiopia in 2019 and was subsequently endorsed by the IMF with a financial assistance of US$3 billion, in a bid to ensure macroeconomic stability and transform the Ethiopian economy. The reform program has three pillars, including macroeconomic, structural and sectoral reforms.
Ultimately, the plan seeks to protect social spending and reduce poverty, promote public-private sector partnerships, and create a vibrant Ethiopian financial sector.
During the conference’s opening speech, Governor Yinager Dessie acknowledged the importance of the private sector in developing capital markets.
“We need and expect the private sector to participate in the capital market actively as issuers, investors, service providers, and market infrastructure providers. On our end, we are launching training and awareness creation campaigns in collaboration with our partners so that the local private sector understands the opportunities and challenges of participating in the capital market,” says Governor Dessie.
“The Ethiopian Capital Market Conference is part of the various capacity building initiatives ensuring that local corporates can fully tap into the opportunities presented by Ethiopia’s capital markets,” says Melesse Tashu, Senior Macroeconomic Advisor to Governor of National Bank of Ethiopia.
AFRICA DAY 2022
Africa Day will be commemorated on May 25th during the African Union Commission (AUC) Extra Ordinary Summit on Terrorism and Unconstitutional Changes of Regime in Africa in Malabo. However, through-out the continent attention will also be paid to the African Union’s (AU) 2022 Year of Nutrition, promoting a host of strategies including:
- Building Resilience
- Multisectoral and interdisciplinary approach
- Link between agriculture and nutrition
- Improving nutrition through systemic change
- Investments in nutrition
- Commitments to actions.
“The AU’s part of the long-term vision set out in Agenda 2063 … has adopted common African aspirations, drawing on the potential of its populations, in particular, a human capital well-nourished citizens and in good health with a particular emphasis on women, adolescents and children.”
In the post pandemic era, Africa is paying more attention to health, hygiene and nutrition. Realizing the need for self-sufficiency in the face of numerous challenges, Africa Day should help African governments and society alike recall the OAU Charter written by the Founding Father’s emphasizing aspirations of “…freedom, equality, justice and dignity… Inspired by a common determination to promote understanding among our peoples and cooperation among our states in response to the aspirations of our peoples for brother-hood and solidarity, in a larger unity transcending ethnic and national differences… .”
H.I.M. Emperor Haile Selassie said at the opening of the OAU, “This is indeed a momentous and historic day for Africa and for all Africans. We stand today on the stage of world affairs before the audience of world opinion. We have come together to assert our role in the direction of world affairs and to discharge our duty to the great continent whose 250 million people we lead. Africa is today at midcourse, in transition from the Africa of Yesterday to the Africa of Tomorrow. Even as we stand here, we move from the past into the future. The task on which we have embarked, the making of Africa, will not wait. We must act, to shape and mould the future and leave our imprint on events as they slip past into history. This world was not created piecemeal. Africa was born no later and no earlier than any other geographical area on this globe. Africans, no more and no less than other men, possess all human attributes, talents and deficiencies, virtues and faults. Thousands of years ago, civilizations flourished in Africa which suffer not at all by comparison with those of other continents. In those centuries, Africans were politically free and economically independent. Their social patterns were their own and their cultures truly indigenous.” While Founding Father, President Kwame Nkrumah stated at the same opening, “I am happy to be here in Addis Ababa on this most historic occassion. I bring with me the hopes and fraternal greetings of the government and people of Ghana. Our objective is African union now. There is no time to waste. We must unite now or perish. I am confident that by our concerted effort and determination, we shall lay here the foundations for a continental Union of African States. It is our responsibility to execute this mandate by creating here and now, the formula upon which the requisite superstructure may be created. On this continent, it has not taken us long to discover that the struggle against colonialism does not end with the attainment of national independence. Independence is only the prelude to a new and more involved struggle for the right to conduct our own economic and social affairs; to construct our society according to our aspirations, unhampered by crushing and humiliating neo-colonialist control and interference. From the start we have been threatened with frustration, where rapid change is imperative, and with instability, where sustained effort and ordered rule are indispensable. No sporadic act nor pious resolution can resolve our present problems. Nothing will be of avail, except the united act of a united Africa.”
These sentiments shared 59 years ago are still relevant. So in the spirit of AU Year of Nutrition, let us nourish our bodies, minds and spirits in order to achieve the Africa we want on our terms. The saying that “…man cannot live by bread alone…” stands. More than ever Africans must search out truth, knowledge and methodologies to further advance our development. Paying attention to tradition is key; be it food, the arts, clothing and the plethora of culture available on the continent. Ethiopia has set many examples and should continue to be a light of liberation for Africans as a country never colonized; evidenced by language, calendar, time, food and more. In Addis Ababa, the diplomatic capital of Africa, please find time on May 25th to stop for a moment and reflect on the positive gains and potential of Africa and let us give thanks for this great continent and remember the OAU Founding Fathers who had faith in our future. Happy Africa Day!
Dr. Desta Meghoo is a Jamaican born Creative Consultant, Curator and cultural promoter based in Ethiopia since 2005. She also serves as Liaison to the AU for the Ghana based, Diaspora African Forum.
Writing a new song for Africa
Africa’s finance and economic development ministers have gathered in the Senegalese capital Dakar for a conference that comes at a critical time for the continent.
Organised by the United Nations Economic Commission for Africa (ECA) and hosted by Senegal, the 54th session of the Conference of Ministers (CoM2022), deals with the theme “Financing Africa’s Recovery: Breaking New Ground”.
In his keynote address, the President of Senegal, Macky Sall said a complete overhaul was required. It was the responsibility of African ministers present, he said, to call for a new global financial architecture that would better serve Africa. The Covid19 pandemic had shown, President Sall said, that existing financial instruments weren’t working for countries which needed them the most. Africa “needs money, but we can’t get it. It’s like a Covid patient who needs oxygen but is told ‘we have the oxygen but can’t give it you because we don’t have the instruments.”
Vera Songwe, UN Under-Secretary-General and Executive Secretary of the ECA, said the coronavirus pandemic had come as an “attack” not just on health but on the economy. African countries have been at war for three years, she said, “war with time, covid, climate change, terrorism and the war on bad governance”. So, finding innovative financing solutions was the need of the hour, because “we are looking not just for survival, but for prosperity”.
Both were speaking against the backdrop of the double blow of the pandemic and the war in Ukraine, which are compounding already urgent financing challenges in Africa. Despite an estimated growth rate of 3.6%, Africa needs high levels of financing — for structural transformation and to achieve the 2030 Agenda for Sustainable Development. Before the Covid-19 pandemic, economists estimated that African countries would need $200billion per year to reach their Sustainable Development Goals. Now this has risen to $354billion annually.
An additional $285 billion is needed over the next five years to ensure an adequate response to pandemic. Estimated growth is 0.4% lower than previously predicted, because of the Ukraine crisis. 55 million more Africans have slipped into poverty and there is a high risk of debt distress in many African countries.
Speaking at the opening session, Michel Camdessus, Former Managing Director of the IMF and former governor of the Banque de France, agreed that reform of the global financial architecture was “crucial for Africa”. He said the Bretton Woods system needed renegotiation “most urgently”, adding that it was impossible to “dream of a radiant future for the planet” if this dream left out Africa and its youth.
While pointing out that the ECA was playing a large part in advocating for an overhaul of the global financial architecture, Ms Songwe insisted Africa also needed to look within – to increase and strengthen its domestic resource mobilisation and improve on governance.
Among the proposals discussed was Africa gaining more of a voice by having a permanent seat at the G20, a point emphasised passionately by Rebecca Grynspan, Secretary General, UNCTAD. She said Africa was “suffering” despite having done nothing wrong. Extending the World Bank’s Debt Suspension Service Initiative (DSSI), which helped the poorest countries during the pandemic, and “orderly and rational” debt instruments were part of the solution, she said.
Peter Blair Henry, Dean Emeritus at New York University, said it was time to “write a new song for Africa”. Faulty thinking in the 1950s had led rich countries to try to help poor countries by filling the financing gap with aid – “without knowing whether this would actually correct a market failure, incentivise production or raise incomes”. When these initiatives failed, investors became reluctant. Adding that not much has changed, Professor Henry suggested a “dual-hurdle framework” he’d developed, which could distinguish between countries in their ability to absorb infrastructure investment.
The ECA has found that current initiatives to close Africa’s financing gap are often similarly short-sighted. Bilateral and multilateral support for pandemic recovery efforts, although helpful, left out several vulnerable middle-income countries. The Debt Service Suspension Initiative (DSSI) only deferred the bilateral debt service payments of low-income countries and private creditors did not offer comparable treatment.
The Committee of Experts meeting ahead of the ministers’ debates has been looking at sustainable options to scale up public financing, bring in private sector financing, leverage climate financing and facilitate trade finance. An initiative the ECA is championing, the Liquidity and Sustainability Facility (LSF) was cited as an important potential tool to generate funds at a cheaper cost. The African Continental Free Trade Area (AfCFTA) was described as a potential game-changer, with its demonstrated capacity to pool countries into a single market, as happened with the creation of the African Medical Supplies Platform (AMSP) and the ECA-led Pharma Initiative.
At the opening session, the Director General of the World Trade Organisation, Ngozi Okonjo Iweala, made a case for global trade to be seen as a crucial requirement for equitable and sustainable growth. She said the pandemic and war in Ukraine had caused countries to believe that globalisation was “passe”, but she said trade was vital to moving goods and funds from areas of plenty to areas where there was a deficit.
Vincent Mortier, Chief Investment Officer at the French asset management company, Amundi, pointed out that a possible source of finance, the issuance of green and sustainable bonds, was almost non-existent in Africa, which shares a mere 1% of the current global issuance. But such bonds aligned with the SDGs could help stabilise economies.
Armed with the information and knowledge of these possibilities, Vera Songwe said, ministers gathered at CoM2022 could provide Africa with a unique opportunity to generate more authentic solutions to implement on the continent. She said when the history of Africa is written, “we will look back at the past three years and say African ministers of finance and economic development have succeeded”, along with the governors of central banks, in making Africa resilient and prosperous.
