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.