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Money TalksAfrica’s recovery, now or never

Africa’s recovery, now or never

When it comes to Africa’s unequal global status, facts have never mattered. Unfortunately, multiple meetings, summits, and conferences organized back-to-back every year are merely for bureaucratic consumption while Africa’s issues grow.

Only a month after the 36th AU summit, African ministers of finance, planning, and economic development, as well as experts and participants from around the world, gathered in Addis Ababa for the 55th Conference of Ministers (CoM). The Conference is being organized by the Economic Commission for Africa (ECA) and will take place from March 15 to 21, with the subject ‘Fostering Recovery and Transformation in Africa to Reduce Inequalities and Vulnerabilities’.

Recovering from the torments of COVID-19, the climate problem, the surge of coups and conflicts, growing inflation, and the consequences of the Ukraine war remain difficult tasks for the continent.

These causes have pushed a record 149 million Africans into poverty, accounting for 10 percent of the continent’s 1.4 billion people. These people, who are now unable to achieve the USD 2.15 per day threshold set by the World Bank, were previously over the poverty line.

The number of Africans living in poverty has risen from 546 million in 2022 to 695 million today. Africa now has half of the world’s poor, with half of Africa’s population living in poverty.

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Africa’s GDP growth rate fell from 4.6 percent in 2021 to 3.6 percent in 2022 but is predicted to return to 3.9 percent in 2023. The fiscal deficit reached -5.0 percent in 2022, which is greater than pre-pandemic levels. Africa’s debt-to-GDP ratio is expected to reach 61.9 percent in 2023, exceeding the recommended 60 percent. Eight years before the Sustainable Development Goals (SDG) deadline, many African nations are desperate to get back on track.

Nevertheless, the finance ministers of African states lack funding to begin recovery efforts. They lack the leverage to obtain funds from the international financial system.

“2023 must be a watershed moment for Africa. Otherwise, Africa may be left behind, and it may take years, if not decades, to get back on track to reach the SDGs,” fears Nemera Gebeyehu (PhD), Ethiopia’s state minister of planning and development.

The international financial system is the key financial venue that African leaders are currently eyeing. Yet, even at this point in history, this venue remains out of reach for African economies. International Financial Institutions (IFIs) were created primarily to aid economies around the world in their post-crisis recovery. Yet, their contribution to Africa is heavily politicized; it is connected with the preconditions of western developed countries, which have the upper hand in IFIs.

“Many African countries cannot access the international financial market due to the high interest rates. The high cost of debt is also placing Africa in an economic vicious circle,” affirms Antonio Pedro, acting executive secretary of UNECA.

Pedro just reaffirmed what his boss, Antonio Guterres, said during the 36th AU conference last month. “The global financial system routinely denies them debt relief and concessional financing while charging extortionate interest rates. A dysfunctional and unfair global financial system that is failing developing countries when they need it most, climate chaos that is whipping up floods and deadly droughts, putting communities and lives at risk and displacing millions; a peace and security threat,” Guterres said during his trip to Addis Ababa for the AU summit last month.

Africa’s exclusion from the international financial system, despite confronting a crisis caused mostly by the developed world, is not a new discovery. The same topic was debated at last year’s CoM summit (CoM2022) in Dakar, Senegal, under the theme of “Financing Africa’s Recovery: Breaking New Ground.”

It was reported at the time that, because of the pandemic, annual expenditure on SDG targets would increase by USD 154 billion, and by an extra USD 285 billion over the next five years to ensure a sufficient response to COVID-19. Macky Sall, President of Senegal and AU chairperson at the time, inaugurated CoM2022. Yet, no higher officials from the Ethiopian government have attended the 55th CoM in Addis Ababa.

ECA, in its report presented during the ongoing CoM2023 in Addis Ababa, urged that “The current international financial architecture needs to be reformed so as to enable African countries to gain access to resources more easily and at a lower cost. Such instruments as the Liquidity and Sustainability Facility and the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative could grant access to lower borrowing costs and save African governments from interest costs,” states ECA’s report dubbed ‘Recent Economic and Social Developments in Africa: Subdued Growth Performance and Prospects.’

As of January 31, 2023, 13 African countries were at high risk of debt distress, and eight were actually in debt distress, two more than in 2021, according to the IMF. The requirement to service and roll over huge sums of debt at a time when domestic and international borrowing prices are rising will weigh heavily on certain countries in 2023, and the situation could deteriorate in 2024 when more capital repayments fall due for most countries.

“We are asking for the reallocation of Special Drawing Rights (SDRs) to Africa and other developing countries at a lower cost. Private and commercial loans are getting expensive for Africa. This is placing African economies in debt traps. Africa’s voice in the IFIs remains low. Africa needs more voice,” says Adam Elhiraika (PhD), director for the macroeconomics and governance division at UNECA.

Elhiraika emphasized that reforming the global financial architecture is critical to accessing much-needed and affordable long-term financing with better lending terms from multilateral development banks, adding that the Liquidity and Sustainability Facility and the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI) could grant access to lower borrowing costs and allow African governments to meet the SDGs. The current international financial architecture must be modified so that African countries can have access to resources more easily and at a lesser cost, according to Elhiraika.

Elhiraika expects the East African Community, particularly Rwanda and Uganda, to develop, with rebounding led by service, industrial activity, stronger state investment, improved commerce, a tourism revival, and closer regional connectivity. Despite the fact that nearly 30 million people in Ethiopia, Kenya, and Somalia require humanitarian aid owing to year after year of drought, the east African region is expected to stabilize at 5.1 percent growth in 2023, the same rate as in 2022.

The West African subregion’s growth rate is predicted to climb slightly from 3.6 percent in 2022 to 3.8 percent in 2023.

Growth in North Africa is predicted to rise from 3.9 percent in 2022 to 4.8 percent in 2023.

The Southern African subregion’s growth rate is predicted to continue around 2.3 percent in 2023, as it did in 2022. Because most African countries have a low rate of domestic resource mobilization, the extent of recovery will be determined by the quantity of external capital gain. 

Despite many believing that the international financial system has to be overhauled, even Guterres could not say how or what the next step should be.

“A dysfunctional and unfair global financial system is failing developing countries when they need it most; climate chaos is whipping up floods and deadly droughts, putting communities and lives at risk and displacing millions. 12 of the 18 most vulnerable countries are currently in Africa. Most of the crisis in Africa is left out,” Guterres said.

The developed countries that have a role in the IFIs can at least decide on the roughly USD 650 billion available in the IMF’s SDR, according to Nemera. “2023 must be a year of recovery for Africa. Yet, this will necessitate changing the global financial system. SDR rechanneling is also critical. Debt restructuring, domestic resource mobilization, social protection, and climatic resilience are critical,” Nemera said.

Elhiraika, on the other hand, advises African economic development planners not to rely on external funding, even though it is desperately needed at this time.

“Ultimately, governments need effective coordination between monetary and fiscal policy—this is critical for reducing inflation while shielding the most vulnerable households,” underlines Elhiraika.

[speaker]
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Video from Enat Bank Youtube Channel.

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