African leaders root for a fair global financing model

African leaders want a financing model that fits the continent, even as the region battles with high debt obligations. 

Data by the African Development Bank shows the total external debt of the continent is expected to rise to $1.13 trillion (Sh159 trillion) this year from $1.1 trillion (Sh154) in 2022.

Already, the International Monetary Fund  (IMF) estimates that 30 per cent of emerging markets and 60 per cent of low-income countries, mostly in Africa and Asia could face difficulty paying their debts.

Speaking during the Africa50 Annual General Meeting in Togo, leaders drawn from the government and the private sector said the Rising interest rates, inflation and commodity shocks have raised the likelihood of an overlap of debt crises in Africa.

Akinwumi Adesina, President of the African Development Bank Group and Africa50 chairperson opened the floor by insisting that the capital in the global market is not enough. 

According to him, the first thing that needs to change is for the global financial architecture to scale up its level of ambition in order to attain sustainable development goals. 

“It is also failing developing countries because you can see that even after Covid, Africa still needs about $250 billion to recover. We need $277 billion a year to deal with climate change, plus you still have to deal with Africa's debt: today countries have to pay a lot in terms of repayment and service of debt,” he said.

He called on the IMF to help unlock more resources to accelerate development, tackle climate change, address debt challenges, and close infrastructure financing gaps.

Out of the $650 billion of special drawing rights (SDRs) allocated by the IMF in 2021, Africa received only $34 billion — barely five per cent.  At the same time, European Union countries received $160 billion with less than half a billion population.

Continental leaders decried tough conditions handed to developing counties in Africa by global lenders, saying that by doing so, creditors undermine the sovereignty and living conditions of people in beneficiary states. 

Their cries are coming at a time countries like Kenya are facing the reputation of a conditioning facility from the IMF.

While approving $2.34 billion for Kenya to support the country’s Covid-19 response and address an urgent need to reduce debt vulnerabilities in 2021, the international lender gave several conditions to help the country generate its own revenue and cut n borrowing.

As a result, the country recently passed a law doubling the Value Added Tax on petroleum products, increasing tax bands for employees among others. 

This has seen the cost of living skyrocket, with a litre of Super Petrol now going for at least Sh195. This has triggered increased prices of several common goods and services.  

At the session, African financial and political leaders looked at different ways of enhancing financial and credit access and all agreed that a fundamental shift is required.

They for instance signed subscription agreements and letters of intent in preparation for the first close of the Africa50 Infrastructure Acceleration Fund (IAF or the “Fund”), set up to catalyse further investment flows to invest in the development of critical infrastructure across the continent.

This collaboration brought together a diverse group of influential stakeholders comprised of 17 African - including sovereign wealth funds, development finance institutions (DFIs), banks, pension funds, asset managers and retirement agencies and one international institutional investor. 

"With the Fund, we are positioning the Africa50 Group to play a lead role in helping to tap into the more than $98 trillion of global assets under management,'' Adesina said. 

“I strongly believe that for African institutional investors, this is the time to change the investment narrative on Africa''.

He added that it is remarkable and unprecedented to have 17 African institutions participating in such a transforming initiative to invest in an African infrastructure fund.

He added that with the Fund, Africa50 Group is positioned to play a lead role in helping to tap into more than $98 trillion of global assets under management.

For his part, Alain Ebobissé, CEO of Africa50 said that securing commitments from such prominent African institutional investors marks the beginning of a new era of collaboration and investment in Africa's infrastructure sector.

"This African-led initiative is a powerful testament to our collective vision of transforming Africa's infrastructure landscape. Together, we will catalyze African financial resources to build the foundations for a brighter future, one that drives prosperity, job creation, and sustainable development for all Africans".

The record number of developing nations in Africa that are at risk of a debt crisis continues to rise. 

For instance, Malawi is grappling with foreign exchange shortages and a budget deficit of some 1.32 trillion kwachas ($1.30 billion), or 8.7 per cent of GDP.

The donor-dependent Southern African nation is trying to restructure its debt in order to secure more funding from the IMF, which approved emergency funds in November last year. 

Others are Ghana, Egypt, Zambia and Tunisia.