By Nneka Nwogwugwu
The World Economic Forum in a new report has proffered four steps African nations can address financing needs.
The report which was published on Wednesday on Hellenic Shipping news, stated that COVID-19, climate disruption, conflicts, and Russia’s war in Ukraine are resulting in severe food, fuel, debt and liquidity setbacks, with no signs of deceleration in Africa.
The World Bank’s June 2022 Global Economic Prospects (GEP) report projected that the global economy is heading for years of weak growth and rising prices with potentially destabilizing consequences for low- and middle-income economies.
With these multiple crises intensifying, the IMF’s Kristalina Georgieva warned at the recent G20 conference that the global economic outlook “has darkened significantly”. A period of prolonged global stagflation is likely, and African countries are at risk.
In order to avoid catastrophe, the World Economic Forum identified four steps on how to reform the global financial architecture to better serve Africa:
Step 1: Ensure a fair distribution of Special Drawing Rights
African countries urgently need new liquidity, which the IMF’s Special Drawing Rights (SDRs) can provide with speed. The SDR is not a currency. It is a potential claim on the freely usable currencies of IMF members, which can provide a country with liquidity. This liquidity is essential to help African governments build and maintain basic social protection programmes in the face of drastically rising food and fuel costs.
However, of the initial allocation of $650 billion in SDRs in August last year, only $33 billion – just 5% – was allocated to Africa. Over a year ago, when the crisis was less severe, global leaders acknowledged the need to channel more SDRs to African governments. The need for a just and efficient process for SDR allocation is now more urgent than ever.
Step 2: Mend the broken debt management machinery
At the end of May 2022, 23 African countries were at high risk of – or already in – debt distress. The situation is worsening with rising interest rates and Russia’s war in Ukraine. Debt relief must be quick, comprehensive, and sizeable.
To facilitate debt workouts, the G20 has called for creditors to come together within a Common Framework. Progress has been painfully slow but the past week saw the exciting news of Zambia finally benefiting from this framework, clearing the way for a Fund programme in the country. African leaders are calling for improved multilateral debt restructuring frameworks to reposition debt as a catalyst for economic recovery and sustainable growth. Viable solutions are needed to ensure access to finance at competitive and non-punitive rates.
Step 3: Scale up Africa’s climate finance to drive global solutions
Although Africa has contributed to only 3.8% of global emissions, it has borne the brunt of climate change. Annually, Africa loses $7–$15 billion due to climate change, and this figure is expected to rise to $50 billion by 2040. The inadequacy of climate finance, the cost of undelivered climate finance, and the neglected carbon market now demand urgent attention in Africa.
At the same time, opportunities for Africa to lead a green transformation are plentiful. For example, market mechanisms that reward Africa for its carbon sequestration can be developed, making financing available for the continent’s green transformation. Ibrahim Mayaki, the TLP panel member and former CEO of AUDA-NEPAD underlined the importance of scaling up climate action in Africa through carbon mitigation, job creation and agricultural transformation while at the same time, “offering the planet some much-needed climate solutions.”
Step 4: Rebuild trust and creating a new global partnership for Africa
This is a critical year. Africa’s voice and collective positions must be loud and clear on key global decision-making platforms. Ahead of the IMF/World Bank Annual meetings in October and the COP27 in November, a coalition to build consensus, galvanize action, and rally support for Africa’s unified positions should be encouraged. Not only will such action ultimately drive reforms in the global financial architecture to serve Africa better, but it will also provide an opportunity to restore and rebuild the trust in international dialogue and action.