By Akanimo Sampson
Another 39 million people in Africa will be falling into extreme poverty by the end of 2021. Over 30 million jobs have been lost.
President of African Development Bank Group, Dr. Akinwumi Adesina, who disclosed these facts at a virtual Finance in Common Spring Meeting also pointed out that the COVID-19 pandemic has had massive impacts on the continent, dragging over 30 million people into extreme poverty in 2020.
According to him, the private sector, especially small and medium sized enterprises, have suffered particularly from lack of access to finance and many face major risks of rebooting financing of their businesses.
The rest of the Bank’s chief testimony goes thus: I wish to thank my dear friend Remy Rioux, the CEO of the Agence Français de Développement, for co-organizing this event with me and the African Development Bank.
I would like to thank Remy for his personal leadership on the Financing in Common agenda, a remarkable effort launched to bring together public development banks providing $2.3 trillion in annual lending.
Accounting for an estimated 8% of total investments globally, public development banks have a major role to play in accelerating development and the achievement of the Sustainable Development Goals (SDGs).
Our gathering is coming just ahead of the conference in Paris convened by President Macron to discuss financing for Africa.
The African Development Bank is strongly supportive of public development banks. The African Development Bank’s vision on this can be seen with the leadership role we played in establishing:
- The Association of African Development Finance Institutions;
- Afreximbank;
- the Trade and Development Bank;
- the West African Development Bank;
- the East African Development Bank;
- and several national and regional development banks all across the continent.
Together, within the framework of Financing in Common, let us move forward boldly and strengthen institutional capacities, governance and financial capacity of public development banks.
As public development banks, we must deepen our ability to reach all parts of Africa. To ensure financial inclusion, especially for the unbanked, and expand access to finance, savings and insurance products and services, we need to work as one unified system.
A system that is able to source capital in the most efficient ways, taking advantage of global and regional capital markets. A system that deepens domestic capital markets and strengthens stock exchanges, expanding listings for small- and medium-sized enterprises.
A system that is able to efficiently allocate capital to unlock enormous opportunities in Africa, especially in food and agribusiness, natural resources, tourism and industrial manufacturing.
A system that is able to accelerate access to financing to unlock new economic opportunities for the youth, to grow youth-led businesses and position Africa to take full advantage of its demographic dividend.
A system that is able to work efficiently together to finance regional infrastructure at scale, including energy, ports, airports, roads and highways, rail and ICT infrastructure to accelerate Africa’s regional integration and competitiveness, and assure the success of the African Continental Free Trade Area.
Such a system calls for pooling capital, greater use of syndications, co-financing and increased use of risk instruments such as guarantees to de-risk investments.
Such a system also calls for collective ability to work as a unified system that is able to attract significant foreign direct investment to Africa and boost manufacturing capacity and industrialization of the continent.
The debt levels have soared on the continent with debt-to-GDP rising from 60% prior to the pandemic to 70-75%. The continent faces huge fiscal deficits. The IMF estimates that the financing needs for Sub-Saharan African countries could be $425 billion for 2021-2025.
The African Development Bank moved quickly and launched a $10 billion Crisis Response Facility to support countries to meet new fiscal challenges.
The African Development Bank also launched a $3 billion Fight COVID-19 social bond on the global capital markets, the largest ever US-dollar denominated social bond in world history, which is listed on the London Stock Exchange, the Luxembourg Stock Exchange and the Nasdaq.
We project that African economies will recover gradually from the pandemic, with GDP growth expected to be 3.4% in 2021. That recovery is expected to be across the board for oil-exporting countries, tourism-dependent economies, commodity-dependent economies and for non-resource dependent economies. But all these depend on access to vaccines and tackling the issue of Africa’s debt.
To tackle the issue of vaccines, the Bank is supporting the Africa Centers for Disease Control and Prevention with $28 million to strengthen its capacity. The Bank plans to launch a major effort to build Africa’s pharmaceutical industry to which we plan to invest $3 billion in the next ten years.
The Bank is also currently working with partners on how to best support the financing of manufacturing of vaccines on the continent.
Tackling the issue of debt must be our top priority. This is critical for overall financial market stability on the continent in the short and medium term. Without a resolution of Africa’s $700 billion external debt, Africa’s economic recovery will be like running up a steep hill with a backpack full of sand.
Of particular concern is the $377 billion debt owed to private creditors and commercial banks. Total Eurobond debt alone was $169 billion at the end of 2019.
Think of the impact that this debt is having: in 2019, Africa paid $221 billion for debt service, which is 44% of the total government revenues of $501 billion in the same year.
A number of efforts are being made to deal with the debt challenge, including the G20 Debt Service Suspension Initiative (DSSI) and the G20 Common Framework on debt treatment for public and private debt.
The DSSI, which has been extended to the end of this year, has only provided $4.5 billion, which is only 3% of Africa’s outstanding bilateral debt.
Even then, the DSSI does not deal with reducing the quantum of debt of Africa, but only postpones debt service payments. Without doubt, the cost of debt service will continue to rise. The can is kicked down the road, but the reality will catch up when it’s time to pay.
The G20 Common Framework, to deal with public and private debt treatment, has only seen three African countries (Chad, Zambia and Ethiopia) participate. However, rating agencies have not looked at this favorably, and Ethiopia was downgraded by Fitch Ratings.
The issuance of SDRs by the IMF offers a new ray of hope, if well used, to support the recovery process in Africa, and also to address Africa’s debt challenge.
On this, we should pursue two interlinked common approaches.
First, the African Development Bank urges that a part of the SDRs be used to support public development banks to have additional resources to support countries to build back better, greener and with climate and environmental resilience, while creating green jobs for the youth.
To further show our strong commitment to the Paris Agreement and climate change, the African Development Bank and the Global Center on Adaptation have launched the African Adaptation Acceleration Program to help mobilize $25 billion for climate adaptation and resilience for Africa.
As Africa’s premier financial institution, with a AAA rating and a prescribed holder of SDRs, the African Development Bank has the strong backing of all the public development banks to support them through the use of SDRs, to help drive the achievement of the Paris Agreement and climate change actions on the continent.
Second, a share of the SDRs should be used to pay down some of Africa’s huge private commercial debt, while bringing them into the G20 Common Framework. It is clear that if this is not done, when the debt payments become due from 2023/2024 with bunching of payments, many countries will not be able to meet their obligations, which could trigger massive and widespread credit downgrades across Africa.
It is time to take this action now, to forestall what will be a payment crisis just down the road. As Africa’s premier source of long-term capital, the African Development Bank, with its 100% exposure in Africa could be severely affected; and so also will all the public development banks whose lending are mainly to governments.
Such a situation must be avoided. A stitch in time saves nine.
I therefore would like to call for the strong collective support of Africa’s public development banks for these two strategic actions to assure financial stability of the continent and accelerate a post-Covid-19 economic recovery that is inclusive, green and climate resilient.
The African Development Bank will also be keen to work with you all particularly on two initiatives which we have launched to also drive inclusive growth on the continent.
The first is the Affirmative Finance Action for Women in Africa (AFAWA), an initiative to mobilize $5 billion in new financing in support of women businesses in Africa. As of today, we are working with 24 financial institutions in 15 countries, and expect to expand that rapidly by 2022.
Second, to tackle the huge challenge of youth unemployment on the continent, and to support and unleash the creativity and businesses of young people, the African Development Bank will soon be launching Youth Entrepreneurship Investment Banks. These banks would be well-capitalized, new financial institutions to create a new financial ecosystem to support and grow the businesses of the youth of Africa at scale.
The African Development Bank will continue to play its leadership role to ensure the success of all public development banks. The success of all is the success of Africa.
The outcomes of our meeting today are important for the May 18 conference in Paris where I will be presenting our collective position as Public Development Banks.
I look forward to fruitful engagements and discussions.
Together, we are stronger.
Together, we deliver better.
Together, we would become like a Baobab tree whose roots will be deep enough to touch all parts of Africa, and lift hundreds of millions of people out of poverty.
Thank you very much.
