This blogpost was written in collaboration with Rob Floyd (ACET) and jointly published
The global financial architecture is no longer aligned with the economic, social and environmental needs of many African economies. But addressing this misalignment will require a strong African voice from leaders and policy institutes working together to determine what changes are needed.
To help address these issues and develop a more unified African perspective, a group of ten African think tanks and policy institutes gathered on November 15, 2022, to launch the Amplifying Africa’s Voice Initiative.
Two tracks of connected reflexions
African countries are being faced with twin challenges. On the one hand, financing has slowed down at a time when it is needed the most to recover from a succession of negative shocks - from COVID-19 to the current rise in food prices and interest rates. In parallel, ongoing global changes are reopening fundamental questions on the type of economic models that can effectively deliver growth convergence in the future. Africa’s leaders need to lead a "global wake-up call" for action in order to avert such serious interlocking challenges.
The recent series of negative shocks have put many African countries at risk of falling into a prolonged period of debt overhang with low growth. To make a bad situation worse, the recent rise in global interest rates and food and energy prices has reduced further access to foreign exchange, at a time when more than half of the countries that had borrowed on the Eurobond market have lost market access. Much needs to be done to prevent the current situation from deteriorating further, especially as countries are confronted with refinancing walls in the next few years. But so far, there are no credible plans that can avert a grave crisis:
- The instrument to address debt distress, the Debt Service Suspension Initiative (DSSI) has ended,
- the $100b pledge in green finance has not been delivered,
- the prospect of $100b of Special Drawing Rights (SDRs) re-allocation remains unfulfilled,
- International financial institutes continue to lend at a business-as-usual rate and,
- Zambia, Ethiopia, and Chad have already been in a state of default for two years, without the G20-initiated Common Framework managing to find a resolution.
The challenges ahead are not limited to short-term recovery, but also to longer term growth. There was an early indication by 2015 that growth opportunities were faltering – which are now more evident: the export-led model has become less promising with the growth of automation of manufacturing; global growth is falling because of geo-political divergences and stagflation; and the economic drag exerted by climate warming is increasing.
Moreover, short- and medium-term issues interact as they are inextricably related, meaning that progress on all fronts is needed, even if execution is sequenced. Recovery cannot be built on austerity alone but needs to involve moving towards new growth opportunities. But new money to support a new growth path is unlikely to flow in the absence of adequate debt restructuring. The injection of new money to fund a new growth path also remains contingent on a better working of the Common Framework and closer collaboration with China, clearer agreements on climate finance, and multilateral development bank (MDB) reform.
A meeting of minds
In their first meeting, participants described the ongoing global and regional conversations in which they participate. They agreed that they could have a more formidable impact in all these instances as a collective. The ongoing global conversations include a large range of issues, from how to finance the Sustainable Development Goals (SDGs) and the climate goals; to the evolution of financial relations with the capital market, China, and MDBs. It also addresses the needed reforms in the international financial architecture, including the re-allocation of SDRs, MDBs capital increase, and how to make the Common Framework for debt-restructuring work. While a few new initiatives are starting to address some of the failures of the global financial architecture, most notably the G20 Independent Review of MDBs’ Capital Adequacy Frameworks, much more will be needed to renew the development framework, as suggested by the recent Bridgetown Agenda initiative championed by Barbados Prime Minister Mottley.
The way forward
While the issues that affect Africa are global, the drivers behind them have an outsized impact on African economies.
To participate in international discussions on reforming the global financial architecture, the group of African policy institutes emphasized that an important task is to figure out “what Africa needs and what it wants”. Introspective efforts are needed to figure out why African countries have fallen again into a debt crisis, and what safeguards can work in the future to avoid yet another repeat.
Equally, a recovery process must be inscribed in longer term plans, and supported by country-defined commitments.. They have a role to play in supporting MDB reforms, whereby those institutions are able to fund adaptation at scale and to simplify their business model. The methods to enhancements of private flows must also be reviewed to make them work at scale and the Common Framework requires a deeper participation of China, which an African think tank collective could elicit by organizing a structured discussion on reformed win-win rules of debt restructuring adapted to current circumstances.
Besides good ideas, communication will be key. Beyond a small group of Ministers of Finance and a few Heads of State, Africa’s voice is inaudible amongst ongoing global conversations. To convince world powers to implement changes that are in Africa’s interests, good ideas won’t be sufficient - the volume needs to be turned up. In this regard, the group stressed the need for Africa, including heads of states and core institutions such as the African Union and the African Development Bank, to have more voice in international discussions, to be able to influence fora such at the United Nations, the G7, G20, MDB boards, and important bilateral instances. Both efforts must proceed in parallel. In the coming months, the policy institutes engaged in the process will start addressing key technical issues to figure out what Africa needs in terms of international and regional reforms, and how to make this happen.
Authors: Ishac Diwan is Research Director at the Finance for Development Lab. Rob Floyd is Director for Innovation and Digital Policy at the African Center for Economic Transformation.
 The initial group included: the African Center for Economic Transformation (ACET), the African Economic Research Consortium (AERC), AUDA-NEPAD Policy Bridge Tank, the Centre for the Study of the Economies of Africa (CSEA), the Institute for Strategic Studies (ISS), the Policy Center for the New South (PCNS), the South African Institute for International Affairs (SAIIA), the Laboratoire de Finances pour le Développement (LAFIDEV) and the Kenya Institute for Public Policy Research and Analysis (KIPPRA). The Finance for Development Lab, a co-sponsor of the initiative, also participated.