By John Ikani
African financial leaders are spearheading efforts to revamp the global financial architecture, seeking a model that better serves the needs of the continent.
The issue took center stage at the 2023 General Shareholders Meeting of Africa50 and Infra for Africa Forum in Lome, Togo, led by African Development Bank (AfDB) president Akinwumi Adesina.
According to Dr Adesina, “It is failing the world. It is not able to mobilize the capital that the world needs to meet all of its development needs.”
He further added, “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.”
The AfDB president stressed the need for ambitious changes in the global financial architecture, stating, “The first thing that needs to change is for the global financial architecture to scale up its level of ambition because we have to attain the sustainable development goals and we must make sure that globally we are able to do that.”
He further emphasized the importance of leveraging the private sector, stating, “Second is that government alone is not enough. By 2026 you’re going to have roughly $1.5 trillion of assets under management globally.
“Now, if we are able to leverage a little bit of that, you can imagine what it will do for infrastructure globally and what it will do for us in Africa. So, when we talk about changing the global financial architecture, we are saying we need to do more to leverage the private sector where the money is.”
Dr Adesina reiterated his message at the recent Summit for a New Global Financing Pact called by President Emmanuel Macron in Paris, calling on the International Monetary Fund (IMF) to help unlock more resources to accelerate development, tackle climate change, address debt challenges, and close infrastructure financing gaps.
According to Dr Adesina, Africa will need $277 billion annually through 2030 to achieve its climate financing targets and drive green growth as per the continent’s nationally determined contributions. He emphasized the need for additional resources to support Africa’s accelerated development, green growth, and regional integration, particularly in infrastructure.
“I am delighted that the UN Secretary-General António Guterres applauded the AfDB proposal for using the SDRs to unlock global financing. This will unlock resources to finance climate change mitigation and adaptation, infrastructure for agriculture, transport, digital, airports, water and sanitation, education, as well as health,” said Dr Adesina.
During a press briefing, Dr Adesina, together with Africa50 CEO Alain Ebobissé and Togolese Finance Minister Sani Yaya, stressed the need for more efficient use of capital.
Dr Adesina mentioned the re-channeling of Special Drawing Rights (SDRs) to the African Development Bank, stating, “That’s why last week in Paris, I spoke about the need for re-channelling of the Special Drawing Rights (SDRs) to the African Development Bank. That’s because AfDB can leverage the SDRs by three to four times.
“This would mean a lot more financing to also support all the regional development banks in Africa, as well as Africa50. A $250 billion re-channelling of SDRs to multilateral development banks will deliver up to $1 trillion of new financing for development globally.”
Africa50, established by African governments and the AfDB to bridge Africa’s infrastructure funding gap, has been at the forefront of mobilizing public and private sector finance for infrastructure development on the continent.
Dr Adesina emphasized the need for innovative approaches within the global financial institutions to unlock more lending capital.
He cited the successful synthetic securitization carried out by the AfDB in 2018, where non-sovereign assets worth $1 billion were transferred to the private sector.
In 2022, the bank repeated this process with $2 billion of sovereign assets, receiving insurance coverage from the London insurance market.
“So, what this means for the global financial architecture is that all the capital we have, we have to make it work better for us, and that’s one of the changes that we’re talking about. If you are jogging and you are sweating but you’re not drinking, eventually you’re going to pass out.
“So, sweating balance sheet is not enough, you need new capital; you have to recapitalize for the global financial architecture to be able to make the kind of needs that we are talking about,” explained Dr Adesina.
The leaders therefore called for more capital to multilateral lenders. Dr Adesina highlighted the successful exposure exchange of risk between the African Development Bank, the World Bank, and the Inter-American Development Bank in 2018, which freed up $10 billion for the AfDB to lend.
Another exposure exchange is being planned with the Asian Development Bank, aiming to release $1 billion to support countries considered high-risk and facing limited borrowing capacity.
“For us to be able to do so, we have to work as a system from the IMF focusing on macroeconomic and fiscal stabilization in the use of SDRs, down to how we spread our balance sheet better, but hold ourselves accountable,” they stated.
The discussions emphasized the necessity of a collaborative system involving institutions like the IMF to achieve macroeconomic and fiscal stabilization through the use of SDRs. This comprehensive approach aims to improve the distribution of balance sheets while maintaining accountability.
