Preventing a Lost Decade for Africa’s Economies
The following is a summary of remarks made by Minister of Finance and Economic Planning Ken Ofori-Atta of Ghana at CSIS’s debate on great power competition in sub-Saharan Africa on July 7, 2020. The minister’s comments have been edited by the CSIS Africa Program for brevity and clarity.
How do we create an economic system that is driven by mutual and long-term benefits for the African continent and the United States? This is the challenge for policymakers.
We are faced with a pandemic, which risks undercutting our economic progress to date. We could lose up to 15 percent of our GDPs, country-by-country dependent, with 27 million people falling into extreme poverty.
This is unprecedented. We're entering a recession and potentially a depression that we haven't experienced before. It could be a lost decade.
The current system is not fit for purpose. There needs to be a tectonic reshaping of the financial architecture. We need to ask fundamental questions about where we are going.
A Great Power Distraction
The reality is that by 2050, Africa will be one-quarter of the world's population and have the largest percentage of youth, critical for economic growth. We need to intervene now and get beyond the great power games that seem to be shaping the direction that we are currently going. Competition is good, but negative competition does not lead to the development of the continent. It's not what we are all looking for.
I think it's very difficult to believe that this kind of power game is constructive for Africa, because we are all witness to 60 years of it. We have essentially been a chessboard for this great power competition.
And I dare say that as statistics indicate, it hasn't helped us in any way. We do not need a repeat of this Cold War dynamic between the United States and China.
We need an economy of mutuality that understands that the old pillars of power and commodities and resources may no longer be effective. Africa's most critical need is infrastructure, which requires a certain type of financing that the global financial architecture is unable to provide.
Let’s Put Our Shoulders to the Wheel
The issue is how to find the liquidity to manage our debts, support our health infrastructure (which requires another $100 billion), and start our economic recovery.
The International Monetary Fund has worked very hard within this space during the past two months. It has deployed about $16 billion to address the continent’s financial crisis. We need the World Bank to be proactive as well.
Critically, we need a resolution on the debate about special drawing rights (SDRs), which the U.S. Treasury opposes because it believes some ineligible countries will benefit. What do you do?
I have no question that, with over $100 trillion of assets under management in the private sector, there is a solution to Africa’s need for $100 billion annually for infrastructure.
We, African finance ministers, have worked through these issues: the questions of the SDRs and a special purpose vehicle (SPV) to accelerate our entry into capital markets. And I challenge those opposed to an increase in SDRs to consider the implications of inaction. What will happen to Africa if we don't put our shoulders to the wheel?
Let's take the example of the African Development Bank (AfDB). We've been able to construct a scheme in which the non-regional member-states are able to lend us their rating and balance sheets. Therefore, the AfDB can go to the capital markets and borrow at 0.75 percent.
In contrast, those African countries with access to capital markets borrow at around 8 percent weighed down by a supposed “Africa” risk premium. In truth, this scheme has no basis, because financial defaults in Africa are next to zero.
Why are we paying the $30 or $40 billion for some perceived risk? You have $100 trillion of private sector capital, of which about 43 percent is earning subpar returns. Those resources could have an even higher return if we found a way to create a SPV that had an AAA wrap for African countries.
The question isn’t whether there's enough money to lend. The question is: how do we get appropriate sustainable capital into Africa?
Africa Is a Great Investment
We need to leave in the minds of U.S. policymakers and citizens that Africa is a great investment, period. And from that point of view, that’s how we’ll start changing our lens and our framework. We cannot remain in this spiritual stupor that has prevented some from looking at this continent as a great friend for the future.
Ken Ofori-Atta is minister of finance and economic planning in the cabinet of President Nana Akufo-Addo of Ghana. He is a co-founder and former chairman of the Databank Group, an investment banking firm in Ghana.
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