JACKSON MUTINDA<\/b><\/p>\n
Africa-Press – Rwanda. <\/strong><\/span>L-R: Director of the Africa Investment Forum ChineloAnohu; Development Bank of Southern Africa Group Executive, Client Coverage Mohan Vivekanandan; Africa Finance Corporation President Samaila Zubairu, African Development Bank President Akinwumi Adesina; Africa50 Chief Executive Officer Alain Ebobisse\u0301; Trade and Development Bank Group Managing Director Admassu Tadesse; and Islamic Development Bank Group Acting CEO Hani Salem Sonbol.<\/p>\n Rising interest rates, inflation and commodity shocks have raised the likelihood of an overlap of debt crises in Africa. The International Monetary Fund estimates that 30 percent of emerging markets and 60 percent of low-income countries could face difficulty paying their debts.<\/p>\n Additionally, there has been a marked change in the global credit landscape over the past decade, with China and private bondholders — who are the main creditors for the low-income economies \u2013 making the traditional structures less effective for present-day debt challenges.<\/p>\n So how can African countries navigate these challenges to increase domestic resources and deepen capital markets, while still accessing affordable pools of international private capital?<\/p>\n At the Shareholders General Meeting of infrastructure lender Africa50 early this week in Lome, Togo, African financial and political leaders looked at different ways of enhancing financial and credit access and all agreed that a fundamental shift is required.<\/p>\n The leaders have taken up the push for a re-engineering of the global financial architecture, seeking a model that works for the continent.<\/p>\n \u201cIt is failing the world,\u201d said Dr Akinwumi Adesina president of the African Development Bank (AfDB). \u201cIt is not able to mobilise the capital that the world needs to meet all of its development needs.\u201d<\/p>\n \u201cIt 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,\u201d he added.<\/p>\n Dr Adesina said the first thing that needs to change is for the global financial architecture to scale up its level of ambition, \u201cbecause we have to attain the sustainable development goals.\u201d<\/p>\n \u201cSecond 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.\u201d<\/p>\n 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 IMF to help unlock more resources to accelerate development, tackle climate change, address debt challenges, and close infrastructure financing gaps.<\/p>\n Driving growth<\/b><\/p>\n Africa will need $277 billion annually through 2030 to achieve its climate financing targets and drive green growth, as per the continent\u2019s nationally determined contributions. A lot more resources will be needed to support accelerated development, green growth and regional integration, especially on infrastructure.<\/p>\n \u201cI am delighted that the UN Secretary-General Anto\u0301nio 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,\u201d said Adesina.<\/p>\n Guterres told the Paris meeting that the global financial architecture is outdated, dysfunctional, and unjust, \u201cno longer capable of meeting the needs of the 21st century world.\u201d<\/p>\n At a fireside chat, Seedy Keita, Minister of Finance and Economic Affairs in The Gambia, put up a case for strengthening the continent\u2019s capital markets, saying they \u201care not yet mature,\u201d and pension funds \u201care not large enough to accommodate our development aspirations.\u201d<\/p>\n \u201cIf you look at the financing needs, the pension funds combined cannot address them. So, it is time IFIs (international financial institutions) issued long-term financing in local currencies because they have deeper balance sheets, they have better risk management capabilities, and they can transfer the risk,\u201d the minister said.<\/p>\n This is a matter gaining currency on the continent, with multilateral institutions being asked to offer a choice for borrowers to take loans in domestic currency to minimise currency risks.<\/p>\n Keita said with foreign currency lending, Africans have nowhere to transfer the risk, \u201cso it becomes a residual risk.\u201d<\/p>\n \u201cOur capital markets, which are a prerequisite to local currency funding, are not yet there. To build capital markets, you need a strong regulatory environment, and strong fundamentals \u2013 which are yet to take off. It sounds unconventional, but I think the big brothers should also bear the risk in their development agenda,\u201d said the Gambian minister, who is a former banker.<\/p>\n Long-term funding<\/b><\/p>\n Infrastructure investments are long-term and African leaders are seeking long-term funding in cheaper local currency.<\/p>\n Read: Energy sector seeks financing solutions tailored to Africa\u2019s needs<\/p>\n \u201cWe need 20-, 25- or 30-years interest rate curve. Now, it does not exist, because we don’t have long-term liabilities. We have long-term assets, but we don’t have the long-term liability. But we could construct it,\u201d said Serge Ekue\u0301, president of Togo-based West African development bank La Banque Ouest Africaine de De\u0301veloppement.<\/p>\n He said development financial institutions and multilateral lenders like the African Development Bank could issue guarantees, so that in case of a default, the first loss will be absorbed by a multilateral development institution.<\/p>\n \u201cOr just set up a cash reserve, which could absorb the first loss. And by doing so you provide long-term funding, long-term liability to face long-term assets,\u201d Ekue\u0301 said.<\/p>\n However, Paul-Harry Aithnard, managing director of Ecobank Co\u0302te d\u2019Ivoire, assured that the key issue for commercial debt in financing infrastructure is not credit risk, \u201cbecause the probability of an infrastructure project failing is pretty low\u201d.<\/p>\n \u201cThe issue for us is liquidity. So, we want to have access to long-term liquidity. Number two, if we want to find that liquidity, we need to partner commercial banks and DFIs. The capital market is about investors, and issuers, so we need to ask ourselves: Do we have investors in Africa that are ready to take that risk? And the answer to that is yes, we do. Because if you are a pension fund, or an insurance company, if you are looking for a long-term asset where you can match your asset and your liability outside of real estate, the only thing that you have is infrastructure,\u201d he said.<\/p>\n \u201cWhat we need to do now is to see how we can incentivise them to go into the capital markets. Then we need issuers and I know the question that comes up every time is we don’t have enough good projects in Africa… I disagree. I have a portfolio of eight projects that are bankable. So, I think the match between issuers and investors can be made. We just need to incentivise those issuers and promote those investors to go into the capital markets.\u201d<\/p>\n Solomon Quaynor, vice-president for Private Sector, Infrastructure and Industrialisation at AfDB, cited a programme of the African Securities Exchange Association that links different stock exchanges, including South Africa, Egypt, Morocco, Nigeria and Kenya, essentially creating a single capital market of $1.3 trillion, which could be harnessed to create the requisite level of liquidity, on top of the $2.3 trillion worth of pension funds across the continent.<\/p>\n \u201cWe have to start thinking pan-African,\u201d said Quaynor.<\/p>\n Pan-Africanism<\/b><\/p>\n The leaders recommended reforms in the pensions sector to enable investments across borders.<\/p>\n \u201cThere’s something that we call the five percent agenda, where we’re trying to advocate to different countries to allow five percent of the pension assets under management, and also potentially life insurance, to be invested outside of their countries in Africa, so that we can begin to actually aggregate these funds to put in investable projects,\u201d Quaynor said.<\/p>\n He noted the supply-demand imbalance in infrastructure, with a lot of money targeted at just a few projects.<\/p>\n \u201cWe still have a dearth of bankable infrastructure projects relative to the needs that we have, which is about $68 billion to $108 billion a year. And, given that we cannot address everything, you know, on a pan-African basis, we need to look at the InfraCredit model.\u201d<\/p>\n InfraCredit is designed to provide local currency guarantees for corporate and project bonds issued across a range of sectors.<\/p>\n So, what is the role of DFIs?<\/b><\/p>\n AfDB\u2019s landmark synthetic securitisation in 2018 \u2013 the first by a multilateral development bank \u2013 took assets belonging to the non-sovereign operations ($1 billion) and transferred them to the private sector, then in 2022 it took another $2 billion worth of assets in the sovereign operations and transferred them again to the private sector with insurance on the London insurance market.<\/p>\n Dr Adesina said the guarantee of the UK government gave them $1.6 billion \u201cand then we have $400 million for private insurance to be able to secure the risk for that.\u201d<\/p>\n \u201cSo, 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 recapitalise for the global financial architecture to be able to make the kind of needs that we are talking about.\u201d<\/p>\n Asset recycling<\/b><\/p>\n The leaders also favour asset recycling \u2013 where governments monetise existing infrastructure assets through a concession to the private sector, with funds received reinvested in other priority projects.<\/p>\n On July 3, Africa50 signed an asset recycling agreement with Togo, effectively freeing the government from all or part of the debt associated with the Lome\u0301-Kpalime\u0301 Road project, thus giving it some fiscal headroom to allocate public investments to other priority areas.<\/p>\n Togo President Faure Gnassingbe\u0301 in his opening address said: \u201cThere are huge needs for infrastructure, without which development is not possible in Africa. This is at the heart of our roadmap. The involvement of the private sector in infrastructure is unavoidable and this means we must develop more bankable projects. Government involvement is also essential to attract foreign capital, and this is why it is important for governments to provide a stable, and transparent economic environment that is receptive to economic actors.\u201d<\/p>\n \u201cMost governments in the developing countries have large assets: roads, power stations, bridges but as soon as they are inaugurated no attention is paid to them,\u201d said Minister Keita.<\/p>\n \u201cThat’s why we partner with Africa50 to do an asset recycling and asset-backed security will be issued. The [Senegambia] bridge was constructed at the tune of $110 million, and Africa50 will now do an asset recycling for the tune of $100 million, which will be used to create similar type of assets.\u201d<\/p>\n Quaynor said multilateral lenders have to do more.<\/p>\n \u201cThe Alliance for Green Infrastructure in Africa is a bold move to create also the right risk assets and we at AfDB working with our partners, Africa50, AFC and the others, will continue to use the Africa Investment Forum as a convening in a way to look at transformational projects.\u201d<\/p>\n They said DFIs have to be counter-cyclical: invest where when no one wants to, inject liquidity when no one wants to, risk-on when the whole world is risk-off.<\/p>\n For More News And Analysis About Rwanda<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" JACKSON MUTINDA Africa-Press – Rwanda. L-R: Director of the Africa Investment Forum ChineloAnohu; Development Bank of Southern Africa Group Executive, Client Coverage Mohan Vivekanandan; Africa Finance Corporation President Samaila Zubairu, African Development Bank President Akinwumi Adesina; Africa50 Chief Executive Officer Alain Ebobisse\u0301; Trade and Development Bank Group Managing Director Admassu Tadesse; and Islamic Development Bank […]<\/p>\n","protected":false},"author":84,"featured_media":47019,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,15],"tags":[760,763,758],"class_list":["post-47020","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","tag-africa-press","tag-africa-press-rwanda","tag-rwanda"],"yoast_head":"\n