African financial leaders have taken up the push for a re-engineering of the global financial architecture, seeking a model that works for the continent.
The issue took centre stage at the 2023 General Shareholders Meeting of Africa50 and Infra for Africa Forum in Lome, Togo, on July 3, the issue took centre stage, with African Development Bank (AfDB) president Akinwumi Adesina terming the current regime as “failing the world”.
“It is not able to mobilise the capital that the world needs to meet all of its development needs,” Dr Adesina said. “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.”
Dr Adesina said 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.”
“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.
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. A lot more resources will be needed to support Africa’s accelerated development, green growth, and regional integration, especially on infrastructure, he told the delegates.
Financial institutions are now too small and limited to fulfil their mandate and serve everyone, especially the most vulnerable countries. For example, the World Bank’s paid-in capital as a percentage of GDP is now less than a fifth of what it was in 1960 — even though the challenges are far greater.
Dr Adesina said the AfDB is championing innovations that the global financial institutions can adopt to free up more capital for lending. He cited the example of synthetic securitisation in which the AfDB in 2018 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.
He said the guarantee of the UK government gave them $1.6 billion “and then we have $400 million for private insurance to be able to secure the risk for that.”
“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 recapitalise for the global financial architecture to be able to make the kind of needs that we are talking about.”
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