By JACKSON MUTINDA

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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.

At the 2023 General Shareholders Meeting of Africa50 and Infra for Africa Forum in Lome, Togo, on July 3, the issue took centre stage, led by African Development Bank (AfDB) president Akinwumi Adesina.

“It is failing the world,” Dr Adesina said, “it is not able to mobilise the capital that the world needs to meet all of its development needs.”

“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.”

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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.

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“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.”

Mr Guterres told the Paris meeting that the global financial architecture is outdated, dysfunctional, and unjust -- “no longer capable of meeting the needs of the 21st century world.”

He said international 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.

At a press briefing, Dr Adesina, the Africa50 CEO Alain Ebobissé and Togolese Finance Minister Sani Yaya emphasised the need for more efficient use of capital.

“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,” Dr Adesina said. “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.”

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Africa50 was established by African governments and the AfDB to help bridge Africa’s infrastructure funding gap by facilitating project development, mobilising public and private sector finance, and investing in infrastructure on the continent.

Dr Adesina is the lender’s board chairman.

It has 34 shareholders, comprised of 31 African countries, the Central Bank of West African States, the Bank Al-Maghrib, and the AfDB. From the East African Community, Rwanda, DR Congo, Tanzania and Kenya are shareholders.

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.”

The leaders therefore called for more capital to multilateral lenders.

“Take the African Development Bank. We work in Africa. We are exposed to African risk and so there's Africa risk premium, as you know, that's quite high. But we did something that was fantastic as a global financial architecture in 2018. The African Development Bank, the World Bank and the Inter-American Development Bank got together and we did an exposure exchange of risk on our portfolio. And that freed up $10 billion for the AfDB to lend,” the AfDB boss said.

Citing African countries that are considered high-risk and therefore cannot borrow much -- such as DR Congo, Congo Republic and Angola -- he said the AfDB and the Asian Development Bank are going to launch another exposure exchange that will free up $1 billion.

“For us to be able to do so, we have to work as a system from the IMF focusing on macroeconomic and fiscal stabilisation in the use of SDRs, down to how spread our balance sheet better, but hold ourselves accountable,” they said.