Author: Valencia M

The global financial architecture is no longer aligned with the economic, social, and environmental needs of many African economies. But addressing this misalignment will require a strong African voice from leaders and policy institutes working together to determine what changes are needed.

To help address these issues and develop a more unified African perspective, a group of ten African think tanks and policy institutes gathered on November 15, 2022, to launch the amplifying Africa’s voice initiative.

Two tracks of connected reflections

African countries are being faced with twin challenges. On the one hand, financing has slowed down at a time when it is needed the most to recover from a succession of negative shocks – from COVID-19 to the current rise in food prices and interest rates. In parallel, ongoing global changes are reopening fundamental questions on the type of economic models that can effectively deliver growth convergence in the future. Africa’s leaders need to lead a “global wake-up call” for action in order to avert such serious interlocking challenges.

The recent series of negative shocks have put many African countries at risk of falling into a prolonged period of debt overhang with low growth. To make a bad situation worse, the recent rise in global interest rates and food and energy prices has reduced further access to foreign exchange, at a time when more than half of the countries that had borrowed on the Eurobond market have lost market access. Much needs to be done to prevent the current situation from deteriorating further, especially as countries are confronted with refinancing walls in the next few years. But so far, there are no credible plans that can avert a grave crisis:

• The instrument to address debt distress, the Debt Service Suspension Initiative (DSSI) has ended,
• the $100b pledge in green finance has not been delivered,
• the prospect of $100b of Special Drawing Rights (SDRs) re-allocation remains unfulfilled,
• International financial institutes continue to lend at a business-as-usual rate and,
• Zambia, Ethiopia, and Chad have already been in a state of default for two years, without the G20-initiated Common Framework managing to find a resolution.

The challenges ahead are not limited to short-term recovery, but also to longer term growth. There was an early indication by 2015 that growth opportunities were faltering – which are now more evident: the export-led model has become less promising with the growth of automation of manufacturing; global growth is falling because of geo-political divergences and stagflation; and the economic drag exerted by climate warming is increasing.

Moreover, short- and medium-term issues interact as they are inextricably related, meaning that progress on all fronts is needed, even if execution is sequenced. Recovery cannot be built on austerity alone but needs to involve moving towards new growth opportunities. But new money to support a new growth path is unlikely to flow in the absence of adequate debt restructuring. The injection of new money to fund a new growth path also remains contingent on a better working of the Common Framework and closer collaboration with China, clearer agreements on climate finance, and multilateral development bank (MDB) reform.

To help address these issues and develop a more unified African perspective, a group of ten African think tanks and policy institutes gathered on November 15, 2022, to launch the Amplifying Africa’s Voice Initiative.

This is a project which goal is to inject more forcefully African voices, ideas, and interests in the ongoing global debates on the urgent reforms needed in the international system to advance the cause of sustainable development. To amplify Africa’s voice, the policy institutes will join forces to raise awareness, build technical knowledge, and undertake joint analysis and research reflecting African perspectives and positions. The analysis and research will be used in advocacy efforts and to inform African leaders so they can engage in international negotiations more effectively.

A Meeting of Minds

In their first meeting, participants described the ongoing global and regional conversations in which they participate. They agreed that they could have a more formidable impact in all these instances as a collective. The ongoing global conversations include a large range of issues, from how to finance the Sustainable Development Goals (SDGs) and the climate goals; to the evolution of financial relations with the capital market, China, and MDBs. It also addresses the needed reforms in the international financial architecture, including the re-allocation of SDRs, MDBs capital increase, and how to make the Common Framework for debt-restructuring work. While a few new initiatives are starting to address some of the failures of the global financial architecture, most notably the G20 Independent Review of MDBs’ Capital Adequacy Frameworks, much more will be needed to renew the development framework, as suggested by the recent Bridgetown Agenda initiative championed by Barbados Prime Minister Mottley.

The Way Forward

While the issues that affect Africa are global, the drivers behind them have an outsized impact on African economies.

To participate in international discussions on reforming the global financial architecture, the group of African policy institutes emphasized that an important task is to figure out “what Africa needs and what it wants”. Introspective efforts are needed to figure out why African countries have fallen again into a debt crisis, and what safeguards can work in the future to avoid yet another repeat.

Equally, a recovery process must be inscribed in longer term plans, and supported by country-defined commitments.. They have a role to play in supporting MDB reforms, whereby those institutions are able to fund adaptation at scale and to simplify their business model. The methods to enhancements of private flows must also be reviewed to make them work at scale and the Common Framework requires a deeper participation of China, which an African think tank collective could elicit by organizing a structured discussion on reformed win-win rules of debt restructuring adapted to current circumstances.

Besides good ideas, communication will be key. Beyond a small group of Ministers of Finance and a few Heads of State, Africa’s voice is inaudible amongst ongoing global conversations. To convince world powers to implement changes that are in Africa’s interests, good ideas won’t be sufficient – the volume needs to be turned up. In this regard, the group stressed the need for Africa, including heads of states and core institutions such as the African Union and the African Development Bank, to have more voice in international discussions, to be able to influence fora such at the United Nations, the G7, G20, MDB boards, and important bilateral instances. Both efforts must proceed in parallel. In the coming months, the policy institutes engaged in the process will start addressing key technical issues to figure out what Africa needs in terms of international and regional reforms, and how to make this happen.

On November 15, ACET and Finance for Development Labs (FDL), in collaboration with the Transformation Leadership Panel (TLP), launched the Amplifying Africa’s Voice initiative, which seeks to amplify Africa’s voice in the dialogue on reforming the global financial architecture.

About the Initiative

The Amplifying Africa’s Voice initiative will support a process of engagement, knowledge sharing, research, and advocacy with a select group of African economic policy institutes and thought leaders. This process will lead to a better understanding of, and appreciation for, the global financial architecture challenges. It will also lead to African-led analysis, research, and perspectives that will be translated into both policy briefs for African leaders and advocacy content. Likewise, such engagement will provide opportunities for global experts and African experts to share ideas, comment on research, and identify solutions.

Partnerships

The initiative will engender partnerships between economic policy institutes, joint analysis and research, and common positions on issues such as SDR rechanneling, enhanced DSSI, the Common Framework, liquidity and/or sustainability frameworks, natural disaster clauses, debt management and relief, capital adequacy, MDB reform, and climate finance. The initiative will be coordinated by ACET and FDL, while crowding in African and global experts, as well as African institutions and the TLP. Ideally, the partnership among African policy institutes on the topic of global financial architecture will evolve into a long-term collaboration to collectively address key issues related to global and continent-wide issues that might otherwise not be an area of focus for African policy institutes. Partners will include African economic policy institutes.

Initial partners include:

Representatives from ten economic policy institutes participated in the event:

• African Center for Economic Transformation – Rob Floyd
• African Economic Research Consortium – Dianah Ngui Muchai
• AUDA-NEPAD Policy Bridge Tank – Pamla Gopaul
• Centre for the Study of the Economies of Africa – Mma Amara Ekeruche
• Finance for Development Labs – Ishac Diwan
• Institute for Strategic Studies – Mustapha Jobarteh
• Policy Center for the New South – Hafez Ghanem and Badr Mandri
• South African Institute for International Affairs – Neuma Grobbelaar
• Laboratoire de Finances pour le Développement (LAFIDEV) – Babacar Sene
• KIPPRA (Kenya) – Moses Njenga

Outcomes from the event

There was general validation that greater collaboration among African policy institutes on the global financial architecture agenda is needed and welcomed. Participating think tanks confirmed their interest in partnering on knowledge sharing, analysis and advocacy. Current efforts such as the G20 commissioned Capital Adequacy Framework (CAF), the Bridgetown Agenda and the MDB Reforms were highlighted by ACET. FDL provided a framing for the initiative around the need for new growth paths, finance in the short and longer term, debt, MDB reforms and new funds and institutions.

Partner organizations highlighted past, ongoing, and planned work on global financial architecture issues. For example, ISS gave a brief on the African Futures forecasting model for external financial flows and the Africa Tomorrow blog platform that addresses many of these themes. SAIIA emphasized their work on the Africa-China relationship, opportunities to influence policymakers on these topics via the T20 and the importance of NDB reform as part of the dialogue. CSEA provided a brief on their reports on debt management and how to operationalize the Common Framework, as well as the CoMPRA program which looks at government policy responses prompted by the COVID-19 pandemic, including those related to finance and debt. The PCNS is doing work around climate adaptation and green tech, but is also exploring why global financial structures are not working and where Africa fits in a quickly evolving world where globalization is often not functioning well.

In Kenya, KIPPRA is finalizing work on public debt trends, and also has programs on green economy, climate finance flows, climate smart agriculture and renewables. As well, KIPPRA is assessing climate smart investment opportunities across a range of sectors. AERC is focusing on issues such as financial inclusion in EAC, opportunities and challenges for green tech, and has started work on SDR financing. ACET convenes the Transformation Leadership Panel to advocate on issues such as climate finance, is preparing to undertake a perceptions analysis of African leaders on the global financial architecture and is undertaking research in areas such as absorptive capacity for increased financial flows. FDL has established a network of Chinese researchers on the finance agenda, is completing a study on debt and growth in North Africa and has ongoing work related to the emerging debt crisis.

There was general agreement that topics for the next few meetings should focus on:

• Green finance given COP27 (December 2022),
• MDB reform given the deadline for a World Bank reform roadmap (January 2022)
• Growth strategies in a new global setting (February 2022)
• Improving access to capital markets (credit rating agencies, enhancements) (March 2022)

Other topics of particular interest include:

• Debt workouts and instruments (April 2022)
• Non-traditional donors/investors – China and others (May 2022)

ACET and the new Finance for Development Lab, with the support of the Transformation Leadership Panel, are launching a new initiative to enhance Africa’s voice on needed changes to the global financial architecture.

Following the COVID-19 crisis, the Ukraine war, and the growing fight against inflation in rich countries, the global economy is heading for years of weak growth, rising prices, and high interest rates. These developments have destabilizing consequences for low and lower-middle-income economies, and especially so in the Sub-Saharan Africa (SSA) region. Many of these countries already face or will soon face debt distress and/or fiscal crises. Furthermore, climate change is already causing loss of lives and livelihoods across the continent, and its effects are expected to get much worse in the coming years.

And yet, SSA is barely vaccinated, the Debt Service Suspension Initiative DSSI initiative has already elapsed, the promised Special Drawing Rights (SDR)-reallocation has not happened, the G20-created Common Framework to organize debt restructuring has not taken off, climate funding has not reached the promised $100 billion mark, and the multilateral and regional banks continue with business-as-usual approaches.

Development has slipped low on the international agenda, and the global and regional institutions in charge of supporting development are currently not able to avert the multiple crises affecting SSA. Leaders on the continent need to champion a “global wake-up call for action” to start addressing forcefully the interlocking economic, social, and environmental challenges. An urgent focus must be on reforming the global financial architecture, which is no longer fit-for-purpose and is failing Africa. What is needed is a new global partnership for economic transformation.

There is an emerging plethora of actors and initiatives that aim at addressing the failures of the global financial architecture, including the Independent Review of MDBs’ Capital Adequacy Frameworks, the Bridgetown Agenda, and others. In Africa, UNECA had started convening meetings of African Ministers of Finance. But so far, Africa’s voice is missing in the global debates. There are few advocates for innovative solutions and new initiatives among intellectuals, policy institutes, think tanks, thought leaders, or academia. While the rising issues are global, they have an outsized impact on African economies and societies. African thinks tanks have not yet focused sufficiently on these issues due to funding and capacity constraints, lack of access to the ongoing dialogues, and lack of demand by international fora and organizations.

The goal of this initiative is to change that. Within six months, the initiative aims to see policy proposals emanate from African experts and think tanks and start to interact with ongoing global conversations on how to reshape the finance for development global architecture. To get there, there is a need to support a process of engagement, knowledge sharing, and research and advocacy with a select group of African think tanks, policy institutes, and thought leaders. This process will lead to a better understanding of the global financial architecture challenges. It will also lead to African-led analysis, research, and perspectives that will be translated to policy briefs for African leaders, and advocacy content for TLP to use in advancing the cause of reform. These engagements should provide opportunities for global experts and African experts to share ideas and identify solutions.

Knowledge-sharing series

We will organize a monthly series of knowledge-sharing engagements of African think tanks with ACET and FDL experts, TLP members, African policymakers, and MDBs representatives. Each knowledge meeting will focus on a particular issue for the global financial architecture, such as SDR allocation; climate finance; IMF loans, conditionality, and DSAs; MDB reforms, etc.  Each engagement will be anchored by a global expert. These engagements intend to be participatory and foster reflection and dialogue.

Joint analysis

As the knowledge-sharing engagements are underway, ACET and FDL will explore with the African think tanks important themes or topics for joint or collective analysis and research to further inform African policymakers’ positions on the global financial architecture. For example, this may be country-specific analysis to understand how different MDB policy changes would impact a particular country or group of countries (low income v. low middle income for example). Or the analysis may explore what African governments and institutions such as the African Union can do to accelerate access to capital markets, reduce debt burdens and increase investments in climate adaptation.

Advocacy

ACET and the TLP will support dissemination of the research outputs, particularly to African policymakers and Heads of State. The analysis can be used to engage global stakeholders and use the policy recommendations in advocacy efforts to amplify African perspectives and Africa’s collective voice.

Partnerships

The partnership among ACET, the FDL, and other African think tanks on the topic of global financial architecture will evolve into a long-term collaboration to collectively address key issues related global and continent-wide issues that might otherwise not be an area of focus for African think tanks. Partners already enrolled in the initiative include the following.

If you are interested in being part of this initiative, please write to Rob Floyd.