Muhammadu Buhari, President of the Federal Republic of Nigeria
Nana Addo Dankwa Akufo-Addo, President of the Republic of Ghana
Abdalla Hamdok, Prime Minister of Sudan
Roch Marc Christian Kaboré, President of the Republic of Burkina Faso
João Lourenço, President of the Republic of Angola
Mohamed Bazoum, President of the Republic of Niger
India is a wake-up call for us all.
The scale of the resurgence of the pandemic on the sub-continent could set off another round of growth contractions across the world. Food prices are set to soar across Africa as 11% of food imports are from India and Brazil- another COVID disrupted food producer. Critically, 25% of Africa’s rice comes from India.
But even more devastating is the freeze in vaccine availability. The African rebound, like the global rebound, is linked to effective vaccinations. These kinds of black swans are what we must be focus on today to protect growth, lives and livelihoods.
Africa is still in response and emergency mode.
President Macron is convening a summit on financing for Africa to discuss the global response and the impact on African low and middle-income countries. Our hope is for this event to catalyze a financing reset-where we can unlock the door to investing in a green recovery in Africa.
The IMF has highlighted the risk of divergence in global growth and recovery. For Africa this risk is being compounded by the recent India crisis on vaccines and food and a continued shortage of resources to respond to the crisis.
Africa has responded to the crisis through innovation. Using digital technology Kenya has leveraged contact tracing and monitoring of stimulus spending. Togo’s “NOVISSI” social protection program uses mobile money and electronic cash transfers to support vulnerable households and informal workers. In Senegal, the robot "Doctor Car” has been deployed to lower the risk of Covid-19 contamination from patients to caregivers. In Nigeria a young engineering student created a portable ventilator system. Ghana deployed solar-powered hand-washing sinks to improve sanitation levels. In Burkina Faso, online transfers were made to support women and vulnerable groups to respond to the Covid crisis.
All of these innovations which have saved lives and protected livelihoods have been possible due to the additional liquidity offered via the DSSI and or market access. But for many middle income countries access to markets has remained onerous despite good fundamentals. Their ability to recover, create jobs and invest sustainably has been hampered.
Savings from the DSSI and SDR allocation will make approximately $42bn available to African countries, which although significant, is just a fraction of Africa’s financing gap.
To recover from the pandemic, Africa needs to close a financing gap of around US$425 bn in the next 3 years.
This can be fixed. Like the innovations African countries have put in place in their respective countries to fight the pandemic and economic contraction the international community could be bold and brave and adopt some innovative instruments which will not only help level the playing field for African economies with market access but also help provide much needed liquidity for the recovery.
Through the issuance and redistribution of Special Drawing Rights (SDRs) worth $650bn, African governments can utilize this opportunity to leverage much cheaper financing for longer-term recovery and development. We propose that an on-lending of at least 25% of SDRs, corresponding to $162bn is agreed upon to boost the COVID-9 recovery and fight the climate crisis. We specifically propose that SDRs are channeled into the following three facilities:
$100bn to replenish the Poverty Reduction and Growth Trust (PRGT) and possibly IDA-20 for Low-income countries (LICs)
at least $15bn towards a Vaccine’s facility
$30bn towards the Liquidity and Sustainability Facility (LSF)– as part of the Middle-income response which includes a climate window.
SDRs could also be used to provide additional funding for capitalization of African public development banks in the spirit of finance in common.
These measures will: i)facilitate the disbursement of more zero interest loans and the mobilization of scaled-up concessional financing for low income countries - of which 36 African countries - who desperately need these resources to respond to the crisis ii) speed up vaccine rollouts across the continent and save lives and livelihoods; and iii) better integrate African market access countries into international financial markets, while supporting the global push towards investment in SDGs and climate action.
The market access rates of African sovereigns are made up of a liquidity premium (the cost of holding illiquid African paper) and a default premium. One is a market distortion and the other a reflection of economic fundamentals. We can level the playing field by solving the market distortion. In advanced economies this has been done via the creation of a repurchasing or ‘repo’ market. Today the repo market in the US stands at 4.5 trillion USD and 7 trillion USD in the Euro area.
The crisis offers an opportunity to create a repo market for Africa, through an SDR backed Liquidity and Sustainability Facility (LSF). The LSF can also unlock the opportunity for African countries to be more engaged in the issuance of green bonds, currently less than 1% of these issuances are from Africa. This can help plug the gap to finance the 500 billion estimated investment required to reach full electricity access for Africa by 2030 in line with SDG7.
The French summit should support this as being a long-term sustainable way to accompany MIC development. With over 150 billion in Eurobond issuances the cost of the liquidity premium on the continent is onerous and undermining long term growth and stifling ambition. Rising debt sustainability issues are a clear indication of this.
The LSF presents contributing countries with a low risk, flexible, transparent & transformational opportunity to fund the sustainability agenda. It must be supported if Africa is to achieve full economic recovery. As the old African adage goes, with this support we will be fishing and not just being offered fish!
We call on the French, the G7 and the G20 to work with us to build long term sustainable institutions which can fast track Africa’s development.
We stand in solidarity with India in this moment of great uncertainty and re-affirm that no one is safe until we are all safe.