Africa is committed to accelerating the establishment of its own financial institutions to address the existing challenges of the current global financial architecture that does not favour Africa’s transformation and development needs.
The push for Africa’s financial institutions is expected to improve Africa’s access to capital, impartial debt management mechanisms, and fair credit and risk assessments.
At the just concluded President Dialogue by African Heads of State and Government and African Multilateral financial institutions, the dialogue underscored the urgency to establish the African Union Financial Institutions (AUFIs) that include the African Central Bank, the African Monetary Fund, the African Investment Bank, and the Pan-African Stock Exchange.
The institutions will place Africa in a stronger position in the global financial architecture.
The Heads of State and Government discussed Africa’s agenda for global financial architecture reform, and how this agenda can be bolstered and informed by a strong coalition of African economic policy institutes, think tanks, and development institutions. Priority areas include global reforms on debt architecture, concessional finance, Special Drawing Rights rechanneling, increased voice and power in decision-making, and charting a green industrialization and growth path for the continent.
Relatedly, as part of the solutions to the challenges in the financial landscape, the Alliance of African Multilateral Financial Institutions (AAMFI) – also known as the Africa Club- was launched. The club is a consortium of African-owned and African-controlled institutions created to respond to the inadequacies of the global and continental financial architecture. The Alliance will address the specific needs of African sovereigns and facilitate their access to essential financing mechanisms. Leveraging the expertise and resources of its member institutions, the Africa Club is poised to catalyze growth across various sectors, including infrastructure, trade, and investment and to redefine the continent’s financial landscape, ushering in a new era of inclusive and sustainable development.
Underscoring global financial architecture deficits and the need for fundamental systemic reforms, H.E. Nana Akufo-Addo, the President of the Republic of Ghana and the African Union Champion for African Union Financial Institutions observed that the reforms require Africa to take steps towards greater impact in financing its economies.
He stated, “The fundamental fact is that if we find a way where we can increase the financial power of our own institutions, we are in a better place to finance our development. We have seen the tremendous work, the AfDB and AfreximBank made especially during the critical period of the Covid pandemic and Covid difficulties where they helped us mobilize to buy vaccines. These are our own institutions, and we can trust them. If we can find a way of strengthening them we will strengthen ourselves. I will make this proposal to the Assembly that we decide that a minimum of 30% of the reserves we are holding in foreign reserves attracting largely negative rates of interest, be invested in our own Financial institutions.”
President Nana also proposed for Africa to convene an Annual Economic Summit as a platform to review and accelerate actions towards financial independence, further calling on member states to ratify instruments supporting the establishment of the AU Financial institutions.
Supporting the need to empower African financial institutions and increase shares of investments in the institutions, H.E Dr. William Samoei Ruto, President of the Republic of Kenya noted that “there was a time when a conversation about the Global Financial Architecture looked like it was an us versus them debate. I’m very happy that today every capital, North and South, has agreed that there is something fundamentally wrong. Recognition that the problem exists is half the solution […] We will no longer be passengers but be part of the solution. We have the largest reserves of renewable energy in Africa, there is an attempt to make it look like it is very expensive to unlock these renewable energy resources but nobody wants to tell us that on the whole, ultimately, it is more efficient and cheaper. We must work collaboratively to establish green industrialization facilities.”
H.E. Hakainde Hichilema, President of the Republic of Zambia restated the commitment by African leaders to grow their economies, create jobs for the youthful population, and more business opportunities for African businesses noting the urgency for reforms of the global financial architecture. “We are basically given a higher risk profile unfairly, one of the reasons that this is happening is because our balance sheets and economies are not valued correctly. We want to remind ourselves that we are not valued correctly, we have assets that don’t come into our balance sheets and that must change as we drive this change in the global financial architecture. These deficits mean the headroom is limited for which Africa can access financing. We expect African institutions to assist us by valuing us correctly.’
H.E. Dr Monique Nsanzabaganwa, Deputy Chairperson of the African Union Commission emphasized the need to strengthen Africa’s financial landscape by establishing the African Central Bank, African Investment Bank, African Monetary Fund, and the Pan-African Stock Exchange –to foster inclusive growth and sustainable development of the continent. “The current global financial system is flawed due to the unequal distribution of power and influence, which results in the marginalization of developing nations, particularly in Africa. Despite Africa being home to some of the world’s fastest-growing economies and emerging markets, it remains
underrepresented and underserved within existing financial institutions. The establishment of African Union Financial Institutions is a crucial step towards addressing the imbalance and empowering our continent to assert its rightful place on the global fora. By combining our resources and expertise, we can create institutions that are tailored to the specific needs and priorities of the African continent.”
Economic statistics show that 23 African countries are in financial distress, 3 of which have defaulted on their debts. African Union Commissioner for Economic Development, Trade, Tourism, Industry and Minerals, Amb. Albert Muchanga reiterated the need to accelerate domestic resource mobilization to reduce reliance on foreign capital. “If we had the African Central Bank with one currency, the level of intra-Africa trade would be higher than it is today and would be better positioned to attract investments. If we had the African Investment Bank and the African Stock Market, there would be financial deepening in Africa. The African capital market would be better developed than it is today and would have borrowers within Africa and when we establish the credit rating agency, that market would develop further. The constant complaint we have that when we go to the bond markets we pay higher rates of interest would be minimized. If we had an African Monetary Fund, we would be better positioned to stabilize our economies.”
Prof. Benedict Oramah, Chair of the Governing Council of the Alliance of African Multilateral Financial Institutions noted that African countries have shown resolve to shape the collective financial destiny. “The Alliance’s formation underscores the continent’s commitment to self-reliance and sustainable economic development, leveraging home-grown solutions for the continent’s development. The Alliance will stand as a staunch advocate for Africa’s interest in global finance forums, championing equitable treatment and fair representation for the continent. The Alliance will be a strategic platform for coordination, engagement and advocacy to improve Africa’s power in the global financial system.
Dr. Hanan Morsy, Deputy Executive Secretary and Chief Economist at the United Nations Economic Commission for Africa, during her presentation, noted that the African Union’s new seat at the G20 will expand opportunities for the African continent to move from being rule-takers to rule-makers. She highlighted the need to increase the availability of concessional finance calling for “more concessional financing resources; increases capitalization of Multilateral Development Banks and enhanced balance sheet optimization to take more risk; consideration of vulnerabilities beyond a country’s income status to determine eligibility for concessional financing windows; Scaling of the use of sovereign and Multilateral Development Banks -backed guarantees to lower borrowing costs for developing countries; and the need to crowdfund in the private sector through de-risking techniques and blended finance vehicles.”
Ms. Mavis Owusu-Gyamfi, Executive Vice President of the African Center for Economic Transformation, underlined the role of African Policy institutes in the establishment of Financial Institutions.
“Africa is pushing for more concessional finance, a fairer debt framework, a more inclusive global tax system, and more climate finance and investment to help chart a green industrialization path for the continent. When we talk about global financial architecture, we often focus on international financial institutions such as the World Bank and the IMF. These institutions are a critical part of the financial system we need, but alone they cannot provide the resources we need to meet the ambitions of Agenda 2063.”