Financing Africa’s recovery – What COM 2022 must be looking at
The world is in crises. Inflation is on an upward trend all over the world, even as every part of the world is struggling to come to terms with the ripples of the ongoing COVID-19 pandemic. Then a raging war started by Russia against Ukraine seems to be impacting the global economy with oil prices shooting up.
In the midst of all these and the fact that Africa’s economy has been deeply impacted by the pandemic, the United Nations Economic Commission for Africa (ECA) will this year organize the Conference of African Ministers of Finance and Economic Planning (COM 2022) under the theme: Financing Africa’s Recovery: A New Beginning.
Africa has been at the crossroads so many times, it would be no point to say again that Africa is at the crossroads. Africa is at a difficult point – hasn’t the continent always been?
So generously endowed with natural and human resources, Africa is still struggling to feed its populations, provide jobs, healthcare and free itself from crippling debts – the average debt burden in Africa is around 70 per cent.
Africa has more than 60 precious minerals such as gold, diamond, bauxite, manganese, copper, lithium and graphite, and new discoveries are made every now and then, and then there is oil and abundant resources in the forests and ocean – the blue economy.
But the COVID-19 pandemic seems to have whipped Africa hard, even though the continent hasn’t suffered as much as other continents have in terms of infections and deaths, the economy has been hit so hard into a spin.
But it’s possible to re-calibrate, revive and bounce back. But how?
As the theme of COM 2022 suggests, there must be a new beginning to financing Africa’s recovery.
In an exclusive interview with Ghana Business News early March 2022, on the sidelines of the Africa Regional Forum on Sustainable Development in Kigali, Rwanda, Ms Ngone Diop, the Director of the Economic Commission for Africa, Sub-Regional Office for West Africa laid down Africa’s financial needs: “Only for health and social protection we need $100 billion financing, another $100 billion for economic stimulus now, and for assisting African countries for four years as part of economic recovery, we need another $420 billion,” she said.
She also said Africa’s financing gap is estimated at $2.5 trillion and pointed out that there is also the challenge of climate change.
“If we don’t address climate change and if we don’t respond to climate mitigation, other parts of the world would continue their development trajectory without Africa. Even though we don’t contribute much to climate change, we are hard hit than any other region by the effects of climate change,” she said.
Ms Diop cited the Africa group of climate negotiators who have estimated that Africa would need $2.1 trillion for climate action by 2025. She added that developed countries committed themselves to provide additional resources to developing countries, and out of the $100 billion the developed countries committed to provide for climate action, 80 per cent was disbursed, but Africa received only 20 per cent.
During a virtual meeting with African Ministers of Finance and the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva on February 5, 2021, to discuss an “immediate economic response” to the pandemic, the ministers unanimously called for additional liquidity of $500 billion in Special Drawing Rights (SDR), better market access, more concessional resources and an extension in the Debt Service Suspension Initiative (DSSI), given the prolonged nature of the pandemic.
However, in August 2021, the IMF effected a special allocation of $650 billion of SDRs, a reserve asset meant to provide financing cushion to the global economy in response to the economic crisis induced by the COVID-19 pandemic. While every country in the world got some portion of the allocation, IMF rules dictated that higher-income countries got more (about $450 billion) and low- and middle-income countries less (about $200 billion).
While external financing is important, African countries ought to also look within. The continent has natural resources it can leverage on. Africa produces the largest percentage of cocoa that feeds into the $100 billion global chocolate industry. Instead of selling cocoa as raw material, Africa should start adding value to cocoa and work to get a fair share of the chocolate industry.
Africa exports $6 billion worth of raw coffee every year, which after value addition, yields over $100 billion in revenue.
Even though Africa produces oil, not much of that is refined on the continent. It’s the same with gold, diamond, iron ore, timber, manganese, bauxite, lithium and graphite.
Investing in industries that process the raw materials into finished products would be a huge avenue for job creation for a great number of Africa’s youth, who form almost 60 per cent of the continent’s populations.
The argument has continuously been made that intra-African trade holds some of the keys to Africa’s economic transformation. With a population size of 1.3 billion people, and a combined Gross Domestic Product estimated at $3.4 trillion, Africa can create the world’s largest single market. It’s for that reason that the momentum has been building up towards actualizing the African Continental Free Trade Area (AfCFTA), since the agreement came into force on January 1, 2021.
African countries must speed up all the processes to enable a seamless process to actualizing the AfCFTA as quickly and efficiently as possible.
Government machinery in most African countries is a waste of financial resources. With large numbers of appointees, and high cost of running administrations in most African countries, there are still extraordinary inefficiencies and wastage of scarce resources. African governments ought to cut back on sizes of governments and channel the scarce financing into productive sectors.
Corruption and illicit financial flows
African countries are reported to be losing some $148 billion every year to corruption.
The continent is also widely believed to be losing some $50 to $60 billion every year to illicit financial flows.
Efforts to fight corruption and illicit financial flows should be intensified to clog the holes through which these losses occur.
Laws and regulations ought to be strengthened and enforcement should be ensured to save all the losses from corruption and illicit financial flows.
Domestic revenue mobilization
African countries ought to overhaul and rationalise their domestic revenue mobilization efforts. Tax efforts need to be strengthened and efficiently applied to collect revenues.
Most countries are losing money to unjustifiable generous tax exemptions to both local and international companies. Most tax systems are inefficient and need to be fixed.
To achieve efficient revenue mobilization, digitalization would be key in reducing the involvement of humans, which in turn would reduce the use of discretion and possible corruption in the application of tax laws and regulations. African countries should digitalize their revenue collection systems for efficient tax collection.
Deepen democracy and press freedom
To reach full potential, African countries must allow democracy to flourish. Good governance is a necessary step to economic transformation.
They must deepen respect for and value human life, rights and freedom, freedom of speech and association. All the arms of government should be strengthened to work as they should with transparency, fairness and in the letter and spirit of their constitutions. A free and accountable society has greater potential for prosperity.
A free and independent press or media is a necessary component for economic freedom and success. African countries must ensure freedom of the press. Journalists should be empowered and protected to play their watchdog role and to hold all the important sectors of the society accountable, as accountable societies also pay their dues and effectively oil the process of economic freedom.
Africa can save itself, as it should. But Africa must first set its house in order. Pay attention to the things that matter – focus on its people and resources and take responsibility for itself.
Economic transformation is tied to personal freedom, value for talents, human resources and respect of rights.
By Emmanuel K. Dogbevi
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