NAIROBI (AN) – African leaders pressed for reforms in the global financial system to enable countries to tackle immediate challenges including climate change and crippling foreign debts.
As its annual meeting drew to a close on Friday, the African Development Bank announced that its governors, representing shareholders from 82 countries, approved a US$117 billion, or 58%, general capital increase. Maintaining its AAA credit rating helps the bank borrow on the financial markets and increase lending to countries coping with financial stress from high borrowing rates, climate adaptation and geopolitics.
"It will give us a more liquidity buffer as a bank to be able to do more. And what that really means is that the authorized general capital of the AfDB will increase from US$201 billion to US$318 billion," African Development Bank's President Akinwumi Adesina told a closing press conference. "That is a lot of resources that have now been given to us, a firepower."
Kenya's Finance Minister Njuguna Ndung'u acknowledged widespread complaints about "very, very negative persistent shocks" ranging from climate change to pandemic to supply contraints. He noted the past two years brought El Niño-related flooding and severe drought, impacting food prices and inflation, and displacing hundreds of thousands of households.
"We have to shift a lot of resources to save lives and even look for partners to help us," he said, echoing the need for major reforms to Bretton Woods-era global financial institutions. "We need banks that have the capacity."
African leaders at the multilateral development bank's 5-day annual meeting, which was hosted by Kenya and drew 3,000 participants from 82 countries, emphasized the need for debt relief and climate finance as some 60% of African countries spend more on debt servicing than health.
The meeting, attended by African heads of state, finance ministers, central bank governors and others, drew widespread concern that unsustainable debt levels and climate vulnerabilities will compromise efforts to achieve the United Nations' 17 Sustainable Development Goals for 2030 and the African Union's Agenda 2063 development plan for the next four decades.
"Transforming the international financial architecture is imperative to give Africa a fair chance to turn its immense potential into opportunities to overcome multiple challenges and develop inclusively and sustainably," Kenya's President William Ruto told the meeting. "We have been clear and consistent in our advocacy. Africa is neither seeking handouts nor asking for charity. We are a continent of sovereign people who aspire to grow in a just multilateral system and access development financing on fair terms."
Ruto said a just financial system is essential because "climate change and sovereign debt are now firmly interconnected, trapping governments in a vicious cycle" of loss and damage from climate-linked rising costs.
"With such higher financing costs and constrained government budgets, developing countries continue to struggle to invest in low-carbon and climate-resilient development," he said. "At risk, therefore, are both climate action and our sustainable development goals. A better, more responsive, and fairer international development financial architecture is urgently needed, and time is of the essence."
He later told a presidential-level discussion that the continent needs long-term financing at least with a 40-year grace period, low interest rates, and financing at scale that is agile, flexible and climate-sensitive. Rwanda's President Paul Kagame said Africa's growing middle class benefits the rest of the world, which "should accept Africa's proposals in their own interest. If Africa grows, others grow."
600 million people without access to electricity
Africa's economic growth is expected to accelerate from its 3.1% rate in 2023. But it will take double-digit growth – well beyond the bank's 4.3% predicted growth for 2025 and 3.7% estimated growth for 2024 – to lift more than half a billion people out of poverty, according to Adesina.
The resilience of Africa’s economy – which has a youthful workforce that includes 477 million people under the age of 35 and abundant agriculture and mineral resources – belies the "very, very challenging global context” in which it operates, Adesina said, pointing to high inflation, Russia's war in Ukraine and difficulty raising capital as "headwinds" it faces. Some 546 million people, more than a third of the continent's 1.49 billion population, live below the poverty line on less than US$1.90 a day, according to the U.N. Economic Commission for Africa.
With 65 percent of the world’s uncultivated land, African officials consider the continent's agricultural potential as key to feeding the world's anticipated 9.8 billion population in 2050. Adesina said Africa, with abundant solar energy potential, also could help the world lessen its dependence on fossil fuels.
African nations, meantime, must spend US$75 billion on debt interest payments this year rather than on needed social programs or public investments. The average national debt ratio rose from 30% of GDP in 2013 to almost 60% of GDP by the end of 2022, almost quadruple the ratio in advanced economies, according to the International Monetary Fund.
Three countries, Ethiopia, Ghana and Zambia, defaulted on their external debts, and 21 others have excess debt. Ethiopia and Ghana want their debt reorganized while Zambia seeks to remove penalties on arrears.
Adesina, a Nigerian economist, told the bank's shareholders that African nations will need US$10 billion annually over the next five years to refinance loans, and paying that much in debt interest shows “there’s something fundamentally wrong for a continent that still needs 600 million people to be connected to electricity, in a continent that still needs money to have 1.2 billion people access clean cooking energy."
On the sidelines of the annual meeting, Ethiopia's Finance Minister Ahmed Shide told a panel discussion that what's needed is "more transparency and clearer lines between borrowers and creditors."
The African Union Commission's trade and industry commissioner, Albert Muchanga, warned of a “lost decade for development in Africa” unless nations are able to develop a common market with diversified exports and harmonized policies that lead to debt relief and greater climate resilience.
“Reducing risk means providing official creditor guarantees, as was the case in 2023, when African financial institutions helped countries to issue sovereign bonds at lower costs,” said U.N. Economic Commission for Africa's Chief Economist Hanan Morsy.
The bank's new 10-year strategic plan focuses on tapping the continent's fast-growing workforce and clean energy potential to provide more affordable power and food and to improve agriculture and manufacturing.
As the bank called for projects to help 37 low-income and vulnerable African nations cut carbon emissions, Adesina emphasized the combined effects from rising temperatures on top of wars and conflicts, disrupted supply chains, rising food and energy prices, and high debt payments.
“The devastating effects of climate change are everywhere," he said, "from droughts to floods, from cyclones to unpredictable weather patterns, with a loss of lives and property, and enormous fiscal costs to countries."
