How to close Africa’s financing gap
A report launched by the UN Economic Commission for Africa recently shows the pandemic coupled with the war in Ukraine has widened the financing gap in Africa. Now the continent requires up to $170 billion to finance infrastructure and $39 billion to finance education a year. The Commission’s Executive Secretary Vera Songwe spoke to CNBC Africa’s Julius Bizimungu for more.
Thu, 26 May 2022 10:48:13 GMT
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AI Generated Summary
- Africa's revenue-to-GDP ratio of 17% falls short of the desired 34% for sustainable growth, underscoring the need for increased revenue mobilization.
- The limitations of concessional financing from international institutions and costly market borrowing hinder Africa's ability to secure the $265 billion annual investment required in critical sectors.
- The systemic inequities in global financial systems highlight the disparity in resource distribution, with Africa receiving only 5% of new SDRs amidst the crisis, necessitating a fairer allocation of funds to support African economies.
The pandemic and the war in Ukraine have exacerbated Africa's financing gap, requiring up to $170 billion for infrastructure and $39 billion for education annually, according to a report by the UN Economic Commission for Africa. In an interview with CNBC Africa, Vera Songwe, the Commission's Executive Secretary, highlighted the key challenges and potential solutions to address the continent's funding shortfall. Songwe emphasized the need for increased revenue mobilization, pointing out that Africa's current revenue-to-GDP ratio of 17% falls far short of the desired 34% needed for robust economic growth. Additionally, she discussed the limitations of concessional financing from international institutions like the World Bank, which can only provide a capped amount over a three-year cycle. Market borrowing, despite raising substantial funds, remains costly for African countries. The essential investments required in energy, transportation, education, and healthcare demand an estimated $265 billion annually, highlighting the critical need for additional financial resources. The interview revealed the systemic inequities in the global financial architecture, with Africa receiving only 5% of the newly issued $650 billion in Special Drawing Rights (SDRs) amid the crisis, compared to developed economies. This disparity underscores the urgent need for a fairer distribution of resources to support African countries facing economic challenges. Songwe called for a shift in the international financial system to reflect Africa's changing economic landscape, with many countries transitioning to middle-income status and requiring tailored responses to their financial needs. The proposal to issue new SDRs worth $500 to $650 billion aims to provide immediate relief to African nations struggling to cope with the economic repercussions of the global crises. Amid predictions of slowed economic growth and rising inflation, African countries must enhance intracontinental trade and investment to foster economic resilience.
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