Addis Ababa, March 4, 2024 (FBC) – In his opening at the 56th Session of the Conference of Ministers of Finance, Planning and Economic Development, Executive Secretary of UNECA, Claver Gatete, highlighted the significance of regional cooperation in facilitating economic development in Africa.
“The world is at an inflection point and countries are facing impossible policy choices with far reaching social and economic consequences. But we have chosen the theme of green transitions because, whether we like it or not, we cannot ignore the challenges of climate change and the need to respond accordingly,” he said.
In 2020, Africa’s total greenhouse emission was about 3 per cent of global emissions. But we are the region with the most burden of impact.
As such, there is a lot at stake on the options we chose. And getting it right remains a challenge. The G20 estimates that Africa needs an additional spending of US$1.8 trillion for climate action and US$1.2 trillion for development financing by 2030.
Yet, shrinking fiscal space is now the single most important issue for African ministers of finance, planning and economy. At 2.7 per cent growth in 2023, and a projection of 2.4 per cent in 2024, and with inflation at nearly 20 per cent, the future seems bleak.
Debt has increased by over 180 per cent since 2010, and twenty-one countries are now at risk of, or in, debt distress. This is notwithstanding the annual loss of at least 5 per cent of GDP because of climate change. In addition, the private sector is being squeezed out.
“Therefore, the natural question that confronts us is ‘where will all these resources come from?” he underscored.
“How do you, as Ministers, determine where to distribute resources when nearly US$100 billion is spent on debt repayments annually? It is clear that governments can no longer guarantee social safety nets. Yet, that is precisely what we need to do to ensure that no one is left behind. Let’s face it, we are on the brink of failing future generations,” the Executive Secretary noted.
The fiscal issues we face today cannot be traced only to Covid-19 or recent conflicts. These recent shocks only exacerbated historic structural issues rooted in a global financial architecture that is not fit for today’s world. Simply put, the existing multilateral financial system does not represent the needs of Africa. This should, however, not come as a surprise.
The international financial architecture was established at a time when many African countries were not yet born, he recalled.
In 1945, when the United Nations was created, the five permanent members of the Security Council, namely China, the United States, the United Kingdom, France, and Russia made up almost 50 per cent of the world’s population. Today, that figure is just 26 per cent, he indicated.
“And whilst Africa now represents nearly 20 per cent of global population, it is not represented at the G7, whose proportion of global population is only 9.7 per cent. So how do you solve today’s problems with outdated eighty-year old structures that do not reflect the global shifts that have occurred?” Claver Gatete pointed out.
The global financial architecture needs to be fixed. It must work for everyone and reflect the new dynamics, he stressed.
Claver Gatete also stressed the need to focus on deepening domestic resource mobilisation for sustainability.
External borrowing has become costly, unreliable, and untenable. Therefore, reforming our tax systems and derisking the business environment are unavoidable imperatives, noted.
Innovative instruments like debt-for-nature swaps, regional blue bonds, regional carbon markets and natural capital accounting can provide financing that address debt issues and foster environmental action.
Claver Gatete underscored that regional cooperation can transform Africa into an industrial hub and help the continent to achieve aspiration of the African Continental Free Trade Area (AfCFTA).
However, we cannot do all this without technology advancement. We need to be intentional in our investments in science, technology and innovation.
Digitalisation is an essential ingredient for infrastructure development and for generating economies of scale, he added.