The African continent is not spared from the crises that hit the world economy, quite the contrary, explains Christian de Boissieu. To find answers to African challenges, the Kigali Economic Meetings organized at the initiative of the Rwandan Presidency and the Circle of Economists will make it possible to take stock of the situation and highlight the paths towards sustainable, low-carbon and more inclusive growth.
Africa is bearing the brunt of the combined shocks affecting the global economy: the pandemic that is still there, the consequences of the war in Ukraine, the war in the Middle East, not to mention the now obvious effects of climate change.
The Kigali Conference on 27-28 November, bringing together public and private decision-makers and experts from Africa, Europe and international organizations, is being held at the initiative of the Rwandan Presidency and the Circle of Economists. It will provide an overview of the state of play and future prospects of the African continent, highlighting the ways and means of sustainable, low-carbon and more inclusive growth.
Africa’s growth
Growth? Africa, as you can imagine, is directly impacted by the global slowdown, by China’s difficulties and by monetary tightening in the countries of the North. According to the IMF’s latest forecasts, sub-Saharan Africa is expected to grow in 2023 only slightly higher than global GDP growth (3.3% compared to 3.0%) and it will take until next year for the gap to widen slightly (4.0% compared to 2.9%). Given the population growth in Africa, which is both an opportunity for the continent and at the same time a severe constraint, this growth is insufficient to create room for manoeuvre and facilitate the economic take-off of the least developed countries, and to reduce endemic poverty.
The rebound in inflation since the second half of 2021, accentuated by the consequences of the war in Ukraine, is affecting the whole world, including Africa. Many African countries have been, and continue to be, exposed to capital flight attracted by rising interest rates in advanced economies. One of two things then: either raise rates to discourage capital outflows and to stabilize the exchange rate, at the risk of weighing heavily on growth and employment; or let the exchange rate slide downwards and thus fuel domestic inflation. Not really a good solution, but rather the choice of the least bad one…
A complicated context
In this complicated context, which will remain so, Africa must act so as not to suffer too much. In the financial field, the proposals of the Cercle des économistes that will be presented at the Kigali Conference are based on a few main axes.
First, the countries of the continent should set up an African Financial Stability Mechanism (ASFM), which will enable them to deal with speculative attacks on their currencies and banking crises of a systemic nature. This MASF should not replace but complement the support provided by the IMF, the World Bank and other multilateral development banks. It will have to be set up first in the different subregions that make up Africa, before being extended to the whole continent. In our project, the MASF would be supplemented by the member states, by loans guaranteed by these states but also by a part of the SDRs that have just been redistributed by the advanced countries for the benefit of Africa.
Secondly, every effort must be made to lower borrowing costs and therefore the risk premiums paid by African countries. According to the IMF, debt service has skyrocketed for many of these countries, which are likely to have great difficulty refinancing this debt in 2024-2025. Of course, the risk must be remunerated, but in some cases it is excessively rewarded. Progress could be made with the creation of a pan-African rating agency to oversee the few small rating agencies currently accessible on the continent, and through the use of guarantee mechanisms and institutions (“monoline”) allowing the “enhancement” of certain loans.
Finally, in the face of the fragmentation and difficult emergence of existing financial markets, we propose to create a network of financial centres in Africa, making it possible, through extensive cooperation, to achieve the activity and liquidity required to truly speak of emergence. Such a network should link the financial markets of Johannesburg, Lagos, Cairo and Alexandria, Abidjan, Nairobi,…, consolidate what has already begun before expanding its scope. Such financial cooperation would require more political cooperation. This is bound to be the main challenge.
