A long-term Egyptian recovery in place since currency devaluation in 2016 can resume after the war between Russia and Ukraine ends, Mathias Althoff, ... partner at Swedish frontier markets investor Tundra Fonder, tells The Africa Report.
On the face of it, financial officials from the continent presented a united front, advocating for Africa to get a larger share of the $650bn in reserve assets that the IMF allocated last year to help the global economy recover from the Covid-19 pandemic. Africa only got $33bn (5%) of these Special Drawing Rights (SDRs) and has been pressing rich countries to pump $100bn in SDRs into weaker economies.
Lean times, however, have exacerbated an intra-African clash over who should get a share. With the African Export-Import Bank (Afreximbank) going beyond its original trade-finance remit to emerge as a nimble lender on everything from Covid-19 vaccines to pandemic recovery, there are calls for the bank to be recognised as a prescribed holder of SDRs.
We believe that our own continental institutions, such as the AfDB and Afreximbank, should be recipients of the recycling of these SDRs.
However, the African Development Bank (AfDB) says not so fast. As Africa’s largest multilateral development finance institution, under whose auspices Afreximbank was established in 1993, AfDB insists it still has the best claim to emergency funding for the continent.
“I want the Afreximbank to focus on its work, which is the issue of trade finance,” AfDB president Akinwumi Adesina tells The Africa Report at an Atlantic Council event. “I want everybody to stay in their lane because efficiency [in the] use of capital is very important.”
Adesina lists several arguments to make his case. The five-decade-old Abidjan-based AfDB, he says, is Africa’s “premier” financial institution and the only one with a AAA credit rating.
He adds that it is also the only one that can “actually use that access to capital markets to bring in long-term financing that countries need.”
Adesina also reiterates that the AfDB has chartered many financial institutions in Africa, including Afreximbank. He says SDRs can be used, in part, to help recapitalise Afreximbank and similar institutions, but the AfDB should be in charge.
“We are leveraging machines,” he says. “For every dollar you give us of SDRs […] we can, at the AfDB, leverage that three to four times, so a $10bn allocation becomes up to about $40bn […] for African countries.”
In conclusion, Adesina says African heads of state endorsed his institution at the AU summit in February. The joint statement from Addis Ababa “calls for reallocation of SDRs from willing advanced economies to Africa, and recommends that a portion of these are channelled through the African Development Bank as a prescribed holder to leverage the resources to provide greater financing to African economies”.
The view from Cairo
Afreximbank, which is based in Cairo, declined to make its case publicly. “SDRs and the push to engage African [development finance institutions] is a sovereign and AU matter,” the bank said in an emailed statement. “Afreximbank has no comment at this stage and will not debate in the media with other institutions on the issue.”
Some of its champions, however, have not been shy about where they stand.
Vera Songwe, the executive secretary of the United Nations Economic Commission for Africa, pointed to Afreximbank’s recent approval of $4bn in credit facilities to help African farmers procure fertiliser and seeds amid Russia’s war in Ukraine as one reason her agency is advocating for Afreximbank to be recognised as a prescribed holder of SDRs.
The IMF should not be the sole beneficiary of such rechannelling.
“Interestingly enough, Africa produces more fertiliser than it needs,” Songwe said at an event at the Carnegie Endowment for International Peace last month. “But there is now a scarcity of fertiliser on the continent. So if we can pool all the producers of fertiliser, put them on a platform, so at least countries have some transparency (around) pricing, it will bring down the need for additional fertiliser at high prices.”
Other champions of the bank include Ghana’s President Nana Akufo-Addo, who called for some of the sought-after $100bn reallocation of SDRs to go to Afreximbank.
“The IMF should not be the sole beneficiary of such rechannelling,” he said last year. “We believe that our own continental institutions, such as the AfDB and Afreximbank, should be recipients of the recycling of these SDRs.”
War and trade
The Russian invasion of Ukraine has added new urgency to the debate over SDRs and -more generally – international funding for African multilateral banks.
Six weeks of war have had a devastating impact on food availability and prices across a continent still reeling from the Covid-19 pandemic. Meanwhile, the crisis in Ukraine is taking up increasing amounts of humanitarian and economic aid.
Afreximbank has stepped into the breach with rapid funding decisions that cannot be easily replicated by the AfDB, which is a larger institution.
“Afreximbank has disbursed over $9bn since the outbreak of the pandemic to help its member countries deal with the immediate fallout from Covid-19,” Afreximbank said in a 2021 fact sheet, making the case for boosting SDR allocations to African institutions. “In March 2021, Afreximbank issued a guarantee in an amount of $2bn that enabled African states to procure 400m doses of Johnson & Johnson Covid-19 vaccine. At the same time, Afreximbank has invested in the expansion of manufacturing output in the pharmaceutical industry, ensuring the region builds back better post-pandemic.”
Beyond providing a timely shot in the arm of the global economy’s incipient recovery, new SDRs will also help advance the implementation of the AfCFTA.
The bank has also been gaining clout in tandem with the increased salience of intra-regional trade, its primary mission. Even as private foreign banks that traditionally provided trade finance to African exporters and importers have been leaving the continent, Afreximbank in February committed $1bn toward creating an adjustment fund for the fledgling African Continental Free Trade Area (AfCFTA).
“Beyond providing a timely shot in the arm of the global economy’s incipient recovery, new SDRs will also help advance the implementation of the AfCFTA,” Afreximbank chief economist Hippolyte Fofack wrote in a March 2021 column calling for SDRs for Africa. “This will involve bolstering investment in infrastructure, including climate-resilient energy infrastructure and broadband to help Africa leverage digital technologies to boost productivity growth and participate proactively in the reordering of global supply chains post-Covid-19.”
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