“We must reduce our debt,” said Senegal’s President Macky Sall.
“We must focus on internal mobilisation that will favour African companies,” replied Tidjane Thiam, an international financier.
“We must mobilise domestic revenue,” said Abebe Aemro Selassie, Africa director of the IMF.
These statements were heard at the 20th International Economic Forum on Africa co-organised by the Organisation for Economic Cooperation and Development’s Development Centre, the African Union and Senegal on 22 February to find ways to invest “for a sustainable recovery in Africa”.
These three men are trying to come up with solutions to find the money that is sorely needed to deal with both the health crisis and the major economic crisis that Covid-19 has caused on the African continent. Their three solutions – out of the 15 others proposed – were deemed the most likely to succeed by the 600-odd people in attendance.
A debt-payment moratorium and special drawing rights insufficient for Sall
Sall brought out the big guns. Due to their efforts to fight the pandemic while protecting the living standards of their citizens, African governments no longer have the money to revive their countries’ economies by relying on digital tools, energy or tourism, he said.
What about the G20 agreeing to suspend debt obligations until June 2021 or even until the end of 2021? This only amounts to a few billion dollars.
What about the creation of IMF Special Drawing Rights (SDRs)? That would give $18bn for sub-Saharan Africa – not a huge amount in the grand scheme of things.
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That leaves the $365bn in African debt. A colossal burden, but barely 2% of the world’s debt, according to the Senegalese President. “Our countries are calling for substantial debt relief,” he said.
Tidjane Thiam supports “domestic champions”
Unlike Sall, Thiam and Abebe do not believe that the billions needed depend solely on international goodwill.
A former boss of Prudential and Credit Suisse and now the founder of an investment fund, Thiam insists on the need for African effort. Attracting foreign capital, without which Africa will remain on the sidelines of value-creation chains, requires that the continent supports its companies.
“Before betting on a country, investors look at its growth but also at its business fabric,” he said. “If they don’t see dynamic small and medium-sized enterprises (SMEs), they don’t come. Like Beijing in the 1980s, our governments must support the birth of domestic champions that will give international investors confidence.”
Don’t tell him that the informal sector hinders development. “When Bill Gates founded Microsoft in a garage, it was informal!”
And don’t tell him that Africa needs more loans for SMEs. “It’s capital, not loans, that they need,” he added, before saying that he is optimistic because “a lot of money is circulating in the world.” It is possible to attract it with a “conducive” environment.
Abebe’s advice is to raise taxes and reduce subsidies
Abebe expressed a similar view – help yourself and heaven will help you – when he insisted on the need to “mobilise much more national revenue than before the crisis.”
In short, this means increasing tax levies fairly and also eliminating subsidies that are a burden on budgets and benefit the richest in particular.
“Mobilisation” also implies developing the African middle classes and convincing them to invest in projects to complement public investment, which is being increasingly hindered by the lack of funds.
However, consent to taxation as well as the mobilisation of national savings also presupposes virtues such as good governance and transparency. They are requirements for inspiring trust, without which the billions needed for development will be unavailable.
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