How G7 leaders can unlock financing for Africa

African countries pay interest rates eight times higher than those of the typical World Bank loan

COMMENT | WILLIAM RUTO | Climate change continues to ravage Africa, which is enduring extreme weather and natural disasters on an unprecedented scale. My own country, Kenya, has just emerged from its longest drought on record, only to suffer devastating floods, which have killed 289 people and affected more than 800,000. Meanwhile, Malawi, Zambia, and Zimbabwe recently experienced a severe drought that exposed millions of people to hunger, and the Sahel region was hit by a debilitating heatwave, resulting in more than 100 deaths in Mali.

Climate change increasingly drives droughts in Africa, jeopardising water supplies. It ruins lives and livelihoods, cripples food production, and destroys homes and infrastructure. It affects migration patterns and exacerbates conflicts, forcing entire populations to flee in search of alternative livelihoods for survival.

Making matters worse, African countries pay interest rates up to eight times higher than those attached to the typical World Bank loan, leaving them even less equipped to deal with climate-related challenges. This disparity reflects an international financial system that was established in 1945, when most African countries did not yet exist, and which remains tilted in favour of wealthy countries. Many African countries are trapped in a perpetual cycle of debt, with little or no fiscal space for development and investments in climate-change mitigation or adaptation.

In fact, developing countries are now net contributors of financial flows to the global economy. Net financial transfers to developing countries plummeted from a peak of $225 billion in 2014 to $51 billion in 2022; and in 2023, $74 billion in interest payments left International Development Association (IDA) countries (comprising low-income and some lower-middle-income economies) for wealthier donor countries.

These financial strains are hampering African countries’ efforts not only to adapt to the impact of climate change but also to make the transition to a low-carbon economy, not to mention allocating adequate resources for education, health care, and social protections. That is why Africa – and the rest of the developing world – has been calling for urgent reforms to the global financial architecture.

But it falls to the G7 and the G20 to take the necessary steps in this direction. As a major shareholder in the multilateral development banks, the United States can help lead the way.

When the G7 meets in Apulia, Italy, for its 50th summit next month, the leaders of major donor countries can demonstrate solidarity with Africa by committing to support debt restructuring and cancellation, as well as make provisions for greater concessional and longer-term development financing. At the Italy-Africa Summit in January, Italian Prime Minister Giorgia Meloni pledged to be Africa’s friend and envoy at the G7, and we remain confident that she and other well-meaning G7 leaders will deliver the keys to unlock the financing that Africa needs.

A fair financial system would grant all countries equal access to equity. One readily available way to do this would be to reallocate Special Drawing Rights (SDRs, the International Monetary Fund’s international reserve asset) to the African Development Bank.

While the G20 launched the Common Framework for Debt Treatments four years ago, the pace of restructuring remains woefully misaligned with countries’ needs. Wealthy countries must show leadership and release the financing that African countries need to unlock their growth potential. Continuing merely to talk about it will achieve nothing.

I recently hosted the IDA’s replenishment summit in Nairobi, where 19 heads of state or government from across the continent discussed Africa’s debt crisis, and how it has been compounded by climate-driven costs and the economic scars of the COVID-19 pandemic. All agreed that we need wealthy countries to rise to the occasion and scale up financing to bridge Africa’s climate and development needs. We are calling on our friends – the U.S., the European Union, the United Kingdom, and Japan – to provide a steady stream of long-term concessional financing, including at least $120 billion for the IDA21 replenishment, on the way toward tripling the fund by 2030.

Rather than playing the victims, we are keen to do our part to make the world more habitable. We are taking the lead and showing that it is possible to achieve prosperity without destroying the planet, through green industrialisation. As I conduct my state visit to the U.S., I will make clear that Kenya – and Africa more broadly – is open for business.

We invite investments that will tap our immense renewable energy resources, our young and skilled workforce, and our conducive business environment. We offer major opportunities in apparel manufacturing, agriculture, information-communication technology, and much else. The U.S. is already Kenya’s largest export market, and as we mark the 60th anniversary of U.S-Kenyan diplomatic relations, we will look to build on this relationship, and to enhance trade and sustainable development gains for both countries.

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William Ruto is President of Kenya.

Copyright: Project Syndicate, 2024.