The African Development Bank (AfDB) President revealed his greatest concern about proliferating insecurity across Africa. His candid admission came amidst discussions of a groundbreaking proposal by Kenya’s President William Ruto to establish an African credit rating agency, a call resulting from the frustration of the existing global rating agencies blamed for "exaggerating" the risk factors of African economies.
Akinwumi Adesina's (PhD) fervent acknowledgement of Africa's security crisis provided a backdrop to the AfDB's annual meeting, which concluded on May 31, 2024, in Nairobi, Kenya.
“Insecurity is the number one issue that worries me,” confessed Adesin. “It’s harder to pull in investors when you have insecurity.”
According to the President, Africa's growing insecurity is not a singular issue but a confluence of terrorism, ethnic conflicts, and fragile state institutions.
The ACLED database uncovered that insecurity events in sub-Saharan Africa increased from 34,848 in 2022 to 38,327 the following year, resulting in over 59,000 fatalities. Close to 28pc of these occurred during communal conflicts and 24pc during insurgency-related conflicts. By the end of 2023, the number of displaced persons in Africa mainly due to conflicts, totalled 40.4 million.
Sudan and Ethiopia featured prominently in a report the UNDP released this year.
Wars between military factions in Sudan that erupted in April last year have had devastating consequences. More than 12,000 lives have been lost, eight million people have been displaced, and 19 million children have been forced out of school. The International Crisis Group warns that Sudan could descend further into long-term state failure without a robust peace agreement and international cooperation. This conflict has already destabilized the wider region, exacerbating refugee crises in neighbouring Chad and Ethiopia.
Ethiopia's government peace accord with the TPLF in 2022 has not brought lasting peace. The country is now dealing with rebellions in the Amhara and Oromo regional states. Border disputes with Sudan and mounting tensions with Somalia add to the crisis, with potential renewed hostilities with Eritrea over access to the Red Sea. These escalating tensions occur in a broader global context where, warns the International Crisis Group (ICG), the risk of leaders moving beyond domestic repression to invading neighbours is higher than in years.
The Sahel region has seen a steady deterioration in security, compounded by recent military coups in Burkina Faso, Mali, and Niger. These coups have undermined regional stability, emboldened by the formation of the Alliance of Sahel States, a security pact between the ruling juntas of these countries. The alliance not only commits military assistance among its members but also represents a formidable challenge to regional institutions like ECOWAS efforts to encourage transitions back to civilian rule.
"Despite promises to address insecurity linked to violent extremism, armed group activities in the Sahel show every sign of escalating, posing greater risks to citizens’ safety and stability in the region," says UNDP's report on Africa's governance and development outlook, released this year.
The report finds that economic and social inequalities are major drivers of these conflicts. High levels of unemployment, poverty, and lack of access to essential services preceded unrest. Frustration with government failures to address socio-economic needs often leads to protests and violence. The resurgence of military coups, described by the African Union as "unconstitutional changes of government," signals widespread dissatisfaction with governance and the erosion of democratic institutions.
The report also blames climate change for causing droughts, desertification, and extreme weather events, which lead to displacement and competition for scarce resources and increase the potential for conflict. In the Horn of Africa, a prolonged drought displaced an estimated 2.7 million people in 2023 alone, with the highest figures in Somalia, followed by Kenya and Ethiopia.
According to Adesina, the resulting instability has dire economic consequences, stifling growth and perpetuating poverty.
Nonetheless, the President, whose subordinates tout him as "the evangelist-in-chief" of African economies, has the reputation of seeing the glass half full over Africa's affairs. He beamed throughout the week of the annual meeting, attended by over 1,900 participants. He told a closing press conference inside the Kenyatta International Conference Centre that the idea of a political risk insurance facility is not entirely new. However, an agency tailored specifically for Africa would address the continent’s unique reality.
“We're not afraid to take risks, but we have to manage them,” said Adesina.
He believes such an institution would reassure foreign investors and signal Africa’s commitment to creating a more stable and predictable investment environment.
"By guaranteeing investments against losses resulting from political upheaval, the agency can instil confidence among investors," Ruto told a roomful of ministers, including Ethiopia's Finance Minister Ahmed Shedie, and delegates.
Complementing this initiative is President Ruto’s proposal for an African credit rating agency. He questioned what he sees as "inherent biases in the current global credit rating system," which many agreed often results in African countries receiving lower ratings than warranted. These ratings, Ruto argued, lead to higher borrowing costs and limited access to international capital markets.
“Africa is not asking for a free pass,” Adesina echoed Kenya's president, who urged him to facilitate the formation of a credit rating agency. “We want a fair process that properly evaluates African countries.”
Several delegates concurred, believing an African credit rating agency would counterbalance existing agencies like Moody’s, S&P, and Fitch. By providing ratings that reflect African countries' economic realities and potential, the agency is hoped to help lower borrowing costs and improve access to capital. According to AfDB's President, the need for such an agency is justified by the "undervaluation of Africa’s natural capital," including biodiversity, carbon stocks, and mineral wealth.
"Proper valuation of these assets could enhance the creditworthiness of African countries, facilitating greater investment in infrastructure and development projects," said Adesina at the press conference he jointly gave with Kenyan cabinet secretary of National Treasury & Economic Planning, Njuguna Ndung'u (PhD).
Hosting the annual meeting for the third time since the mid-1990s, his country provided a milestone for the AfDB, which began commemorating its 60 years since its foundation. The institution has seen substantial growth over the past six decades, reaching an impressive 380 billion dollars in subscribed capital this month. Owned by 81 member countries, none of the African countries, including Ethiopia, which has a 1.5pc share, have as much shareholding as the United States, Japan, Canada, Germany, or China.
"This achievement reflects the AfDB's evolving and dynamic role in Africa's economic transformation," said the Cabinet Secretary. "The Bank's influence extends across various sectors, illustrating its ability to enable development amidst global financial challenges and geopolitical shifts."
Last week's annual meeting focused on Africa's transformation and the role of the AfDB in this process. Ndung's stated that by addressing these issues, the AfDB helps to enhance its capacity to support African countries in overcoming economic obstacles and driving sustainable development.
An Africa Economic Outlook report released on Friday disclosed a staggering financing gap of 477.2 billion dollars that Africa needs to bridge to achieve sustainable development. Concessional financing, which offers more favourable terms than market loans, demands innovative approaches and a robust financial architecture. Recently, the International Monetary Fund (IMF) approved the use of Special Drawing Rights (SDRs) of 20 billion dollars as hybrid capital for African member countries.
President Adesina sees this as a move that could leverage up to 80 billion dollars in additional financing for Africa.
Domestic resource mobilisation is no less important. African countries are called to optimise their tax systems and reduce illicit financial flows, which drain an estimated 88.6 billion dollars annually from the continent.
"By enhancing tax collection and curbing corruption, African governments can increase their capacity to fund public services and infrastructure, thereby reducing their reliance on external aid and loans," said the President.
Climate finance and green infrastructure were also areas of focus during the discussions. Africa is one of the regions most vulnerable to climate change, yet it receives a disproportionately small share of global climate finance. Adesina called for a fairer distribution of these funds, urging for investments in green infrastructure. The AfDB has been promoting green projects, including the "Desert to Power" initiative, which aspires to develop 10,000mw solar power across the Sahel region.
Says Adesina: "Such projects not only address energy deficits but also contribute to mitigating the effects of climate change, creating a sustainable foundation for economic growth."
The African Investment Guarantee Agency and the African Credit Rating Agency proposals were tabled as part of a broader strategy to enhance the continent’s economic resilience and self-sufficiency. They are seen as initiatives to reduce Africa’s vulnerability to external shocks and dependencies by providing mechanisms to attract investment and ensure fair credit assessments.
"Africa must take control of its destiny by building robust financial institutions supporting sustainable development," said Adesina. "This involves addressing immediate challenges like insecurity and financing gaps and laying the groundwork for long-term economic stability and growth."
PUBLISHED ON
Jun 01,2024 [ VOL
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1257]
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