African heads of state highlighted need for transformation of global financial architecture to address climate & development needs
Photo: @_AfricanUnion / X (formerly Twitter) The final leg of the 37th African Union Summit concluded on February 18, 2024. Heads of states and governments of the member countries of the African Union (AU) convened in Addis Ababa, Ethiopia to deliberate upon issues of education, climate, economy and more.
It is widely known that countries from Africa have made minimal contributions to today’s climate crisis, yet suffer disproportionately from its impacts. African governments have increasingly relied on using public finance for mitigation efforts, often at the cost of other pressing national priorities, including the implementation of the United Nations-mandated Sustainable Development Goals (SDG).
The need to increase access to better quality finance for climate and development efforts in developing countries has grown in recent years. For the same, there has been growing recognition of the need to make changes to the global financial system, which includes the interlinkages between various actors such as international financial institutions, economic governance and financial regulatory structures, and make them fit for purpose, especially to address the financing needs of developing countries.
Key highlights related to financial system reforms from the AU summit:
Launch of Alliance of African Multilateral Financial Institutions, ‘Africa Club’: The Alliance of African Multilateral Financial Institutions (which are African owned and controlled) called the ‘Africa Club’ was launched at the summit. The initiative aims to amplify Africa's influence in the global financial system by aligning its functions with the SDGs and the African Union's Agenda 2063. It seeks to introduce innovative financial instruments, provide a venue for debt management discussions and foster collaborative effort to address the specific needs of African countries. Its members include African Export Import Bank, Trade and Development Bank, Africa Finance Corporation, African Reinsurance Corporation, African Trade and Investment Development Insurance, Shelter Afrique Development Bank and ZEP – RE (PTA Reinsurance Co).
Establishing African Union Financial Institutions: Deliberations among leaders from the continent have long included the need for establishing an African Monetary Union, and this was reiterated at the 37th AU Summit. It has been proposed to be implemented through the creation of three AU financial institutions: The African Central Bank, the African Monetary Fund and the African Investment Bank. It has also been requested in the past to assess the feasibility of creating a Pan-African Stock Exchange. The creation of these financial institutions have long faced hurdles, despite the purported benefits.
African leaders’ demands for financial system reforms: Over the last several years, including in 2023, leaders of AU members have outlined their priorities in changes required to address some of the structural imbalances of the global financial architecture. In line with other initiatives aimed at improving access and quality of finance for the Global South, such as the Nairobi Declaration, the demands of the Vulnerable 20 group of countries, among others, these demands were summarised prior to the AU Summit 2024 as follows:
Presidential dialogue on Africa’s Agenda for Global Financial Architecture Reform: Heads of states of member countries exchanged views on what is required to address Africa’s finance needs at a presidential dialogue during the summit.
They emphasised the necessity to triple concessional resources from the IMF and World Bank to African development banks to achieve climate and development goals. The dialogue highlighted the need for increased capitalisation of multilateral development banks (MDB), the introduction of climate-vulnerability criteria, alongside income level for funding eligibility from MDBs, especially for middle-income countries facing climate-induced shocks.
Further, the rechanneling of IMF SDRs to MDBs for financing climate action and inclusion of middle-income countries in the G20 Common Framework for debt restructuring were advocated. Several of these demands have been made previously, including at the IMF-World Bank Annual meetings held in October last year.
Leaders also underlined the need to create shifts in perception, which have long caused African economies to be given poor credit ratings unfairly (citing business exposure risks and political risks), which perpetuate the difficulties they face in accessing finance.
Notably, the President of Ghana, Nana Akufo-Addo, made two proposals that were well received. First, he reiterated the need to empower African financial institutions and MDBs. To achieve the same, he proposed that 30 per cent of all African reserves that presently lie in non-African banks must be made available to African multilateral financial institutions. Second, he suggested these institutions be designated 'AU agencies' to signal a cohesive 'badge of approval' of all AU sovereigns.
The dialogue saw acknowledgement of the increase in active participation of African states in global initiatives, such as Kenya co-leading the Taskforce on International Taxation.
The AU is the most recent recipient of ‘full member status’ to the Group of 20 (G20), pointing to the continent’s growing voice on the global stage. The proposals at the AU Summit underscored the bloc’s vision for addressing economic frameworks that no longer serve their interests and needs.
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