Carlos Lopes, formerly the head of the Economic Commission of Africa, is one of the continent’s foremost thinkers, academics and writers. His essays include Africa is the Future of the World. He has been appointed as an advisor to the New African Financial Architecture for Development, an initiative of the AfDB and designed to reduce Africa’s dependence on international aid. He is in conversation with Hichem Ben Yaïche and Alaei Aboussikine.
What is the aim of the New African Financial Architecture for Development (NAFAD) and what stage has it reached?
This project has the potential to be a game-changer for the financing of African development. It is spearheaded by the President of the AfDB, Dr Sidi Ould Tah , and I am involved in it.
The key question is how to develop using the capital available in the face of various challenges. The gap between what is needed and what is available is colossal.
Until now, the solution has been seen as coming from outside the continent – through aid, investment mobilisation, capital funds and the involvement of multilateral banks. What this new architecture proposes is how to utilise African savings.
As we know, Africa has $4,000bn in savings, part of which can be released for investment on the continent; $1,400bn can be invested. By comparison, development aid amounts to around $60bn for the continent. There is a great deal of calculation required to shift gears.
This discussion becomes all the more important as development aid is declining and access to capital for Africans is becoming difficult – due to conflicts and the turbulence of global geopolitics.
In the capital markets, 30 to 40% of the world’s largest investments are flowing into AI companies. This is a cause for concern, as other sectors risk losing value and facing funding difficulties.
What will be different this time?
The idea stems from the observation that, since the 2008–2009 global financial crisis, international banks have, to some extent, withdrawn from the continent. The new requirements imposed in the wake of the crisis have made doing business in Africa more costly.
Correspondent banking has become more expensive, and some banks have left the region to seek opportunities elsewhere.
Paradoxically, this situation has enabled certain African banks and institutions that had previously been less active to develop more strongly. They have demonstrated a greater capacity to mobilise resources. Among them, BADEA has made the most progress. Its former head, Sidi Ould Tah, has therefore tested a number of approaches there that will now take on a continental dimension.
Is there a NAFAD) Nafad roadmap?
The most important thing is to increase access to capital markets, ensuring that the credit ratings of the highest-rated banks can benefit the entire ecosystem.
If we grant $100,000 to BADEA, it can, thanks to the principle of subsidiarity, work with other banks which will benefit from its rating to access capital markets and secure further funding. This is how we multiply the initial capital: six-fold in the case of BADEA and tenfold for the AfDB.
However, this roll-out also requires guarantees. The capital and capacity of African guarantee funds must be increased in order to attract non-African players – either by allowing them to take a stake in the capital or by offering them additional benefits, such as having African funds absorbing the first loss.
Pension funds and sovereign wealth funds must also be mobilised more extensively into financial instruments by guaranteeing them higher returns on investment than they currently enjoy. This would create a win-win situation.
Until now, what has prevented progress has been the lack of institutions available to implement this type of mechanism.
Do you think there is an appetite to make a break with the current cycle in order to better support the implementation phase?
Firstly, I am more optimistic today because I see a greater willingness to listen. Even though countries are facing a crisis in concessional financing, development aid and other types of funding that have become more complex.
Secondly, at the highest level of African institutions, there is a level of coordination that did not previously exist. They are all currently promoting this architecture.
Thirdly, reform of the international financial architecture is not progressing as much as we had hoped. The International Monetary Fund and the World Bank are not making sufficient progress on fundamental reforms. The initiative is therefore turning its focus more towards Africa.
Is there coordination between international institutions and this new financial architecture?
Indeed, we can demonstrate that the return on investment is more attractive.
Between African and international institutions, I see nothing but complementarity. Of course, Africa must also find its own solutions, without asking for permission.
On the AfDB’s Board of Directors, there is joint representation with international financial institutions. Coordination therefore also involves the need to convince these stakeholders, who sit on both governing bodies, that the difficulties in accessing international finance now compel Africa to find alternative means.
Given the considerable funding needs for industrialisation, the energy transition and infrastructure, what are the chances of seeing this ambition become a reality?
What is clear is that an institution such as Afreximbank has recognised that the investments made so far in the field of industrialisation have borne fruit, but that it is now necessary to move up a gear and adapt to current conditions.
We cannot, for example, imitate the Asian models that have succeeded with export-oriented industrialisation. Today, there are significant constraints in terms of logistics, industrial competition and technological advances. These are no small challenges, and they require a great deal of money.
If these institutions succeed in expanding access to capital markets, we can facilitate Africans’ access to more funding to boost their development projects. On the other hand, there is no guarantee that, from an industrial policy perspective, all countries will progress at the same pace.
How can the process be accelerated?
The analysis is very thorough, and the data are well established. Project implementation times are long, but approval times are even more problematic. The approach needs to be reviewed to make it more compatible with the pace of current transformations.
This is a greater challenge for the older institutions, such as the AfDB. Its president should spearhead these transformations and has, in fact, already launched initiatives aimed at bringing about a profound change in the attitude of civil servants, so as to adapt them to this new dynamic and move forward at a different pace.
Has the proposal received the blessings of the African Union?
There is a direct link between the African Union’s Agenda 2063, its flagship project, the African Continental Free Trade Area and now the issue of financing. These three elements are interconnected.
That is why endorsement at African Union level was straightforward. Even before its General Assembly, efforts had been made to demonstrate that there was a consensus within the African financial sector to move in this direction.
Why did you choose the role of adviser rather than an executive role?
It is a way of being involved in the action without necessarily being in the spotlight. It is a question of personality and commitment. Kofi Annan used to say that the ultimate proof of success is when others embrace your idea.
The best way to contribute to the continent’s development is therefore to downplay the importance of the protagonist’s image in order to strengthen the commitment to transformation.
You supported the ‘change the map of Africa’ campaign, recently approved by the UN. What does Africa stand to gain from it?
The narrative is powerful. It is more than a symbol: it is a way of decolonising the world’s relationship with Africa. Cartography provides an almost physical illustration of this tendency to treat the continent as inferior. There was no scientific reason to continue using a projection that does not correspond to the actual landmass of the continents and which significantly reduced the representation of Africa.
The benefit today is being able to see Africa in its full extent and to realise its true scale. This also changes perceptions of its potential and the logistical challenges involved: distances are much greater than previously imagined when compared to other regions of the world.
Africa also boasts the largest blue economy. A more accurate representation of its dimensions helps to plan its development more effectively.
But the main challenge remains that of the narrative. This campaign to change the cartography adopted at the international level and within education systems has been underway for around a decade. To have achieved this level of recognition, with only one country voting against – the United States – is extraordinary.
The BRICS recently held their 18 th summit. With a population of 5bn and an economic output of 120 trillion dollars (60% more than the G7), how significant is it in global terms?
Most major international alliances have become largely symbolic due to changes in the multilateral system. However, more sophisticated mechanisms for cooperation than before have been introduced.
The BRICS bring together countries that share a common challenge to the international order. Beyond that, the links between their economies remain limited.
For the time being, this grouping serves primarily as a platform from which to observe the evolution of the international system and to envisage alternatives to US dominance. However, one need only look at the composition of the BRICS to see that they bring together countries which do not necessarily share the same interests.
Another issue with far-reaching implications is artificial intelligence (AI). Does Africa today appreciate the importance of this technology?
This is a major cause for concern, as artificial intelligence is evolving in a direction that calls into question the principles of economic organisation as we know it, particularly with regard to intellectual property. Patents could become a thing of the past, as AI systems will not necessarily respect these various forms of production.
In the fields where it excels, AI will have a greater capacity to generate value than in activities where humans will continue to play a dominant role. In the capital markets, for example, 30 to 40% of the world’s largest investments are directed towards AI companies. This is a cause for concern, as other activities risk losing value and facing funding difficulties.
Technology will continue to play an ever-greater role, with consequences for production methods. The fundamental principles of the economy therefore risk being upended by the mechanisms put in place by artificial intelligence.
Against this backdrop, no one seems able to say whether Africa will fall behind or keep pace with this development. Is there a genuine African vision on these issues?
We have a great many vulnerabilities, but two factors work in Africa’s favour. Firstly, the continent possesses minerals that are critical to the development of this technology, and it will be essential to negotiate their use effectively.
Secondly, its population is younger and has a greater capacity to absorb new technologies. Africa could thus become a significant consumer market for technology-intensive products.
Nevertheless, the vulnerabilities remain significant. The continent risks being used as a vulnerable periphery, with very little access to the latest technological developments. A large proportion of the population also lives in the informal sector and remains outside the formal channels essential to the development of artificial intelligence.
The post How NAFAD will release and grow Africa’s enormous latent capital appeared first on New African Magazine .
How NAFAD will release and grow Africa’s enormous latent capital
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