The word from Marrakesh? Listen and reform to be fit to fight crisis
DI’s Martha Bekele asks how voices from Africa will be highlighted so that reform in financing for development and MDBs are meaningful, and explains what DI is doing to drive this.
I spent last week in Marrakesh at the 2023 World Bank and IMF Annual meetings. What was the talk in Marrakesh? (Poly) crisis – and reform. What with global crises in climate, conflict, health and debt, it feels as though we’re jumping from one issue to the next, each time realising that we’re inadequately prepared and that the solutions evade us. There were discussions on how to meet the current multitude of crises amid talk of reforming global financing mechanisms. Yet there were few answers and too many people were excluded from the conversations. We don’t have time for procrastination. With Africa experiencing the worst of this polycrisis, what can Development Initiatives and others do to ensure the right voices are heard as we build approaches fit to fight the crises of today and tomorrow?
Threads of the polycrisis
Climate. Africa is engulfed by a fire it did not start. It’s warming faster than the rest of the world and experiencing losses and damages directly linked to human-induced climate change. This compromises a range of sectors (including ecosystems, water, food production and health) and compounds developmental challenges.
Conflict. Finances around the world are further strained by ongoing conflicts, from Russia’s war in Ukraine to the recent, devastating, hostilities in Israel and the OPT. This is diverting and dividing funds for humanitarian crises, inflating the cost of food and fuel, and contributing to an uncertain political outlook
Debt. The fiscal space for African countries is shrinking. Payments on net interest alone are higher than the total the continent spends on health, education and investment. High debt servicing means there is less to spend on health, education, social protection and climate action. More than 40% of African external debt is owed to private creditors, at non-concessional rates, at a time when interest rates are rising. In fact, the interest rate Africa faces is four to eight times more the US and Germany. The inadequacy of grant-based climate finance means that countries in Africa are also borrowing to undertake climate action: there has been a four-fold rise in climate debt in just ten years. Whether concessional or not, these loans have to be repaid by countries already in debt distress.
Beyond this, Africa has an energy deficit, a food deficit, a trade deficit and value-addition deficit. It’s given unfair credit ratings. There is a proliferation of bilateral trade and investment agreements that trap countries into extractive economies and cheap sources with little value addition to vital resources, and illicit financial flows. A solution needs to address the root causes of these structural problems.
Inadequate and ill-fit responses
But the current mechanisms we have to counter crisis aren’t working for everyone, least of all Africa.
The IMF’s Special Drawing Rights allocations, intended to provide liquidity, have been faulted for being inequitable. Almost a quarter (24%) of the 2021 general SDR allocation was allocated to the US and Japan, while the 53 African countries combined got 5% of the 2021 SDR allocations, of 95.8% of quotas as of 2 August 2021.
Trends in climate official development assistance also show misalignment of resource flows and needs and difficult choices having to be made between climate and development. The countries most vulnerable to climate are all located in Africa and six of them (Central African Republic, Democratic Republic of the Congo, Mali, Niger, Somalia and Sudan) are experiencing protracted crisis. (You can use our new interactive climate data tool to explore levels of climate ODA vulnerability, and protracted crisis.)
Development Initiatives recently revealed that over the last 20 years, people in the most climate-vulnerable countries and who are also experiencing protracted crisis have received only around US$1 per person of country-allocable funding from multilateral climate funds.
Reforming global financing mechanisms
We need joined-up approaches to existing and emerging crises. A global financial architecture that addresses systemic challenges and brings in more contributors, to ensure payouts are quick and perfectly aligned to needs and priorities, and a governance system that is equitable. A new mechanism that prioritises the use of grants as the preferred instrument instead of loans, whether concessional or not.
There have been important recent initiatives that have kicked off the conversation on new paradigm approaches such as the Bridgetown Initiative and Global Public Investment (GPI). There are practices such as climate litigation, mainly filed by groups representing youth, women and communities, and the number of cases is increasing. There is a need to track these new proposals and practices to be propositional on approaches that best fit and address polycrisis. It is equally important to include the concerns of all and their unique challenges. Furthermore, there is a need to map existing global mechanisms to take lessons on what has and has not been working.
In broadening the base of contributors, the guiding principle must be common but differentiated responsibilities and respective capabilities that will lead to net contributors and net recipients. Moreover, the beginning of figuring out the ‘how’ of a new paradigm that is fit-for-purpose should recognise climate debt, fully acknowledging that a country’s economic size is positively correlated with emissions.
Discussions are also underway about governance issues. If talks at the 5th United Nations Conference on the Least Developed Countries (LDC5) in Doha, the Africa Climate Summit in Nairobi and the 2023 World Bank/IMF Annual meetings in Marrakech are anything to go by, the UN system, despite its shortcomings, seems to be trusted by African and developing countries’ actors in terms of transparency, representation and voting power. Africa has better and more meaningful impact and involvement at the UN than a club of very few countries or MDBs governed by shareholders.
While recognising the supportive role of international financial institutions is necessary, positioning them as the centrepiece for solving challenges of global public goods has not worked so far and there is no indication it will ever. If anything, what we are witnessing is the inclination for market solutions and the increasing role of the private sector, which is commercially motivated and risk averse.
Walking the talk: How DI has been part of the solution
One of the proposed new approaches out there is GPI. GPI proposes three principles to address challenges around three issues – inadequate amount of money, misalignment of benefits, and inequitable governance:
- All contribute according to their means and responsibilities
- All benefit according to their dire needs and priorities
- All decide equitably.
DI has been part of the co-creation of the GPI principles and approaches with reputable African partners: ISSER in Ghana, CERAP in Cote d’Ivoire, KIPPRA in Kenya, EEA in Ethiopia, African Monitor in South Africa and UNAM in Namibia.
To co-create, refine and contexualise GPI in Africa, our partners have produced technical reports with their reflections on rethinking climate finance and sustainable development finance. Our partners also organise policy dialogues with parliamentarians, policymakers, academics, civil society organisations, development partners and others.
Moving from the approaches and principles for a better global financial architecture to figuring out the ‘how’, we are commencing the next phase that we believe will build into a momentum and bring in fair and equitable global cooperation.
Yes, we agree it is time for change but it is about time we all come together to figure out the ‘how’.
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