President Akufo-Addo has called for the removal of the “Africa Risk Premium” from the credit rating structure for African countries seeking finance on the international capital market.
Delivering a speech at Chatham House on Thursday, 27th February, on the theme “Financing for Sustainable Development of Africa”, President Akufo-Addo noted that the global development finance architecture created almost fourscore years ago by multilateral and development finance institutions, is not fit for the scale of work needed to transform the continent into an Africa Beyond Aid.
With the African Development Bank intimating that Africa’s infrastructure requirements amount to between $130 to $170 billion United States dollars a year, the President explained that “nearly half of the funds required to fill this financing gap can be found on the continent if we can prevent, which we must, their outflow.”
According to President Akufo-Addo, “our level of development means that multilateral and development finance institutions will automatically disqualify lower income countries from accessing concessional long-term finance… Ghana, with a GNI per capita of some $1,970, no longer enjoys IDA financing. Countries that do not enjoy IDA financing have to go to the capital markets for more expensive financing,” he said.
He continued, “On the capital markets, Credit Rating agencies and lenders add an “African Risk Premium”, which makes it expensive to raise sustainable and competitive long-term capital to support transformation… Meanwhile, Africa offers the highest return on foreign direct investments in the world.”
The President told the gathering that the time has come for us in Africa to take the lead in generating for herself the additional funds needed to advance, as the continent is well-resourced in natural and human resources.
Africa, President Akufo-Addo said, must build robust institutions to
protect herself, strengthen the capacity of her geological services to
determine exactly what and how much resources the continent has, and
establish legal departments in governments that will ensure African
countries get their due in contracts that they sign.
“In the process, we can draw on the expertise of private practitioners. We must strengthen our tax authorities to counter tax avoidance practices such as base erosion and profit shifting by multinationals. In other words, we must entrench the rule of law. The plethora of unbalanced contracts, with their pernicious effects, has to cease, if we are to realise our vision of rapid socio-economic development,” he added.
Whilst striving for increased domestic revenue mobilisation, and leveraging on technology to strengthen the performance of revenue institutions, the President stressed that “we must also be mindful how the revenues are spent and accounted for. The institution of transparent budget and expenditure management systems, that allocate resources wisely to agreed national priorities, and that ably monitor their implementation, is, therefore, of the utmost importance.”
Africa, President Akufo-Addo said, must invest in education and emphasise the importance of exposing African youth to Technical and Vocational Education and Training (TVET) because that is where the skills needed for the modern economy can be developed.
“We have to maintain stable macroeconomic environments in the context of growing economies in order to attract private sector investment, and move away from the raw material producing and exporting economies of the past. Our economies should be based on value-addition and industrial activities, i.e. on things we make and grow,” he said.
He continued, “That is the best way we can take advantage of the African Continental Free Trade Area, whose Secretariat is located in Ghana, a potential game-changer in our quest to moving Africa to a situation Beyond Aid. A large part of the growth and prosperity that we seek on the continent will come from us trading more among ourselves.”
To the gathering, made up of policy makers, academicians, economists, President Akufo-Addo stated that the time has also come for the removal of the “Africa Risk Premium” from the credit rating structure for African economies.
Additionally, with the co-operation of all, the President was confident that Africa can successfully stem the $50billion illicit flow of capital.
“As a start, the OECD’s new initiative that would require multinationals to pay tax in countries where they have commercial, not jurisdictional, presence is a welcome one. The acid test of our friendship with countries, which are the hosts of these multinational corporations, should be the extent to which they oblige them to comply with this new initiative. We must be vocal in defence of our objectives,” he added.