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Africa: Inaction to Reform the International Development System is Not an Option Anymore

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Africa: Inaction to Reform the International Development System is Not an Option Anymore

A diplomatic offensive is unfolding in Africa: Just a few weeks after Russian Foreign Minister Sergei Lavrov’s July trip to the continent, US Secretary of State Antony Blinken unveiled the US Strategy Toward Sub-Saharan Africa on his own tour. This exchange is only the most recent example of the rivalry between the United States and Russia and China, which is currently playing out more clearly on the African continent than at any other time since the Cold War.

The new strategy is a sign that the Biden administration is motivated to show Africans how much they matter. And the next few months–with convenings ranging from the United Nations (UN) General Assembly, the UN Climate Change Conference of the Parties (COP27) in Egypt, and the US-Africa Leaders’ Summit–will offer the administration the opportunity to add specifics to its new strategy.

But for now, Africans are looking at the United States’ focus on the war in Ukraine and on tensions in the Indo-Pacific, and they’re wondering: Will the United States truly consider African countries as strategic partners as China and Russia claim to do?

Clearly, African countries no longer seem to want to settle for words. Now having the choice of their alliances, these countries prioritize their national interests, as demonstrated by the seventeen African countries that abstained in March from the UN General Assembly vote to condemn Russia’s invasion of Ukraine.

Far from expressing regret, several non-aligned African countries have confirmed their positions by working with Russia as the war in Ukraine unfolded. This spring, Madagascar and Cameroon enacted military cooperation agreements with Russia while the war in Ukraine was in full swing. Even Nigeria and Egypt, countries that voted to condemn Russia, have joined UN vote abstainers Algeria and Sudan in showing interest in membership to BRICS, an economic bloc including both Russia and China. In fact, Moscow and Beijing are currently working with BRICS countries to develop a new reserve currency that would serve as an alternative to the International Monetary Fund’s (IMF) special drawing rights (SDRs)–and offer Russia an avenue through which it can widen its economic influence. And finally, African countries are still planning to attend Russian President Vladimir Putin’s 2023 Russia-Africa Summit and Economic Forum, which will follow up on the first edition in Sochi in 2019 that brought together African leaders from forty countries.

Still, none of these diplomatic moves indicates that African youth dream of the Russian or the Chinese way of life. From Hollywood to Silicon Valley, and from the Massachusetts Institute of Technology to the National Aeronautics and Space Administration, the United States maintains a wonderful power of attraction. It has assets that no other global power can offer. It now must match that by sharing the benefits of its financial dominance. Africa needs more equitable access to the global financial system in order to better address its biggest development, health, food security, migration, and climate change challenges. Senegalese President Macky Sall, the current chair of the African Union, recently blamed the multilateral financial system for stalling the continent’s development: “The rules set up by international institutions have put us in a straitjacket… The rules are unfair, outdated, and need to be disputed.”

Set up in a time when many people were under the colonial yoke of dying empires in the aftermath of World War II, the current international financial and development system echoes the twentieth century’s global security architecture. The Bretton Woods Institutions–the IMF and the World Bank–clearly represent a world order centered on the Global North, especially because of a gentleman’s agreement ensuring that the IMF head would be European and the World Bank president would be American.

And the cracks are beginning to show.

Limited access to the financial system

The answer to addressing these challenges is multifaceted, but the key component is money. African countries need access to affordable credit and global financial mechanisms to help alleviate these challenges and to further develop the continent’s economic potential. The African Development Bank Group (AfDB) estimated that the continent will need roughly $432 billion to support its economic recovery in 2022 and 2023.

The only way to get access to these much-needed funds is to increase African countries’ power, voice, and agency in the global financial system.

That’s because current support has faltered. For example, in August 2021, the IMF issued its largest-ever allocation of SDRs to support countries dealing with the economic consequences of the pandemic. The IMF allocates SDRs based on a country’s quota–a measurement that largely reflects a nation’s position in the world economy and that grants each country a percentage of voting power or access to financing. African countries, along with other members of the Global South, tend to have smaller quotas and less access to these critically needed funds under the current financial system. In the end, the IMF allocated roughly $650 billion globally; but African countries received a total of just $33 billion–which is less than what Japan, Germany, China, and the United States received individually. High-income countries have had to take it upon themselves to make up for this skewed distribution system, with a few having pledged to send their unused SDRs to low-income countries including ones in Africa. But that begs the question: Why wasn’t Africa allocated SDRs fairly in the first place?

Rumblings of reform

It is not a new phenomenon for countries to be chafing at the current state of the global financial structure. The governance of the IMF and World Bank should be under scrutiny. For example, it is worth questioning why in the IMF, Group of Seven (G7) members have over 40 percent of the voting power; because an 85 percent majority is required to allocate SDRs, these seven developed countries wind up having a de facto insurmountable veto.

In a similar vein at the World Bank’s International Development Association (IDA), which focuses on the world’s poorest countries, about 55 percent of the voting rights lie in the hands of Part I members–in other words, countries that donate funds. That has also rankled those who wish to see more equitable representation and governance in a changed world.

Calls for reform have grown. In fact, US Treasury Secretary Janet Yellen spoke earlier this year at the Atlantic Council on the need for the Bretton Woods Institutions to modernize and become more democratic in nature in order to face this century’s new challenges. Other world leaders are issuing the call too, as the Atlantic Council’s GeoEconomics Center tracks in its Bretton Woods 2.0 Project.

Beyond inaction, some of the international financial organizations’ decisions have even outright disrupted democracy on the continent. For example, in June 2021, Sudanese Prime Minister Abdalla Hamdok secured debt relief from the IMF that removed subsidies on some goods and angered the public; the Sudanese military then used the public anger as a pretext to stage a coup and eventually oust Hamdok. And in the 1980s and 1990s, some African countries faced similar circumstances in which structural adjustment policies prescribed by international financial institutions like the IMF led to cuts in essential services such as education and health, leading to civilian protests and political unrest, even in the most stable democracies.

“From an economic point of view, the results of structural adjustment [programs] are far from satisfactory,” wrote the UN Educational, Scientific and Cultural Organization (UNESCO) in a 1995 study that examined how structural adjustment programs impacted education and the economy in African countries. They found that countries with these programs had an annual average growth rate of -0.53 percent, whereas countries with weak programs had 2 percent growth and non-adjusting countries had 3.5 percent growth. And with these tight economic conditions, UNESCO found that school attendance and completion dropped in adjusting countries as parents sent their children to work instead of school. Granted education’s role in development, stability, and democratic governance, UNESCO urged the international community to recognize the need to protect against the “harmful effects” of structural adjustment programs.

African initiative

Given that competition between global and even regional powers is accelerating, inaction is not an option for Africa anymore. The absence of change from international financial institutions has encouraged various emerging markets to move forward and set up systems to rival the Western-centered institutions. For example, China launched the Asian Infrastructure Investment Bank which began operations in 2016; thirteen African countries joined the bank as members. This May, Sall called for the creation of a pan- African credit-rating agency, arguing that international financial organizations have been overstating investment risk in Africa and that as a result, African countries are forced to pay higher interest rates. He explained that while all economies suffered during the pandemic, 56 percent of African countries saw their credit rating downgraded, compared with 31 percent of countries globally over the same period.

Refusing to wait for action from financial institutions, African countries have been setting up mechanisms for small- and medium-sized enterprises (SMEs) in reaction to the COVID-19 crisis: Côte d’Ivoire created a fund the size of 150 billion CFA francs (about $232 million) to support SMEs, and Senegal set up a financing mechanism for companies amounting to 200 billion CFA francs (about $310 million) in cash loans. Meanwhile, South Africa released 200 billion rand (then $10.8 billion) in loan guarantees.