On October 23rd, Development Reimagined (DR) and the Center for Strategic and International Studies (CSIS), co-hosted a panel discussion titled “Strategies for Reducing Private Sector Costs in Africa: Unlocking Economic Growth.” The event brought together experts from the private sector, development finance, and economic policy space to discuss innovative solutions for reducing the cost of private sector debt in Africa and fostering sustainable economic development.
Ms. Hannah Ryder, CEO of Development Reimagined and Senior Associate (Non-Resident) at CSIS, opened the discussion by underscoring the importance of the private sector for the continent and the need to lower costs, which can range from risk premiums to project concessions. With the current shift from the G21 Brazilian Presidency to South Africa and with the AU as a permanent member, Ms. Ryder stressed that this is a timely discussion to advocate for change in the international financial system.
Dr. Yemi Kale, Chief Economist and Managing Director at the African Export-Import Bank, delivered the keynote speech highlighting Africa’s potential with its youthful population and natural resources, which are constrained by the high cost of capital. Dr. Kale recommended deploying de-risking mechanisms, such as guarantees and blended finance models, that can mitigate perceived risks. Alongside this, Dr Kale stressed there is a need for a balanced and forward-looking debt sustainability assessment that acknowledges investments in human capital and encourages long-term economic sustainability.
Mr. Trevor Lwere, Economist at DR, delivered an in-depth presentation based on our recent report on Africa’s Eurobonds. Mr. Lwere spoke about the importance of exploring alternative financing options and compared African Eurobonds, which are, on average are above 8%, significantly higher than Panda bonds, averaging 3.5%, and Samurai bonds at 1.5%. The presentation can be downloaded here.
The panel discussion was moderated by Ms. Hannah Ryder with an excellent lineup of speakers including Dr. Hanan Morsy, Deputy Executive Secretary and Chief Economist at the United Nations Economic Commission for Africa (UNECA), Mr. Olivier Pognon, Chief Executive Officer and Director of the African Legal Support Facility (ALSF) and Dr. Misheck Mutize, Lead Expert on Credit Rating Agencies, African Peer Review Mechanism (APRM). There were four key themes discussed:
- African countries must invest in innovative and practical solutions to reduce private sector costs on the continent that continue to impede the continent’s sustainable growth and development. As Dr. Hanan Morsy emphasized, this conversation should include a constructive discussion with domestic and foreign investors to understand the issue at hand and how best to support them. Domestically, as the private sector is considered a riskier investment than the government and thus has to pay a higher premium, it becomes a major obstacle for the private sector to get finance, especially with many African governments getting interest rates above 11%, some even higher than 20%. Part of the solution is tackling the cost for African governments and, in parallel, bridging the gap through guarantees, derisking, and blended finance.
- Credit Rating Agencies (CRAs), in particular the Big Three, need to change their methodology to accurately reflect African economies. Misheck Mutize explained the impact of Credit Rating Agencies (CRAs) on the continent and gave an example of how CRAs interpreted the debt buyback in Kenya, as well as the case of Cameroon, where CRAs downgraded the country’s outlook because of the country’s decision to increase civil servant salaries despite positive economic signs. These methodologies are not only flawed in design but also perpetuate unfair narratives about the continent.
- African countries need to shift negative risk perceptions about the continent by supporting existing African CRAs and the establishment of the African Credit Rating Agency (AfCRA). Morsy stated that investors in Africa tend to think of Africa as one investment asset class, creating no differentiation among countries which is seen in other regions. Dr. Mutize also noted the lack of presence of international CRAs on the continent, showing a failure to understand the domestic context and leading to high-risk perceptions. Panelists agreed that more support needs to be given to CRAs on the continent to deliver accurate analysis and rating of African economies.
- African countries need to strengthen their negotiation power vis-à-vis the private sector. Olivier Pognon stressed the power of negotiation and how the bargaining power of African countries has not always been used as much as it should be, primarily due to a lack of exposure that leads to contracts with the private sector not being fully informed or properly documented. Closing this capacity gap requires being on the negotiation table and extensive training. Mr. Pognon stated that there is limited coordination during complex contract negotiations due to different country dynamics, amplifying the need for well-trained teams and the need to share knowledge and expertise.
Mr. Mvemba Phezo Dizolele, Director and Senior Fellow of the Africa Program at CSIS, provided closing remarks, and asserted that the narrative on Africa remains the biggest obstacle in the continent’s development. If Africa is to play a major role and be a part of the global village, these narratives can’t continue as they miss the nuances on the continent that make the biggest difference. Mr. Dizolele stated that the gap between the private sector and African government and what is being advocated and what governments are doing is massive. If the gap continues to grow, CRAs might not make a difference as the push is not coming from the ground.
Watch the full event here.
