By Vera Songwe
Kenyan President William Ruto’s recent visit to the United States could well mark a turning point in US-Africa relations. Closer cooperation would yield mutually beneficial results on issues ranging from economic growth to planetary sustainability. Yet a lack of investment, depreciating currencies, and high interest rates are choking African economies and derailing critical initiatives like green industrialization.
It is in America’s own interest to support Africa in overcoming these hurdles. Many African countries are perpetually in a state of economic or environmental distress. Because international borrowing costs remain high – owing partly to elevated interest rates in the US – governments have had to raid their development budgets to service their debts. According to the Finance for Development Lab (FDL), at least 20 low- and lower-middle-income countries globally will face difficulties in rolling over $600 billion in external public debt that comes due between now and 2026.
Moreover, both Africa and the US are increasingly suffering from the effects of climate change. The recent floods in Kenya were a tragic illustration of the need for rapid decarbonization and investment in climate-resilient infrastructure. Similarly, the tornados that recently upended people’s lives in Iowa, Texas, Oklahoma, and Arkansas may augur the country’s worst tornado season in decades.
Africa holds great potential for the US and other countries that are willing to invest in a greener future. Many governments have placed electric vehicles, digitized schools, and resilient, energy-efficient housing high on their policy agenda. The continent has a young, fast-growing population, and it is embarking on an industrialization path fueled increasingly by solar and renewable energy. In Kenya, 90% of the power supply already comes from renewable sources.
But Africa will need international assistance to overcome various economic challenges and achieve sustained growth. The US can offer three forms of support. First, African countries should be included in US efforts to shore up distressed allies, especially now that spending packages have already been broadened beyond Ukraine to reach a broader array of recipients. Both sides would benefit if this support was designed to drive investment in green industrialization and climate-resilient infrastructure throughout Africa.
Encouragingly, the US and Kenya have just announced new partnerships on clean energy, trade, investment, and technology, and one hopes that recent announcements of US private-sector investments on the continent will highlight Africa’s importance for US voters and consumers, galvanizing future cooperation and investment.
That is a good start; but the US will need to expand the list of African countries that can benefit from better trade terms within the framework set by the US Inflation Reduction Act. It also will need to revise policies that inadvertently constrain investment on the continent. The 2010 Dodd-Frank Act, for example, restricts investments in the Democratic Republic of the Congo and its neighbors as a means of combating child labor, despite evidence that the provision has not succeeded in curbing the problem. Similarly, if the US follows through on enacting a carbon border adjustment mechanism, it must make allowances for developing countries.
Second, the US should increase its contributions to multilateral initiatives that promote sustainable growth and development in Africa, as these also will advance its own interests. A good example is the World Bank’s International Development Association, which provides concessional financing and grants to the world’s poorest countries. Tripling the IDA’s capital by 2030 would enable it to respond to some of the world’s most acute development challenges, including in regions suffering from conflict, severe capacity shortages, or persistent climate-related disasters.
Support for public health and health systems also must be sustained. That means properly funding Gavi, the Vaccine Alliance, and the Global Fund to Fight AIDS, Tuberculosis, and Malaria. The IDA, Gavi, and the Global Fund are all replenishing their funds this year and seeking money from the US and other governments. Following the encouraging high-level announcements during Ruto’s visit, Africa will be looking to the US to follow through and expand its support over time.
But without a better framework for managing debt, much of the support that African countries receive from the IDA and other sources will be spent on debt servicing, rather than on sustainable development. That is why the US must also offer a third form of support: leadership to overhaul the unsatisfactory approach to African sovereign finance.
One potential solution is the FDL’s “bridge proposal,” which would offer fast resolution for liquidity-constrained countries with high debt-service ratios. Debt relief would not only boost Africa’s long-term financial sustainability, but also free up funds for green industrialization and other priorities.
In addition to boosting donations to the IDA and other multilateral initiatives, the US must encourage development-finance institutions to increase the volume, and improve the timeliness and quality, of their assistance. And borrowers should commit to programs that ensure green growth and investment, as this will help them grow their way out of debt. The virtuous circle can be completed with programs to attract cheaper, longer-term private-sector financing through more flexible funding mechanisms.
The Nairobi-Washington Vision, announced during Ruto’s visit to the White House, embodies the kind of commitment that both sides need. Far from a one-off headline, Ruto’s trip could mark the start of a new phase in America’s economic dialogue with Africa. One hopes this increased engagement will lead to more durable and effective forms of cooperation.
Green industrialization on the continent is in both Africa and America’s interest. But for any new commitments to bear fruit, the US must support Africa more systematically, and on a multilateral basis. Africa’s debt crisis, while painful, may be the key to devising a more far-sighted US approach to the continent and its challenges.
Vera Songwe is Senior Adviser at the Bank for International Settlements’ Financial Stability Institute.
Copyright: Project Syndicate, 2024.
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