Africa’s financial future is shaped not just by traditional western-led institutions but also by emerging partnerships with eastern and BRICS-led financial groups. While these new partnerships offer hope, African nations must be careful to avoid repeating past mistakes with old financial partners.
Africa’s economic progress, despite its vast resources, is hindered by an outdated global financial system.
While African leaders have advocated for reforms, significant challenges remain. To unlock Africa’s full potential, the world must rethink financial systems that fail to address Africa’s specific needs.
The Global Financial Architecture (GFA), shaped by developed nations, often ignores Africa’s unique challenges. This system limits access to finance, over-relies on foreign aid, and has inconsistent regulations. These issues hinder investment in crucial areas, trapping many African countries in a cycle of poverty and inequality.
Despite progress in recognizing the need for GFA reform, there has been limited action on key issues. The IMF’s quota system remains imbalanced, favoring developed nations. While the 16th General Review of Quotas resulted in a 50% increase, it did not address the underlying power dynamics. African countries continue to hold a disproportionately small share of quotas, limiting their influence within the IMF.
Progress on international climate finance has been mixed. While some strides have been made, the pace of action remains slow. Advancements in the loss and damage agenda have led to its recognition as a third pillar of climate action, but disbursements are not expected until 2025. Similarly, the commitment made at COP26 to double adaptation finance by 2025 remains unfulfilled. Africa continues to receive only 20% of global adaptation finance, largely in the form of loans, which adds to its debt burden.
Efforts to deliver climate finance through country platforms and multilateral climate funds (MCFs) have faced challenges in implementation and accessibility. While the G20 India Presidency and Brazil’s G20 Finance Track have initiated efforts to improve accessibility, bureaucratic hurdles and complex documentation remain obstacles.
The use of debt-for-climate and nature swaps holds promise but has been limited in Africa. To scale these efforts effectively, a formal framework within the multilateral development bank system is necessary.
African negotiators have called for a needs-driven approach to the new collective quantified goal (NCQG) for climate finance. However, progress at the Bonn Climate Change Conference in June 2024 was limited due to divisions between developed and developing nations.
The UN has set a target for developed countries to allocate 0.7% of their GNI to Official Development Assistance (ODA). However, funding levels have been declining, and only four countries met the target in 2022. Africa received 25.6% of global aid, but support for the least developed countries declined partly due to increased aid to Ukraine.
Multilateral Development Banks (MDBs) have committed to reforms, but progress has been uneven. While MDBs have expanded their mandates to include global challenges, there is concern that this focus may limit their ability to address country-specific needs. Efforts to mobilize private finance are progressing, but more emphasis is needed on local currency finance and early-stage infrastructure investment.
The IMF board has approved the re-channeling of Special Drawing Rights (SDRs) to MDBs for hybrid instruments, but European countries remain committed to channeling SDRs only through the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST). Disbursement of SDRs has been slow, and the IMF is reviewing its policies to ensure long-term sustainability.
Africa’s financial future is shaped not just by traditional western-led institutions but also by emerging partnerships with eastern and BRICS-led financial groups. While these new partnerships offer hope, African nations must be careful to avoid repeating past mistakes with old financial partners. Given the significant debt Africa owes to private creditors and eastern lenders, careful planning is essential to prevent this debt from becoming a burden.
Africa’s journey to reform the global financial system is filled with both successes and obstacles. As it continues to assert its role on the global stage, Africa must strike a balance between meeting its financial needs and maintaining high standards. Achieving its financial goals will require persistent advocacy, clear policies, and transparent funding.
For true transformation, Africa must stay firm in its call for a fair, inclusive, and reformed global financial system.
Maria Nhkonjera is a Senior Policy Lead, at the African Future Policies Hub (AFPH)
All views expressed here are the author’s own and do not necessarily reflect the editorial stance of The Kenyan Wall Street.
