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FRIDAY, MAY 20, 2022
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continued from page 2 “The on-l ending of $100 billion in SDRs to Africa would be a costeffective means of financing the continent’s recovery,” they said. On the subject of sustainable and climate financing, ministers commended the ECA and the Pacific Investment Management Company for launching the Liquidity and Sustainability Facility (LSF), which would allow African countries to attract investments in sustainabilitythemed-financial products, including green bonds. They also said African countries should be compensated for the efforts they put in safeguarding some of the planets most important carbon sequestration assets. The ministers said multilateral and regional development banks should make climate finance more readily available, so that they could “adapt and mitigate against the growing
impacts of climate change” and fund green projects. Development partners were urged to replenish the African Development Fund (ADF), and to support recapitalising PDBs among other measures, to address a looming crisis due to the RussiaUkraine conflict. For their part, the African ministers gathered in Dakar made a commitment to increase their efforts to mobilize domestic resources and “implement policies that create an enabling environment” to attract the private sector and institutional investors. They said resources would be directed towards priority areas, including infrastructure, health, education and climate change, including renewable energy to reduce dependence on foreign oil and gas. Oil-exporting African
countries were urged to use the windfall caused by the Ukraine crisis to support economic recovery. Noting that full implementation of the African Continental Free Trade Area (AfCFTA) would boost Africa’s GDP by an estimated $55billion by 2045, ministers said countries which had ratified the agreement should mainstream it and those that had not should do so. They also promised to strengthen their efforts to implement a “comprehensive and unambiguous tax policy” and improve capacity in combating tax-motivated illicit financial flows (IFFs). The ECA was requested to continue to provide its assistance in designing tax policies and their implementation. The ministers’ statement commended the African ExportImport Bank (Afrexim Bank) for
launching the Pan-African Payments and Settlement System to support the operationalization of the African Continental Free Trade Area (AfCFTA), “enabling instant, crossborder payments in local currencies between markets on the continent” at low cost and “reducing the dependence on hard currencies”. The Economic Commission for Africa was praised for successfully implementing its work programme for 2021 despite the challenges of the COVID-19 pandemic and was requested to assist countries to respond to the impact of the Ukraine conflict and help them prepare for the next global climate summit, COP27. COP27, “Africa’s COP”, will be held in Egypt from 7th - 18th November 2022.
ECA outlines key path for African sovereign debt liquidity and sustainability at the Com2022 In the context of its African Ministers of Finance conference, CoM2022, the United Nations Economic Commission for Africa (ECA) has given the details of a path for African international sovereign debt liquidity and sustainability -the Liquidity & Sustainability Facility (LSF) it established and with the support of BNY Mellon and Amundi. Addressing debt sustainability In an environment characterized by increasing debt burdens, historically high cost of borrowing, difficult post- Covid recovery, climate change related issues and energy and food shortages, there was a consensus among participants at the conference that tackling debt sustainability was a key issue. Guest speaker Vincent Mortier, CIO of leading asset management firm Amundi highlighted the role instruments such as Sovereign bonds can play in managing debt sustainability provided a liquiditysupportive framework is in place. The LSF established in 2021 by the ECA replicates the dynamic of a repo market for African sovereign Eurobonds, providing investors with competitive funding through repurchase agreements (“repo“). It aims to support improved ways for African States to raise money from investors in a transparent market driven framework and at competitive rates. “As a global asset manager, Amundi is proud to support the LSF. This mechanism will foster the emergence and the structuring of the African sovereign debt market, on par with the best international standards,” Vincent Mortier, CIO of Amundi commented. “It represents an important milestone for investors, as the African continent offers promising opportunities in terms of sustainable fixed income investment, in particular green bonds.” Repo markets as a way of increasing liquidity for African Sovereigns and private investors
with a focus on financing sustainable development Finance and development ministers from throughout the continent, together with the ECA, have been at the forefront of discussions on innovative mechanisms that can be added to the mix of tools used to address their various financial challenges. While a fledging repo market exists for the bonds of some African nations, a mature repo market, like that which exists in most major economies, has been missing. Guest speaker Brian Ruane, CEO of Clearance & Collateral Management at BNY Mellon, unveiled the firm’s collaboration with the LSF as its triparty collateral management provider. He said that the facility would address the gap in market infrastructure for financing Africa’s international sovereign debt, helping to promote a more stable repo market on the continent. “With our wealth of experience in the field, we are well placed to support a financial infrastructure solution for African Sovereign Eurobond debt,” said Ruane, whose business settles
and administers approximately $5Tr in financing transactions globally each day. “A more robust and liquid repo market should lead to more demand from buyers, more refinancing and lower costs of servicing that debt.” Boosting the issuance of sustainability-linked bonds Private sector demand for investment products that promote sustainable development has been rising steeply in recent years. These “sustainability-themed products” were worth $3.2 trillion in 2020. Despite the vast green resources of Africa and increased investor demand for sustainability-themed products, the continent accounts for less than 1 per cent of global green bond issuances. The LSF can incentivize green bond issuances by offering preferred repurchase agreement rates to institutional investors that refinance their positions using African green bonds as collateral. As such, the LSF can be used to mobilise capital investment towards key sustainable efforts and a green and sustainable recovery for Africa. “Today Africa needs more
liquidity than ever before to finance its recovery and transform the continued threat of the pandemic into an accelerator of growth and global prosperity,” said Vera Songwe, United Nations Under-SecretaryGeneral and Executive Secretary of the United Nations Economic Commission for Africa (ECA). “In the current environment high inflation impacts on essential commodities such as food, energy and fertilizers and places an additional strain on numerous African households. More than ever before, we need mechanisms such as the LSF to help African governments deal with the situation in a bold way and at affordable conditions. With the CFTA, we already have a blue print for the recovery; now we need the financing to go with it.” “We are very pleased to establish this new market infrastructure,” said David Escoffier, Board Director and Head of the LSF Secretariat. “This is a great opportunity to upfront finance and mobilise the private sector to change the development trajectory towards a new development model for the African Continent”.