MARCUS COURAGE: G20 presidency — chance to advance fairness and equity

Africa offers many comparative advantages for global investors, but the prevailing global financial architecture obscures this. At the same time, subsidies and incentives Group of Twenty (G20) nations offer companies to manufacture at home directs capital away from Africa to developed markets.

It’s obtuse and cynical that with one hand G20 nations provide development assistance to stimulate private sector growth and trade within Africa, while with the other hand they introduce subsidies for manufacturing in their own nations, which has the effect of directing private capital to developed countries in areas where African nations offer investors comparative economic advantage, such as renewable energy and mineral processing.

According to Bloomberg, it should be three times cheaper to produce battery precursors in the Democratic Republic of Congo than it is in the US. 

There has been a proliferation of tariff and non-tariff barriers introduced by G20 nations in the wake of Covid-19, which limits opportunities for African nations to realise climate positive growth. The situation is made worse by the bias meted out by credit risk agencies towards Africa. As Al Gore stated at COP27, “it’s unjust ... insane”, that “building a solar field in Nigeria attracts an interest rate that is seven times higher than in OECD [Organisation for Economic Cooperation and Development] countries”.

With the prospect of trade wars looming, we need consensus among G20 nations that Africa should be excluded from these wars. To paraphrase former colleague Adrian Fielding, director of the Africa CEO Forum, “as the era of protectionist policies gets into full swing, it would be nice if the unintended consequence of a trade war was to be a more prosperous Africa.”

In addition to safeguarding African nations from protectionist policies, G20 nations and the multilateral development banks they control need to make it easier for African countries to borrow capital at fair rates of interest. The global capital markets are valued at $250-trillion and half of this is accounted for by the debt capital markets, of which Africa attracts only 1% of funding.

It’s not the case that there’s no demand for capital markets funding in Africa — of course there is. It’s a matter of the cost of capital. The UN Development Programme has shown that African countries borrow at much higher rates of interest than non-African countries with comparable country risk profiles. The excess cost to African nations runs into the tens of billions of dollars. We have to address this high cost of capital if we want to improve the lives of hundreds of millions of men, women and children in Africa who are profoundly affected by this prejudice premium.

African issuers are going to the market with one hand tied behind their backs. Africa Practice produced a study this year with Africa No Filter, which estimated that African nations pay a $4.2bn premium on their Eurobond loans annually as a consequence of media bias alone. That is enough money to educate 12-million children.

Our study analysed media coverage of African and non-African countries with comparable risk ratings. It revealed that coverage of African states during election periods was characterised by references to corruption, violence and election rigging, while non-African nations with comparable political risk profiles, such as Malaysia or Thailand, were largely excluded from these associations.

Nor is the NGO community immune to this form of prejudice. Last month, on the eve of the general elections in Botswana, a reputable international humanitarian NGO announced that it was sending funds to Botswana to support victims of election violence. I ask you!

The exorbitant cost of capital for Africa is an outcome of prejudice, and it’s a matter of urgency. By 2050 one in four people on Earth will be African. It is in the interest of all of humanity to ease the flow of capital to the continent so the conditions for economic resilience can be achieved here.

By levelling up the playing field we can create opportunities for global investors in the markets of the future and huge value for the global economy. It is time we embraced this win-win strategy for global prosperity.

• Courage is CEO of Africa Practice.