With many African countries grappling with debt servicing in the face of a downward economic trend brought on by COVID-19, a 7.1 trillion dollar “New Deal” has been proposed as the only solution.
At the ongoing African Economic Conference (AEC) to chart a new path for Africa’s post-COVID-19 economic recovery, Mr Antonio Pedro, Deputy Executive Secretary, Economic Commission for Africa (ECA), expressed this view.
He compared the proposed New Deal to a similar deal enacted by the United States between 1933 and 1939, during Franklin D. Roosevelt’s presidency.
He noted that the American deal was worth 41.7 billion dollars at the time, which he said has since increased to 653 billion dollars.
The new deal for Africa, according to Pedro, will be part of the external funds required by Africa to address, among other things, the rising risk of African debt defaults in the wake of the COVID-19 pandemic.
“On the external front, Africa requires a new deal in order to recover from the pandemic’s ravages. At the time of its implementation, Roosevelt’s New Deal cost $41.7 billion.
“Given Africa’s current population of 1.37 billion people, a New Deal would need to provide $7.1 trillion in funding to match the US New Deal on a per capita basis.”
“The resources required to finance a New Deal are enormous, and they cannot be funded solely with public funds.” Funding from the private sector will be crucial.
“However, we are all aware of the high cost of private financing. At the same time, private direct capital investments are driven more by economic returns than by concerns about social welfare.
“Through risk-sharing and risk mitigation, combining public and private financing can redirect more private investments and financing to social and other orphaned sectors,” he said.
He explained that the ECA had teamed up with CoP26 to launch the Liquidity and Sustainability Facility (LSF), with the goal of lowering the cost of portfolio investments in emerging markets and attracting a new class of investors to the continent.
According to him, the LSF aims to leverage private financing by allowing holders of African sovereign bonds to access short-term financing using such instruments as collateral.