Africa Partnership Conference
03 October 2023
Your excellency, MR. Mahen Kumar, Minister of Financial Services and Good Governance of Mauritius,
Ladies and Gentlemen,
It is my great honour to be invited to share a few remarks on the importance of creating an enabling and inclusive investment environment in Africa, a topic of urgent importance.
The crude reality is that there is a massive investment shortfall in Africa. Global renewable energy investments are at a record high – according to our numbers, around 495 billion in 2022.
But only 1 per cent of that investment is going to Africa.
Now, a lot of the investment needed to make progress on the SDGs is infrastructure investment – roads and ports, power and grids, water and sanitation, and renewables. For example, of the 4 trillion SDG investment gap in developing countries, 2.2 trillion relates to the energy transition alone.
So, what can we do to increase at scale private and international SDG investments in Africa? I would emphasize three things.
First. We need to tackle the biggest elephant in the room. The cost of capital.
Which is driven by risk ratings. And higher risks require higher returns – often unrealistically high returns.
A great way to reduce the cost of capital is to bring different stakeholders.
Our research suggests that combining international, Multilateral Development Banks and government stakes can reduce the spread of debt project finance by 40 per cent.
This is the value of blended finance. But there is another elephant in the room here. Countries in debt distress cannot feasibly attract any international capital.
We cannot see debt relief as separate from this issue.
Second. African countries, with the support of institutions such as UNCTAD, can update their investment promotion policies, to go from generic fiscal incentives to more focused measures
targeting the core issue for investors – the risk-return rate – through guarantees and foreign exchange interventions, among others.
We need to bring in some of the big market players – such as pension funds and sovereign wealth funds – to the continent. However, to do this, we need to tackle the fact that these players are often prevented from investing in non-investment-grade projects due to fiduciary responsibilities.
Solving this will require innovative thinking, and more international de-risking support, especially for currency markets, and guarantees.
So, to close the gap, everyone needs to step in.
And this will mean a change in attitude towards Africa from the rest of the world and a very strategic vision guiding African policy framework.
At UNCTAD, in our Economic Development in Africa Report, we make one last, further point.
Africa is in a multi-decade opportunity boom.
Africa has three massive things going for it right now.
The first, is growing intra-Africa trade thanks to the African Free Continental Trade Area – which will provide a boost to high-value added manufacturing and services in the continent.
The second factor is demographics – Africa has the biggest youth population in the world; youth mean entrepreneurship, means innovation, and means growing consumer markets.
And third, lastly, Africa is extremely rich in the critical minerals that will power the renewable energy transition, such as phosphate rock, cobalt, manganese, and platinum-group metals. This is a massive opportunity for investment, structural transformation, and growth for the continent.
In closing, we have the data, the analysis, and the roadmap; what we need now is collective willpower and strategic actions.
There is enough wealth in this world to meet the SDGs.
Inaction is a choice we simply cannot afford.