Vera Songwe is the UN Under-Secretary-General and 9th Executive Secretary of the Economic Commission for Africa (ECA), becoming the first woman to lead the institution in its 60-year history. Many portray her as a reliable ally and pathfinder as Africa aspires an economic union. Capable and hardworking, she is navigating uncharted territory while trying to mold a strong economy out of Africa’s weak institutions and imperfect politics. She is also going the extra mile in convincing western nations to give pandemic relief.
The Cameroonian holds a PhD in mathematical economics from the Center for Operations Research and Econometrics, a master of arts in law and economics, and a diploma of advanced studies in economic science and politics from Université Catholique de Louvain in Belgium. She also holds a B.A. in economics and political science from the University of Michigan. Prior to ECA, she held a number of senior leadership roles with the International Finance Corporation (IFC) and the World Bank. Featuring as Africa’s 50 most powerful women by Forbes, ‘100 Most Influential Africans’ by Jeune Afrique and New African Magazine, and ’25 Africans to Watch’ by the Financial Times, Songwe is acknowledged for her long-standing track record of providing policy advice and wealth of experience in delivering development results for Africa. She has written extensively on development and economic issues including on debt, infrastructure development, and fiscal and governance issues.
Songwe’s reforms have brought to the fore critical issues of macroeconomic stability, development finance, private sector growth, poverty and inequality, digital transformation, trade, and competitiveness. EBR’s Ashenafi Endale was granted an audience with the leading light of African economic thought and policy. The following are excerpts.
During the recently held ministerial meeting on the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor project, you said Africa needs to grow at 10Pct and create 60 million jobs annually in order to compensate for COVID-19? Do you think this is possible?
The African Continental Free Trade Area (AfCFTA) alone has the potential to create enough jobs that will make Africa’s economy grow at 10Pct on average in the medium term.
Speaking of LAPSSET corridor projects, the private sector is waiting for the governments of Ethiopia, Kenya, and South Sudan to introduce the right policies and build infrastructure.
Do you think AfCFTA is progressing as expected?
Over 40 countries have ratified AfCFTA and conversations are underway to finalize the offers and rules of origin. I think countries have started to realize the benefits of AfCFTA. Yes, it is going to take some time because some countries are late. COVID-19 slowed everything down. But I think the momentum will pick up soon.
So far, only a few countries including Ghana, South Africa, and Guinea have started trading under AfCFTA, although it was operationalized on January 1st, 2021. Is the pandemic the only obstacle?
No. I think countries need to get ready. Countries are still working on offers as well as finalizing the rules of origin and different tariffs. After this, domesticating the rules and educating the private sector is needed. Once all this is done, we will have real trading on the ground.
How much will the pandemic delay Africa’s progress with regards to the UN’s Sustainable Development Goals (SDGs) and the AU’s Agenda 2063 targets?
The whole world has been taken back because of the pandemic. The question is how fast will we recover. That is why we need additional resources, to recover faster.
African states are gasping for debt relief on top of the massive financing gap on the continent. What options are on the table in tackling this problem?
The IMF estimated the financing gap of Africa to be USD345 billion through 2023. In effect, Africa will require USD891 billion to write off its debt and fill the financing gap as its total debt was estimated at USD545bn in 2019. To date, Africa’s debt relief has largely been in the form of postponing service obligations through the Debt Service Suspension Initiative (DSSI). However, participation in the DSSI has been plagued by concerns over credit rating downgrades. To date, African countries that have signed an MoU of participation in DSSI 1 and DSSI 2 will postpone a total of USD7.52 billion in payments, covering the period between May 2020 – June 2021.
Financing through private creditors has increased in the last decade and is a potential source of closing the financing gap. As of 2019, Africa’s sovereign bond debt was equivalent to USD147 billion whilst total private creditor exposure was USD220 billion. Private credit is, however, costly for African sovereigns relative to non-African sovereigns with similar credit ratings. This African premium is due in part to the limited opportunities to off-load such debt instruments once they are acquired by investors.
Given the adverse debt service implications of high-cost credit, ECA is collaborating with PIMCO, the global investment management firm, to enhance the liquidity of sovereign bonds through the creation of the Liquidity and Sustainability Facility, a repurchase agreement facility for African sovereign bonds. We are also advocating for the on-lending of USD30 billion worth of Special Drawing Rights (SDRs) to the Liquidity and Sustainability Facility (LSF) for SDG-linked investments in Africa. The low interest rates on SDRs will further contribute to lowering the cost of private credit to African sovereigns.
What is ECA doing to avail LSF to help lower the cost of borrowing for African governments by increasing demand for their sovereign bonds?
To operationalize the LSF, we have been in discussions with advanced countries and multilateral development institutions such as the IMF to secure political buy-in for the idea. What is currently needed is an advanced country, such as the US, to take the bold step of championing the idea.
Operationalizing the LSF will crowd in more institutional investors in the sovereign bond market and contribute significantly to the financing needs of African countries, as their funding needs related to achieving the SDGs and Agenda 2063 remain enormous.
Do you think the LSF will yield a better financing option?
LSF is Africa’s sovereign bond and is inquiring for SDR restructuring. Total SDRs issued amount to USD600 billion for the whole world. Africa is getting USD33.6 billion. This is Africa’s share. What we are asking for the LSF is for an additional allocation from countries that are not going to use theirs. It is not a grant; it is not a gift; we are asking for a loan. So that we can be able to use it to raise more resources. We believe that there will be some positive responses. But I do not know how quickly it can materialize. Maybe we will have the chance to get it done soon.
How about financing for SDGs?
There is a lot of financing for SDGs. For instance, the African development Bank (AfDB) is financing infrastructure in the LAPSSET corridor. The problem for Africa is not accessing finance, but the cost of the finance. That is why we are working on the LSF to reduce the cost of finance.
Can developed countries that are struggling with the pandemic themselves, bailout Africa, or do you see any homegrown solutions?
Developed countries have expended USD12 trillion in stimulus financing to bail out their own economies using their unlimited supply of reserves. What Africa is requesting is concessional financing to spur its own recovery which is linked with the recovery of developed states. In an increasingly interlinked world, bottlenecks in Africa’s economy can create ripple effects on the global economy. Furthermore, failure to address the pandemic through universal access to vaccines will spawn more resilient and potent variants threatening the global effort to fight the virus. It is therefore in the enlightened self-interest of developed countries to support Africa. In 2020, the G7 countries agreed to provide USD8.2 billion for vaccines. But we have not seen that finance yet.
You were pressing for ambitious financial packages for Africa during the latest G7 meeting. What was the outcome?
The G7 meeting was not productive. It was productive on the climate side. But it was not productive on the resource side. For COVID-19, they agreed to provide some vaccines. But remember, there already was a collectively agreed commitment in 2020 to provide USD8.2 billion for vaccines. But we have not seen that finance yet. There was a big commitment at the World Health Summit and the G7 was just a reaffirmation.
What type of policies and ideological approaches do you recommend for African countries?
For many years, ECA has been advancing the developmental state model, a principle that the central government has to take on the bulk of public interest planning, oversight, and direction as well as providing appropriate incentives for private actors to spur economic development. Is ideology, for their own sake, very relevant for Africa’s development though?
The developmental state thinking has been practiced in varying degrees in capitalist, communist, and socialist economies irrespective of ideology. The main issue is around the strong autonomy of the state, the importance of relations between the state and private sector, and the manner in which this relationship is managed to promote industrialization and productive capacity development in a given country.
The developmental state model can leverage the regional opportunities provided by AfCFTA and facilitate the pooling of investments in critical areas such as energy, digital services, and transport. However, it will be important to establish and maintain the free movement of labor, capital, goods, and services within these areas, and by extension across the whole continent, to harness local demand but also leverage global continental demand base.
Within the framework of AfCFTA, it will be important to maintain and protect access routes between land-locked countries and outlets for trade and provide the political space to support investment in regional infrastructure and production processes. There is a need for a significant increase in funding for improved social services and other life-sustaining infrastructure aimed at raising living standards and the creation of portable human capital in lagging countries.
With all this taking place within the developmental state dispensation, there is also a requirement for preferential access to intra-African markets as well as middle and high-income countries for Africa’s exports, without unduly strict rules of origin or eligibility criteria that impede rapid growth of trade.
Are you saying the developmental state approach is recommended for African countries?
I do not know what a developmental state is. I am not a fan of titles. All I know is Africa needs markets to work efficiently. We need governments to be transparent. We need policies to be credible and stable. We need transparent and efficient public resource utilization. You can call it as you like but these are the fundamental principles.
But there will not be the free movement of labor, capital, goods, and services when there are political interventions. Can we separate politics from the economy?
For any well-functioning system, these are the basic principles we need: good, stable, and credible policies as well as transparency and efficient use of public resources.
I do not think most of our concepts come from western economies. In the 1300s, Africans were already trading with China; we already had markets. All of this is a misnomer. We are fighting the wrong fight. The fight we need to fight is against corruption and joblessness, not fighting for whose ideology to implement.
Africa has missed the first, second, third, and fourth industrial revolutions. Do you think the continent can directly leapfrog into the next industrial stage?
Africa has the latecomer’s advantage: it can design its industrial development without the need of expensive retrofitting or the uprooting of outdated technologies. The fourth industrial revolution is driven by advancements that are blurring the boundaries of the biological, physical, and digital worlds. Africa can build on the success in digital technology to ensure its manufacturing sector fully embraces digitized production technologies such as robotics, 3D printing, artificial intelligence, additive manufacturing, industrial internet of things, and big data analytics amongst others. 3D printing is already becoming a major tool in the manufacturing of medical devices, homes, and engines.
As COVID-19 has demonstrated, Africa has the capacity to meet challenges. For instance, we saw robotics in managing lockdowns on the streets of Tunis and screening of patients’ health vital signs at clinics in Rwanda; 3D printing of face masks in Malawi and Cape Town; decoding the virus and designing testing kits in Nigeria and Senegal; and reusable medical-grade nanotech-based facemasks entering commercial production in Mauritius. In less than a year, countries that were classified as unable to test for the virus are now capable of tracking the genetic evolution of the virus. Ethiopia, Kenya, and Zambia are examples in this regard.
Africa’s research and development (R&D) system remains small with expenditures estimated at about 0.5Pct of GDP and 120 researchers per million inhabitants—about 0.7Pct of global numbers. While far from the target set by AU of at least 1Pct of GDP, it has reached the level at which Asian countries commenced their rapid economic and social development. With the right policy environment, Africa’s public and the private sector is capable of scaling up investment in higher education to boost the quality and availability of skills, funding for research, development and innovation, and promote entrepreneurship.
There are positive signs that Africa’s industrialization goals can be met if supported. Countries such as South Africa, Swaziland, and Zimbabwe are producing and exporting home electronic products; Ethiopia and Kenya, automobiles and textiles; Egypt, Tunisia, and Mauritius, medical devices; Morocco and South Africa, aeronautics; Cote d’Ivoire, Ghana, and Nigeria, pharmaceutical products.
Do you think Africa can industrialize while predominantly exporting raw materials?
If you take the case of Botswana, it is adding value to its diamonds by polishing. Other African countries can also increase their value addition. I think there is nothing stopping African countries from utilizing their resources.
In the past decade, Ethiopia has been trying to achieve structural transformation. But the country has failed to do so thus far. What critical challenges do you observe?
Ethiopia is not different from the rest of Africa. The biggest and premier challenge is infrastructure. Ethiopia needs more energy to power its industries, roads, ports, and other infrastructure. Then the country needs to improve its human capital. However, Ethiopia is making some strides in this direction. But it needs to continue doing so. EBR
9th Year • Jun 16 – July 15 2021 • No. 99