By Ifeanyi Nwoko
With many African countries struggling from the shackles of debt servicing amid downward economic trend occasioned by COVID-19, a ‘New Deal’ worth 7.1 trillion dollars has been suggested as the only solution.
This was the position of Mr Antonio Pedro, Deputy Executive Secretary, Economic Commission for Africa (ECA) at the ongoing African Economic Conference (AEC) to chart a new path for Africa’s post-COVID-19 economic recovery.
He likened the proposed New Deal to a similar deal by the US between 1933 and 1939 during the presidency of Franklin Roosevelt.
He pointed out that the American deal then was worth 41.7 billion dollars, an amount which he said now equalled 653 billion dollars.
Pedro said that the new deal for Africa would form part of the external funds required by Africa to, among other things, address the rising risk of African debt defaults amid COVID-19 pandemic.
“On the external front, Africa needs a new deal to recover from the ravages of the pandemic. The Roosevelt’s New Deal cost $41.7bn at the time it was instituted.
“Given Africa’s current population of 1.37 billion, a New Deal would have to deliver $7.1 trillion in financing to equate the US New Deal on a per capita basis.
“The resources required to financing a New Deal are enormous and cannot be funded exclusively through public resources. Private funding will be critical.
“Yet we are all aware of the cost of private financing is high. At the same time private direct capital investments are motivated more by economic rates of return than by social welfare considerations.
“Blending public financing with private resources can redirect more private investments and financing to social and other orphaned sectors through risk-sharing and risk mitigation,” he said.
He said that the ECA had partnered to launch the Liquidity and Sustainability Facility (LSF) at the margins of CoP26 with the objective of lowering the cost of portfolio investments in emerging markets and crowding in a new class of investors into the continent.
He said that the LSF seeks to use on-lent SDRs to leverage private financing by making it possible for holders of African sovereign bonds to access short term financing using such instruments as collateral.