AFRICA IN A CHANGING GLOBAL FINANCING ARCHITECTURE Dr. Vera Songwe UN Under-Secretary General and UNECA Executive Secretary 8 August 2018 Sharm El Sheikh, Egypt Symposium of the Association of African Central Banks (AACB) for 2018
Africa during the Recent Global Economic Crisis Drivers of Growth Before the crisis • High growth averaging 5.7% per annum during 2001-2008 • Low inflation rates between 5% and 10% • Declining poverty rate since 1990s Impact of the crisis on African Economies • Declining trade flows and capital inflows • Deteriorating foreign exchange reserves • Increasing deficits in Governments revenues and overall balances • Large financing gaps for growth drivers Africa recovery from the global economic crisis UNECA.ORG 2
Africa’s Sustained Economic Expansion GDP Growth : Africa’s growth record has Trade : High demand led to favorable been significant for the past decade terms of trade in Africa 8 1,400,000 $1,255 bn $1,242 bn 7.3 $1,194 bn 7 1,200,000 $1,177 bn $944 bn $950 bn 6 5.8 $1,000 bn 1,000,000 5 800,000 $804 bn $847 bn 4 3.7 3.7 3.6 600,000 3.4 3.3 3 2.9 400,000 2.3 2 200,000 1 - 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 UNECA.ORG 3
Financial Flows to Africa Robust foreign investments and upward trend in remittances FDI Inflow Net ODA Remittances 90 80 70 60 US$ BILLION 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014 2015 2016 75% of Africa’s remittances come from US and Europe UNECA.ORG 4
Illicit Financial Flows out of Africa Drivers of Growth • In the last three decades to 2009, Africa has lost close to US$ 1.4 trillion . • Losses through non-trade channels average $27 billion annually between 2005 and 2014. • Losses through mis-invoicing averaged $73 billion between 2005 and 2015. • Uneven geographical distribution of illicit capital flight – West and Central Africa surpassing the rest of the regions. UNECA.ORG 5
African Banking and Financial Systems Development of African Selected African Stock Financial Markets Exchanges • Growing financial markets Market Capitalization driven by improved (US$ billion, 2017) macroeconomic fundamentals, 80 67.04 70 increased political stability, high 60 commodity prices and robust 46.54 50 37.21 domestic demand. 40 30 • Increasing trading volumes and 20 9.74 8.92 capitalization in stock markets – 10 0 highest returns in the world. • Growing investment rates supported by strong emerging middle class. South Africa dominates (total market capitalization of $1,230 billion) UNECA.ORG 6
Bond Markets in Africa • Dominated by short-term government securities with activity focused on domestic primary market • Precarious conditions hampering the development and growth of corporate debt markets – lack of government benchmark • Ineffective domestic market infrastructure (clearing and settlement systems) • Very low foreign holdings of domestic debts • Infrastructure bonds – Kenya, South Africa Deep and well-functioning domestic debt markets play an important role in Deep and well-functioning domestic debt markets play an important role in financing Africa’s development financing Africa’s development As such, efforts should aim at addressing the market infrastructure and As such, efforts should aim at addressing the market infrastructure and microstructure problems and attract more investment in domestic bond microstructure problems and attract more investment in domestic bond markets: markets: - Need for regular and liquid benchmark auctions/issues - Need for regular and liquid benchmark auctions/issues - Development of maturity instruments (social security, insurance) - Development of maturity instruments (social security, insurance) - Remove regulatory costs of corporate issuance - Remove regulatory costs of corporate issuance - Facilitate creation of liquid secondary market and transparency - Facilitate creation of liquid secondary market and transparency - Promote domestic savings industry - Promote domestic savings industry 7
The Private Equity Industry • African private equity industry has been expanding during the past few years with new funds flowing into the continent • Traditional barriers such as poorly developed financial markets, political instability and fragmentation of the economy are being addressed.
CFTA – An opportunity to improve Regional Markets and Banking Systems • Regional integration is vital for Africa - providing benefits and opportunities for growth, structural transformation and strong and integrated markets • 44 African countries signed the Agreement establishing the African Continental Free Trade Area (CFTA) – 4 have ratified it. • The CFTA – an important step towards boosting intra-African trade and achieving the SDGs and leaving no one behind (Agenda 2030 and African Union Agenda 2063). • Long-term gains are estimated at about US$16 billion annually when all tariffs are eliminated. • Expected increase in intra-African trade of about 30% will contribute to: • Structural transformation (incl. increased production/trade of more sophisticated products with a higher technological content), • Higher returns on investments (with economies of scale), • Increased efficiency of domestic firms, • Employment expansion (incl. for women and youth), especially along road corridors. UNECA.ORG 9
Correspondent Banking in Africa: Selected Correspondent Banks in Selected Countries Algeria Morocco • Banque de l’Agriculture et de • Banque Marocaine du Development Rural Commerce Exterieur SA Egypt South Africa • Bank of Alexandria • ABSA Bank • HBZ Bank Kenya : • Africa Banking Corporation • Standard Bank of South Africa • Kenya Commercial Bank Tunisia • Stanbic Bank Kenya • Societe Tunisienne de Banque • Tunis International Bank Mauritius • Mauritius Commercial Bank UNECA.ORG 10
Increased De-risking by Global Banks • Increasing number of large international banks have reported a decline in their correspondent banking relationships. More than 70% of banks globally. • Many global banks are concerned about the risks of money laundering, terrorist financing, as well as costs related to operations and regulatory requirements. Number of active correspondents (2011=100) Source: Data from SWIFT Watch, Financial Stability Board (FSB) UNECA.ORG 11
Levels of de-risking in Africa have been uneven Number of active CBRs by jurisdiction (2012-2016 evolution) Zimbabwe Zambia Change in the Uganda Tunisia number of active Togo Tanzania CBRs has been Swaziland Sudan Rwanda significant for many Nigeria Niger African countries. Namibia Morocco Mauritius Mauritania Mali Malawi Madagascar Concerns that de- Libya Liberia risking may increase Lesotho Kenya Guinea Bissau further due to weak Guinea Ghana Anti-Money Gambia Gabon Laundering /Counter Ethiopia Eritrea Eq. Guinea Terrorist Financing Egypt Djibouti (AML-CTF) Cote d'Ivoire DRC infrastructure in Congo Comoros some countries. Chad CAR Cabo Verde Cameroon Sudan lost close to Burundi Burkina Faso 40 percent of its Botswana Benin Angola CBRs -highest Algeria -60.00% -40.00% -20.00% 0.00% 20.00% 40.00% 60.00% UNECA.ORG 12 Source: Data from SWIFT, Financial Stability Board (FSB)
Impact of De-risking on African Economies Consequences for Economic and Social Impact Local/Regional Banks • Concentration of • Reduced effectiveness of relationships in smaller domestic banking system financial institutions • Affects Financial inclusion • Trade – lower exports and • Increased costs of funds/ imports transactions • Loss of FDI and remittances • Compliance and regulatory and threats to poverty challenges reduction • Rise of informal financial • Capacity constraints systems and increasing illicit transactions UNECA.ORG 13
Mitigating the Risks and Effects of De-risking Halt the Flow of IFFs: Various initiatives Develop compliance and legal entity identifier database platforms Create national and regional credit rating agencies Develop and strengthen effective information-sharing platforms Promote innovation and technology developments – e.g. Fintech and DIGITALID Enhance regulatory and legal frameworks – e.g. enforcement of domestic and international regulations (including AML/CFT) Advocate for more harmonization of regulations across jurisdictions and cross-border banking – e.g. advocacy and support for the CFTA. UNECA.ORG 14
Mitigating the Risks and Effects of De-risking: Halting the flow of IFFs: Various initiatives but collective action key • Comply with FAFT Recomendations: Almost all African countries are members of subregional FAFT affiliates. • The Global Forum on Transparency and Exchange of Information for Tax Purposes (OECD-led with global reach & related Yaoundé Declaration where countries commit to tackle tax-related IFFs related through Exchange of Information (EOI) and improved international tax cooperation . • Only 27 African countries are members of the Global Forum • Only 20 have signed the Yaoundé Declaration UNECA.ORG 15
Recommend
More recommend
