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Category: Editorial

  • EDITORIAL COMMENT

    EDITORIAL COMMENT

    To issue international sovereign bonds, financial markets require countries to have a credit rating from at least one or more of the three leading international credit rating agencies (CRAs) namely, Fitch, Moody’s and Standard & Poor’s (S&P).

    This constitutes a minimum requirement for capital market borrowing by market regulators, as adherence to international best practices of information disclosure and to reach out to a wider base of potential investors.

    The Financial and economic cost implications for Africa emanating from subjective credit ratings by international rating agencies(CRAs) has since left some African capital market players grumbling and dissatisfied as alluded to in various independent research study findings.

    The UNDP study report and policy brief on “Lowering cost of borrowing the role of Rating Agencies” has therefore come to make a yet most compelling case and sufficient justification for Africa to take her destiny into her own hands.

    On the back of this UNDP report came the African ministers, development actors and research institutes meeting on 14 April in Washington DC, on the margins of the 2023 World Bank/IMF Spring Meetings, to discuss the impact of credit ratings on the cost of development finance in Africa.

    At this meeting, organized by the United Nations Development Programme (UNDP), the Africa Growth Initiative at the Brookings Institution and AfriCatalyst, they raised the need to review international financing systems and particularly the determination of sovereign credit ratings for African countries, where data is often missing or of poor quality.

    The event was centered around a new study by UNDP which shows that African countries could save up to US$ 74.5 billion if credit ratings were based on less subjective assessments. This, in turn, would enable them to repay the principal of their domestic and foreign debt and free up funds for investments in human capital and infrastructure development.

    If we want to bring about change, we need to change the game, H.E. Oulimata Sarr, Minister of Economy, Planning and Cooperation, Republic of Senegal emphasized during the meeting in Washington.

    Subjective credit ratings, the Minister underscored, increase the cost of servicing debt, and put cash-strapped countries in a difficult position, having to choose between repaying debt and feeding their population.

    Furthermore, he noted, non-objective credit ratings also reduce the amount of investment that countries receive, as they are perceived to be riskier than they really are.

    “These negative impacts can occur even if the inaccurate credit ratings are not due to conscious bias, but rather to inadequate data and/or methodologies that are too subjective”.

    To issue international sovereign bonds, financial markets require countries to have a credit rating from at least one or more of the three leading international credit rating agencies (CRAs) – Fitch, Moody’s and Standard & Poor’s (S&P) – as a minimum requirement for capital market borrowing by market regulators, as adherence to international best practices of information disclosure and to reach out to a wider base of potential investors

    What Other Independent Studies say about CRAs

    It is worthy of note that it is not only the UNDP that has issues with subjective ratings by IRAs. In a review article on the study titled, “International credit rating agencies in Africa: Perceptions, trends and challenges” authored by Misheck Mutize, University of Cape Coast, Ghana and McBride Peter Nkhalamba African Peer Review Mechanism,

    Criticisms of CRAs by Researchers 

    In a quest to either improve or maintain favorable SCRs, governments subject themselves to the fiscal and monetary policy recommendations by the three international CRAs (Armstrong, 2016).

    Victims of CRAs downgrading

    South Africa

    Armstrong (2016) argues that a government that crafts an economic policy that contradicts the recommendations of the three international CRAs consequently suffers the loss of being downgraded. For instance, South Africa is facing a high threat of sovereign downgrade partly because of the land expropriation bill (IMF, 2018).

    Kenya

    Kenya facing downgrade by Moody’s following its delay to implement value added tax (VAT) on fuel products and proposal to remove petroleum tax (Irungu and Alushula, 2018). S&P warned South Africa against its R500 million stimulus package aimed at cushioning the economic impact of corona virus, citing that it will result in rising public debt.

    Barta and Johnston (2017) adds that there is an absence of sound economic logic behind CRA’s discouraging certain economic policies in emerging economies, which suggests that SCRs may be prone to being used as punitive measures against states that contradict western interests.

    Restrictive CRAs Policy Recommendations

    Policy recommendations by rating agencies are restrictive and forbid fiscal stimuli through government spending and tax relief, which usually align with emerging economies to increase consumer demand, encourage private investment, create jobs and stimulate economic growth.

    However, in contrast, extreme forms of these expansionary policies highly denounced in emerging economies are permitted and left unquestioned in the European and American setting under the banner of monetary easing and/or bailouts

    Despite the long-term economic potential in African countries, the credit rating methodologies over-emphasize the political risk in the rating criteria (Ahern and Painter, 2016).

    These circumstances have taken away the economic freedom of credit rated Africa governments and their sovereignty to freely craft their preferred long-term economic policies without threats of sovereign downgrades

    It is therefore against this background that, we of the Eco-Enviro News Africa magazine, wish to emphatically state that the decision of the AU to put in place a local African rating agency is appropriate and long than due but better late than never.

    It is our hope that the establishment of the African rating agency would bring sanity into the African capital market landscape and provide a level playing ground.

    Africa’s Ballooning Debt Overhung

    As a percentage of GDP, Africa’s share of external debt has risen from approximately 19% in 2010 to nearly 29% in 2022. Simultaneously, its external debt as a share of exports has risen from 74.5% to 140% over the same period.

    In 2022, public debt in Africa reached USD 1.8 trillion. While this is a fraction of the overall outstanding debt of developing countries, Africa’s debt has increased by 183% since 2010, a rate roughly four times higher than its growth rate of GDP in dollar terms.

    With Africa’s public debt now a cog in the wheel of the development of the continent, the need diversify mode of funding has become more imperative than ever before.

    Serious consideration ought to be given to alternative modes of development funding with relatively lower cost and also ensure investments in projects of strategic economic importance which has good returns on investments and can pay for itself.

    Alternative non interest based modes of funding as bridge financing, sovereign sukuk or zero interest Islamic bonds, public banking, etc. are worth considering.

    Mohammed A.Abu

  • EDITORIAL COMMENT

    EDITORIAL COMMENT

    Mohammed A.Abu

    The exploitation and continuous exploitation of the natural resources of African and other countries associated with colonialism and at the expense of the environmental health in exploited countries has contributed immensely to the present day climate change impact in those countries, some climate justice activists, contend.

    The use of extracted natural resources from the former colonies by former colonial masters for their industrialization, wealth creation and fast tracked development has led to the ever yawning global development/wealth-poverty gap.

    Aside former colonies having been impoverished as a result of the exploitation of their natural resources, their people are also left to bear the brunt of the socio-ecological cost of wealth being made from their natural resources in exchange for a pittance.

    Carbon emissions from the advanced world fueled by the global fossil fuel boom and industrialization in advance wealthy nations is the main driver of the climate change impact African and other exploited countries worldwide, are now being made to endure without any meaningful assistance from the polluters.

    The former NASA scientist James Hansen has estimated that now rich advanced world countries were responsible for 77 percent of all carbon emissions between 1751 and 2006. The United States alone produced 28 percent of carbon dioxide emissions in that period. Other estimates reveal similar disparities: according to the German database PRIMAP-hist, developed countries were responsible for 68 percent of carbon dioxide emissions between 1850 and 2016.

    It is therefore against this background that, we of the Eco-Enviro News Africa magazine finds the call made by African leaders within the context of the Nairobi Declaration on the major polluters and global financial institutions to take full responsibility by committing more resources to help poorer nations, the victims of their wealth making and major pollution, as being on point.

    The Rich Get Richer and Poor Gets Poorer

    The multinational mining and oil and gas corporates from the advanced world belong to the world’s richest one (1) percent who own half of global wealth. Some of them operate in extractive industries in Africa and other parts of the world, and are said to me making too much money from mineral rich African countries through illicit financial transfer(IFFs) while also, impoverishing their host countries and leaving their people to bear the brunt of the environmental mess they had created.

    According to the Economic Development in Africa Report 2020 by the UN Conference on Trade and Development (UNCTAD), Africa loses about US$88.6 billion, 3.7 per cent of its gross domestic product (GDP), annually in illicit financial flows.

    A “UNU WIDER research article published in 2019 said, Tax havens have become a defining feature of the global financial system. Multinational companies can use various schemes to avoid paying taxes in countries where they make vast revenues.An estimated  US$420 billion in corporate profits is said to shifted out of 79 countries every year.

    This equates to about US$125 billion in lost tax revenue for these countries. As a result, their state services are either underfunded or must be funded by other, often lower-income taxpayers. It contributes to rising inequality both within countries across the world.

    According to cnbc.com, the world’s millionaires, richest 1 percent who own half of global wealth were expected to do the best in the coming years. There are now 36 million millionaires in the world, it says, and their numbers were expected to grow to 44 million by 2022.The U.S. still leads the world in millionaires, with 15.3 million people worth $1 million or more.

    The Wealth-Poverty Gap

    Yet commodity export dependent countries among developing countries suffering climate change  impact  are also losing as much as 67 per cent of their exports earnings, worth billions of dollars, due to trade misinvoicing, according to a new study by UNCTAD, which for the first time analyses this issue for specific countries and commodities.

    This research provides new detail on the magnitude of this issue, made even worse by the fact that some developing countries depend on just a handful of commodities for their health and education budgets,” UNCTAD Secretary-General Mukhisa Kituyi said.

    Africa’s Climate Change Impact Snapshot

    The  International Federation of the Red Cross and Crescent Societies reports that in September 2020 alone, torrential rainfall, river floods, and flash floods affected 192,594 people across 22 states in Nigeria (including 826 injuries, 155 fatalities, and 24,134 displacements).

    An estimated 27 to 53 million people in Nigeria ,the report said,might have to relocate with an (0.5 m) increase in the sea level. Sea level rise is threatening other low-lying countries in Africa, with research suggesting that cities like Abidjan, Cape Town, and Dar es Salaam will be totally submerged with (1.0 m) global sea level rise. At the same time, oil and diamond-mine infrastructure in coastal African countries worth trillions of dollars are very susceptible to sea level rise and coastal erosion.

    Climate change is also causing a decrease in productivity of many staple food crops in Africa. About 86 per cent of Africa’s agriculture is rain-fed, implying that even moderate variations in rainfall, temperature and precipitation patterns could have immediate impact on agricultural production.

    Under this unjust world economic and financial order,at which Africa and others have always been  at the receiving end,African governments aren’t  sitting down arms folded and asking for handouts from the rest of the world, but she is doing her bit under the given circumstances. African governments have demonstrated willingness to take strong action on climate change but the world’s most wealthiest minority ought must do the needful now in order  to complement their efforts.

    Climate Actions in Africa

    Nigeria has recently submitted a revised Nationally Determined Contributions that promises 20 per cent Green House Gas emission reduction by 2030. Several other countries like the Gambia, Congo, Malawi, Namibia and Liberia have also submitted revised NDCs.

    Nigeria has raised $60+ million in green bonds; the country has also strengthened its 2030 emission targets with specificity on addressing emissions reductions from the waste sectors and increasing conditional contributions. Malawi and South Africa have developed a fund to finance green growth projects, while Rwanda has created its $11 billion, 10-year Climate Plan, among others.

    To this end, we of the Eco-Enviro News, Africa magazine,wish to state that, the call on the polluters to do more should also be directed categorically at the multinationals engaged in Africa’s extractive industries as the have the money.

    We also support Mohammed Adow’s expert opinion that the most straightforward way that developed nations can address that inequity is through financial transfers and technological support to developing nations.

    In his feature under the title. “The Climate Debt what the West Owe the Rest “published in Foreign Affairs in 2020, Mr. Adow notes that, as part of negotiations under the aegis of the UN Framework Convention on Climate Change (UNFCCC), wealthy countries have agreed in principle to provide $100 billion a year by 2020 to assist their poor counterparts.

    The amount he also notes, is hardly enough to help developing nations adjust to the effects of climate change, receive compensation for loss and damage as a result of extreme weather, and transition to low-carbon economies.

    “Even that funding has not fully materialized, and its lack of implementation suggests a continuing imbalance between the rich and the rest”, he intimated

     

     

     

     

  • Africa Must end Hunger and Food Insecurity!!!

    Africa Must end Hunger and Food Insecurity!!!

    Editor’s Pick

    Indeed, the continuous lack of food production self-sufficiency and the increasing food import dependency in many African countries to supplement domestic production shortfalls amidst big agriculture resources potential, is worrisome.

    Africa as a continent has all it takes to be self-sufficient in crops, aquaculture, mariculture, livestock and poultry production. The continent’s world’s food basket status potential is therefore not in the least dispute.

    With over 60 percent of global total arable land potential, more than enough marine, fresh and ground water resources, Africa has no excuse to feel threatened with food insecurity as a result of geopolitical tensions in other parts of the world.

    The importance and relevance of the recently ended Feed Africa Summit held by the Senegalese government in collaboration with the African Development Bank(AfDB), can therefore be best appreciated against this background.

    In this light, we at the Ecoenvironews Africa magazine do take special note of the AfDB’s pragmatic action of committing USD10 billion to agriculture and rolling out transformative initiatives, including a $1.5 billion emergency food production facility in 2022 to help African countries avert a potential food crisis following Russia’s war in Ukraine.

    The bank’s President Adesina call on more than 34 heads of states,70 government ministers, the private sector, farmers, development partners, and corporate executives to work out compacts that would deliver food and agriculture transformation at scale across Africa was on point.

    For us at the Eco-environews, Africa, we wish to add that, the collective action must be driven by purposely crafted Strategic Action Plans spelling out realistically achievable set goals and targets with time lines and religiously work to achieve them so as to unlock the continent’s potential to become a global food breadbasket.

    We also believe that Africans generally need mindset and attitudinal change in how we deal with this most important issue of agriculture. We ought to re-define and appreciate agriculture as a science and business and not simply as a mere source of livelihood.

    The minds of African youth in some countries, ought to be cleared of the mental and psychological effect of agriculture being presented as an option for school drop-outs.

    Africa must take maximum of her most youthful continent in the world status to unleash a dawn of African agripreneurs. Such youthful entrepreneurs who are in gainful self-employment, would also, as employers, be contributing their quota towards addressing the ballooning youth unemployment scourge.

    Predominantly rain-fed and Small-farmer holder driven agriculture production and productivity in many African countries also ought to change for the better.

    Small holder farming activities must go alongside irrigation-fed modern commercial farming production if Africa is to achieve local food self-sufficiency and to produce more for the international market.  The decades long major challenge of lack of easy access to capital at affordable cost, as well as, high yield quality seeds, high cost of basic inputs including agro-chemicals too need special attention.

    President Muhammadu Buhari of Nigeria’s call on African countries to offer more robust support for farmers, dedicate a chunk of the national budget to agriculture, and motivate youth and women to farm was spot on.

    We believe that for the special agro-industrial processing zones being rolled out by the AfDB to be sustainable, beefing up the production value chains in primary agriculture sector would require stepping up irrigation-fed and modernized commercial scale agricultural production and productivity