Last June, during French President Emmanuel Macron’s Summit for a New Global Financing Pact in Paris, Kenyan President William Ruto warned that the World Bank and the International Monetary Fund are “hostage” to the world’s wealthiest countries and unable to meet the development challenges facing the Global South.
More than any other region, Africa has borne the brunt of the dysfunction embedded in the world’s financial architecture. Despite decades of engagement with the Bretton Woods system, the continent suffers stubbornly high unemployment and poverty rates, even as living standards have improved elsewhere in the developing world.
The latest reform push for the Bretton Woods institutions creates an opportunity to build a more inclusive global financial system that matches Africa’s aspirations, accelerates the transition to a net-zero world, and advances development objectives more broadly.
Such a transformation has become essential as the world economy contends with the mounting effects of climate change, and as major geopolitical shifts threaten to accelerate global fragmentation.
Africa has long been in a vulnerable position within the multilateral system, owing to a constellation of destabilising forces and policies. The asymmetry of subsidies, which powerful countries with greater fiscal space are more able to deploy, has been a significant constraint on the ability of African countries to diversify sources of growth and competitiveness.
The developed world’s recent embrace of industrial policy in response to the escalating climate crisis and volatility of global supply chains is a clear example of this.
Moreover, financial repression, in conjunction with a chronic technological deficit, has further curtailed African countries’ economic development and limited their participation in global value chains to providing raw materials.
Exposure to global volatility
Given the growing role in global trade of intermediate and manufactured goods with higher technological content, the stickiness of the colonial development model of resource extraction has been very costly for Africa, inexorably shrinking its share of global trade and exacerbating its exposure to global volatility and recurring balance-of-payment crises.
Multilateralism has thus failed to narrow the prosperity gap between Africa and the rest of the world. Africa’s share of world trade has declined steadily over the last few decades, falling from around 5% in the 1970s to less than 3% in 2022.
And even though the continent accounts for around 17% of the global population, it is home to more than 60% of the world’s extreme poor — which could rise to 90% by 2030, according to the World Bank. By contrast, countries in Asia have capitalised on labour-intensive, export-led development models to narrow the income gap with advanced economies and lift hundreds of millions of people out of poverty.
Africa’s chronically insufficient infrastructure has also widened the global digital divide, which poses a further impediment to development, because technology has overtaken organisational change as the primary driver of economic growth.
In the US, for example, the tech sector contributed nearly $2 trillion to GDP in 2022, accounting for 9.3% of total output. By contrast, nearly 70% of Africa’s population does not have broadband internet access, and persistent policy constraints, most notably shrinking fiscal space, make it almost impossible to build more robust infrastructure.
As a result, African countries have been unable to reap digital dividends in the form of higher productivity, faster growth, and expanded employment opportunities.
While no single entity is solely responsible for Africa’s dire situation, it is fair to say that the continent’s sustained engagement with the Bretton Woods institutions has narrowed African countries’ economic policymaking capacity to the management of balance-of-payments crises. Africa’s international partners have done nothing to promote industrialisation on the continent.
Economic-development ladder
In their rush to promote free markets and trade liberalisation, the Bretton Woods institutions failed to consider African countries’ individual circumstances and their positions on the economic-development ladder when prescribing austerity measures.
Ongoing efforts by the World Bank to boost its lending, together with the recent decision to increase IMF quotas by 50% are steps in the right direction. But more must be done to create an inclusive global financial system that works for all countries and builds climate resilience.
Such a system must address the twin problems that prevent Africa, and the Global South more generally, from devising solutions to new development challenges: financial repression and a chronic technological deficit.
In today’s “polycrisis” world, ensuring that all countries have access to green technology and affordable financing will be essential to providing hope to all who aspire to a fair share of global prosperity. — Project Syndicate
Hippolyte Fofack, a former chief economist and director of research at the African Export-Import Bank, is a research associate at the Harvard University Center for African Studies.
