African finance ministers and central bank governors meet this week in Lomé, Togo, for the African Finance Industry Summit (AFIS) to discuss how Africa’s finance industry can contribute to the continent’s economic recovery.
This comes at a time when unprecedented inflation and increasing geopolitical risk is forcing the world to look more inward, severely affecting economic growth and development across the continent and pressuring its financial and political leaders to find solutions.
AFIS director Ramatoulaye Goudiaby told Business Day that for Africa’s finance industry to play its role in favour of the continent’s economic integration, there needs to be a harmonisation of policy across different countries.
“For example, monetary policy can be a driver of African integration. This summit will host a round table of central bankers, financial institutions and government ministers to look at how monetary policies could converge across African states.
“It will look at what requirements and approaches should be followed to make this happen,” Goudiaby said. “It will also interrogate the current state and challenges around monetary co-operation and alignment on a continental level.”
She said practical questions such as “can Africa finance its own growth” and “what structural reforms need be implemented” for this to happen will be answered.
AFIS — founded by Jeune Afrique Media Group and the Africa CEO Forum in partnership with the World Bank’s International Finance Corporation — is a platform launched in 2021 to allow leaders of the financial industry to discuss financing issues in Africa. The meeting will be attended by regulators, ministers of economy and finance, as well as representatives of major development institutions.
The summit takes place against the backdrop of global macroeconomic trends that have deeply affected African finance, with financialisation about to take place in extremely volatile conditions that most industry executives have never experienced.
It is in this high-risk macroeconomic environment that the finance industry’s profitability is likely to come under pressure — from deteriorating asset quality, liquidity risks and scarce available capital, to emerging climate and cyber risks.
Added to this, the Ukraine war has also impaired trade, leading to higher prices for energy, food and other commodities, leading in turn to high inflation and weak economic growth.
Runaway inflation
According to the World Bank’s latest Africa Pulse report, runaway inflation is the most challenging macroeconomic problem facing countries in Sub-Saharan Africa, and restoring price stability is key for the region.
The report said the average inflation rate for Sub-Saharan Africa jumped from 7.8% in January to 12.6% in July, driven by global increases in food and fuel prices as well as by currency depreciation.
Twenty-nine of 33 countries in Africa had inflation rates higher than 5%, including 17 with double-digit inflation. Soaring food prices were severely affecting poor households, which allocate 40% of their spending to food. As a result, the continent’s central banks have begun initiating restrictive monetary policies by continuous rises in key interest rates.
“Central bank measures to curb inflation will almost certainly be tested and stretched in this disruptive period and one of our panels will look at what the best way forward is for monetary and fiscal measures on the continent, how to curtail inflation without disrupting growth and how to maintain independence in the face of high interest rates and government debt,” Goudiaby said. “The governors and ministers will also look at mitigating the effects of a global recession on Africa’s financial industry.”
She said for Africa’s finance industry to play a crucial role in favour of growth and Africa’s economic integration, harmonisation of policy across different states is crucial.
Goudiaby said practical reforms can be taken, including the creation of a platform for a supervisory college, until regulators come together to develop common rules for accounting in Africa.
“There are far too many different standards and to establish minimum standards to share data across borders to facilitate credit or to create a credit bureau at the pan-African level — or to develop a regional platform for capital markets — it becomes desirable to start to harmonise the minimum level of capital required for banks and insurance companies.”
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