Trade, industry & competition minister Parks Tau wants the Group of 20 (G20) to establish a commission on the cost of capital, the high cost of which hinders the growth of African businesses.
The role of the commission would be to work towards achieving equity in the access to capital and the cost of capital. High debt costs can crowd out the funding that developing countries need to invest in development.
Tau’s comments came as seven former heads of state have launched an initiative — the African Leaders Debt Relief Initiative — calling for urgent debt relief and fairer borrowing terms for African nations. The initiative will be unveiled on the sidelines of the G20 finance ministers meeting this week.
The IMF has pointed to an “African risk premium” in terms of which the continent’s countries pay higher interest rates on their bonds than peers from other regions with similar credit ratings. However, the study found that this premium disappeared if one stripped out the acute challenges African countries faced with budget transparency, the size of the informal sector, the level of financial development and the quality of public institutions.
Participating in a panel discussion on Tuesday at the B20 conference — a gathering of local and international business people to discuss inputs into the G20 — Tau said the challenges faced by the multilateral trading system and the World Trade Organisation (WTO) also had to be addressed by the G20, both in terms of multilateral decision-making, governance and the dysfunctionality of the dispute resolution system.
The WTO had to be reformed and this should be an important outcome of the G20, he said.
Tau noted the increased levels of protectionism in the Global North, which the G20 would have to be addressed.
The minister highlighted the increase in the debt of African countries and the higher cost of capital that they faced. This required attention.
Countries in the Global South were burdened with a lower credit ratings and had to pay higher interest rates, he said. This worsened the levels of inequality in the world.
The cost of capital and cost of borrowing has to be addressed if even the regional integration and markets are to emerge.
— Ahunna Eziakonwa, UN Development Programme assistant secretary-general and director of the regional bureau for Africa
He said the G20 was an African G20, not only because it was hosted on the African continent but also because it provided an opportunity for the key development challenges of the Global South in general and Africa in particular to be addressed.
Tau also emphasised the importance of African beneficiation of its wealth of critical minerals — essential for the decarbonisation agenda — to facilitate industrialisation and economic growth.
The UN Development Programme assistant secretary-general and director of the regional bureau for Africa, Ahunna Eziakonwa, agreed with Tau’s emphasis on the cost of capital, saying infrastructural development could not occur without fair access to capital.
She criticised the unfair, non-objective credit rating of Africa which was costing the continent billions of dollars.
“The cost of capital and cost of borrowing has to be addressed if even the regional integration and markets are to emerge,” Eziakonwa said.
International Chamber of Commerce secretary-general John Denton said one of the recommendations of the G20 under the Brazil presidency last year was to address the problem that in terms of current international rules a company cannot hold a credit rating higher than the sovereign rating. Sovereign downgrades meant that functioning companies and SMEs could not access finance.
Denton said he would welcome SA’s leadership of the G20 in seeking to preserve and make relevant the multinational trading system, which should include the US. Africa was a net loser of a dysfunctional multilateral trading system.
“I think the presidency of SA (of the G20) could be pivotal in engendering the momentum to bring that system up to date,” Denton said.
Cas Coovadia, who is the SA sherpa for the B20, said in an interview it was a platform for business to make policy recommendations to the G20 for an appropriate legislative environment for it to achieve inclusive economic growth.
There were eight task forces focused, among other things, on trade and investment, energy, education and employment, digital and industrial transformation, business and ethics, and food security and agriculture, each chaired by SA but made up of international business representatives.
The task teams would make recommendations to President Cyril Ramaphosa in August for consideration for submission to the G20 summit.
Coovadia said in the past the G20 had taken up B20 recommendations to a greater or lesser extent and what was needed was a mechanism to track them in the next presidency, which will be under the US.
Update: February 25 2025
This story has been updated with new information.
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