This potential includes pushing 40 million people on the continent into poverty, out of the World Bank’s 100 million global projects.
Besides, approximately 300 million young people in Africa will be negatively impacted in one way or another, underlines Ike, Managing Director and Head of Sub-Saharan Africa (excluding South Africa) at Bank of America Merrill Lynch; the third largest investment bank in the world.
A new dawn
Ike, who has worked in financial services for over 20 years, reflects on the current COVID-19 crisis as it relates to the region and potential solutions as sovereign debt defaults loom due to a liquidity crisis. Ike also explains why she believes the current difficult moment triggered by the pandemic could signal a new beginning for Africa.
“One of the solutions – and one of the tools – available to governments is access to capital market financing. First, there is an urgent need to agree on a way to restructure sovereign bond debt,” says Ike.
But “we really should be talking about access to liquidity — like everyone else,” Ike says.
She adds: “Access to liquidity, in the first instance, which provides fiscal space stems from the ability to negotiate with capital markets a restructuring that supports some deferral of funding for current funding obligations, which is about $40 billion for this year.”
“So far, this has been one of the toughest issues facing financial markets,” adds Ike.
We are no longer able to isolate Africa’s problems from the rest of the world.
On the positive side, Ike says, “We are seeing stronger credits coming out of Africa. … There are real opportunities to raise funds in the international capital markets … interest rates are at their lowest level for more than 30 years.
“They are able to raise debt on stricter terms than in the past. We have seen African entities raise over $5 billion since March 2020. There are real opportunities. But I think the urgent work we all need to do is find ways for capital markets to accept a delay in payment terms to help create the fiscal space that some African countries urgently need,” said Ike.
The urgency comes from the fact that “we are no longer able to isolate Africa’s problems from the rest of the world”.
“The scale of the challenges we face in Africa at the moment requires collaboration within Africa and with international communities. There are mutual benefits to doing this, which will support a faster recovery from the current global recession,” she explains.
Addressing the amounts of funding available to the continent – and the range of tools available to access liquidity – is a good place to start.
The path to growth and recovery is paved with original thinking
Ike sees the digitization of Africa as a gateway to revolutionizing growth.
The first stop for this to happen is through bridging the digital divide on the continent. “African governments and international governments must come together, agree [on] policies and initiatives that facilitate the implementation of large-scale digital services in the region,” she says.
READ MORE Unlocking Africa’s Digital Future
This would have multiple effects on economies inside and outside Africa.
Ike thinks technological developments will be the biggest contributor to economic growth on the continent, in particular to facilitate health care, food production, manufacturing and financial services. For the latter, consider innovations in payments and access to credit.
“We can be a lot more intentional about working with developed economies and how we fund those kinds of opportunities,” she says.
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The African Union has great envoys, some of Africa’s best minds working to optimize intra-regional trade and promote deeper regional integration. “At Bank of America, we are looking for ways to support these initiatives where it makes sense to do so.”
Bank of America Skyline
Another aspect that COVID-19 has raised is uncertainty, which has led some investors to review their commitments.
However, “in our organization, we take a long-term view of any market we decide to enter,” says Ike.
- “Whenever we enter a market, we go there with two lenses – always. We are committed to the goal of achieving commercially relevant transactions that we are able to deliver at a high level of excellence – that is relevant for our customers and… the market in which we operate.
- “The second objective involves ESG [Environmental, Social and Governance]. From our business perspective, we are still very committed to doing business that makes sense. Currently, the focus is on transactions that have some added value for the region, so it is important to leverage our platform to complete these types of transactions.
ESG side: “We are even more determined to ensure that we continue to focus on the areas in which we have invested resources,” says Ike.
This includes job creation through the bank’s Africa recruitment program; and support for health care through the Global Fund, including support for education through Teach4All: Teach4Nigeria and Teach4Ghana in particular.
“We also support the creative sector. These are the main focus areas where we commit significant resources every year,” adds Ike.
Bank of America has also played an important role in the development of green, social and sustainability bonds.
“We were the first company to issue a benchmark-sized corporate green bond and we co-authored the original version of the Green Bond Principles, a voluntary set of guidelines aimed at promoting integrity in the development of the green bond market, Ike says.
More recently, “we issued a $2 billion Sustainability Bond for Equal Progress designed to advance racial equality, economic opportunity, and environmental sustainability,” Ike says.
It says it is the first such offering in the financial services industry. In addition to the $2 billion sustainability bond, the bank issued a $1 billion corporate social bond to support the fight against the COVID-19 pandemic – “the first such offering by a bank American business”.
“As the region continues to see [a] pushing towards decarbonization and the growth of more sustainable business practices, we expect to see green bond issuance flourish across the region,” she said.
Africa, your move
“I really believe it’s Africa’s morning,” Ike said. “The gravity of the situation has created opportunities that we must exploit.”
“There are real supply and demand gaps in the region that need to be filled due to the collapse of global supply chains,” Ike says.
Many countries are supporting the local production of personal protective equipment (PPE) on the continent. An AU portal has been set up to facilitate the buying and selling of PPE in the region.
“It is also a function of the fact that we have much less cash and much less foreign currency. In addition, there are many initiatives to support the development of factories in the region.
In the geopolitical situation between China and the United States, there is a huge opportunity for Africa “to be the innocent bystander who provides fertile manufacturing ground in Africa.”
- “We have the resources, including the human capital. Africa has the largest amounts of some of the best natural resources in the world and we also have low cost labor among other things. To achieve this, Africans need to organize themselves to be more friendly as a region to deal with. And the AU is taking care of that.
Accelerating the implementation of the African Continental Free Trade Agreement would be essential. A statistic often cited to highlight the lack of adequate intra-regional trade on the continent is the fact that only 16% of trade takes place between African states. Compare this with the European Union, whose intra-regional trade is estimated at more than 50%.
The free trade agreement is the optimal instrument to achieve this objective.
The Dangers of Sovereign Debt Defaults were exacerbated in some cases by downgrades in credit ratings or adverse reviews. Ike criticizes the wisdom of this approach.
“The way international rating agencies assess the same issues emerging from Africa relative to other regions needs to change. The credit reporting methodology and the language they use, must change. For example, rating agencies may use risk assessment methodologies that might be more relevant and, therefore, likely to work better,” she says.
“This is not one, “Oh, poor Africa, help us here”.
“It’s more about using methodologies, using language and reacting similarly to what’s happening in more developed regions. Rating agencies have an obligation to find out more information about what is really going on, use less computational analysis to make decisions and share more thoughtful rating information, given the long-term financial implications for African countries,” she adds.