Poor countries get short end of global development finance, but there are opportunities — NDB
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ACTIVE non-alignment foreign policies of developing countries — such as those adopted by South Africa and many other countries — were turning the challenges and risks posed by the climate and energy transition into big opportunities, Standard Bank CEO Sim Tshabalala said on Friday.
Speaking at the New Development Bank’s ninth annual meeting in Cape Town, he said climate change was “the most serious challenge we face in our time”, and like Standard Bank, countries should adopt foreign trade policies that mean “we face neither west nor west, we face forward”.
He said many other countries currently adopted non-alignment foreign policies, including Australia, France, Brazil and India.
The big challenges facing emerging markets in sourcing infrastructure and development funding and growing their economies currently were not insurmountable, and he cited as example the fact that China had only recently become the global leader in the production of electric vehicles, solar power and solar panels.
Also, many African countries would likely benefit from their rich endowment of the minerals necessary for the energy transition, and energy abundant areas in Africa, with their lower costs, would also increasingly become attractive to manufacturing facilities, he said.
Tshabalala said research on whether African countries were having to pay a premium for development finance because of perceptions that they were higher risk was not conclusive, but Standard Bank’s own anecdotal experience was that there was some prejudice.
However, the bank’s experience was that the biggest problem was the lack of information that investors needed to make the right investment decisions, and this could be remedied by communicating transparently and regularly with markets and journalists, he said.
He said, however, there were no quick solutions to the bank’s estimate that at least $3.4 trillion (R61trillion) of funding was required by African countries to address the energy transition and infrastructure backlogs.
World Trade Organisation (WTO) director-general Dr Ngozi Onkonjo-Iweala said emerging and African markets faced “daunting challenges” at present, in that securing a better future would mean meeting the United Nation’s Sustainable Development Goals by 2030.
But “not only are we behind schedule, but we are investing vastly less that what is required”. The estimated shortfall was $4 trillion, $2.2 trillion of which was required just for the energy transition.
She said that while $4 trillion might seem huge, it represented only around 1% of global financial asset flows.
But the economic backdrop for emerging markets and developing economies was particularly difficult at present, as Covid-19 had delivered the last hit to growth for many of these countries. Years of development progress were lost because of the pandemic, the problems of too high external debt were back and monetary tightening in advanced economies was strangling development funding,
A third of developing countries were having to spent more than 10% of their government revenues just to service interest payments on debt.
Onkonjo-Iweala said most sources of market and development finance had shrunk and foreign direct investment flows were on the decline.
Looking to the future, emerging and developing countries would need to get every bit of financing they could, and this also meant doubling down on trade, which had the potential to grow economies and generate sustainable income growth in countries.
However, more positively, south-south hemisphere trade flows were growing strongly, as were remittances to developing countries. These trends needed to be expanded further.
She said much finance could be diverted to sustainable development by being bold and cutting subsidies, and much more could be done to mobilise greater sources of private sector funding. An expansion and greater co-operation in the global carbon credit markets also had the potential to raise large sums of capital, Onkonjo-Iweala said.
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