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This week, we look at Africa’s interest rate trap. Also, Africa takes centre stage on climate, and what the G20 should do this weekend to remain relevant.

Top news

Wall Street vs. World Bank: Borrowing from capital markets is costing African governments 500% more than it would if G20 leaders delivered on financial reform, according to new analysis from ONE. The average rate of bonds for African countries in 2021 was 5.78%, compared to 1.14% on loans from the World Bank. But the World Bank and other MDBs aren’t meeting the borrowing needs of African countries. That’s forcing them to take on more costly loans, which have grown even more expensive thanks to recent interest rate spikes. African countries will pay US$56 billion in additional interest over the lifetime of loans contracted between 2017 and 2021, compared to what they would have paid if they had borrowed at World Bank rates. It’s a scandalous transfer of wealth from African citizens to Wall Street bankers. The good news: G20 leaders could fix this by reforming outdated global financing institutions. They should start by dramatically increasing the lending power of the MDBs, including committing to triple World Bank loans and grants by 2030. It’s a win-win. Explore our full analysis.

**Join a virtual press briefing to discuss our interest rates research on Friday, 8 September, 9:00-10:00am ET. Meeting ID: 821 7672 4547, passcode: 534526

Reaching the summit: More than 20 African heads of state were amongst the 30,000 attendees at the first Africa Climate Summit in Nairobi this week. For the first time, African leaders endorsed an official head of state position on reforming the global financial architecture. Leaders from several of Africa’s largest economies, including Egypt, Ethiopia, Nigeria, and South Africa, weren’t in attendance. Nor was President Félix Tshisekedi from the critical mineral-rich DRC, nor leaders from several countries with recent coups or conflict.

Take 1... and action!: In the summit declaration, African leaders advanced a lengthy list of action items aimed at addressing climate challenges and establishing Africa’s common position ahead of COP28 (and beyond). The list included:

• Reforming the MDBs and increasing concessional lending
• Better deployment of SDRs and disaster suspension clauses
• Establishing a new financing architecture to enable debt restructuring and relief
• A carbon tax on fossil fuel trade, maritime transport, and aviation
• A global financial transaction tax

The declaration also called for “decisive action” at the UN to fix the broken global tax system. That’s a powerful demonstration of unified African support for making the UN – rather than the OECD – the world’s arbitrator of global tax, a move the OECD has staunchly opposed. Expect to see future Africa climate summits, as leaders announced their intent to make it a biennial event.

Renewable energy superpower: A common theme at the summit was the leading role Africa could play in the global energy transition. Kenyan President William Ruto called climate action an “unparalleled opportunity” for Africa. With the right investments, Africa could become a “renewable energy superpower,” UN Secretary-General António Guterres effused. Africa has nearly a third of the world's mineral reserves for solar power, electric vehicles, and battery storage, including 70% of the world’s cobalt and three-fourths of its platinum. But despite its (largely) untapped clean energy potential, only 3% of global energy investment last year was in Africa. A region that accounts for one-fifth of the global population — including 605 million people without access to electricity — could be left in the dark. Or, global leaders could address Africa’s unsustainable debt levels and help direct investment into Africa’s climate potential.

Lending a helping hand: A common summit refrain from African leaders was the need for increased (especially concessional) finance to support Africa’s climate goals. African countries will need at least US$2.8 trillion by 2030 to meet the Paris climate agreement. That’s roughly equal to 93% of their combined GDPs. With debilitating levels of debt, many climate-vulnerable African countries will need help meeting their climate commitments. Public debt in Africa hit US$1.8 trillion in 2022, with nearly 60% of African countries in, or at risk of, debt distress. That’s why MDB reforms are urgently needed: They could leverage up to 💥US$1 trillion💥 in financing to help countries meet their climate needs.

Show us the money: US$23 billion in investments in Africa were announced at the climate summit. But it’s unclear how much of that money represents new (vs. repackaged) commitments. The UAE pledged US$4.5 billion in clean energy investments in Africa. While useful, bilateral efforts like these are insufficient to cover Africa’s financing gap. And donor climate pledges have often underdelivered; most notably, donor countries are three years late and counting on hitting their US$100 billion climate financing pledge to help climate-vulnerable countries.

Actions. Speak. Louder: At the G20 summit this weekend in India, leaders must prove they’re capable of addressing multiple global challenges. If recent history is any indication, it’ll be an uphill battle. In July, G20 environment ministers not only failed to agree on measures to address the climate crisis, some delegations tried to dilute previous climate commitments. 🤯 G20 countries account for roughly 80% of climate emissions, compared to just 4% for Africa’s 54 countries combined. To retain its relevance – which is already being questioned – the G20 needs to do more than geopolitical swordplay. Here are a few areas where G20 leaders **should** find an open goal this weekend: 1) supporting climate-vulnerable countries, 2) finally addressing the debt crisis, and 3) reforming the MDBs. Anything less would expose the hollowness in the summit’s theme, “One Earth, One Family, One Future.”

A seat at the table: For years, ONE has been pushing for a permanent AU seat at the G20. The lack of representation for a continent of 1.4 billion people is a scandal. China, Germany, India, Japan, the EU, UK, and US support the move. This year’s summit might just be the moment, with reports that the G20 is set to grant membership to the AU this year or next. But a lack of clarity for the AU on which African president would actually take the seat (as well as the potential for objections from some G20 members) might kick the can down the road.

From the ONE Team

• Bono and Lawrence H. Summers, former US Treasury Secretary and ONE board member, on what the G20 should do to prevent future economic fires.
• Serah Makka highlights that African countries don’t have too much debt, they have too much expensive debt. She also spoke to Al Jazeera about the climate opportunities for Africa.
• Olawunmi Ola-Busari talked to Citizen TV Kenya about what African countries can do to harness the benefits of the energy transition.
• Gayle Smith spoke to the BBC on how rising interest rates have supercharged the debt crisis.
• Amy Dodd on how rising interest rates will make debt increasingly unaffordable for many countries. She spoke to the BBC about how the MDBs can help address the problem.
• David McNair on the key takeaways from the opening session of the Africa Climate Summit, how to unlock climate finance, and the unharnessed potential of African carbon markets.

The numbers

• 80% of the global population most at risk from crop failures and hunger from climate change are in sub-Saharan Africa, South Asia, and Southeast Asia.
• US$1.9 trillion is needed for Nigeria’s energy transition.
• 2.5 times: How much more South Africa paid for some COVID-19 vaccines compared to the EU.
• #1: Ghana has become the first country in Africa to manufacture a cholera vaccine.

Quote of the week

"The World Bank’s evolution roadmap is currently a roadmap to the Bank’s irrelevance."

–Mahmoud Mohieldin, UN Climate Change High-Level Champion for Egypt and an IMF Executive Director

Hero and zero of the week:

HERO: Health activists in South Africa, who successfully campaigned for the publication of South Africa’s contracts with COVID-19 vaccine manufacturers.

ZERO: Lenders, for concluding that Nigeria should pay 500 basis points (5%) more than Iraq to borrow, despite having the same credit rating. ¯\_(ツ)_/¯

What you should read, watch, and listen to:

• How to close Africa’s climate finance gap. (Project Syndicate)
• The health impacts of climate change threaten humanity. (Washington Post)
• We can’t solve the climate crisis without Africa’s farmers. (CNBC Africa)
• Clean energy projects are booming everywhere. Except in poor nations. (The New York Times)
• Green hydrogen can power Africa’s economic growth. (African Business)
• What we are witnessing in Africa is not an anti-colonial revolution. (Al Jazeera)
• Catholic priest to US Congress: It’s not pro-life to oppose a program that has saved 25 million lives. (The New York Times)

A look ahead

5-8 September: AGRA: Africa Food Systems Forum, Dar es Salaam, Tanzania

6-7 September: 2023 Open Government Partnership Global Summit, Tallinn, Estonia

9-10 September: G20 Summit, New Delhi, India

12-30 September: 78th Session of the UN General Assembly, New York, United States

The ONE Campaign’s data.one.org provides cutting edge data and analysis on the economic, political, and social changes impacting Africa. Check it out HERE.

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