Sub-Saharan Africa, the most vulnerable region in the world to the effects of climate change, needs a great deal more investment in energy and infrastructure, says Standard Bank, Africa’s biggest lender by assets.
Standard Bank CEO Sim Tshabalala told the Institute of International Finance (IIF) annual membership meeting in Marrakech on October 13, that climate change stands out as one of the most significant risks facing the sub-Saharan region today despite Africa having contributed the least to it.
The IIF annual membership meeting forms part of the all-important annual meetings of the World Bank Group and International Monetary Fund. The IIF is the global banking industry’s premier trade group, and the meeting brought together central bankers, policymakers, and top finance executives to discuss key issues including the global economic outlook, climate transition finance and emerging market debt.
Tshabalala said some of the most pressing constraints were in the region’s most industrialised and diversified economy – South Africa.
“But there is good news. The electricity market has been liberalised, and many new investments have followed. Given the new capacity being installed, Standard Bank’s experts are confident that the electricity constraint will begin to lift over the next 18 months – and indeed, there are early signs of improvement,” he said.
When speaking about the obstacles to EME external funding, particularly in market stress, Tshabalala said research showed that African sovereigns had to pay considerably more for debt than equivalent (or worse rated) emerging markets.
One of the potential solutions lies in exchange rate liberalisation, where a freely floating currency reduces uncertainty and arbitrariness, attracts more private-sector investment, and stimulates growth and government revenue. It also enables countries to be more competitive in export markets, with the same positive effects on growth and fiscal revenue.
Budget transparency would also be crucial. “This could happen almost as fast as exchange rate liberalisation since it also mainly requires courage rather than many years of capacity-building,” he said.
“At Standard Bank, we certainly also see the case for more use of regional currencies in regional trade – it’s potentially cheaper and less risky, and we are enthusiastic early participants in the Pan-African Payments and Settlement System. But reserve currencies can’t be willed into existence and, at least for the medium term, there isn’t a substitute for the dollar’s combination of deep liquidity, complete convertibility and universal acceptability,” he continued.
Tshabalala said, “As we have heard here in Marrakech, the global mood is fragile, and worried – a tepid recovery seems to be underway but could easily be derailed. But it’s very pleasing to be able to say that Africa is a bright spot in a generally somewhat grey picture. Standard Bank agrees with the IMF that sub-Saharan Africa will grow at round 4% or a bit faster per year for the period to 2027, and that it will become the world’s fastest-growing region from the 2030s onwards. Then, over the rest of the century, we expect that Africa’s population will continue to grow quickly – in sharp contrast to the rest of the world. – and that it will continue to become healthier, wealthier, better educated, more urbanised, more digitally connected, and more productive.”