Question-and-answer series with Sunil Kaushal, CEO, Standard Chartered AME
What are the roles of the public and private sectors in improving the mobilisation of financial resources towards sustainable development?
Mobilising capital to fund Africa’s development poses a monumental investment opportunity. Let’s look at one striking example of how investment can drive growth: if internet access was expanded to an additional 10 per cent of sub-Saharan Africa’s population, it would fuel the growth of up to 4 percentage points in the region’s real per capita GDP.
Banks and financial institutions (FIs), specifically, are instrumental in financing Africa’s ability to deploy sustainable solutions in key areas of development. For example, it is essential for the public sector to establish an enabling regulatory environment for the private sector to invest in the SDGs and introduce smart public incentives to fasten the realignment of private finance towards sustainable development. The private sector also needs to foster change in company behaviours to transition to inclusive and sustainable markets. Innovative financing models, such as blended finance, should be utilised as key vehicles to incentivise and catalyse private sector contribution to bridge this funding gap. Ultimately, sustainable development can only be achieved once countries establish close collaboration and strong partnerships between the public and private sectors.
How far has Africa come in achieving the SDGs? What more must and can be done?
Although a sizable investment opportunity lies in funding sustainable development, an equally significant funding gap remains, mainly driven by hurdles that hinder the deployment and mobilisation of capital to Africa’s most vulnerable sectors. With a little over 9 years to go, Africa is on track to meet only three goals: SDG 5 (gender equality), SDG 13 (climate action), and SDG 15 (life on land). In fact, the SDG Center’s forecasts show that all African regions except North Africa are unlikely to meet the SDGs by 2030. The struggle is more pronounced for Central Africa across all the goals.
The investment required to bridge this funding gap, which stands at over $500 billion per year until 2030, cannot be provided by governments and NGOs alone. As Africa’s public sector tackles mounting capital deficits, wherein 20 of 54 African countries are either in or at high risk for debt distress, the private sector must intervene. Standard Chartered’s Opportunity2030 study cites that the private sector faces an investment opportunity of $394 billion to fund Africa’s achievement of the United Nations’ Sustainable Development Goals.
What factors hinder Africa’s sustainable growth?
Africa has always promised a myriad of growth opportunities, underpinned by bountiful natural resources and the world’s youngest population, but its potential has constantly been dragged down by a chronic lack of infrastructure and investment. Furthermore, across Africa, ambitions to achieve inclusive and sustainable development are being challenged by insufficient investment in the care economy. Women and girls are delivering millions of hours of unpaid care and domestic work (UCDW) – a provision which props up the economy and strengthens society. Investing in quality, accessible and affordable public services and infrastructure in Africa can address heavy and unequal UCDW and unlock progress across multiple SDGs. While many African nations have scored highly in their response to COVID-19, the global malaise triggered by the pandemic is still having a devastating impact on the continent’s economies. Now, as African nations look to post-COVID recovery, they have an opportunity to adopt a new approach to investment that will help their economies bounce back more resilient than before: sustainable finance.
What sources of funding bear the most potential in driving Africa’s sustainable development?
Blended finance, an investment channel that allows private-sector capital to be funnelled towards projects that are of societal benefit, offers a valuable opportunity to attract philanthropic funds’ participation through its unique layered profile. Short-term financing, although necessary, will not suffice entirely. Banks and FIs must also integrate sustainable considerations throughout their long-term growth strategies and play a hands-on role in facilitating sustainable projects. For instance, Standard Chartered has financed the construction of a facility which provides water to four districts in Zambia, satisfying the water needs of over 1.7 million people every day. Finally, FDI also remains a vital source of financing for development. FDI inflows are directly linked to the main drivers of productive growth and employment creation: the establishment of new businesses and greenfield investments; expansion of operations; acquisition of machinery and equipment; upgrade of technology; and more. However, FDI inflows tend to be distributed among countries with higher growth prospects, a stronger rule of law, and stable institutions. This means that some countries, including African countries, with urgent financing needs, may be bypassed.
What is the global response or sentiment towards investing in Africa? How can investors be incentivised to mobilise capital towards the African continent?
According to the $50 Trillion Question report published by Standard Chartered, which looks at what the world’s largest investors are doing to help drive sustainable development in emerging markets, we found that almost two-thirds of their investments are going to developed markets (Europe and North America), while 3 per cent is being directed to Africa. With COVID-19 making it harder for emerging markets to get the investment they need, it is evident that investors need to expand their focus beyond developed markets.
To mitigate the impact of COVID-19 on FDI, a rethink of many investment policy and related areas will be necessary for African countries. The pandemic has already provided a significant push for digital economy development; governments need more investment in information and communication technology industries to thrive in a 21st-century digital economy. Adapting the policy and regulatory frameworks to support these developments should be a priority.
Removing barriers and red tape to investment is also essential. If the AfCFTA does include significant reduction of tariffs and non-tariff barriers, this could attract market-seeking FDI from within and outside the continent. Finally, investments in infrastructure both hard and soft are vital for long-term economic development plans. Investment policies should focus on attracting FDI into critical infrastructure (roads, ports, etc). Major African infrastructure development initiatives are already supported by FDI from China and Europe, yet much more is needed. Time is running out for Africa to achieve a sustainable future, but the opportunity is ripe for the picking. Through private sector contribution, both investors and investees in Africa’s sustainable development can realise significant returns.