Africa And The UN: Prospects For Growth

>> H.R. McMaster: America and other free and open societies face crucial challenges and opportunities abroad that affect security and prosperity at home. This is a series of conversations with guests who bring deep understanding of today's battlegrounds and creative ideas about how to compete, overcome challenges, capitalize on opportunities, and secure a better future.

I am H.R. McMaster, this is Battlegrounds.

>> Narrator: On today's episode of Battlegrounds. Our focus is on the continent of Africa and the United Nations. Our guest is Vera Songwe, former United Nations under secretary general and former executive secretary of the Economic Commission for Africa. Dr. Songwe has held several crucial positions at the World Bank, including lead economist and an advising role to the managing director of numerous regions.

She served as a country director for Senegal, Cape Verde, The Gambia, Guinea Bissau, and Mauritania and oversaw numerous projects across Africa and Southeast Asia. Dr. Songwe is the author of several articles on governance, fiscal policy, agriculture and commodity price, volatility and trade. 51 nations signed the original United Nations charter by the end of 1945.

After years of discussions between allies regarding the need for an international body to promote peace and prosperity, the founding UN members, including only four nations of the African continent, sought to build a coalition that overcame the deficiencies of the League of Nations, which failed its mandate to promote peace when one member, the Soviet Union, invaded the territory of another, Finland in 1939.

The UN's initial mission to maintain global peace in the wake of World War II quickly expanded into a variety of efforts, and agencies focused on those efforts, such as health, migration, climate, and culture. From 1945 to 1980, dozens of African nations gained independence from colonial rule and joined the United Nations.

African UN members advocated for continued decolonization and expansion of self governance on the continent. In 1958, the economic and Social Council of the United Nations established the Economic Commission for Africa, or ECA, as one of the organizations five regional commissions. Its mandate is to promote the economic and social development of relevant member states, foster regional integration and collaboration, and to promote African development.

The ECA aims to build a more peaceful and secure continent and bolster Africa's economic infrastructure. As the first female ECA executive secretary, Dr. Songwe played a substantial role in creating the African Continental Free Trade Area, responded to Covid-19 needs, led an economic recovery, built partnerships with private sector groups, advocated for women in entrepreneurship, and fostered sustainable economic growth.

The African continent represents 20% of the earth's habitable surface 1.39 billion people, or 17.7% of the global population, live in Africa. The regions 59 countries range from low to high income countries, and the continent accounts for 2.8% of global economic output. 22 countries are fragile or conflict affected.

The population of Africa could reach 2.49 billion by 2050, about 26% of the world's total, and 4.28 billion by 2100, about 39% of the world's total. The continents young population and rich natural resources represent tremendous opportunity. But the continents countries and regions face significant challenges associated with authoritarianism, terrorism and armed conflict, health security, water and food security, energy security, climate change and migration.

We welcome Dr. Songwe to discuss the future of the United Nations, as well as security, economic growth and development on the African continent.

>> H.R. McMaster: Doctor Vera Songwe, welcome to Battlegrounds. Hey, it's really a privilege to have you here to try to do the impossible, which is to cover the African continent in less than an hour.

Thank you so much for joining us.

>> Dr. Vera Songwe: Thank you for having me. First of all, happy new year to all our listeners and to you, and thank you for doing this.

>> H.R. McMaster: It's a privilege to have you here. And I think it's so important for Americans to understand dynamics on the African continent.

In the intro, we heard about the complexity, the diversity, the importance of the continent, the dynamic nature of the continent. And I just thought maybe I'd begin with a very general question so you can maybe share with our viewers what you think the greatest challenges and opportunities are on the continent?

 

>> Dr. Vera Songwe: Thank you again, and yes, you're right. And this is an interesting time to be having this discussion, because we've just coming from the US Africa Business Leadership Forum, hosted, of course, by President Biden, and I think, which went very well. So this is, hopefully we can continue and have more of these conversations on the continent.

The biggest opportunity on the continent is, I think, the innovative capacity of the continent, right? It's the opportunity, the economic opportunity that the continent has. I've always said that we sort of went from fighting for political independence to now getting into a stage once we pass the African continental free trader agreement, fighting for economic independence.

And that really then means globalization and how we interact better and find new markets, provide new markets, and new opportunities for the rest of the world. The United States has just passed the Inflation Reduction act. One of the big points of this act is to say that, the US wants to become more independent on sort of chip manufacturing, push the curve on sort of seeing how we can do more digitization.

A lot of the raw material are on the continent. It's a big component of the IRA that says, we're gonna pay for businesses to explore in the United States. But we already know where this is found on the continent. So I think, being able to create those kinds of partnerships which will reduce cost, increase production, and end up creating jobs on the continent.

So less migration, by definition, I think, are really where the opportunities on the continent lie. I think the big challenge for all of us now is peace. We just need peace. Globally, we need the fear, I think, as we all get into 2023, is that we're going back into sort of a splintered world.

I don't wanna call it bipolar per say, but are we gonna have different sort of centers of tension and gravity as opposed to coming together and seeing whether we can create spaces to have peace. We all know that a dollar spent in sort of protecting and ensuring and enduring peace is much, much better than the $16 that we need to spend once we have broken the peace.

So economically, it makes sense for us to get back to peace across the world. And I think this is one of the biggest challenges that we're facing on the continent. We have coup d'état. We continue to have a lot of civil strife in the Libya's of the world that are creating a Sahel that is unstable.

We still have pressures coming from Boko Haram and the rest of the world in Mozambique. And so we also need to be able to address those issues, which are global issues, but are being played out in an African theater.

>> H.R. McMaster: Vera, it is this combination of economic drivers and political drivers of violence on the continent.

And what's great about having you on this program is that you're much more than an academic. You've been involved in implementation and running programs to address these challenges and overcome them. Could you tell our viewers a little bit more about what you worked on in the World Bank to overcome some of these challenges, to provide people with hope and employment and in a way that hopefully can reduce the violence and the drivers of conflict?

I mean, I think you raised nearly $50 billion in investment in low income countries. And are you deploying, or how do you think those investments ought to be deployed? And what outcomes would you like to see in the areas of economic development, but also, as you mentioned, security and maybe even incentivizing necessary political reforms?

 

>> Dr. Vera Songwe: Now, thank you very much, I think at the World Bank, I was working on what we call the World's Fund for the poorest, which is IDA, the International Development Association. So the World Bank has two different pieces of its structure, one is for the more emerging developing countries, the IBRD International Bank for Reconstruction and Development, which was created immediately after the war.

And then we have the IDA fund, which is the fund for the poorest. And there we were able to raise a over $50 billion for development of those countries. But even more recently, just a year and a half ago, with what we call the special drawing rights, we were able to raise $33.5 billion again for the continent in the middle of COVID.

And a lot of those resources went to see how can we ensure that countries have access to the vaccines. That once there is a crisis, as we all saw African economies were losing anywhere in the order of $60 billion a month because of the shortages that we were witnessing across the world.

If you take an economy like Morocco, that is a tourist economy, totally shut down on the COVID, Seychelles, Mauritius, Kenya. And so what we were trying to do was see whether you could also put some resources, what you call social safety nets, which is income transfers to some of the poorest people, not very different from some of the packages that were issued in the United States.

I think under IDA, what we try to do is for many of these low and poorer economies on the continent, the first thing that you need to do is build institutions. Building institutions sometimes people don't realize there's no fancy building that you go and cut, right? But when you talk about building institutions, you go from, say, a country that has access to a growth program.

I take Senegal, for example, before, which was growing at 2.3% and today is growing at 6.7%, because in the interim, we're able to work with them to improve on their business procedures and bring more businesses into the country, improve on energy supply. So once you have a doing business framework that is respected, acknowledged and recognized by the international community and the private sector, more business flows.

If you take a country like Nigeria, you go from tax revenues to GDP at 5%, and you work with them, and you grow into 8, 9%, it means that they have a lot more fiscal space then to invest in infrastructure, which can and then create jobs and bring the foreign direct investment in.

And many of these examples that we get in Mauritania that went from, you work with them to see how we can review and revise some of their shipping regulations. So the businesses that are shipping on the shores of Mauritania, and by the way that a western coast of Africa has some of the best shrimps in the world, if not the best shrimps in the world.

But then we need to protect them in this age of biodiversity and conversations on climate, is to see from Guinea-Bissau to Senegal to Mauritania, how you can ensure that that works well, police the shipping boats. These are the kinds of things that those resources go towards. So initially you may not see the direct benefit, but in Mauritania, for example, then creating jobs for over 20,000 women.

Because the fishing industry is essentially the men go out and to the seas, but the women do a lot of the business that is the manufacturing part of that process. So I think that's where we put those resources to today. A big conversation around getting additional resources, really for infrastructure.

We still have 600 million people on the continent do not have access to energy. This is just individuals, let alone talking about energy for industrialization, which is mission-critical. And so how can we make sure that we make those things work? One of the things we did was to then see if we can pull our resources.

We haven't yet succeeded in creating a Hoover dam, right? And so seeing how one can use that collective resource across the continent. We hope that with DRC, we can do something like that using the Inga Dam and inspiring ourselves from the US example.

>> H.R. McMaster: So, Vera, I'm thinking of two eyes, right?

Infrastructure and institutions, which you brought up. And I know that you worked very hard on the UN Economic Commission for Africa's mandate and as the executive secretary, and of course, I'm sure you encountered a heck of a lot of challenges to improving economic growth and development. And some of those lie in the areas of governance, which you can get at through institution building.

But what I concluded from time working on corruption and organized crime in Afghanistan is the problem often is one primarily of political will. And many of these political organizations are stakeholders in state weakness. Because the weakness of state institutions and functions gives them impunity and license to steal.

And I wondered if you might just share with our viewers, how did the commission work to overcome those and other obstacles to growth and development?

>> Dr. Vera Songwe: I think this is a very good question. I think the question around corruption, and we should call it by its name, and I'm on record saying it's one of the biggest cancers for our continent, is really about how that one brings transparency to the system.

And I think we are beginning on the continents to see a lot of that happening. If you go to Egypt, for example, now a lot of the services are only provided digitally, so there's no paper trails, right? The picture of a corrupt system is a system with a guy and a lot of paper around him, right?

Because the more paper changes hands and the paper-

>> H.R. McMaster: And stamps, everybody has to put their stamp on it and get a little, right.

>> Dr. Vera Songwe: Stamp, exactly.

>> H.R. McMaster: All the opportunities for rent seeking behavior.

>> Dr. Vera Songwe: Exactly, every stamp creates a rent seeking opportunity. So if you can digitize those, and the French have a very good word for it, which is taking away the human piece of the engagement, right?

If you have that, then one of the things that happens is that immediately, you get into a space where you have taken away corruption. And we're beginning to see that, I think, again in Rwanda, of course, in Senegal, in Cote d’Ivoire. And many more countries, the whole tax payment systems is beginning to become more digitized, more e taxation.

We know where the opportunities for graft in our systems are, I think that's an important part. But the other part, which is just as critically important and as you said, it's political will, is in the event that there is eventually corruption, the penalties for it need to be visible.

They need to be swift because there has to be a deterrence factor. If there is a sense that there is no retribution for impunity, then you don't really get, the reaction that you're looking for. But corruption on the continent, is two ways. Because one of the things that we've been working on, and we worked with this with Ngozi as well, who is now the DG of WTO and, Christine Lagarde, at the time when she was minister of finance of France, is really, it's a two way street, right?

We have to be able to, there's a lot of sort of petty corruption that happens, but there's sort of grand theft, which we've seen with the Tunisias and many of the countries that sort of where we have looting, massive looting. With resources moving into other geographies, and how we can sort of work with the international community to get back those stolen assets and bring them back to the continent.

And DRC, again, is another case in point where there's tons of stolen assets. Nigeria, as we just recently we got some resources returned from the Abacha days. I think the international system, and I think on the Dodd Frank in the United States, at some point there was some work that was being put in place to see whether we can unpack that.

The danger sometimes with some of these policies is that in the interest of doing a lot of goodwill, we end up sometimes doing a few bad things. And so for Dodd Frank, for example, of the components is around sort of minerals and ensuring that there is no sort of blood minerals or blood diamonds in the system.

But just putting that law, what ends up happening is it actually dissentivizes because we do not create the institutions to make the law effective right? So there's a Kimberley process, for example, on diamonds, where we can sort of work on it and identify and track and with digitization, you can do that.

But we haven't done something similar for the other commodities on the continent. So Dodd Frank today fights corruption yes, but it fights corruption by just stopping all us investments into the sort of resource sector of our continent. Because nobody wants to touch that because then you get into trouble with Dodd Frank.

So I think we do need to work on how we can make sure that the laws build institutions and not just sort of penal cases for the investor. And something that we could work on anti AML, where we can exchange information on corruption between sort of jurisdictions so that we can ensure that we go after the corrupt leaders.

We've not succeeded on the continent in working with the Europeans and others. Now, actually, before a lot of the resources went to Switzerland, right? But now we have Singapore, Indonesia, a diversity of jurisdictions where resources from the continent can go. And we do need, I think, global support and global efforts to see how we can ensure that those resources stay on the continent.

So it's a two way street. The sort of corruption, fighting corruption conversation is what we do on the continent, which we can do with digitization of processes and as you said, stamps and taking away the paper. But then there is a sort of massive crime. I move from corruption to crime now, where 1, 2, 3% of GDP is being sort of looted, but kept in jurisdictions that are out of the continent and how we can work together.

And President Thabo Mbeki and the Economic Commission for Africa have done a lot of work on what we can do with illicit financial flows, how we can stop them and ensure that those resources are put back to development in the countries that have them.

>> H.R. McMaster: Vera, this is a super important point.

And for our viewers who are taking notes, I'm adding another I, which is incentivize reforms and transparency and accountability and the development, as you're suggesting, of insulated investigative. And adjudicative bodies, as well as maybe a fourth eye, internationalize the effort to keep track of these illicit financial flows, but also the flows of weapons and narcotics and precursor chemicals for narcotics and so forth.

All of which, of course, strengthens these organized crime networks and strengthens these insurgency and terrorist organizations as well. And I think now, in terms of security, these are, of course, overlapping problems. Poor governance leads to the growth and strength of these organizations who gain access to all kinds of illicit trafficking, which then enrich them and make them sometimes stronger than the state and its security forces.

I know that you also worked directly in security on how to protect civilians and UN personnel, especially in Ethiopia, during the civil war. And I wondered if you might share some of your observations on that effort in Ethiopia and what was particularly difficult and disappointing, as well as what you were able to achieve there.

 

>> Dr. Vera Songwe: Look, maybe just to go back again to that, we started with some numbers. So 50 billion is what we raised for IDA, the international development association for the poorest. 33.5 billion is what we raised under the sustainable, the special drawing rights for the continent. It is assumed that we lose about 50 billion a year on illicit financial flows that go to exactly, as you said, propping up this illicit organizations from the Boko harams to terrorism.

And so I think when we talk in global conversations around even securing the peace, and as I said initially, you know, it's $1 to protect the peace, it's $16 to bring back the peace. So the economics of it are very clear in every jurisdiction. I think that what the big message that one learns from all the conflicts on the continent is essentially that the faster actually, that we don't want conflicts it's prevention of the conflict is the first thing.

Because once the conflict begins, it's a lot more difficult to stop it. This is, and I think we're seeing it in all geographies across the world right?

>> H.R. McMaster: It's a disaster in the Sahel. Now, you mentioned Mozambique, where, where the terrorist problem is growing by orders of magnitude.

I mean Somalia, as everyone knows, has been in conflict for so long. And I mean, it's just really become a crisis. In, across much of the continent, from West Africa all the way to the horn.

>> Dr. Vera Songwe: It has become a crisis and I think it's a crisis that, again, we go back to the word institutions.

One of the things how what are the challenges? What are some of the lessons that when one looks back, one thinks about is I don't know that we have the sort of kind of military colleges that we need to build the kinds of general McMasters of the continent that can both know how to keep the peace.

Build the peace because the peace is not just about keeping it right? It's about building it continuously. I think we always take for granted the presence of peace. But actually keeping and protecting peace is a lot more difficult than going into war. Actually, going into war is probably a much easier option in many cases.

And so I think the continent needs and requires, and it's not just the continent. It is, again, a global issue because we've seen when we have issues or whether it's on the horn with the terrorists in the sort of hijackers and or in the western part of the continent.

I come from Cameroon what we see is the pirates on the high seas essentially are attacking all of us right? It's economic assets that are coming from the rest of the world that are being attacked and pirated. And so we do need, and those pirates eventually become the ones who then prop up the terrorists that we see in Mozambique or the terrorists that we see in Kenya, Nigeria, Cameroon.

So essentially, I think that we do need to look at it as a global problem. It's a global security issue. I think one of the problems we have today is we have not looked at it as a global phenomenon. So we've dealt with Afghanistan, and then we go and we deal with Iraq and then we deal with Iran and we deal with Syria.

But all of those, the. Syrians are showing up in the Sahel.

>> H.R. McMaster: Absolutely, yes. North Africa is one of the greatest recruiting grounds for

>> Dr. Vera Songwe: Exactly.

>> H.R. McMaster: In Syria and in Pakistan and Afghanistan. ISIS is a great example of this, as well as al Qaeda. The degree to which they have reach all the way from West Africa into Central Asia.

 

>> Dr. Vera Songwe: They're globalized. And so we must deal with them as global phenomenons. And I think that the leadership on the continent has always called for this. As asked, we have sort of individual national consultative conversations around these issues. But they are not individual national issues, they really are global issues.

And we've seen how spread, again, how quickly they can spread and how debilitating they can become. I mean, today we have lost the Sahel essentially because of the crisis in Libya. And let's not forget that again, one of the things as a continent we've been talking about is the crisis in Libya essentially is an exported crisis because, or an imported crisis.

It's parties from out of the continent that created this crisis in Libya. And today we are left with how does Africa deal with it on its own? And I think for the youth of the continent, it's a little bit unfortunate. But the opportunity, again, is this youth, I think, are more willing, more ready and more able to have discussions that are global and finding sort of global solutions to those problems that will, see how we bring peace.

Not just to Libya because we need peace in Libya, but we also then need peace in Niger, where you have leaders that have a development agenda for their country but can never put it in place because every other morning we're dealing with a security issue. Or in Togo or in Burkina Faso today, which was many years ago, we would have never thought that anything happening in Libya will impact Burkina Faso.

But today Burkina Faso is wrapped into all of the Sahel's problems and we hope that it doesn't spread even more.

>> H.R. McMaster: And Libya has become a transit country for refugees coming out of the Sahel, much like Mexico has become a transit country for countries that have security issues and economic deprivation in the western hemisphere.

I wondered, of course, you do need willing partners locally and some outside powers do not play a productive role, Vera. And I'm thinking, of course, of the Russians and how the Wagner group has moved into West Africa. I'm thinking, of course, the role that China plays in so many countries that in pursuing almost, I think you could say, a new form of colonialism with predatory loans and debt traps set for countries and kind of just the extractive objectives of the Chinese Communist Party associated with minerals.

Like in the DRC, for example, where you see them employing child labor or almost kind of a form of slave labor. And so I wondered if you might share with our viewers what your assessment is of the role of some of these other outside powers, especially Russia and China, and what more might be done to partner with local leaders to help convince them, hey, focus on the eyes, right?

Institution building, what we're talking about, and pick some different partners to work with.

>> Dr. Vera Songwe: I mean, this is a great question again, and because of the US Africa Business Leadership summit, and I wanna go back to this and Dodd Frank and the minerals, because a lot of our resources, Africa is resource rich.

We have 70% of the minerals that the world needs. But institutions are important. And many people don't know this, the reason why we sell the minerals to China is because the US market is closed because of good intention. The good intention was the US does not like child labor.

So the US says we are not gonna bring in any minerals that are produced or mined with child labor. So congress passes a bill that says no child labor. And what is the reaction of US business? Because we cannot determine whether there is one child that was used in the process, we just are gonna shut ourselves out of the whole market.

And so what has actually happened is a bill that was very well-intentioned has ended up saying no minerals from Africa into the United States.

>> H.R. McMaster: And it's even worse because those minerals are going to factories in China that are using Uyghur slave labor, for example. So, I mean, I think

 

>> Dr. Vera Songwe: I don't know about that. But I think the point then is we have, as the United States and Africa a way of doing this. Create an institution that oversees, that monitors, that regulates, that supervises, and that puts a label that says

>> H.R. McMaster: It audits these supply chains, absolutely.

I think if any of our listeners are looking for a business idea, right, come up with a model for auditing supply chains and pulling the curtain back on.

>> Dr. Vera Songwe: And if any of our listeners and any of the business community is interested, I mean, the value of this market is a $30 billion commodity market, right?

So this $30 billion commodity market today goes to the east.

>> H.R. McMaster: And, you know, I'll tell you, Vera, hey, don't you think forced labor should be an ESG issue? So I think this should be a topic of conversation in every boardroom as well.

>> Dr. Vera Songwe: JP Morgan today spends or the financial sector, the top five, 10 large banks in the United States, they spend anywhere in the order of two to $300 million a year trying to comply with ESG regulation, right.

Imagine if you created one institution, $200 million, $300 million a year to make sure that all the minerals coming out of the continent are certified, are verifiable. We will create even more jobs, interestingly enough, because it will be a service industry to certify every mine that is producing, whether it's the cobalt, whether it's the lithium.

So there is a business case there for it. And I think the US is the leader. Again, I go back to the Inflation Reduction act and the $65 billion that is in that act to go and source minerals for the United States. Sort of digitization and chip industry independence, I think if we worked with

 

>> H.R. McMaster: And batteries and magnets, everything that Zambia, Mozambique, Botswana, we can all do these batteries for you. But come to us, invest with us, we can make sure that we are not using child labor. In DRC, they've started working with the Economic Commission for Africa. They've started an institute to educate a new set of engineers.

And so we'll put those kids back to school because we're gonna need them. We're gonna need their brains back in the battery factories. Today, we don't have enough of the engineers that we need to create this battery. So I think there is a win win solution here. My sense is the conversation that goes by Africa needs to stop selling its minerals to other geographies.

As long as we have a constraint that says you can send it to us, we need to sell it.

>> H.R. McMaster: Okay, Vera, I'm thinking of another eye. Information, right? Providing information about these supply chains, pulling the curtain back on them, and then also informing, I think, the African public as well, especially about China's practices, right?

The new vanguard of the Red Army, the Chinese Communist Party, is a Chinese national bank official with a duffel bag full of cash who pays off officials and debts that country for multiple generations. And then what you get is then you get a Chinese company, with Chinese workers, who get paid and their money goes back to China, and it doesn't have that lasting benefit for the continent.

So, I'm hoping that this new initiative in the US is gonna be helpful. But also, you have a lot of experience in this, in the financial aspect of sustainable economic development and growth. And I'm thinking about your work with the liquidity and sustainability facility. And could you share with our viewers how we need to revise and adapt the global financial architecture.

To foster growth and development in Africa, and of course, with benefits across the world?

>> Dr. Vera Songwe: Thank you for giving me the opportunity to talk about this, because I actually think that one of the biggest missing institutions on the continent today are the financial institutions. I tend to say that the Bretton woods institutions were created after the war, 70 odd years ago, essentially, when we were all low income countries.

And today, 75% of the African continent is middle income or developed emerging market economies. And the infrastructure for that is like roads, right? We had farm to market roads, and now we need interstate highways. And we don't have the interstate highways to go with the stage of development we have arrived at, and the financial space.

And so, what are we trying to do with the liquidity and sustainability facility? Essentially, today, when Africans go to the markets to raise resources for their development, and this is important, critical and needed. Because the sort of development institutions, the World bank, the IMF, the EIB and bilaterals, do not have enough resources for the continent to develop, so we need more.

Where can we find those resources in the markets? There's trillions and trillions of dollars in the market, that everybody accesses, develops as well as the developing world. However, one of the reasons why we can access those resources is because there is a market infrastructure there. That allows us to use those resources, while the owners of those resources do other things with them.

And so there's a whole collateral management system around access to markets in the financial sector, that Africa does not have. So when you issue an African bond, or if you go to the markets to get resources, people don't want to buy your paper. Or they buy your paper, but they in some sense charge you, for the fact of keeping your paper, because they cannot resell your paper.

They cannot convert it into liquidity very quickly. So essentially, I don't wanna hold paper from Africa, that I cannot convert into liquidity. Because when I need liquidity very quickly, then I can liquefy a US treasury bill, I can liquefy a UK guild, but I can liquefy bond from a random country on the continent.

So then I charge you for that, for that cost of sort of holding illiquid cash. What the liquidity and sustainability facility is doing is to say, we're gonna take away that component. We're gonna create a secondary market, so that you can also make liquid Africa's bond issuances as quickly as you want.

That immediately creates more resources in the system. It gives more equity, more liquidity to the system. And I give an example because sometimes it seems very far away. If you look at just a few months ago, in the UK, when we had the crisis and interest rates were going up.

And the UK government could not service its needs to make its own, its obligations, what did the bank of England do? The bank of England came in and provided liquidity, to the UK government at accessible rates. It also provided liquidity. A lot of the businesses were able to mortgage or collateralize some of their assets.

To get liquidity quickly to pay for some of their bills that were coming due, for which they couldn't have access, because the markets had essentially shot out on the UK. That essentially is what we're trying to do for Africa. And there is a difference between needing liquidity, and going bankrupt or becoming insolvent.

The problem on the continent today is the minute a country has a liquidity crunch, we say, they have a debt crisis. So we move them from just having a temporary liquidity crunch to a debt crisis, which is a lot more difficult. The markets react a lot more stringently and penalize you, a lot more, when you have a debt crisis.

if you have a liquidity crisis which we could solve, we could solve it much faster, and you could continue to grow. So I think we are also giving the space for the continent not to have the sort of fits and starts, where every time there is a liquidity crunch, it's converted into a debt crisis.

And then we have to sort of fall back to the bottom and start up again, and putting Africa on par with the rest of the developing world that has access to the kinds of resources it needs. We have just seen five external crises. We've just talked about the crisis and sort of instability piece, which is essentially external to us as a global crisis.

We have COVID, we have climate, we have inflation in the united states that is also hitting. And so, and then, of course, a lot of the political crises on the continent. Once you have all of that, and then we have the shock of China's growth. We talk about China on one side, but China essentially was one of the countries pulling global growth.

When China grows from 10% growth to 2.7% growth, it means that it's global demand that contracts enormously. And the rest of the world sort of needs to. Today we're worried about sort of a huge reopening of China and whether that will then continue to fuel inflation or will it contain inflation.

But it has done the reverse as well. So I think we do need to find the kinds of financial instruments, that will allow Africa to build, an economic base that is more resilient to this kinds of persistent shocks. And one thing we know for sure is we're gonna continue having a lot more shocks in our system.

 

>> H.R. McMaster: Well, Vera, I think your perspective is particularly valuable on all of these problems because you've worked across all these problem sets and you understand how they're interconnected. And I think one of the deficiencies that we have in talks about climate and the effort to reduce carbon emissions.

Is those conversations often happen in a way that is disconnected from the need for continued economic growth and development. And it's disconnected from energy security issues, which are really important on the continent. And we're talking a little bit about this artificial concentration of so much of the world's manufacturing on the southeastern coast of China.

Well, of course, one of the ways that that's happened is really no, or very low ecological standards and standards associated with carbon emissions, right? I mean, I think the Chinese, we're building up to 80 coal fired plants a year, financing 80 coal fired plants a year, many of them in Africa.

And you've worked very hard on climate issues. Could you share with our viewers what you think is a viable path ahead, in terms of reduction of carbon emissions, but also in a way that preserves energy security. And allows for the economic growth and development that's necessary, to lift people out of poverty, give them future generations a better life to live.

Oftentimes Vera, I think it's a false dilemma. If we think about these interconnected problems, we can maybe get something done. So, I know that you co authored a report on, finance for global action. You're part of the roundtable of UN climate champions. You've been involved with this for a long time.

What is your perspective? What can we do to have a more rational and effective approach, to these interconnected problems.

>> Dr. Vera Songwe: Now, thank you. I think the climate crisis is the crisis of our time. It is the crisis of our generation today. And I was honored to work with Professor Stern, Stern on this report on finance for climate action.

And essentially, we say in the report that addressing the climate challenge is not a nice thing to do or something that we do, once we're done doing everything. It is the thing to do, it is crucial, the precipice is upon us and we must address it. At the same time, part of addressing it is looking at where we are today.

We know that 20 countries in the world, of which the top five, the United States, China, Germany, India, are some of the largest polluters in the world. And the question then becomes, how can we move from sort of that set of large polluters into a net zero environment between now and 2050?

What are the trajectories? What are the paths? A big question is, if you look at Norway, Norway today, because of the crisis in Russia and Ukraine, is producing more gas than it has ever done in all of its history, right. And it has allowed countries like Germany to go from almost 0%, from 23% procurement of gas from Russia to zero today.

Essentially, they have substituted all the gas that they were getting from Russia with Norway. This is fantastic with Norway and the Netherlands, by the way. Norway has even gone to reopening some coal plants. So the conversation that we have on the continent is, if we can afford for a Norway that has all the sophistication, all the technology to, quote unquote lip frog, to clean technology to still go backwards and retro seed into coal, then it is almost impossible not to have the composition that says Africa, that has an abundant supply of natural gas, should not use its natural gas.

Again the global emissions from Africa are 4% of all the emissions of the world. Even if we were able to triple our gas production today, we will only increase that global emissions number from four to five. So the dent that we are making is not big, however, because we are not using gas which is slightly cleaner, we're using diesel.

So half of the car fleet in Nigeria is diesel, half of the car fleet in DRC, or even 60%, every house in Nigeria is powered by a diesel engine. If we could replace all of that, the net benefit, again, is much, much bigger. So I think the conversation here, and prior to the war in Ukraine, there was a conversation about no use of gas.

Now we talk about energy security, the United States is exporting gas to Europe, right.

>> H.R. McMaster: Right.

>> Dr. Vera Songwe: The United States is assuring, and I think what we can do is ensure, by working with Africa, which has actually an abundant supply of gas, probably much cheaper to procure, to see how we can fast track that transition.

And once you've done that, can we then do a sort of gas to hydrogen?

>> H.R. McMaster: Absolutely.

>> Dr. Vera Songwe: Building gas to hydrogen cycles, and make sure that we then actually transform. So there are two parts, the first part is the developing world needs to begin to look at pulling itself out of fossil fuels.

The developed world, sorry, the developed world needs to stop. The developing world needs to look at what is that transition. So for Africa, we have a transition which needs gas. And so we can argue that, that transition is important and give us. And the IEA anyway says that even if all of us were to stop using gas today, we don't have enough renewables, this is where the battery conversation comes in, able to power the industries that we need.

So there is still a transition period. Within that period, we should make sure we do not create stranded assets, this is the important thing. No investment that goes into the energy sector today should be an investment that will be stranded in 15 years and hence the reason to start doing combined cycles of energy production.

 

>> H.R. McMaster: Yeah, Vera, I mean, you're making so many important points here. I think global energy demand is going to go up by 50% between now and 2050, renewables will only cover 28% of that. The largest reduction in man made carbon emissions ever was really the conversion from coal to gas in the United States based on a free market dynamic of available cheap gas.

And by the way, US gas is a heck of a lot cleaner than, for example, Russian gas. So its really standards as well for the carbon generated in the extraction and transit process. And then your idea, I think, is really important of gas infrastructure that can be converted to hydrogen and then be combined maybe with these Squared or next generation nuclear reactors, which I think we need to rename to clean fusion because people get freaked out when you hear nuclear, but you need this whole range and renewables, you need everything.

And we could do it, but we have these irrational impulses like, okay, all electric cars, hey, if those electric cars are recharged with electricity generating a coal fired plant, that's even worse. Or, hey, get more solar panels from China, well, those solar panels are manufactured in the dirtiest way possible.

So I really think, again, it gets to this point of information and supply chain audits and just being rational human beings when we come up with these solutions. Information, you said it well, information is really the key.

>> Dr. Vera Songwe: When you look at the coast of West Africa, Senegal, Mauritania, you go to Mozambique.

I think today one of the abominations of the continent of Africa is that we see gas leaving Mozambique, leaving Algeria, leaving and going to Europe. But we're having the same conversation that says that Africa cannot produce its own gas in Nigeria, right. What you need to do is go to Nigeria and say, you guys have diesel.

Let's convert every diesel engine into a gas engine with the sort of endgame of eventually having a fusion process through hydrogen or nuclear, because we know that nuclear is going to be the end game at some point. I think that if we could do that all hydro, because we have a lot of hydro on the continent as well, can we again look at how we use some of our hydro assets.

But it is this, I think we should just call it by its name, it's the hypocrisy of the conversation. Where there is a lecture about don't use gas, and then one day we say, no, this is not about just growth and development, it's about energy security. In Africa, energy security is growth and development, and growth and development is about energy security.

So our kids cannot go to school or the school day ends on the continent for an average kid at 05:00 when the sun goes down. We need, we cannot innovate with that kind of access to electricity, so we needed a lot more. So for us, it's a livelihood, sustain and security problem to have the right kind of energy.

But as you said, the United States has one of the cleanest gas and LNG standards, getting agreements between the United States. So today the United States has guaranteed German energy security, fantastic. Why doesn't the United States work with Mauritania, Senegal, Mozambique to produce LNG, that is needed to send to Germany?

 

>> H.R. McMaster: Right.

>> Dr. Vera Songwe: These are the kinds of processes. So rather than saying, we'll go and explore for gas in some other pipeline that is coming out and create all kinds of political conversations in the United States, we have gas in Mozambique. Bring Mozambique and let's send it to Germany, everybody will be the better off.

 

>> H.R. McMaster: And the EU, as one of the major customers now for oil imports, could impose some sort of attacks on gas that is less clean, for example. I think this point of the other eye we talked about is incentives. Incentivizing the development of clean extraction and transit of natural gas as a bridge away from coal.

Because as you mentioned, I mean, Germany shut down the nuclear reactors and then they fired up their coal fire plants again at the same dynamic, for understandable reasons, after the Fukushima disaster happened in Japan, it's like we're doing the opposite.

>> Dr. Vera Songwe: Companies are asking South Africa to, I mean, we have the jet peas, and South Africa is working to move out of coal.

But now coal has become, the rate of return of coal Investments in South Africa is probably, it's becoming more lucrative, just as in Norway, by the way. And so there is a conversation about, should we open up some coal plants? But I think that if we could use us technology and say we wanted to make sure that Europe got the energy security it needed, but with the best technology.

And with affordable, accessible gas, which is sitting on our continent in any one of those Tanzania, I mentioned Mozambique, but you could talk about Tanzania. You can talk about Kenya, of course, on the other side, Cameroon, Senegal, Mauritania. There is gas all over the west african coast. So I think the question, again is, what is the incentive?

What is the incentive structure that allows US LNG firms to come and work in Africa? Where is the financial, where are the financial resources? I must say today that the US infrastructure with DFC and MCC and US Exim, there is an infrastructure there that could actually accompany this firms.

 

>> H.R. McMaster: And this is developed for our listeners, the Development Finance Corporation, export Import bank, combined with another organization. To be able just to underwrite risk for viable investment opportunities abroad. And I think it's a very important initiative, still a little bit underutilized. We need to get more American companies excited about the business opportunities in Africa.

 

>> Dr. Vera Songwe: And that's what we are trying to do with the US Africa Business Leadership Food Initiative. We call it the food Initiative, but it's actually looking at energy, it's looking at digitization, it's looking at infrastructure improvement, storage. Because a lot of sort of food security really depends on many things that are not on the farm.

So, of course, there's going to be a lot of work on improving the seeds and the quality, but the whole sort of transportation and financing process is going to be just as important. So we hope that we can work with sort of. So, my, you would have noticed by now, from the questions you're asking and from my answers, my approach to a lot of this is, yes, we can complain about everything that we don't like.

But we can find solutions that make it, as you said, market based, competitive. If the United States can show us market based, competitive methods of producing LNG, of exporting our commodities, of buying our gas, we wouldn't need to look at all the geographies. The exports of Africa to the United States are dropping at an amazing rate.

And so if we could, you have been overtaken by, Europe was always the largest, our largest export and import destination. But China has risen, India has risen. Africa is almost larger than you guys, right? So I think the question is, how can America, with all of its competitive strength, come back and take the space?

I have done a paper that shows that when Africa trades with the United States, we add more value, we create more innovation, we create more jobs over the long term. So it's a no brainer for a business on the continent to do business with the United States, but we need to create the incentives and we need to create the institutions that make that happen.

 

>> H.R. McMaster: Yeah, absolutely, and the Hoover institution is the home of Milton Friedman. So this is music to the Hoover institution's ears about free market, free market solutions. And so I wonder if we might just then talk about aid and what makes aid effective. And I think it's clear from our conversation, you believe that the best aid is a viable sort of economic and financial relationship that unleashes the free market and creates opportunities.

And in countries that have the institutions to ensure that resources aren't diverted, that there can be an investment in infrastructure and institutions. But what do you think have been the most successful frameworks for international assistance that you've seen? So I'm thinking of some recent criticisms of aid. Dambisa Moyo's book, Dead Aid highlights that donors and recipients form these dependent relationships.

That benefit the donor more than they do sometimes the recipient, and disenfranchised, maybe even the recipient. Or Mark Moir's observation in a book called Aid for elites. Where he says that aid efforts disappoint because of, as you already mentioned, underinvestment in human capital and underinvestment in institutions. So in your experience, could you maybe take a critical view of aid and then how aid should shift to take maybe advantage of the free market and to be more effective?

 

>> Dr. Vera Songwe: I mean, I think there are two ways of looking at it. One of them, of course, Jeffrey Sachs and the others who talk about putting a lot of aid into the social sectors, education, health, and essentially grant resources. When we talk about aid, I think people get confused.

Just for the purposes of our listeners, in the aid infrastructure, there is grant aid, which is essentially non returnable resources that are given to countries. And then there is aid, which is loans, which essentially is but very concessional, cheap, lower than market price cost loans. That are given depending on your development needs and I your stages of development.

So I think if we take the first one, which is the grants sort of component, which is what you get with IDA the sort of international development association part, this is 40 year loans at ten year grace. Essentially, there's nothing to pay back. I think Jeff Sachs makes the case for that.

Maybe what we need to do is throw it at education, throw it at health, throw it at some of these public goods resources that we need. And then there is a conversation that happens, and I think at the Hoover institution, you're doing a lot of work already on there around infrastructure.

Infrastructure, we know is an investment that over a ten to 15 year period can begin to make a rate of return that the markets accept. As a matter of fact, today, if you invest in energy on the continent, you're making 18%. We have sort of the best investment opportunities on the continent.

If people will just sort of take a second look at it, solar energy investments on our continent are probably some of the highest in the world today in rates of return terms. In the financial sector, the same. I think what we need to do is to say what are those grant resources or concessional resources?

And which one do we apply to? What segment of the population and the economy? If you have sort of equity type resources, maybe put them in infrastructure, because there is a rate of return which is pretty quick in digitization in the financial sector. I think one of the problems we've had with aid today is that aid sometimes crowds up the private sector.

And so in trying to do good, we're essentially holding back development cuz we crowd out a private sector in and of itself. So if you have a banking financial sector that is giving out sort of loans at market rates to the agricultural sector, maybe let's say at 3%.

And you bring in an aid program that says, we wanna bring some aid, we're gonna give out loans at 1%. The bank closes down, you give out loans at 1% for one and a half years, clearly you are not making any returns because the bank had established that the market break point was 3%, you give it 1% for.

However, the terms of the grants are after two, three years, you close down, but the bank is gone. And so essentially what you have done is you have sort of taken away a market for a much longer period because you were trying to do good. I think one of the things with the donor community is we try to get this very quick results very quickly, at the detriment sometimes of building long term sustainable institutions.

And so again, 70 years later, a lot of the development on the continent is happening in the private sector, is happening with government owned finances. And so aid must be an addition to that and not sort of, right now we In many of our economies, we kind of still have the tail wagging the dog, right?

We sort of have the aid resources determining policy, and that cannot be the case in an economy. If you look at the Nigerian economy, aid is a very, very small fragment of that. And so it's very difficult to have aid being useful. So then you have a small community that kind of hijacks the aid and does not necessarily market creating, market enhancing or market development activities, then you get the criticism around the aid.

But when aid works and works well, then we've seen it do very, very good things in many countries, Nigeria, Niger, particularly the conflict affected countries, Guinea Bissau, where you've really seen aid do transformational things. In the developed countries of course, we've worked with some of the more emerging market economies in the Seychelles of the world and Mauritius to sort of support their financial sectors, strengthen the infrastructure for regulation, because as you develop, the sort of needs that you have are slightly different.

You need basic infrastructure, but as you go up, then it's sort of how you immerse your economy into the rest of the world. And that is mostly regulation. So we've done a lot of that with aid, and it's very effective if it's done well and if it's done with the countries as opposed to, done as Washington consensus that is being imposed on those countries.

But now in most of the African countries, if not all, the leadership, when well chosen, is educated in the same schools. So it's very easy to have those conversations about the direction of development.

>> H.R. McMaster: Yeah, the last two questions I have, cuz we're almost out of time already, but there's so much to talk about, is a follow on to that in terms of medical assistance.

And I'm thinking, of course, of PEPFAR, the President's Emergency Plan For AIDS Relief that was initiated under George W Bush. That was a successful initiative. You've been involved in trying to get Covid vaccines and vaccine manufacturing into Africa, and I'm sure you've encountered obstacles there. But I wondered if you might share your thoughts on medical assistance and medical health security issues on the continent, and maybe with PEPFAR as an example.

And then maybe also talk a little bit about education, right? By 2030, young Africans are expected to constitute 42% of global youth, but a low percentage of those young people are in school. I think it's, for example, half of the children in sub-Saharan Africa between the ages of 6 and 11, I think, and half of the children between the ages of 12 and 14 are not in school.

I know it's impossible to cover this, but can you talk about health security and also education and what the trends are and what more might be done to improve health security and education?

>> Dr. Vera Songwe: First of all, let me just start, cuz I think, I know it's the 20th anniversary.

Is it the 20th or 25th anniversary of PEPFAR? So I just wanna say, I mean, it has been probably one of the most successful signature projects of the United States on the African continent. And part of the success of PEPFAR has been that it has worked with local institutions, it has strengthened local institutions, both from service provision to research and technology.

And now the new head of PEPFAR, of course, Doctor John Kengasong, is looking to see how one can open up that a little bit more. I think these are the kinds of initiatives we must build on, understand why they work, why they work so well. So the PEPFAR is a $130 billion initiative.

It wasn't $130 billion when it was launched, but it's staying power, and it has transformed lives, particularly in Southeast Africa, when we had the first AIDS epidemic, there was really just a disaster that was going on in those parts of the world. However, PEPFAR is one project at the end, when COVID hit, and some of the work that we did at the Economic Commission for Africa, we showed that Africa was still importing over 95% of its pharmaceutical needs from outside the continent.

We were just not there in terms of producing, in terms of manufacturing, in terms of market making. And I think one of the things that COVID did was bring that to light. The kinds of dependence, just like in agriculture and wheat with Russia and Ukraine, the kinds of dependence that we had, and I think part of it is linked to education.

If we don't have the right research, if we're not educating our kids enough to go into the right sort of, segments of research for education and for production of pharmaceutical components. But also creating markets with regulation and incentives, then we will never be able to, I think, get the kind of health security and education security that we need.

So I think one of the things that we're working on now with the United States, we hope another kind of presidential initiative comes out of it, is this food security initiative, where we can do some research on what are the right kinds of commodities that we need. How can we produce more on the continent for the rest of the world?

So we don't have wheat independence in one geography of the world. Maybe we can spread it out. And Africa has the ability to be one of those geographic locations where we do that. But again, it's education, right? It's what kind of wheat? What kind of resilient wheat in this climate, sort of rapidly changing climate environment that we are in today.

And so the whole sort of education conversation is education for what? And what are we gonna use the youth for? It's not about sort of, for a very long time, we put kids to school, 90% of our kids in school, but maybe only 40% of our kids are actually learning something that is useful for the future.

And I think that's the conversation we need to have around education is, education for what kind of agriculture, education for what kind of technology, education for what kind of health security into the future. We need education for education for what kind of energy production. We have the hydrogen, but we don't have the engineers to produce it.

So we need to come to you to help us see how we can convert our raw material into something that we can actually put to market as a commodity. So I think that kind of educational conversation must come up with, what makes Africa competitive, and how does Africa go from where it is today with commodities and an asset that is its youth.

But a youth that is uneducated is a liability. An educated youth is the biggest asset we can have.

>> H.R. McMaster: Vera, well, thanks to you, I think we did it. I mean, we covered a lot of ground.

>> Dr. Vera Songwe: We did it.

>> H.R. McMaster: And our team was talking about how are we gonna cover Africa?

And I said, well, I mean, maybe just invite the right guest, which we did. I can't thank you-.

>> Dr. Vera Songwe: Ask the right questions.

>> H.R. McMaster: I can't thank you enough. Any final words for our viewers?

>> Dr. Vera Songwe: No, I mean, as we go into 2023, I think that, again, the world is in crisis, and we're all trying to see how we navigate this crisis.

There's a lot of conversation around friends-shoring, on-shoring, breaking up supply chains. I think it's right to bring supply chains closer to the economies. But I think that the fastest way that the world grows is through trade, through a more global, more transparent exchange mechanisms. And so I think creating the kinds of infrastructure, that's what WTO is doing, that's what we're trying to do at the Economic Commission for Africa.

That's what the AFCFTA is trying to do. But we need a take on Africa that is a new take. There is a new generation of African leaders today that is able to provide the gas resources that are needed in Europe, that is able to provide the wheat that is needed in the world, that is able to provide the chip production that is needed in the United States.

But the only way that we do that is that we do it together and that we work together to create the incentive structure that works for both. And I think we can do that. So my sense is give Africa another look. We have the peace problem and we do need to solve it.

So I think we also need to continue working on that end. And I still believe that we need military colleges sponsored by the United States that will help us get, leaders that understand the cost of war and the benefits of peace, so that we can build that faster.

 

>> H.R. McMaster: Doctor Vera Songwe, on behalf of the Hoover Institution, thank you for helping us learn more about battlegrounds, or what we hope will not be actual battlegrounds, but learning more about the continent of Africa.

>> Dr. Vera Songwe: We have good Battlegrounds, economic Battlegrounds.

>> H.R. McMaster: Economic battlegrounds, right. It's a metaphor.

 

>> Dr. Vera Songwe: Economic battlegrounds, yes.

>> H.R. McMaster: And you've helped us learn what more we can all do to build a better future for generations to come. Thank you so much for being with us.

>> Dr. Vera Songwe: Amazing show. And thank you for giving Africa the opportunity to sort of come alive with the show as well.

So thanks for everything you have done. It's an honor to have this engagement with you. And I think many of us think the same, so I speak for many of us. Thank you so much.

>> H.R. McMaster: Vera, thanks. Honors mine. Thank you so much.

>> Dr. Vera Songwe: Thank you.

>> Narrator: Battlegrounds is a production of the Hoover Institution where we advance ideas that define a free society.

For more information about our work, to hear more of our podcasts or view our video content, please visit hoover.org.