The 79th UN General Assembly (UNGA) will focus on achieving and missing goals in the Sustainable Development Goals (SDGs) and will consider means and ways to accelerate progress in areas such as climate finance and gender equality. The Future Summit will foster multilateral cooperation on issues such as artificial intelligence, space governance and digital transformation.
The expected new “Pact for the Future” will essentially focus on governance frameworks for cyberspace, AI and the ethical use of technology.
The UN General Assembly is also expected to lay the foundations for the Fourth Conference on Financing for Development. For Development Finance Institutions (DFIs), such a theme is of particular interest as it is intrinsically linked to their mission and will define their future.
The magnitude of the challenges Africa currently faces defines the scope of development finance required to address them in a timely and effective manner. For example, although Africa contributes only 3% of global greenhouse gas emissions, the continent is losing between $7 billion and $15 billion per year due to climate change, a figure that is expected to increase to $50 billion per year by 2030.
A recent World Meteorological Organization report highlighted that African countries are losing between 2% and 5% of their GDP on average, with many spending up to 9% of their budgets responding to extreme weather events.
In sub-Saharan Africa, adaptation costs are estimated at $30-50 billion per year over the next decade, equivalent to 2-3 percent of the region’s GDP. The costs of loss and vulnerability contrast with an estimated $213 billion climate finance gap and a $1.2 trillion gap by 2030 to finance Africa’s Sustainable Development Goals.
For Africa, the response to the global shock has been uneven: Africa received about 4.5% of the Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF), and the continent received just 0.5% of the global fiscal response to the COVID-19 pandemic.
Against this backdrop, now is the right time to think about the future of DFIs in a rapidly changing environment where current development challenges will be compounded by future challenges, making solutions even more complex and costly.
For DFIs to remain relevant and fulfil their mandate, they need to offer more innovative approaches to mobilising finance for development.The issue is so important that it has raised questions in the global financial architecture about whether it can adequately fund development in Africa.
In times of global emergency, the financial architecture is biased towards the more advantaged countries that need resources the least.
The need to reform the global financial architecture has therefore invigorated development debate over the past few years, and the issue will remain at the forefront of discussions up until FfD4 in 2025.
In light of this, the Association of Multilateral Financial Institutions (AMFI) was launched at the AU Summit in Addis Ababa last February. AMFI aims to bring together member institutions to find solutions to financing challenges and support Africa’s development agenda in line with their respective mandates and member states’ development objectives.
Arab-African Cooperation
Similarly, at the AU Mid-Term Coordination Summit, President Nana Akufo-Addo of Ghana, head of the AU financial institutions, called for greater economic cooperation between Africa and the Arab world, resulting in the launch of the African-Arab Financial Consortium (AAFC), with its secretariat based at the BADEA headquarters.
Cooperation and coordination are key considerations for optimizing resources across development finance institutions for greater impact, and BADEA has been a passionate advocate of synergies among stakeholders while pursuing more innovative approaches to increasing financial resources for development.
Almost all development finance institutions in Africa have embarked on capital raises to continue to fulfil their mandates. Many have chosen to focus on credit ratings to raise additional capital at competitive rates in the international market, and BADEA is no exception.
The Bank has been promoted from an unrated development bank to the second highest rated development finance institution in Africa after the African Development Bank, and has been assigned a credit rating of “Aa1 with a stable outlook” by Moody’s Ratings, “AA with a positive outlook” by S&P Global and “AAA with a stable outlook” by Japan Credit Rating Agency.
These strong ratings played a key role in the success of BADEA’s first €500 million social bond issue earlier this year, which was oversubscribed within the first three hours.
BADEA’s board also approved a massive 376% recapitalization a few years ago.
Recognizing the power of synergies, BADEA is further exploring the possibility of recapitalizing regional and continental development finance institutions. One way to do this is by supporting member state shareholders to give development finance institutions fresh capital to help fund development priorities.
The future of Africa’s development finance institutions depends on adopting more innovative financing instruments, strengthening risk-sharing mechanisms and building strategic partnerships across borders.
BADEA is committed to working with a wide range of stakeholders to maximize development impact through synergies of joint activities.
Strategic Partnership
BADEA believes in the power of strategic partnerships and through synergy with the Arab Coordination Group (ACG), the Bank has achieved a lot and looks forward to expanding its development footprint in Africa and achieving even more in the future.
As the only member of the Arab Coordination Group with a mandate entirely dedicated to Africa, BADEA has been tasked by the group to oversee the implementation of pledges worth $50 billion in sustainable development financing for Africa by 2030, with a focus on resilient infrastructure and inclusive societies.
BADEA is actively working to connect DFIs with international financial institutions, impact investors and private sector stakeholders to build a platform for collaborative growth. These partnerships are not only financial in nature but also aimed at building capacity, strengthening governance and promoting sustainable development practices.
AMFI and the Arab-African Finance Consortium (AAFC) can foster knowledge exchange, technology transfer and co-financing opportunities. By working together, DFIs can leverage their unique strengths to build a stronger, more resilient financial ecosystem that serves the continent.
An often overlooked aspect of BADEA’s mission is to promote economic cooperation between Africa and the Arab world through trade and investment.
The Bank is well-positioned to attract both public (sovereign wealth funds) and private investment to Africa, as well as mobilize its own resources and those of the African Development Bank. By fostering closer ties between African development finance institutions and those in the Arab world under the AAFC, BADEA aims to contribute to more dynamic and diversified financing that benefits both regions.
To adapt to the changing development environment and remain relevant in the future, Africa’s development finance institutions have no choice but to embrace innovation, strengthen their operational frameworks and forge strategic partnerships across borders so that they can continue to play a vital role in advancing Africa’s development agenda.
