Private Finance for a Post- Pandemic Africa? The Trouble with Macron’s New Africa Summit


The Summit on the Financing of African Economies convened by the French President, Emmanuel Macron last week was mostly a rhetorical exercise in supporting Africa’s post-pandemic recovery and resilience-building.

Although leaders acknowledged the scale of the crisis faced by African economies - and Macron called the Summit a ‘New Deal for Africa and by Africa,’ - nothing new of significance was actually agreed. 

In general, the Summit appeared to be concerned with deepening the current private sector-led ‘recovery and resilience’ approach to the pandemic and with building on-going projects jointly implemented by global and European DFIs. One outcome of the Summit  was a commitment towards developing a new Alliance for Entrepreneurship in Africa, which would focus on mobilising financial and technical resources, with explicit support towards African Micro, Small and Medium Enterprises (MSMEs). In addition, the Summit strengthened support for infrastructure financing, reorienting the public role of African banks whilst simultaneously expanding the use of private sector instruments to better integrate African economies with the global financial architecture. 

These initiatives have a strategic focus on creating and deepening African markets, a vision which is now considered an integral part of international development.  However, as recent research by economists Gabor and Ndongo show, underlying this marketisation and  private finance first  approach, is a deep mistrust of African states to provide public finances and services. Establishing private finance as the only solution towards recovery and resilience not only undermines the public nature of finance, it also detracts attention from the unfair transfer of value from public to private sector actors. 

The Summit and its outcome raise four major concerns. 

The new push for saving African MSMEs

Around 80 per cent of total employment in Sub-Saharan Africa is in the informal sector, with Small and Medium Enterprises (SMEs) and MSMEs serving as the largest sources of employment and providers of goods and services. The pandemic has had a significant impact on livelihoods associated with this sector; the ILO predicted a loss equivalent to 42 million full-time jobs by the 2nd Quarter of 2020. Since women take up the majority of these jobs, the gendered impact is  a concern, as is a deterioration in working conditions.

Supporting micro, small and medium enterprises via the private commercial financial sector has been an emerging focus of the IFI-led post pandemic recovery model. The Summit reaffirmed this approach, in conjunction with advocating for technical assistance and knowledge transfer to catalyse entrepreneurialism.

However, the reliance of DFIs on financial intermediaries and private sector instruments needs careful consideration.  Lending models can only be efficacious if they are long-term, transparent  and do not contribute to indebtedness. In the past, short-termism and indebtedness  have been associated with development models of microfinance, which focused on lending to individuals and micro-entrepreneurs. DFI-lending to MSMEs risks replicating the pitfalls of this model. Moreover, the integration of  domestic private investment with external financial markets, including private financing for MSMEs, builds on the ongoing deregulation of African markets through free trade treaties such as The African Continental Free Trade Area (AfCFTA). Unlike the development history of developed countries, such integration strategies expose Africa’s unprotected markets to fluctuating external finance, tying the long-term growth models of these countries to the vagaries of global economic shocks. This approach in fact erodes resilience.

 More Infrastructure Finance but for the Private Sector

The expansion of infrastructure finance also received much emphasis at the Summit. This entailed a call for mobilising multilateral and commercial finance to support large-scale infrastructure expansion of risk-sharing instruments, political risk insurance, support for public-private partnerships (PPPs) and strengthening of associated governance and regulatory frameworks. As before, the role of infrastructure continues to be rooted in a problematic framework, promoted by the G20 and others, of ‘infrastructure as an asset class’, which commodifies public infrastructure and transforms citizens into consumers. This is because the promotion of infrastructure finance rests on a fundamental contradiction between private investors’ need to earn substantial returns and the generally low returns of infrastructure investment in developing countries. As a result, states incur high costs to attract private investors, while citizens pay user fees for basic infrastructure over long periods of time. 

The evidence against infrastructure projects implemented through PPPs has been mounting, including lack of transparency, potential for indebtedness, high costs and general inefficiency. Representatives at the Summit continued to pay lip-service to terms such as ‘sustainable infrastructure’ and ‘renewable energy projects’, without the need to demonstrate how these projects can actually deliver in the public interest. The creation of ‘bankable projects’ to catalyse growth, and hence deliver sustainable infrastructure projects is based on the failed model of ‘trickle down’ economics. 

The risk of Tied Aid

The increased role of Northern DFIs in international development risks contributing towards tied aid. According to the 2020 DAC report, at least 61 per cent of aid contracts were awarded to suppliers from donor countries. France alone provided 74 per cent of the total value of its contracts to national suppliers; the French development agency, AFD, continues to play an important role in  providing guarantee instruments to French companies operating in developing countries. Such preferential treatment towards  companies based in donor countries jeopardises the nature of North- South relations. As highlighted by CSOs including CCFD-Terre Solidaire, Oxfam-France and Afrodad, these relations also go against the general principle of ‘leave no one behind.’

Privatising African public development banks 

Building on the 2020 Financing in Common Summit, which gathered over 450 public development banks from across the world, this France-led summit expanded on the evolving IFI-led consensus on public development banks as a vehicle for de-risking private sector investments.

Public banks in Africa are disparate and diverse, however they share a common history of capacity-erosion due to a series of structural impediments. The nature of these impediments goes beyond nation-states and are intrinsically linked to the ways in which the global financial architecture subordinates African capital markets. Advocating that African banks redirect their scarce resources to the private sector further entrenches this financial subordination.This is even more concerning in the context of the pandemic when recovery, resilience and rehabilitation efforts will require long-term patient capital which is not associated with private sector financing.  

As Eurodad argues in the book ‘Public Development Banks and Covid-19: Combatting the pandemic with public finance’, public banks have the power to identify and prioritise key investment opportunities including financing of public goods which enables them to engineer long-term structural transformation. Evidence shows that PBs around the world were quick to respond to the crisis, innovative in devising relief mechanisms and operated through effective coordination with other institutions. 

Therefore, public banks can and should play a vital role in supporting socio-economic transformation of African economies. Framing private finance as the main driver of a sustainable, resilient and climate-just model, risks deepening the on-going crisis. The AfDB, European DFIs and the French presidency must take responsibility and ensure that the recovery model that they support delivers first and foremost in the public interest.