The Role of New Global Financial Aid in Reducing Poverty in Sub-Saharan

By Dr Adeline Nembot & Larissa Ntoubia (Download PDF)

The Role of New Global Financial Aid in Reducing Poverty in Sub-Saharan

Introduction

Financial aid has always been a historical instrument of fund mobilization to reduce poverty in Africa. However, poverty still persists in Sub-Saharan Africa (SSA) despite the institution of Multinational Development Banks (MDBs), which aim at mobilizing funds in order to reduce poverty and inequalities. In addition, middle-income countries are prioritized in terms of loans, to the detriment of heavily indebted low-income countries. Only 14.6% of the World Bank’s borrowing was granted to African countries in 2020, and 9 out of 10 of the most vulnerable to climate change are found in Sub-Saharan Africa (1). Yet, these funds were found to be unable to sufficiently finance the recently observed exogenous shocks such as the global climate change, COVID-19 crisis and Ukraine war-related shocks.

Since these financial aids were not grounded on a strong financial architecture that supports the recently observed shocks, innovative financing should be put in place. An alternative financial mechanism that corrects the negative effects of globalization and climate change may reduce poverty in SSA. According to , 27,000 billion dollars should be mobilized to fight poverty, inequality, and climate change by 2030.

In this context, the New Global Financial Pact was organized recently in Paris (22nd to 23rd June 2023), with the aim being to impulse the structural transformation of the global financial architecture geared at reducing poverty. Hence, this article examines the role of the New Global Financial Aid in reducing poverty in SSA. In this light, it seeks to raise awareness of the importance of global financial aid among international financial institutions, the Group of 20 (G20), African leaders and the international community as a whole. The rest of the paper is structured as follows: Poverty challenges in sub-Saharan Africa (section 2), the effect of new global financial aid on poverty reduction (section 3), and the conclusion of the paper (section 4).

Poverty Challenges in SSA in the Context of Multi-crises

After years of continuous progress since 1990, the Human Development Index in many countries in the world and in SSA countries, in particular, dropped for the first time between 2019 and 2021 (2). There has also been a decline in the GDP of sub-Saharan countries from 3.7% in 2022 to 3.4% in 2023 (3). Eight years after the adoption of the Sustainable Development Goals (SDGs), the realization of the 2030 Agenda is being jeopardized by ongoing multi-crisis situations such as the Covid-19 pandemic, the Ukraine war and multiple catastrophes caused by climate change. Without substantial liquidity, the most fragile countries are bearing much of the brunt of these current crises.

SSA is the region of the world that is most vulnerable to climate change. The negative effects of these unfavorable weather conditions will put more than 39.7 million people in poverty if nothing is done before 2050 (4). Climate change could further disrupt agriculture and delay major infrastructure and mining projects in some countries. The adverse effect of persistent poverty and food insecurity on growth in sub-Saharan Africa has been amplified by other shocks such as high indebtedness, political uncertainty and conflicts. High levels of violence and conflict threaten living standards, which continuously deteriorate.

In terms of education, sub-Saharan Africa remains the region with the highest number of children and youths not attending school, with a total of 98 million out-of-school children (5). This is because one in three African countries still allocates less than 15% of their national budget to education, while most of them allocate less than 20% (6). As a result, the quality of education in SSA is compromised by a lack of qualified teachers and inadequate school infrastructure.

These issues, aggravated by the recent Ukraine war, have left millions of people without decent avenues for livelihood, given entrenched inequality and poor economic governance. Besides, the poverty rate is increasing owing to the increase in the population. In 2019, the region edged Asia to become the world’s poorest population, with a contemporary poverty line of 1.90 USD per person daily (7).

The Effect of a New Global Financial Aid on Poverty Reduction in SSA

A New Global Financial Aid will play a critical role in the poverty reduction process in today’s globalized, challenged environment. Supplemental funds are required to assist SSA in achieving this goal. In this perspective, Oxfam France estimated a mobilization of 3,900 billion dollars per annum to be collected from the Aid Development Committee (ADC) countries by 2030 (8). This financial assistance will improve economic development and living standards in SSA and help finance global public goods such as global health, gender equality and education.

The New Global Financial Aid will improve social protection and the health and educational sectors. To achieve SDG4, the amount of 8,500 billion dollars dedicated to these sectors (8) will resolve economic and gender inequalities in quality education and access to health. As a result, the goal of education for all could be achieved by 2030 (9).

Also, being the poorest in the world, this region appears to be more vulnerable to climate change shocks because of its dependency on agriculture. A New Global Financial Aid will increase investments in green energies, transportation and agriculture (Ministry for Europe and Foreign Affairs, 2023). An increase in funding will improve financing strategies such as implementing adaptation measures, reducing greenhouse gas emissions, or transferring less polluting technologies. This will lead to environmentally friendly sustainable development.

Furthermore, in order to repair destruction and reduce poverty caused by climate change with rising temperatures, rising sea levels, unusual precipitation and natural disasters such as locust invasions, droughts and desertification, a loss and damage fund will bring recovery to the sub-region. Such funds will help in building modern disaster-resilient infrastructure specifically designed to reduce the negative impact of climate change and will greatly contribute to poverty reduction in SSA.

However, the mobilization of these amounts needs serious political determination both at the national and international levels. This is because by 2022, only 204 billion dollars of financial aid were assembled for development aid by rich countries. This makes a commitment of 0.36% of their gross national income, relative to the promised level of 0.77% (10). In fact, the accurate collection of the sum would have made it possible to mobilize in just five years (from 2018 to 2022) an additional 1,000 billion dollars for the development of the most fragile countries (1).

Conclusion and Recommendations

The global financial aid re-discussed during the Paris Summit last June appears to be the way out to poverty reduction in SSA. This new financial pact summit is an opportunity for industrialized countries to renew their commitment and put development at the center of their international agenda. Limited liquidity already encountered by this region, aggravated by the negative effects of multi-crisis, makes this region to be in need of more financing. Therefore, it is important that the commitments made by the Aid Development Committee countries are respected. To this end, a penalty should be introduced for defaulting countries. Secondly, since SSA has more difficulty in accessing loans, this financial assistance should prioritize these countries that need it most and appear most vulnerable to climate change shocks. This is because they have limited ability to cope with the current consequences of climate change, which is greatly responsible for the aggravation of poverty. Finally, given the high level of corruption and poor economic governance in this region, a monitoring and anti-corruption committee should be set up to monitor the proper use of these funds.