African central bank governors revive vision for continental monetary integration {Business Africa}
At the Yaoundé Summit, 41 Central Bank Governors Advance an Ambitious Vision for an African IMF and Central Bank Amid Growing Climate Risks while In Zambia After Years in Default, the country Secures CCC+ Upgrade from S&P — A Major Step Toward Economic Stability
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00:00Hello and welcome to another episode of Business Africa.
00:14I'm your host Afolake, only lawyer to top stories this week.
00:18After years and default, Zambia secures CCC plus upgrade from S&P, a major step toward economic stability.
00:30At the Yawande summit, 41 central bank governors advance an ambitious vision for an African IMF and central bank amid growing climate risks.
00:42Festive season under pressure in Ghana as inflation and a weakening currency hit holidays pending.
00:52Zambia has secured its first credit rating upgrade from S&P Global Ratings since August 2019.
00:58A milestone that signals a cautious return of investor confidence after years of debt distress.
01:06Zambia is finally shedding its status as an international defaulter after defaulting on its euro bonds debt in 2020.
01:15After years of painful negotiations, S&P Global Ratings has upgraded the country's long-term foreign currency credit rating from selective default to CCC plus.
01:26This significant bump signals that Lusaka is committed to honouring its financial obligations.
01:33The upgrade comes after the government finalised most of its debt rescheduling negotiations.
01:38As of December 2022, Zambia had debt of up to $20.9 billion owed to official bilateral creditors like China,
01:47external private commercial creditors like euro bond holders,
01:51and multilateral institutions, including the IMF and World Bank.
01:57Zambia's experience offers a crucial lesson for debt-stressed countries like Ghana and Ethiopia.
02:03The key takeaway is the vital importance of fixing creditworthiness.
02:07This requires improving governance, managing public finances,
02:11and transforming the economy to boost foreign reserves.
02:14While this is a positive step, analysts caution that the CCC plus rating still places the country in the red zone,
02:22meaning its credit profile remains vulnerable.
02:25To help us unpack the significance of this development, we're joined by Stanislas Zeze,
02:31credit ratings expert and CEO of Bloomfield Investment Corporation.
02:36Thank you for joining us on the show.
02:38Now tell us, how would this upgrade affect Zambia's ability to attract foreign investments,
02:43especially in areas like energy and infrastructure?
02:46You have to understand that a triple C plus is probable default,
02:51which means that they're still in a zone that is very critical.
02:54They have done a little bit of effort, but they're still in a zone that are very critical.
02:58They have to do more.
03:00They have to perhaps continue to discuss with the people that are at the O2
03:05and then finalize the 3% left.
03:08And the other thing is they have to rethink their revenue sources.
03:13The good thing about an economy like that of Zambia, they're mostly informal,
03:19which means that they have a good margin of maneuvering to reform the fiscality
03:24in order to have a larger place so that they can collect more revenues.
03:29And in order to be able to increase the grade, they have to also improve the foreign reserve.
03:38And to be able to improve the foreign reserve, you have to transform the economy.
03:41So this is the reason why most African countries have low grade,
03:45because their economy are not transformed.
03:48So they don't collect that much of foreign currency to boost up the reserve,
03:53because they're using the same reserve to import most of the finished goods that they need,
03:58and they don't produce.
03:59Now, what is the single most important lesson that countries like Ghana and Ethiopia
04:04can learn from Zambia to accelerate their own debt restructuring?
04:09This is extremely important.
04:12And improving your credit worthiness is a matter of fixing your governance,
04:18your governance in your administration,
04:21your governance in your political approach or political landscape,
04:24because obviously this country has some political tension,
04:28and all this is taking into consideration to establish your credit worthiness.
04:33Your social political environment, the management of public finance,
04:39the financing of the economy, the business environment,
04:43all these parameters have to be worked on by this country to improve the credit worthiness year on year.
04:50It's extremely important.
04:52You see other countries that have done that have moved forward.
04:55Look at countries like Cote d'Ivoire, for instance,
04:58who have been working on the credit worthiness for quite some time now.
05:02They're double B now, and they're probably going to be double B plus soon.
05:07They understood the importance of being credit worthy.
05:10And this is what we actually advise all African countries to understand,
05:16that their credit worthiness will be the passport to access finance in a good condition,
05:21because you have to access finance, but in a good condition.
05:25And if you want to attract FDI,
05:27you also have to throw to these people that are incapable of absorbing data
05:34and are incapable of organizing to finance your own economy.
05:37Why is it essential for African countries to secure credit rating in local currencies?
05:42What difference does it make?
05:45I saw in an S&P report that the credit quality of Zambia in local currency
05:51is at the same level of hard currency.
05:54I mean, it's hard to believe,
05:55because basically, usually, your credit worthiness in your local currencies is usually higher.
06:01Obviously, you can have coincidences where you can be at the low on both currencies,
06:06but most of the time, your credit worthiness in your own currencies is higher.
06:11This is the reason why we're asking all African countries to get the rating in local currency
06:16and the rating in hard currency,
06:18so the investor will have a better visibility
06:21and be able to distinguish between their credit worthiness
06:26and their capacity to repay in hard currency,
06:30which are two different things.
06:32Your credit worthiness is established in your own currency,
06:35because this is your currency of operation,
06:37and your capacity to pay in another hard currency is established
06:40based on the fact that you have a certain level of fund reserve
06:44and that you're capable to produce fund reserve.
06:46Thanks for those insights. It's been a pleasure having you on the show.
06:52Africa is pushing forward with plans for a continental central bank by 2026.
06:58This follows a major gathering in Yawande,
07:00where 41 central bank governors met to address climate-related financial risks
07:06and revive long-standing ambitions for deeper monetary integration.
07:11A meeting on Africa's economic and financial system in the face of climate change,
07:1941 central bank governors gathered to discuss the threat that climate change poses to Africa's
07:26economic and financial stability in Yawande, Cameroon's capital.
07:30Climate shifts and environmental damage are major risks for the economy
07:35and the financial system, especially in Africa.
07:40Their impact on economic growth should push central banks to adjust their strategies.
07:46But the lack of information on climate trends remains a worrying issue for bankers.
07:52We discussed the role of climate change in facilitating the transition to a low-carbon economy,
07:59including the lack of data on climate change and the effects.
08:04And in terms of what is next, a key priority coming here
08:08will be to operationalize the monetary institute for Africa.
08:13African economies contribute the least to climate change,
08:16but are affected disproportionately.
08:18For the governor of the Bank of Central African States,
08:23the goal is to now lay the groundwork for an African IMF and an African central bank.
08:28It is a transitional institution tasked with monitoring the macroeconomic convergence criteria
08:43of all African countries in order to prepare the creation of the African central bank
08:50and the continent-wide monetary union.
08:58If created, an African monetary union would be a game-changer,
09:03just as the free trade area has been.
09:08With Christmas approaching, markets across Ghana are noticeably quieter.
09:14Rising prices and a weakening CD are forcing shoppers to cut back,
09:18leaving traders increasingly worried.
09:21Take a look.
09:22The sights of Christmas season are beginning to appear in Madina Market,
09:27a suburb of Accra.
09:29But behind the colorful displays of clothing and Christmas decorations,
09:34traders tell a different story.
09:36By now, customers should be meaning.
09:41But this year, people come and ask about the prices and then leave.
09:45They complain that the items are expensive and can't afford it.
09:50For shoppers, the festive spirit is tempered by tight budgets.
09:55Everything is expensive.
09:58Clothing, food, and even transport fares.
10:01So this year, Christmas shopping is not their priority.
10:06I'm only buying what is necessary.
10:09Economists say the situation reflects wider economic pressures facing households,
10:14including currency instability and rising cost of living,
10:18that continue to squeeze disposable income.
10:21We can also look at the port levels on some of these high-demand in-season products.
10:26And if we can, at least, for the time being, for this period,
10:31we can even lift up the levies.
10:33Maybe we'll reduce the VAT on these products.
10:35Of course, that could be a very key game-changer.
10:38Back at the markets, traders are adjusting their expectations.
10:42For many, this Christmas will be less about record profits
10:45and more about simply sustaining their businesses through challenging economic times.
10:50That brings us to the end of this edition of Business Africa.
10:59For more business stories and the latest updates,
11:01stay tuned to African News or visit us online at africanews.com.
11:06See you soon.
11:14Business Africa was presented by Turkish Airlines.
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