the Russia-Ukraine conflict is worsening problems in Africa’s economies

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Managing the COVID-19 pandemic’s challenging issues required innovative solutions from Africa’s banks, but the Russian invasion of Ukraine is adding to the burden as interest and bond financing rates are rising.

A recent European Investment Bank (EIB) report shows that the Russia-Ukraine conflict is worsening problems in Africa’s economies. Already weakened by the COVID-19 pandemic, these economies now have to deal with challenges like importing goods like food and energy and paying higher prices for those imports.

Between 2019 and 2022, the number of people in extreme poverty in Sub-Saharan Africa will increase by 36 million to 460 million. It finds that more than gains for commodity exporters is needed to make a significant difference for the continent.

Since 1965, the EIB, the investment arm of the European Union, has invested EUR 59 billion across 52 African nations. Between April and June, it surveyed 70 financial institutions in Sub-Saharan Africa to get their opinions on the Russian-Ukrainian. War’s impact on their industries, climate finance, the ease with which disadvantaged groups can access capital, and the influence of technology on the delivery of financial services.

The pandemic also contributed to the region’s higher cost of debt payment relative to more developed countries, which is part of a more significant trend of declining government income, which the EIB stated must be addressed at some time. The International Monetary Fund estimates that it would cost USD 50 billion to cover only the costs associated with climate change. At the same time, the United Nations Sustainable Development Goals in Africa will need USD 1.3 trillion in funding annually.

Collaborating with the financial system to increase financial inclusion levels for previously underserved groups, promoting better use of technology, and assisting with climate change adaptations. The objectives would be achieved more swiftly. Economic integration statistics, derived by the division of the gross domestic product by the total of foreign assets and loans, demonstrate that, despite progress since 2010, Sub-Saharan Africa’s financial systems still have a ways to go. The major exception to this is the Southern African countries.

The paper noted that extensive capital markets often correlate with more excellent economic growth rates and recognised efficient and effective financial markets as essential to economic development by providing a way to fund investment and channel savings into firms. They may also support programmes by using loan instruments with an emphasis on environmental, social, and governance (ESG), which increased from USD 3 billion in 2018 to USD 5.1 billion in 2021.

Private capital financing increased, rising from USD 4.3 billion in 2020 to USD 6.3 billion in 2021, an increase of 48%. Venture capital deals primarily drove this growth, the value of which increased from USD 485 million in 2020 to USD 3.23 billion in 2021, with investments in Fintech accounting for half of this increase.

The revolutionary aspect of Fintech has corresponded with its rapid expansion, with the industry’s 450 active businesses in 2020 growing to 1,000 as of April this year. Native firms made up 80% of that total and concentrated on lending and payment solutions. Still, other product categories, like distributed ledgers, regulatory technology (regtech), and cybersecurity, are becoming more and more represented.

In February, leaders from Europe and Africa met with the European Investment Bank committing EUR 62 million across six programmes to promote development and recovery from the epidemic.