The African Development Bank (AfDB) is seeking to raise at least $5 billion by 2030 from international financial markets through security-indexed investment bonds (SIIBs), or peace bonds, to finance projects that address causes of insecurity and to rehabilitate communities and infrastructure impacted by insecurity.
This comes amid growing concern over the rising incidence of conflict and insecurity across the continent, forcing governments to increase their military expenditure and diverting resources from crucial development projects.
The concern among development experts is that countries with large development needs are allocating a large share of their GDPs to military expenditure, undermining prospects for attaining the UN Sustainable Development Goals and the targets of Agenda 2063.
Military expenditure in Africa was an estimated $39 billion in 2021, seven percent higher than in 2018 and 16 percent higher than in 2011.
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The biggest percentage increases in military expenditure occurred in the Sahel countries of Mali, Burkina Faso and Niger. AfDB hopes the SIIBs can offset the fiscal implications of elevated security sector spending.
“SIIBs are new ways of lowering the risk for both communities and investors and ensuring greater effectiveness,” said Akinwumi Adesina, AfDB president, during the 5th Africa Resilience Forum last week.
SIIBs are being developed between AfDB, the African Union and regional economic communities and were endorsed at the AU Heads of State Summit in February 2022.
While no definite timeline has been set, AfDB says proceeds will be used to “reinforce African countries’ security architecture and support dual-purpose infrastructure to enhance national and regional peacekeeping and security capabilities.”
They also will be used to rebuild destroyed or damaged infrastructure in conflict-affected areas, and finance new investment projects to create jobs.
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Spillover effects
Countries experiencing conflicts are less attractive to domestic and foreign investors and unlikely to participate in international capital markets.
Adesina argued that security must be factored into investments and development interventions as rising insecurity deters investment and creates a risk of spillovers such as rural poverty, youth unemployment and environmental degradation.
“Every dollar invested in prevention saves $16 in humanitarian and reconstruction spending in the aftermath of conflict,” Dr Adesina said.
“The money that the government spends in conflicts can be allocated to other areas. To education for example…there needs to be a redirection of the resources,” said Hanna Mebrahtu, African Union Secretariat Peace Fund Representative.
Due to large financing deficits, the grant and concessional financing they are able to access meet only a small fraction of their needs in most cases.
Consequently, these countries face a vicious circle of underdevelopment, fragility and conflict, exacerbated by adverse climatic shocks and fluctuations in global demand and supply.
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According to AfDB, the political geography of African countries and the number of shared borders heighten the risk of cross-border spillovers, both in terms of conflict and its consequences on investment, growth and development.
For example, 14 African countries that have a current conflict situation share 80 land borders with other African countries. In 2020, conflict-affected countries and their immediate Neighbours accounted for 77 per cent of the continent’s GDP and 68 per cent of all FDI.
Due to these spill-over risks, conflict in a few African countries undermines the continent’s competitiveness as a destination for trade and investment.
Source: The East African
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