The G-20 wants to deepen as well as broaden international economic and financial policy cooperation so that the benefits of globalization and worldwide connectivity are enhanced and more widely shared. Germany holds the presidency of the G-20 in 2017 and attaches high importance to continuing the engagement of the G-20 in supporting developing countries, particularly in Africa. That is why the G-20 launched a Partnership with Africa initiative. One of the Partnership’s key elements is the “Compact with Africa” (CwA), within the G-20 finance track, to promote private investment in Africa. This initiative will be coherent with and complementary to other initiatives to advance private investment, including in infrastructure, to increase employment and foster sustainable growth in Africa.
African countries, with the support of development partners and international organizations (IOs), have been working for many years to tackle impediments to private investment across the continent—at the national, regional, and pan-African levels. Much knowledge has been accumulated in this process on the wide range of issues that need to be addressed to boost investment levels.
The CwA initiative is based on the premise that significant progress can be achieved through an integrated granular analysis of the obstacles/market failures in both host and potential investor countries impeding private investment in African economies. This analysis would identify key policy actions that can be taken by the various public sector actors, backed by a joint commitment of both African countries and development partners to implement these reforms. These actions would form the basis for compacts between interested African countries and donor/investor countries, with the expectation that implementation of a coherent set of measures will produce a powerful signal, leading to a change in risk-adjusted expected returns for investors—and an ensuing surge in investment, in particular from private sources.
Integrated means bringing together the analytical perspectives of governments, would-be investors, and IOs with extensive operational experience in Africa. Granular means operating at the country and sectoral level, dealing with concrete situations rather than generic cases.
How will the initiative take shape?
Three IOs with extensive operational experience across Africa—the AfDB, the IMF, and the WBG—worked together to identify important issues that typically need to be tackled. Other IOs with specialist expertise were also drawn into this exercise where warranted.
This exercise, synthesizing available knowledge, provided an illustrative set of principles and tools that will help inform diagnostic work and policy assessments at the country level, to be conducted by African governments, potential partner countries, IOs, and other institutions with relevant expertise.
The CwA is open to all African countries, who will self-select to participate in the initiative. Given resource constraints, the IOs will work initially with a handful of countries—a work program that will be expanded over time to cover all interested countries. At the outset, priority will be given to working with countries with sufficient administrative and policy capacity to make it feasible to achieve early results and thus draw lessons for others. The first wave of Compact countries are: Côte d’Ivoire, Ethiopia, Ghana, Morocco, Rwanda, Senegal, and Tunisia.
The country-level work will be supplemented by IO analysis of systemic issues that affect private investment flows to Africa—
• the appropriate instruments for use by development finance institutions (DFIs) and aid donors to promote private investment.
• international tax issues.
Based on this body of work, the contents of investment compacts between individual African countries and interested G-20 countries will be identified and agreed upon.
What are the main issues to be covered?
1. the macroeconomic environment for investment, covering economic policies to maintain macro-stability and ensure adequate public infrastructure provision;
2. the business environment in which firms operate, including the general climate for private business, regulatory practices and predictability, sectoral policies, support for project preparation, and state capacity to operate public-private partnerships; and
3. the financing environment facing would-be investors, including the availability of efficient risk mitigation instruments (provided by MDBs, DFIs, and aid agencies), access to domestic debt instruments, and potential support from long-term institutional investors in major financial systems.
What are the benefits of engaging in this partnership for African countries?
Participating countries will benefit in several ways:
• they will be sending a strong signal to private investors about their interest in attracting investment and undertaking the needed reforms; the G-20 will ensure high political visibility and raise investor awareness and confidence;
• they will gain from a comprehensive but modular approach focusing on the Macro, Business and Finance Framework and enhanced and coordinated engagement by the three IFIs to support national efforts to devise and implement reform programs to boost private sector investment, including through more intensive technical assistance (six IMF technical assistance centers are present across the continent);
• G-20 and other partner countries will encourage domestic investors to respond to the investment opportunities in African Compact countries, enhancing the payoff to implementation of the investment compacts.
African countries commit to working closely with the IOs on developing a nationally-owned reform agenda targeted at attracting investment and on developing mutually-agreed compacts with development partners.