In an interconnected world, the G20 must look beyond its membership to achieve its objectives of fostering sustainable economic growth and stability worldwide. To this end, engagement of the G20 in supporting developing countries, particularly in Africa, is crucial. That is why the G20 launched its Partnership with Africa. The central pillar of the Partnership is the Compact with Africa (CwA), established within the G20 finance track, to promote private sector-led development and improve the investment environment. This initiative is aimed to be coherent with and complementary to other initiatives to advance private investment, to increase employment and foster sustainable growth in Africa. With the establishment of the Africa Advisory Group (AAG) as a regular G20 working group, the initiative has been firmly anchored in the G20 finance track. It is currently co-chaired by Germany and South Africa.
The idea behind the initiative
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 a coordinated and country-specific analysis of the obstacles and market failures impeding private investment in African economies. It brings together the analytical perspectives of governments, would-be investors, and IOs with extensive operational experience in Africa and deals with concrete situations rather than generic cases. This analysis allows identifying 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 form the basis for Compacts between interested African countries and partner countries from the G20 and beyond, with the expectation that implementation of a coherent set of measures provides 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. The driving force behind the Compact is African ownership, not Western prescription. But it is not only a commitment device for African countries, but also for G20 and IOs, making shared responsibilities of all stakeholders transparent.
How does the initiative work?
Three IOs with extensive operational experience across Africa—the African Development Bank (AfDB), the International Monetary Fund (IMF), and the World Bank Group (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 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 set of issues that need to be examined can be grouped into three categories:
- the macroeconomic environment for investment, covering economic policies to maintain macro-stability and ensure adequate public infrastructure provision;
- 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
- the financing environment facing would-be investors, including the development of local capital markets and potential support from long-term institutional investors in major financial systems.
The CwA is demand-driven and open to all African countries, who will self-select to participate in the initiative. Countries interested in joining the initiative and willing to commit to an Investment Compact are invited in a first step to engage with the IOs involved to discuss the initiative’s objectives and possible national priorities and contributions. IOs have an important role in advising countries on accession to the CwA in general and appropriate timing in particular. The respective country should then state the commitment to working on a Compact to the G20 Presidency in the finance track.
In a second step, the countries in collaboration with the IOs specify their Compact priority areas in individual Investment Prospectuses for reforms and measures to better mobilize private investment. The prospectuses give guidance to involved stakeholders and interested investors.
Based on these priority areas the Compact countries in collaboration with the IOs focus in a third step on concrete reform measures for implementation. Interested G20 members and other partner countries or institutions are invited to support the compact with their own instruments and measures.
Representatives of all stakeholders regularly meet in Compact Teams that have been established in each Compact Country. These teams are at the heart of implementing the Compacts. They help coordinate measures on the ground and serve as focal points for investors. The Compacts consist of commitment and reform matrices with deadlines and concrete measures by all stakeholders.
The G20 finance track, through the Africa Advisory Group (AAG), coordinates and monitors the initiative. The AAG reports to G20 Finance Ministers and Central Bank Governors on progress, future ambitions and measurable targets in each Compact country. While African countries implement their reform agendas, the G20 are making special efforts to bring African countries and international investors together (e.g. through investor events both in their home countries and at international level).
All relevant information regarding the Compacts is publicly available on this website, including reform commitments, support measures, monitoring reports and investor events.
What are the benefits of engaging in this initiative for African countries?
Participating countries will benefit in several ways:
What are the commitments of African countries engaging in this initiative?
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. Respective reform measures cover the macroeconomic, business and financing framework. The commitments are regularly monitored at the margins of the IMF/WB meetings every six month.
What has been achieved so far?
The initiative has sparked great interest among African countries and eleven countries have joined the Compact. In North Africa: Egypt, Morocco, Tunisia; in East Africa: Ethiopia, Rwanda; and in West Africa: Benin, Côte d’Ivoire, Ghana, Guinea, Senegal. Togo has joined most recently.
Compact Countries have shown strong ownership of the process. In cooperation with IOs and bilateral partners, they have developed tailor-made policy measures to make them more attractive to investors. IOs and bilateral partners have improved coordination and encouraged private sector.
The First Monitoring Report to G20 Finance Ministers and Central Bank Governors from April 2018 has taken stock of the progress already achieved and has underlined the strong commitment and dedicated efforts of all the partners involved in the initiative. The report covers 101 commitments, reflecting remarkable and collective sense of purpose.