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Realizing the Potential of the G20 Compact with Africa

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By Christine Lagarde October 30, 2018 Power Plant, Abidjan, Cote d’Ivoire. The G20 Compact with Africa was initiated under the German G20 Presidency to promote private investment in Africa, including in infrastructure. So far, eleven African countries have joined the initiative: Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia (photo: Thierry Gouegnon/Reuters/Newsom) The Compact with Africa focuses on a fundamental challenge for the continent: how to accelerate private sector investment and create jobs. To realize its full potential, all parties need to deliver. The central idea behind the Compact is a simple one: create a platform for closer coordination between African countries, international organizations, and bilateral G20

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By Christine Lagarde

October 30, 2018

Realizing the Potential of the G20 Compact with Africa

Power Plant, Abidjan, Cote d’Ivoire. The G20 Compact with Africa was initiated under the German G20 Presidency to promote private investment in Africa, including in infrastructure. So far, eleven African countries have joined the initiative: Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia (photo: Thierry Gouegnon/Reuters/Newsom)

The Compact with Africa focuses on a fundamental challenge for the continent: how to accelerate private sector investment and create jobs. To realize its full potential, all parties need to deliver.

The central idea behind the Compact is a simple one: create a platform for closer coordination between African countries, international organizations, and bilateral G20 partners to support economic, business, and financial sector reforms that will attract private investment.  

Sixteen months on from the Berlin Summit that effectively launched the initiative, we can, and should, ask ourselves whether Compact countries and their international partners are doing enough to fully implement the initiative, and where we can make further progress.

It starts with a stronger economy

Compact countries have been implementing policies to strengthen economic stability—a fundamental pillar for attracting private investment.

Growth prospects for most Compact countries are favorable, although in many cases, including Egypt, Ethiopia, and Ghana, the fiscal space to scale-up public investment is constrained by elevated public debt levels. With limited room for additional borrowing, countries also need to boost domestic tax revenues and increase the efficiency of public spending to fund higher public investment.

To deliver on the Compact's full potential, reform-minded countries in Africa, international organizations, and G20 partners need to row together.

Better business and financing frameworks make the difference

Private investors seek better business frameworks—with streamlined procedures, regulatory certainty, efficient courts, and transparency. Stronger and more developed financial sectors deepen capital markets and expand access to credit. 

Equally critical to private investment is coordination between governments and partners.  This has been highly effective in some countries, such as Ghana and Morocco—but less so in others. Implementing the ambitious and country-specific reform commitments under the Compact requires strong ownership by African countries, and stepped-up engagement and support from Compact partners to ensure adequate capacity and financing during implementation.

Development partners need to provide fine-tuned public support—such as risk mitigation instruments—to leverage private sector investment. The growing involvement of development finance institutions in G20 countries is welcome. They can contribute extensive expertise in the design and financing of large investment projects.

Stepping up to attract more private investment

Attracting private investment requires connecting countries directly with private investors, as was on display at the recent Germany-Ghana Investors “Virtual” Forum. Other G20 partners could step up their game in this area, including through funding of road shows and peer-learning events that bring together Compact countries and potential investors.

Of course, all these reforms take time and require strong ownership. We must be realistic about how quickly projects can be developed and implemented, and about the challenge of overcoming political opposition in some cases. But the potential rewards of meaningful economic reforms are worth the wait.

The IMF actively supports the Compact

The IMF continues to work closely with Compact countries to build strong macroeconomic, business, and financial frameworks that will encourage a scaling-up of private investment. We maintain a close policy dialogue with all 12 Compact countries, and IMF-supported programs are in place in 10 of those countries.

Our capacity development works to strengthen key public institutions. During 2017 and 2018, the Fund fielded 129 technical assistance missions in Compact countries and trained more than 1,700 government officials, in areas including tax administration, public investment management capacity, and financial sector supervision, to name a few.

A “win-win” collaboration

We continue to actively support the Compact process—a pragmatic “win-win” collaboration between advanced and developing countries. Achieving success in the current Compact countries will lay the basis for expanding the initiative across the continent.           

A final thought in closing. In the next decade, 140 million children will come of age in the 12 Compact countries. Increasing private investment is not an abstract concept in terms of those children’s future—it is an imperative if they are to enter productive employment, and thereby deliver on Africa’s demographic dividend. Failure to meet this job creation challenge is not an option—and we have the tools and instruments to achieve success.

Over the past few weeks, we at the IMF have been making a case that this is not a time for complacency in the global economy. We must steer, not drift. The same is true of the Compact with Africa. To deliver on its full potential, reform-minded countries in Africa, international organizations, and G20 partners need to row together.

Watch this 2 minute video about the Compact with Africa:

 

Related Links:
Compact With Africa

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