The G20 Compact with Africa: An Incomplete Initiative

Abstract

A key element of the G20's partnership with Africa is the Compact with Africa (CWA) initiative, the primary aim of which is to support private and infrastructure investment. Draft compacts of five African countries - Côte d'Ivoire, Morocco, Rwanda, Senegal, and Tunisia – may be presented at the G20 Africa Partnership Conference in Berlin. The CWA initiative cannot and should not be seen as a quick fix vis-à-vis the root causes of flight and migration. It might support development in Africa, but alone it will not be decisive. The initiative addresses a key mechanism of economic (under)development, but the coordination problem that explains Africa's low income levels extends well beyond the realm of investment and infrastructure. An investment plan that fails to recognise this is bound to fail. The CWA omits four very important issues. First, it ignores investment in education, which is an essential complement to physical infrastructure and private investment. Second, it fails to discuss the G20's responsibility in creating an uncertain trade and investment policy environment that harms investment in Africa. Third, while the compact has much to say on investor risk, it does not address the social and environmental risks associated with private investment. Fourth, the CWA fails to take seriously a comprehensive sustainable development agenda, as implied by the 2030 Agenda. The CWA does better in a technical sense and proposes a number of instruments that aim to achieve a better-matched supply of capital and to facilitate better preparation of investment projects. However, the priority seems to be de-risking through subsidies, which may waste resources or induce excessive risk-taking. Other instruments and domestic financial markets may be better at leveraging private investment for small, highly profitable, and highly risky African projects. Support to Africa can only succeed as a long-term endeavour. The CWA initiative needs to be more comprehensive; this can be achieved by linking it to country development strategies based on the 2030 Agenda. Investment in education should be an integral part of the compacts. The G20 should commit to a predictable trade regime for Africa. Investors, multilateral development banks, and host countries need to address potentially adverse ecological and socio-economic effects of private investment by adhering to adequate international standards and by effectively implementing safeguards.