A better investment framework for Africa

Africa’s enormous economic potential is not news. But, until now, policymakers around the world have not successfully defined the political and economic steps that must be taken to enable Africa to realise this potential fully. That is why the German G20 presidency has launched its G20 Africa Partnership initiative.

At the core of this effort to intensify cooperation with Africa lies the G20 Compact with Africa (CWA). The CWA offers interested African countries the opportunity to improve conditions for private investment, including in infrastructure.

The CWA’s structure is straightforward:

African countries, together with their bilateral partners and international financial organisations with proven expertise on Africa (such as the African Development Bank, the World Bank Group, and the International Monetary Fund), will jointly develop, coordinate, and implement tailor-made measures.

The main aim is to lower the level of risk for private investments, by improving economic and financial conditions and strengthening institutions. Over time, the resulting increase in investment will boost growth and productivity, create jobs, and raise living standards, as envisioned in the African Union’s own Agenda 2063 program.

The CWA stands for a new approach in international development policy. Of course, we are not reinventing the wheel. But the mode of cooperation and coordination among the many bilateral and multilateral players, as well as the commitment of the African countries, is something new.

We view the CWA as a long-term, demand-driven process. It is open to all African countries that are interested in improving their investment environment on a sustainable basis. But, most important, the decision-makers are the African countries themselves. They will determine what they want to do to improve conditions for private investment, with whom they want to cooperate, and in what form. Only if the African countries 'own' the initiative will it be a success.

So far, five African countries – Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia – have committed to full participation in the CWA. Ghana and Ethiopia joined in June 2017.

CWA countries, the international financial organisations, and bilateral partners are working closely together on the details of the country-specific compacts. At the G20 meeting in Baden-Baden in March, some members – and also non-G20 countries – indicated that they would like to become bilateral partners. The German government will also contribute via the bilateral framework – called a 'Marshall Plan with Africa' – developed by our Federal Ministry for Economic Development and Cooperation.

Our main job, however, is to bring private investors and African countries together. At the G20 Africa Partnership Conference in Berlin on June 12-13 2017, we provided a platform for these African countries to reach out to investors in order to enhance the continent’s engagement with the private sector. CWA countries presented the key elements of their investment compacts in a roundtable with investors. They also outlined the key industries and infrastructure projects for which they are seeking private funds.

After the Berlin meeting, the implementation phase of the CWA initiative starts. The country teams will further specify their compact measures and consider the milestones for their implementation. At this point, dialogue with investors will be particularly significant, because such conversations will help African countries to establish which measures and instruments are crucial for engagement with the private sector.

To be successful, this initiative cannot focus on short-term results. It needs to continue beyond Germany’s G20 presidency in 2017/2018 and to be supported by the G20 over the longer term. Germany, of course, will continue to take responsibility for the CWA’s implementation. The G20 will be informed on a regular basis about how the investment compacts develop.

Most important, by sending a signal to other African countries, progress in the participating countries will determine whether the CWA becomes a success for all of Africa. If all parties involved – African countries, international organisations, bilateral partners, and, not least, investors – collaborate closely, the CWA has the capacity to promote sustainable, robust, and inclusive economic growth throughout the continent.

This article was written by Wolfgang Schäuble, German Federal Minister of Finance.

This article is published in collaboration with Project Syndicate.

The views expressed in this article are those of the author alone and not the World Economic Forum.

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--Future of Construction 14:16, 04 Jul 2017 (BST)