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Robert Kappel and Helmut Reisen

The G20 »Compact with Africa« – Unsuitable for African Low-Income Countries

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DIGBIB-Permalink: http://www.fes.de/cgi-bin/gbv.cgi?id=13441&ty=pdf

  • The »Compact with Africa« (CWA)—an initiative within the G20’s finance track—is a key pillar of the G20 Africa Partnership. In its resolution—adopted by G20 finance ministers and central bank governors in Baden-Baden on March 17-18, 2017 —the G20 has acknowledged its special responsibility to join forces in tackling the challenges facing the world’s poorest countries, especially in Africa. Notwithstanding that declaration, the CWA gives little attention to the specificities of the many low-income countries on the African continent.
  • TheCWA’s macroeconomic framework has an orthodox agenda, with a set of well-known (neoliberal) recommendations: fiscal discipline, redirection of public expenditure, tax reform, financial liberalization, elimination of barriers to foreign direct investment, privatization of state-owned enterprises, deregulation of market entry and competition, and secure property rights. However, this agenda does not adequately reflect major African challenges: lack of jobs, poverty, insufficiently integrated economies, and low levels of industrialization.
  • The CWA’s business framework primarily addresses regulatory uncertainties. Its agenda sets priorities regarding institutional and judicial bottlenecks, which include enactment of business rules, lack of access to information, and discretionary treatment by government officials. Although it is absolutely necessary to resolve these basic problems, the CWA falls short of proactive strategies to support African enterprises.
  • The CWA’s financing framework is centered on de-risking (blending) instruments to stimulate infrastructure investment by pension funds and life insurance companies. Public investment, rural credit organizations, and bank intermediation—funding vehicles of successful development in Asia and Europe—are ignored. The commitments proposed to African partner countries are unlikely to be effective in stimulating sustainable infrastructure, because institutional, banking, and liquidity prerequisites for blended finance do not yet exist in most of sub-Saharan Africa.