Argentina has now assumed the Presidency of the G20 and the first meetings were recently held in Bariloche. The schedule of meetings for Sherpas and Finance Deputies has been published, and President Macri outlined key priorities for the Argentine Presidency including inclusive growth, the future of work, infrastructure for development, and food security. In these early days of the Argentine Presidency, there has been little said about Africa. This might be understandable from a view of distance – but is unfortunate from a holistic view of economic transformation in Africa.
Investment in Africa has been at the forefront of the development dialogue for a number of years now. This shift was formally constituted by international development partners at the Third International Conference on Financing for Development in Addis Ababa in 2015, and is now reflected in most bilateral aid strategies. As an example of this shift, during the World Bank/IMF Annual meetings, there was a strong focus on the role of the private sector with sessions on Harnessing the Power of the Private Sector in Support of Sustainable Development, Crowding in the Private Sector, Mobilizing the Private Sector for Development; and Creating Markets through Entrepreneurship. Likewise, ACET’s recent report, “Agriculture Powering Africa’s Economic Transformation” was launched at the Annual Meetings.
Under the German Presidency of the G20 there was a particularly focused approach for Africa, leading to the G20 Africa Partnership and G20 Compact with Africa (CWA) which supports enhanced investment in Africa. The CWA now has ten African countries which have committed to address key policy issues related to their macroeconomic, business and financial frameworks. The G20 Africa Advisory Group, led by Germany and South Africa, is advocating strongly for the CWA, while ACET is supporting these countries through analysis, peer learning and global best practice. The CWA is voluntary for African countries and there is no additional financing from the G20 – yet ten African countries have signed on, showing country ownership and commitment.
The CWA was welcomed in part because big challenges remain in Africa that will require private sector participation. While there have been periods of strong growth, most African countries have not transformed their economies, and doing so is complex and difficult. Some countries have shown great strides in certain sectors or around a few policy areas, but not in broad economic transformation, which will require private financing, particularly for infrastructure. While it is evident that infrastructure investment is needed to achieve the 2030 Agenda for Sustainable Development, Africa’s infrastructure development since 2010 has been uneven. What private investment does exist is heavily concentrated in sectors such as energy, on a very limited number of projects and largely in just a few countries such as Morocco and South Africa. Africa also continues to suffer from a severe lack of institutional investor funding stemming from poor local project knowledge and few regulatory incentives. Additionally, illiquid domestic debt markets, and concerns about rule of law or fragility, restrict investment. On the project side, risks surrounding construction, foreign exchange, and maintenance and operations are not mitigated with appropriate mechanisms. The efforts of IFIs have been well intentioned, but cannot meet the infrastructure investment needs of Africa. Despite ramped-up efforts to “crowd in” private sector funding, only 1.6% of total gross capital flows are the result of guarantees or syndicated loans. Of this, only 5% of IFI mobilized private sector resources went to low income African countries between 2012 and 2014.
If African economies are to transform quickly, they need the explicit and vocal support of the G20. The German Presidency laid a solid foundation for the Compact with Africa to make a difference. Progress has started and commitment remains strong – but the momentum must be maintained. The first Sherpa’s meeting takes place in Bariloche from 14-16 December, followed by a long series of meetings on topics from data gaps to agricultural market systems, culminating in the Leaders’ Summit in November 2018. Hopefully Africa’s place in the G20 agenda will be fully elevated before then.
Rob Floyd is Director and Senior Advisor at the African Center for Economic Transformation.