The German Ministry of Finance has launched the Compact with Africa as a G20 initiative. How does the Compact with Africa differ to other partnerships that already exist and why is the G20 the right forum for the Compact?
The G20 “Compact with Africa” stands for a new approach in international development policy. So far, five African countries – Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia – have committed to full participation in the CWA. Ghana and Ethiopia will join this month.
We are not reinventing the wheel. But the mode of collaboration and coordination among the many bilateral and multilateral players, as well as the commitment of the African countries, is something new.
The Compact countries, the African Development Bank, the World Bank Group, and the International Monetary Fund as well as bilateral partners are working closely together on the details of the country-specific compacts. Each compact country has set up a country team that takes the lead in this regard. Also, a website has been developed where in particular investors are informed about the Compact process and the contact points in each Compact country.
Limited access to finance is a key impediment to inclusive and sustainable growth. How can financial institutions from the G20 economies be incentivized to lend more to businesses in the Compact countries to get investment off the ground?
The Compact initiative is a demand-driven process. It is open to all African countries that are willing to improve their investment environment on a sustainable basis. This means, that 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.
The idea of the Compacts is to reduce the risks for investors by improving the framework for private investments. The idea is not to simply shifting risks from potential investors to donor countries or institutions.
The development of financial markets is a key element of investment Compacts. Better framework conditions, for instance, by developing local currency markets or improving collateral conditions and credit registries should facilitate lending in Compact countries. International organizations and national development banks can contribute to this process both technically and financially. There is no particular role foreseen for financial institutions from G20 countries beyond improving the environment for them as well.
Germany holds the G20 Presidency until December 2017. What will happen after this? How will the G20 ensure that Partnerships will be implemented and flourish?
To be successful, this initiative cannot just 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 implementation of the initiative. The G20 finance ministers and central bank governors have already decided to continue the initiative beyond our Presidency and asked to be informed on a regular basis about how the investment Compacts develop.