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The G20 Global Compact with Africa and its implications for development

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Africa Kiiza,

President Kagame attends the G20 Compact with Africa Conference hosted by Germany Federal Chancellor Angela Merkel. Berlin, 19 November 2019 CC BY-NC-ND 2.0, Paul Kagame

In 2017, the G20 Compact with Africa (CwA) was initiated under the German G20 presidency to promote private investment in Africa, including in infrastructure. The CwA’s primary objective is to increase attractiveness of private investment through substantial improvements of the macro-, business, and financing frameworks. Whereas the initiative is open to all African countries, currently, twelve African countries have joined: Benin, Burkina Faso, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo, and Tunisia. Although the guiding policy document of the G20 Compact with Africa was drafted jointly by the Africa Development Bank, the International Monetary Fund, and the World Bank Group and is therefore largely a product of non-African institutions, it contains proposals to be adopted by African governments.

Africa Kiiza is a trade policy analyst currently working with the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)-Uganda.

Discourse about the very nature of this partnership is gaining momentum. Althoughthe CwA is paved with good intentions, a careful examination of the compact brings out the far-reaching negative implications its provisions pose to Africa’s development. Indeed, key to note is that the G20 is an exclusive club of the most powerful economies and has become an influential forum to determine and influence the global economic landscape. It can be argued that while Africa is virtually excluded from the G20 processes, the aftermath of such processes has always negatively impacted the continent. Indeed, at its onset, the CwA could be beneficial if it takes into account the expectations and needs of African citizens.

But a big question arises: what kind of private investment is it about? It is therefore legitimate for African citizens from the grassroots to fear that the “Compact with Africa” is merely a replica of the Millennium Challenge Corporation, implemented by the US in Africa, the Japanese TICAD, or the Chinese FOCAC. In search of space for their expansionism, Americans, Japanese, Chinese, and above all Europeans cannot legitimately have the development of Africa as their major concern beyond the pursuit of their own interests.

What Will CwA Mean for African Development?

Like the legendary Trojan horse, it is important to ask whether the CwA is a brand new, concrete opportunity for Africa’s structural transformation and development, or another “neo-colonial” intervention in Africa. There are fears that the CwA could be just a complement to the Economic Partnership Agreements (EPAs) imposed upon Africa, despite a rejection by the majority of African citizens. It would thus be the consecration of imperialism and injustice at the international level, a factor of excessive re-indebtedness. In its current narrative, the CwA could have the following implications on Africa’s development:

  • Enhancement of Structural Adjustment Programs (SAPs) in Africa. The most delicate issue with the CwA approach is arguably that of privatization, as it is closely connected with the neoliberal agenda manifested under the Structural Adjustment Programs (SAPs) initiated by the IMF and World Bank—the same international organizations now pushing the CwA. SAPs are deemed by many as culpable for Africa’s “lost decades” in the 1980s and 1990s. Africa’s contemporary challenges—which include unemployment, deteriorating terms of trade and a weak developmental state—were made worse by SAPs, which prescribed liberalization, privatization, currency devaluation, cuts in public expenditure and salaries, among other measures.
  • Lack of a multidisciplinary approach to addressing Africa’s development challenges. While the CwA’s economic formula contains appealing guidelines for initiating economic development, it does not address long-term stability and protection from risks (from the environment to debt management) and global volatility with the same adequacy. In the CwA text, risks are only presented as risks for investors and not for of communities in the host countries. This is contrary to the United Nations Guiding Principles of Business and Human Rights, but also to a rights-based approach to development.
  • Non-recognition of the role of the diaspora in promoting domestic investments. Although transnational corporations have played and continue to play a critical role in driving investments in Africa, the challenges that come with them have triggered a search for alternative sources of investments, one of which is remittances from the diaspora. A closer analysis of the CwA reveals a lack of appreciation of the role played by the diaspora community and remittances in promoting investments in Africa. The African Union recognises the diaspora (known as the “sixth region of Africa”) as peoples of African origin living outside the continent, irrespective of their citizenship and nationality, who are willing to contribute to the development of the continent and the building of the African Union in the context of South-South cooperation and Pan-African solidarity. Remittances can play a critical role in facilitating investments in social sectors like education, health, information technology, and agro-processing in Africa, which form a core component of the continent’s Agenda 2063. Indeed, in 2019 the World Bank reported that remittances to Africa by the diaspora amounted to 48 billion US dollars and continue to rise. Such funds have been earmarked by the African Union under the Africa Diaspora Investment Fund (ADIF) as new sources of financing for investment to supplement traditional domestic and external resources. It is therefore quite surprising to see not a single mention of African diaspora in the CwA, yet it can be subsumed under the category of private investors in Africa.
  • Failure to address challenges associated with investments in Africa. A careful scrutiny of investments in Africa reveals that they have mostly resulted in social tensions and welfare disruptions through land grabbing and displacement of communities, with public and private foreign investors taking control of vast stretches of fertile land. For example, in Uganda a number of land grabbing incidences have taken place in different parts of the country, causing a great deal of suffering and loss of property and land for many communities. Many households have been disposed of their land and property as a result of both local and foreign large-scale land acquisitions. The complexity of the matter is that these incidences in most cases have been perpetuated by state and government agencies. Therefore, it is critical that while advancing investment, the CwA understand the negative implications of investments in Africa on the livelihoods of the communities.

While there are gaps in the CwA text, its positive intentions cannot be underestimated. Indeed, Africa can do well with investment, infrastructure, and their spillover effects, as reflected in the continent’s realization of Agenda 2063. However, this requires a number of policy actions by both “Compact Countries”, the EU and the African Union. For example, it is important for the CwA to be in line with the African Union Agenda 2063 to reflect the realities of the different African states. An in-depth consideration of these documents is necessary, not their mere cross-referencing. The investment focus in particular should be on consolidating a national private sector more inclined to social responsibility, so that profit-seeking is not the only objective. This would, to some extent, mean the promotion of education in order to improve literacy on the African continent.

Job Creation and Curbing Migration

The CwA narrative is also that more investment will lead to job creation, which will curb African migration to Europe. It is a false dimension to see private investment and development cooperation as a way to contain migration. However, in spite of the increased investments in Africa, African migration to Europe is always on the rise and can be largely attributed to the search for “better lives and welfare” in Europe. This is partly due to the fact that documented evidence reveals that investments in Africa have often bred wars and conflicts (in mineral rich regions), displacements (in large-scale, land-based investments), poor working conditions (especially for casual workers) which often make them fall prey to the “great trek” to Europe, often via the Mediterranean. Owing to this reality, the 2006 AU-EU Tripoli Declaration on Migration and Development acknowledges the huge economic developmental potential that exists in Africa—particularly in the agricultural, industrial, and service sectors. Therefore, in order to tackle this immigration, which at times has become a contentious issue in the Afro-Euro partnership, it is critical to push for targeted investments that enhance welfare and improve livelihoods through providing decent jobs and employment to millions of Africans whose youth account for 60 percent of the total jobless population.

The CwA initiative also needs to be more comprehensive by linking it to country-specific development strategies based on the 2030 Agenda. It should commit to a predictable, pro-people trade and investment regime for Africa. In order to achieve this, investors, multilateral development banks, and host countries need to address possible adverse ecological and socio-economic effects of private investment by adhering to adequate international standards, especially the UN Guiding Principles on Business and Human Rights, and redefining Corporate Social Responsibility from going beyond philanthropy or simple compliance with the law. Critical to note is that an effective and path-breaking cooperation should interrupt the cycle that makes of Africa a continent for cheap and unskilled labour primarily oriented towards producing raw products for Western industries and markets.

Moving Beyond Neo-Colonialism

No other region of the world has been so dominated by external ideas and models as Africa. Dubbed by its critics as “Angela Merkel’s neighbourly plan for Africa”, the CwA can be interpreted as another Pan-European African project similar to classical colonialism, or neo-colonialism manifested in “cooperation” agreements like the Cotonou Partnership and the Economic Partnership Agreement. The “African Project” is also manifested in the Chinese economic development model in Africa. Despite being paved with good intentions, it can be argued that these projects have largely not worked for Africa’s structural transformation and inclusive sustainable development. Despite its aim of boosting private investment in Africa, the CwA comes at a time when the discourse for rethinking the role of Foreign Direct Investments (FDIs) in development is at its peak.

While the CwA has yet to be put into practice, and the present assessment relies solely on a framework document, there is still time to address its shortcomings in the actual country-specific compacts. These compacts should have clear review mechanisms that allow for adjustments or for an abandonment of the approach altogether if it does not work out as envisioned.