Compact with Africa – a game changer or another white elephant?

by Oct 17, 2017

At the G20 meeting in June this initiative was launched. Is it a game changer or one more grandiose proclamation that will not go anywhere? The initiative, Germany’s support and recent developments suggest otherwise. It will hopefully improve Africa’s investment climate. At the summit, the project was spearheaded by Germany’s Angela Merkel, the leader of the largest economy in the most powerful economic group in the world, the European Union (EU). Recent developments, namely, mass migration from Africa into Europe across the Mediterranean Sea, the Trump factor and new technology, suggests that the compact could be a game changer.

The project report was jointly produced by the African Development Bank, the International Monetary Fund and the World Bank. It would target and try to ameliorate impediments to private investment and ensure closer cooperation and coordination among stakeholders. The priority is countries that have “sufficient administrative and policy capacity”, to ensure stable and appropriate macroeconomic (soft) infrastructure, namely; effective, efficient and stable business regulatory policies and practices and; efficient financial markets, risk mitigation and availability; peace and security; governance and; the rule of law. The five countries, probably nudged by the project authors that initially expressed interest in the initiative were Ivory Coast, Morocco, Rwanda, Senegal and Tunisia. The priority statement appears to work on the centre of excellence concept that is, demonstrating to other African countries that by putting their houses in order they can get support from external stakeholders and investment opportunities.

This initiative is undoubtedly the result of recent developments in the geo-political landscape. It was announced at the G 20 forum under the German presidency of that body. The EU, by default, has taken the leadership of the world as the US retreats under Trump’s America First posture. Trump by his statements and actions, is no friend of the non-White world. His budget reduced the State Department appropriation by a third and his speech in Poland and views of his Alt Right support base have clearly indicated that his priority, other than military adventurism, is people of European decent. He left the meeting when the initiative was launched. China and the two main former colonial masters, France and the UK, major players on the continent would obviously need to be key stakeholders.

German support of the compact is a good development for a number of reasons. Firstly, it has huge financial muscle and large foreign exchange reserves from the hefty trade surpluses it has accumulated over the years. It is the dominant economic force in the EU, the world’s largest trading bloc. This means that it has the financial muscle to bankroll the project and it can press the EU to open its market to Africa. Germany’s educational system, notably, its superb technical vocational system is what is badly needed in the continent where the educational infrastructure has failed to develop a technical cadre that the continent needs. Germany is the factory builder of the world and has a solid industrial base, a track record that will be relevant to African countries requiring this expertise. Finally, it should be noted that the recent election setback for Chancellor Merkel when her party lost out to the far right might ironically strengthen her position in supporting the compact, by arguing that failure to facilitate economic growth in Africa could spur migration from the continent, something the far right is very much opposed to.

It has been noted that there have been a hundred plus development initiatives in Africa and this one may sound like another white elephant but this need not be the case for a number of reasons. Firstly, countries must have “sufficient administrative and policy capacity” to be eligible; countries that have expressed interest in the scheme appear to possess this requirement. This means they have to have done their homework, rather than as is often the case where donors have had to do all the lifting, projects often collapsed as soon as foreign donors withdraw. The emphasis would appear be on improving the chosen countries rankings in the “ease of doing business” indices that the IMF, the World Bank and other organisations compile. Countries that are highly ranked in those indices and have the relevant physical infrastructure attract investment. African countries have to apply to join the scheme and in so doing set, own and manage the agenda rather than having projects thrust upon them that merely salve the conscience of developed countries and ex colonial masters. The centre of excellence concept should make the compact attractive to other African countries, they can see that improvements in the investment climate results in assistance from donor countries, increased private investment and consequently economic development and jobs.

If this initiative is to be really effective it must make use of technology. Technology in the form of database, Big Data and the internet will be crucial. The project must build a database of previous initiatives, projects, studies, processes and outcomes. This will allow all stakeholders, notably, donor countries and organisations, African governments and commercial operators to make use of what has been done, obstacles and successes. The project can make use of Big Data to build comprehensive and detailed profiles and analysis in real time. This information should be posted on the internet, emailed to relevant parties and updated on a regular basis. This will allow participants to learn from history, each other and for all stakeholders to develop policies and projects.

Africa’s main ex colonial powers, France and the UK have the largest footprints on the continent in terms of history, trade, investment, aid and connections, a factor that must be recognised and their active participation in this project is required. They would need to re-orientate their engagement with the continent to increased focus on making Africa attractive for investment. Their programmes should factor this element and they should use their influence on African governments. China, the largest trading partner and physical infrastructure investor has so far ignored soft infrastructure. This is partly because that country’s emphasis is to showcase gleaming structures. China is also mainly interested in the continent remaining a source of raw materials. It needs to incorporate soft infrastructure in its engagement with the continent; it should realise that those structures can only be maintained when Africa develops its soft infrastructure and; an acceleration of economic growth would increase the demand for physical infrastructure. It needs to use its expertise to help Africa develop its industrial base for intra-Africa trading as well as exports to China.

The compact sets new precedents because of a number of factors. By explicitly setting out to make the continent more attractive for investment, it will ensure that corporate brands become more prominent not just aid brands. While the latter do much needed work, the sustainable path to economic development, as the case everywhere else, is the development of the private sector for investment and job creation. It brings into prominence a new major player, Germany, which has the resources, track record and educational tradition that will add significant value to economic development. The use of Big Data and the internet has huge potential in a number of areas. African countries can learn from “centres of excellence” on the continent that have implemented measures that have worked. African stakeholders can and must take the initiative in doing the relevant homework, setting, owning and managing the development process. The focus for all stakeholders should be on persuading African countries on the merits of building the capacity to own and manage the process.

Two additional factors that the compact does not address but which are very important in the development process are conflicts and population growth. The former can be minimised because conflicts are often the result of poverty and unfair income distribution. Increased economic growth which the compact would generate will reduce this pressure. The conditions set in the compact, notably, governance and rule of law, should ensure a more level playing field. A growing private sector and the ensuing relative shift in economic activity away from government control, which often gives undue powers to certain ethnic groups, is another way of levelling the playing field. Finally, as noted above, aid organisations can still assist with some of the most disadvantaged groups. The rapid population growth in Africa must be addressed, something that the compact does not cover. Africa needs to confront cultural and religious taboos otherwise the fight against poverty can get nowhere.

I would like to highlight some papers in my blog that have addressed many of these issues, notably, “Africa must build and maintain its infrastructure”, May 2013. That paper takes a unique approach in that it reviews the continent’s physical and soft infrastructure. It also reviews the continent’s inter-Africa trade infrastructure, which has huge potential for development and moving up the food chain. Another paper notes that African countries should take an approach akin to a beauty contest, making their countries attractive to foreign investors. In my paper on the Rwanda experience, I highlighted that country’s impressive development from its nadir in the 1990s mirroring similar elements to the compact.

J Boima Rogers is Principal Consultant at Media and Event Management Oxford (MEMO),