Yemisi Izuora with Agency Report
A plan to reshape Africa’s economic future is being hatched in Berlin by some of the world’s top policymakers and investors.
The G20 Compact with Africa group claims that millions of citizens could see tangible economic benefits from the recently launched Group of Twenty advanced and emerging economies’ initiative. The goal is to boost private investment by harnessing the expertise and resources of governments, investors, and international organisations.
Christine Lagarde, managing director of the International Monetary Fund (IMF), explained “The Compact is about facilitating projects that can lift productivity and living standards. It is about creating fresh opportunities on a continent where 70% of the population is under 35 years of age.
“Youthful countries have a higher economic growth potential, but delivering on this promise is not an easy task. We think that some 20 million jobs need to be created in Africa every year until 2035 just to absorb new entrants into the labour force,” she warned.
By launching the Compact, the German G20 presidency has started an engine for job creation and poverty reduction. “But to make it run at full speed, everyone needs to bring something to the table,” Ms Lagarde stressed.
“For African governments, this means stepping up reforms to improve their economic, business, and financial climate, as well as their governance. For their partners, including the G20 countries and international organisations, it means supporting efforts to design and implement successful investment compacts that reflect the characteristics of each country.
“We at the IMF are ready to play our part, in line with our mandate, in working toward a resilient macroeconomic environment and sustainable debt burdens. This is critically important because only a healthy overall economy creates more investment – and more and better-paid jobs.”
She has provided three examples of the G20 commitment:
First – creating stronger and more reliable sources of government revenue by assisting on tax policy reforms and strengthening administrative capacity. Given the emphasis on stronger institutions and growth outcomes under the Compact, there is no reason why countries should not aspire to achieve revenue gains of 0.5% of GDP each year.
This would help make growth more durable and more inclusive, by preventing a buildup of excessive debt and by generating extra resources that can be used for fresh investment in health, education and infrastructure.
Second – improving the efficiency of public infrastructure spending. It is estimated that Africa needs about $100bn per year in investment to close its infrastructure gap, but less than half that amount is being undertaken. Recent analysis shows that the regional deficit in physical infrastructure reduces growth by 2% a year – a heavy drag on incomes, job creation and future prosperity.
Countries such as Ghana, Ivory Coast and Togo have recently used IMF expertise and tools to raise the efficiency of their public spending, which is key for infrastructure investment. This year, the group will be working with Morocco, Senegal and Tunisia.
Third – supporting financial sector development, from building healthy and well-supervised banking systems to macroprudential policy, to managing capital flow volatility in times of distress.
However, there are challenges. Ms Lagarde said: “We also know that investments can only thrive in the right environment – one in which the rule of law is respected and safeguarded by strong institutions. The IMF is heavily engaged with our member countries in this effort, including to build up defences against money laundering and the financing of terrorism, most recently in Ghana, Morocco and Tunisia.”