Federal Chancellor Olaf Scholz traveled to Africa three times in two years; in the group of industrialized and emerging countries (G20), he campaigned for the admission of the African Union (AU). African governments accept that he is interested in closer economic cooperation – for whatever motives. He has now invited people to the G20 Africa Summit in the Chancellery. The meeting on Monday will be accompanied by a business conference organized by the Federation of German Industries (BDI). More than a dozen government representatives from African countries are traveling.
Specifically, Scholz wants to breathe new life into the G20 initiative “Compact with Africa” (CwA), which was founded in 2017 under the German presidency but has not made much of a splash since then. It’s about new impetus for the agreements, to which 13 African countries are currently members, and which are intended to promote private sector investments: for example through improved framework conditions at the location and supplemented by programs from international financial institutions such as the World Bank. The idea is that the will to reform meets G20 support. The partnerships are intended to minimize investment risks and hurdles for German companies, among others.
So far, Egypt, Ethiopia, Benin, Burkina Faso, Côte d’Ivoire, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo, Tunisia and most recently the DR Congo have accepted the offer to deepen the partnership – all second-tier economies, who want to become more attractive for foreign capital. The inclusion of new heavyweights is becoming apparent: the front row is also showing interest: it is possible that Nigeria – the continent’s largest economy alongside South Africa – will join. The Nigerian president is coming to Berlin at short notice, and high-ranking representatives from Angola, Kenya, Zambia and Tanzania also wanted to travel to the summit.
So if the Chancellor is planning a new start, a CwA 2.0, this could be achieved with a perspective expansion. On the other hand, the signs for future cooperation are also changing: geopolitically, the value of the continent, which is rich in critical raw materials and potential sources for the energy transition, has increased dramatically. The West’s turning away from Russia after the war of aggression against Ukraine is fueling the desire for “near-shoring”, the search for companies from economies that are closer to Europe. Dependencies on China should be reduced, which is why the Chancellery should focus on cooperation for green hydrogen, liquid gas, fertilizers and the EU Global Gateway initiative.
Despite some criticism of the CwA process in Africa, the adverse environment of high debt burdens and economic stagnation as well as the prospect of new branches of value creation is driving influx from Africa. “But there is a desire in Africa to align the Compact more closely with the needs of the target countries and their own development plans,” says Stanley Achonu, director of the ONE Campaign Against Poverty and a former civil society advisor to the World Bank. There were complaints that there was little scope and a lot was prescribed. In order to have a prosperity effect on the population, more investments must also be made in employment-intensive sectors.
Achonu also recalls the earlier G7 commitment, according to which governments wanted to mobilize up to $80 billion in investment capital from development financial institutions. What became of it cannot be understood due to the lack of transparency after the summit meetings. The Konrad Adenauer Foundation (KAS) also expressed criticism in a foreign policy publication: Instead of becoming a central instrument for the G20 countries, only a few nations allowed themselves to be closely integrated into the CwA process and preferred to pursue their own African programs. There is therefore no particular emphasis felt.
German Africa experts, including Robert Kappel, write that the arbitrariness of the previous selection of alleged “reform champions” has done little to help companies perceive the CwA as an opportunity. “Long-term investments, combined with qualification programs and a technology transfer that is worthy of the name, are falling by the wayside.” In addition, the CwA does not offer an “inclusive model” for more employment, local value creation and a greater role for African companies.
In any case, the CwA cannot score points with a tangible increase in foreign investment (FDI) across countries. In a current balance sheet, the World Bank nevertheless highlights positive developments. The World Bank and Monetary Fund (IMF), the African Development Bank (AfDB) and the African Center for Economic Transformation (ACET) support investment projects with know-how and guarantees. One goal is to standardize contracts and regulations for the development of bankable projects and public-private partnerships (PPP). The World Bank has also prepared country-specific market opportunities in so-called Private Sector Diagnostics (CPSD) for 50 countries, including all CwA members.
According to preliminary findings, CwA countries can boast more foreign investment, exports and domestic fixed assets than other African countries thanks to the initiative, according to the World Bank. However, no advantages were observed in terms of per capita income, company start-ups and employment. However, the CwA countries asserted themselves in the downturn of the corona pandemic with more stable growth (on average 0.54 percent) than others that slipped into recession (minus 3.24 percent) and also recovered better. This will result in growth of 5.4 percent by 2022, compared to 3 percent in non-CwA economies. The weaker performance of North Africa will continue until 2028, while growth of six percent is expected again in CwA countries in sub-Saharan Africa.
Since 2017, member countries have recorded more foreign investment than non-members in only two years. However, the report notes “a strong comeback in 2022” above the general trend and pre-Corona levels – a 466 percent increase in commitments compared to the previous year to $128 billion in all CwA countries. But the truth is that a large part of this can be attributed to large-scale green energy projects in Egypt and Morocco. In 2022, foreign investments from industrialized countries and emerging markets accounted for $69 billion and $64 billion respectively – leading including Australia, India, Luxembourg and Great Britain. CwA countries have also stood out as beacons of good governance with reform commitments in favor of “green investments”.
According to the report, CwA countries also showed themselves to be more crisis-resistant when it came to exports, which fell by 7 percent in the 2023 financial year – due to falling global raw material prices – but less sharply than in other African countries (minus 17 percent). Exports from Egypt, Morocco and Ghana have developed above average since 2015.
Note: This article first appeared on CAPITAL
