Home East Africa Financing Africa’s private sector

Financing Africa’s private sector

by Ben Oduor

Germany is working with IMF to finance Africa’s private sector through its initiative ‘Compact with Africa.

By Ben Oduor

East African countries can now register to receive funds from a German supported initiative dubbed, ‘Compact with Africa’.

The initiative was launched in 2016 and is jointly supported by the International Monetary Fund, an organization that facilitates global trade, fosters global monetary cooperation and secures financial stability, and a group of 20 world’s leading economies (G20).

An MoU signed in April this year by German’s Federal Minister of Finance Wolfgang Schauble and IMF Managing Director Christine Lagarde indicates that German Ministry of Finance would support IMF capacity development activities across Africa with 12million Euros, in an effort to increase sustainable private sector investment, improve infrastructure and tackle unemployment, which is one of the most serious challenges in the region.

“I want to commend the German government for making the Compact with Africa a G20 priority this year. This compact has the potential to mobilise investment and energise inclusive economic growth in Africa. The IMF greatly appreciates the support of the German government for our capacity-building efforts in Africa and we’re very pleased to participate in this important initiative,” said Lagarde .

On his part, Schauble said the project would create a huge impact to Africa’s economy, as it targets private investments, which is one of the continent’s key revenue generators.

“Capacity development is important to improve conditions for private investment in Africa. This is why we support the IMF’s very valuable efforts both financially and conceptually,” the minister said.

In order to benefit from the programme, however, a number of African countries will have to partner with the G20, World Bank, the International Monetary Fund and the African Development Bank to negotiate a specific action plan for each state. This is in a bid to tackle specific challenges experienced by the African states.

The countries would then commit to implementing reforms, which would increase their investment potential, while their international partners will offer technical expertise, attract to them investors and assist with other pertinent economic issues.

IMF, in a statement, says its capacity development supports African policymakers’ efforts to address reform challenges in areas such as strengthening domestic resource mobilization, implementing fair tax systems, achieving good financial governance, and fostering financial stability and inclusion, in support of 2030 Agenda for Sustainable Development.

African countries who have applied to be registered to participate in the program will have to implement their reform promises, maintain political stability and fully shun corruption.

Of greatest concern to the G20 that also influenced its focus on the continent’s private sector, is the rate at which Africa’s population will grow moving forward.

German media, DW, estimates the population to double the current size to 2.5 billion people by 2050. By 2030, the media says, approximately 400 million people will be looking for work and this will demand African economy to grow rapidly.

“However, existing conditions in many countries will make this difficult to achieve if things do not change. Only 130 billion US dollars (115million euro) a year would be enough to expand African infrastructure- roughly equivalent to the total amount of public aid for the continent,” the German media regrets, stating that ‘private investment would hopefully fill the gap and give African countries a head start.’

Some pundits view this move as a way to support Africa get sustainable ways of raising resources crucial to fix her most disturbing challenges.

According to Claus Stacker, head of DW’s Africa service, the “Merkel Plan” (other name for compact with Africa) could be a departure from ordinary development aid, marking an end to the random approach of distributing funds which has proven not to have worked.

“Since 1960, Africa has burned through $4,000billion (3,566 billion euros) without any significant improvement to living standards. Over the same period, Africa share in world trade shrank from seven per cent to currently just three per cent,” he said.

Many of Africa’s citizens have also moved out to foreign countries in search of better lifestyles, education and commensurate working terms due to the continent’s inability to address such issues appropriately.

Germany, for instance, is currently struggling with the influx of immigrants which has forced her to endorse measures to mitigate the challenge. Stacker estimates the number of African migrants the German government expects this year to be around 400,000.

He believes the initiative’s main aim is to create jobs which would be crucial to deter African youth from seeking a better life elsewhere, in addition to developing ‘beacons of good practice which gradually light up the whole continent.’

So far Ivory Coast, Morocco, Senegal, Tunisia and East Africa’s Rwanda have registered their interest in the project, with more countries expected to join later in the year. Some of the registered countries have already benefited.

“Ghana was among three other countries to benefit from the 100 million euros that came along with the signing of this pact,” said Ken Ofori Atta, the country’s Finance Minister.

B20, the expatriate business unit of the G20 bloc developed 10 recommendations to support the partnerships. It recommends that the G20 should strengthen the environment for Foreign Direct Investments, boost investment in infrastructure, enable reliable and affordable energy, increase digital connectivity, foster open and inclusive trade and improve good governance and responsible supply chains.

It also recommends that G20 should cooperate with compact countries to advance health, employment and education, improve financial inclusion and enable an environment that promotes SMEs as a pillar for inclusive growth and development.

In improving financial inclusion, for instance, B20 recommends that the G20 should, in partnership with the compact countries, advance financial inclusion to create a broader basis for sustainable economic growth and development.

And to improve good governance and responsible supply chains, it advises the G20 to cooperate with the compact countries to foster responsible global and regional supply chains and anti-corruption measures by supporting the comprehensive set of existing international initiatives and by encouraging the African partners to develop strong national institutions.

Sources say the Compact with Africa project is expected to continue even after Germany hands over chairmanship to Argentina in 2018, with talks already going on to ensure the project is fully implemented by the next presiding country. This will give room for more African countries to join the program.

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