Compact with Africa Fostering private long-term investment in Africa (original) (raw)

With its "Compact with Africa", the German G20 Presidency intends to encourage private institutional and corporate investment, together with the African partners. The objective is to boost growth and jobs, promote inclusion and give people economic prospects at home so that they do not have to leave their home country to seek subsistence elsewhere. Stimulating private sustainable investment in Africa has been a longstanding G20 policy target. Both institutional investments, for example through pension funds and life insurers, as well as corporate investments in the form of foreign direct investment (FDI) can benefit Africa. Institutional investors enjoy long-term liabilities in their balance sheets, which is essential to fund Africa's infrastructure, a central growth prerequisite for the continent. FDI, in turn, requires modern infrastructure, especially energy and connectivity, to fully deploy its external benefits. FDI can entail benefits for the modernisation of production capacity; knowledge transfer; integration into global value chains and regional value chains; as well as employment for the jobless. Corporate FDI reflects a long-term commitment and is hard to reverse, thus providing stability. Total assets managed by long-term institutional investors are projected to reach 100trillionby2020,upfrom100 trillion by 2020, up from 100trillionby2020,upfrom62 trillion just eight years earlier. To fill Africa's annual infrastructure funding gap of $50 billion, 1 per cent of new institutional investment by pension funds, life insurance companies and sovereign wealth funds would need to be invested in Africa's infrastructure every year. Yet, despite the longstanding policy focus of G7/G20 leaders, private long-term investment in Africa's infrastructure has remained deficient. Private finance still plays a minority role in funding Africa's infrastructure. Since 2010, Africa's infrastructure deployment has become uneven and, on average, has not progressed further. Why has the decade-long G7/G20 push for private investment in Africa's infrastructure failed to produce better results so far? Regulatory supply-side barriers for investors and low-income Africa host barriers have been identified as root causes. To help improve the situation, appropriate dialogue partners not envisaged so far are identified, especially prudential regulators.