Compact with Africa-A partnership for the future

Strengthening economic cooperation with Africa: this is the aim of a conference being held on Monday to which Federal Chancellor Scholz has invited high-ranking African representatives as well as close G20 partners and international organisations. The “Compact with Africa” initiative was launched in 2017 under the German G20 presidency.

What is it about?

In 2017, Germany launched the G20 Compact with Africa (CwA) during its G20 Presidency. The idea: the G20 works closely in the CwA with reform-oriented African partners on a shared goal – improving economic conditions in the CwA countries so that more foreign (private) investment flows into these countries.The CwA countries are supported in this by the World Bank, the International Monetary Fund and the African Development Bank. This has created a unique multilateral partnership format which benefits all participating stakeholders. The CwA is now firmly established as a key cooperation format between the G20 and African partners – while also reflecting Africa’s important role in an increasingly multipolar world. At their Summits, the G20 Heads of State and Government regularly reaffirm their support for the CwA, most recently at their meeting in New Delhi on 9 and 10 September 2023. Together with South Africa, Germany chairs the G20 Africa Advisory Group that is anchored in the G20 Finance Ministers process and in which the African partners and G20 members discuss the progress of the CwA several times a year at senior level.

The CwA works

The aforementioned international organisations regularly analyse the economic progress of the Compact countries in their monitoring reports. A look at the figures in the current report  shows that CwA countries – which are more open to trade and direct foreign investment due to the reforms they have implemented – recovered much more strongly from the economic effects of the pandemic than other African states. Last year, economic growth in the CwA countries was twice as high as in Africa’s non-CwA countries, while the growth in the export of goods and services was almost four times as high in the CwA countries. The development is extremely dynamic: in 2022, the CwA countries achieved a sixfold increase in announcements of foreign direct investment compared to the previous year.

The CwA is growing

Interest in the CwA remains unabated. The 12 Compact members Benin, Burkina Faso, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia were recently joined by the Democratic Republic of the Congo as the 13th member. And other reform-oriented states have indicated their interest in joining the CwA: Angola, Kenya and Zambia will therefore be sitting at the table at the CwA Conference in Berlin.

Compact with Africa Conference 2023 – what is the reason for the conference?

Personal contact among the relevant Heads of State and Government is vital to the success of major multilateral initiatives. The regular CwA conferences at the highest level – this year’s conference being the fifth in total – were a key element of the CwA from the outset: with it the German Government has created a unique format for direct exchanges among all the players involved. In addition to discussing core CwA issues, there is ample room for important bilateral talks between the states – and for confidential exchanges on the major issues of our time. The entire German Government supports the CwA. Alongside the Federal Minister of Finance and the Federal Minister for Economic Affairs and Climate Action, the Federal Foreign Minister and the Minister for Economic Cooperation and Development will also be taking part in the CwA Conference or the side events, thus contributing to its success.

Who is taking part?

Even though the CwA countries are the focus of the conference, it will draw attention to our neighbouring continent Africa as a whole. That is why, in addition to the CwA countries and countries interested in joining the Compact, the Federal Chancellor has invited all other African G20 participants of 2023. In addition to the African Union and South Africa, which are full members of the G20, these are the current G20 guest countries. Furthermore, the participating international organisations as well as other close G20 partners will be present in Berlin at the invitation of the Federal Chancellor.

What will be on the agenda on 20 November?

A full programme awaits the international guests on 20 November: the G20 Investment Summit, hosted by the Sub-Saharan Africa Initiative of German Business, will begin at 9 a.m. in the JW Marriott hotel. High-level German and African representatives from the business community and the world of politics will meet here to discuss how to intensify their mutual economic relations in general, as well as quite concrete joint projects. The Federal Chancellor will give the opening speech.

The CwA Conference will begin in the afternoon in the Federal Chancellery at the invitation of the Federal Chancellor. (1) Strengthening private investment and (2) cooperation in the field of sustainable energy supply will be at the top of the agenda of the two working sessions.

What is more, the Federal President has invited the African Heads of State and Government to Schloss Bellevue. Federal Finance Minister Christian Lindner will exchange views at a lunch with his colleagues from the invited countries: in addition to improving the basic conditions for increasing private investment and mobilising domestic resources, debt issues and in particular the further strengthening of the G20 Common Framework will be discussed. The Federal Minister for Economic Cooperation and Development, Svenja Schulze, will meet 40 young entrepreneurs from 16 African countries for the conference “Shaping the Future with Africa: Young Entrepreneurship as Key to a Just Transition”. The entrepreneurs will present their recommendations on strengthening the role of start-ups for creating jobs and shaping a social and ecological transformation.

Which concrete results can be expected?

In addition to the valuable face-to-face interaction among the key CwA players, the conference has, of course, one main goal: concrete results. Beyond the traditional donor-recipient relationship, the goal here is cooperation for the mutual benefit of both sides and for a shared sustainable future. Africa is a key partner when it comes to stepping up economic relations and moving towards a climate-neutral future. This potential can only be realised through extensive private investment.

In the sphere of strengthening private investment, the German Government has already shown the way with the diversification strategy it adopted recently: from now on, more favourable guarantee conditions will apply to direct investment in certain states. This explicitly also applies to the CwA countries and is intended to diversify supply chains, thus making them more resilient. The latter also applies to closer cooperation on extracting raw materials sustainably and processing them locally. The German Government’s maxim here is: partnership and local value-added instead of extractivism. There is a special focus on those raw materials which are key to the green transformation of the economy.

In this context, the German Government also supports the G7 Finance Ministers’ initiative “Partnership for RISE” in cooperation with the World Bank. This initiative is intended to support emerging economies and developing countries in strengthening supply chains. The German Government is also working on concrete instruments to increase production capacities at home and abroad. Furthermore, the German Government can build on the successful “Africa Connect” and “Africa Grow” initiatives, offering attractive financing opportunities both for German and European companies and for small and medium-sized African companies and start-ups. The African Trade and Investment Development Insurance (ATIDI) remains a key instrument; it is supported by the German Government and offers financial products which provide insurance against commercial and political risks in Africa and promotes cross-border trade and foreign direct investment. German exporters and investors can use ATIDI’s products in addition to Hermes export credit guarantees to enable them to tap into new high-growth markets in Africa.

Moreover, the German Government is strengthening the wide spectrum of support it offers in order to reduce the threshold for companies seeking to enter CwA markets. The Foreign Trade Fair and the Manager Training Programmes, administrative partnerships, the Africa Business Network and an expanding network of chambers of commerce abroad offer quite concrete practical support. Finally, the German Government also supports the EU’s Global Gateway initiative, which aims at mobilising 150 billion euro for sustainable infrastructure investment in Africa through the Global Gateway Africa-Europe Investment Package.

Many African countries, including CwA countries, have excellent potential for renewable energies. This provides them with opportunities for sustainable industrialisation and for the competitive generation of green hydrogen, the energy of the future. Germany and many other highly developed industrialised countries, on the other hand, will have to meet a large share of their green hydrogen requirements via imports. Against this background, many African partners have a chance to get involved in the rapidly growing global hydrogen market at an early stage and, in particular, to establish their own hydrogen value-added chains for sustainable development.

The CwA Conference is therefore intended to mark the start of increased long-term cooperation in the sphere of sustainable energy supply, and of the export of green hydrogen and its derivatives from Africa to Germany and Europe. Among other things, Germany can build here on the Africa-EU Green Energy Initiative, which encompasses a broad portfolio in the sphere of green hydrogen and which the CwA Conference is intended to boost. Through a combination of public and private investment, this initiative is to drive forward the expansion of renewable energies in Africa on a massive scale – for the local energy transition, as well as Africa’s industrial development and export. With the PtX Development Fund and other instruments, the German Government is helping CwA states to build up local hydrogen industries and their value chains.