The Compact with Africa—The Contribution of the IMF

June 12, 2017

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[caption id="attachment_20169" align="alignnone" width="1099"] IMF Managing Director Christine Lagarde on a visit to Nigeria in 2016 (photo: IMF staff/Steve Jaffe)[/caption]

Some of the world’s top policymakers and investors are gathering in Berlin to discuss a new initiative that could help reshape Africa’s economic future.

Millions of citizens could see tangible economic benefits from the recently launched Group of Twenty advanced and emerging economies' initiative, known as the “Compact with Africa.” The goal is to boost private investment by harnessing the expertise and resources of governments, investors, and international organizations.

The Compact is about facilitating projects that can lift productivity and living standards. It is about creating fresh opportunities on a continent where 70 percent 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 labor force.

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.

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 organizations, 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.

We are committed to increasing our engagement with countries participating in the Compact, building on our long-term relations with each country. Let me give you three examples:

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 achieving revenue gains of half a percent of GDP each year.

This would help make growth more durable—and more inclusive—by preventing a build-up 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 $100 billion 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 percentage points a year—a heavy drag on incomes, job creation, and future prosperity.

Countries such as Ghana, Côte d’Ivoire, and Togo have recently used IMF expertise and tools to raise the efficiency of their public spending—which is key for infrastructure investment. And this year, we will be working with Morocco, Senegal, and Tunisia.

Third—supporting financial sector development, from building healthy and well-supervised banking systems, to macro-prudential policy, to managing capital flow volatility in times of distress. We know that greater financial stability means more private investment and more inclusive growth.

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 defenses against money laundering and the financing of terrorism, most recently in Ghana, Morocco, and Tunisia.

All these commitments underscore the IMF’s focus on capacity development—including hands-on technical assistance and training—which accounts for about a quarter of the IMF’s overall activities. Online courses, for example, have attracted almost 30,000 participants since 2013—and the largest share of government participants come from sub-Saharan Africa.

Of course, we also bring to the table our annual assessments of countries’ economies and our financial assistance where needed. In fact, we already have active IMF-supported programs in the first five Compact countries: Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia.

We believe that these programs can be fine-tuned to accommodate compact initiatives, while protecting macroeconomic resilience and public debt sustainability. Our goal is to help ensure that the compacts lead to higher private investment and job creation.

In all these areas, we need stronger international cooperation—in the Compact with Africa and beyond. As Nelson Mandela once put it: “As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest.”

By working together, we have an opportunity to deliver on the promises of the Compact with Africa and other key development initiatives. Until then, none of us can truly rest.