Compact with Africa

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The German G20 Presidency aims to stimulate private investment in Africa through its “Compact with Africa,” focusing on growth, job creation, and economic opportunities to reduce the need for migration. Despite a long-standing goal to enhance private sustainable investment, funding for Africa’s infrastructure remains inadequate. By 2020, total assets managed by institutional investors are expected to reach $100 trillion, yet only a small fraction is directed towards Africa's $50 billion annual infrastructure funding gap. Regulatory barriers and low-income host country challenges hinder private investment. The paper emphasizes the need for dialogue with prudential regulators and acknowledges that many African nations still rely heavily on public investment and aid. While foreign direct investment (FDI) can benefit domestic firms, technology transfer and spillover effects are limited, particularly in low-income countries. To foster structural transformation, essential prerequisites include political stability, improved transport systems, and energy access. Regional economic integration is vital for maximizing growth potential. The paper outlines key elements for a favorable investment climate, such as access to finance, contract enforcement, and infrastructure improvements, to enhance local and foreign investment and promote industrial clusters.