The G20 and African Development

This paper has been prepared by ODI and SAIIA for ONE to feed into discussions of the G20 Working Group on development.

Executive summary

This paper discusses how the G20 can support African [1] development. It suggests that African economic development should be seen as central to the G20 objectives, both in terms of legitimacy and as part of the G20’s efforts on global rebalancing. Both the G20 core actions and the G20’s development agenda can positively affect African growth. The paper also contains case studies of African regional economic integration, South African outward foreign direct investment (FDI) in Africa and export processing zones (EPZs) in Africa to illustrate how the G20 could help.

The paper focuses on relevant G20 actions in three areas:

• The G20 development agenda, which focuses on growth;
• The G20 core agenda; and
• G20 process issues.

So far, the development agenda has focused on pillars of economic growth identified in the Korean scoping paper, narrowing down the multiyear action plans for development in each of these pillars. It has not generated a geographical focus, unlike the G8, which did have an Africa focus in its approach towards development.

The G20 development agenda: Support for African infrastructure and regional integration

The table below summarises what the G20 can do to help African growth. It is important to examine exactly where the G20 could add value, which needs to take into account the following observations:

• The G20 is not the G8, which focused its Africa policy particularly on aid announcements on health and education. Rather, it focuses on ‘beyond aid’ issues (trade, investment, etc.).
• The G20 includes emerging market economies (EMEs), which are important partners for poorer countries, so it is crucial to take into account the opportunities the EMEs offer.
• The G20 operates the G20 framework for strong, sustainable and balanced growth, in which African growth can play a role (e.g. it can inject capital arising through surplus reserves in profitable opportunities into sustainable infrastructure).
• The G20 is essentially a network, building bridges and influencing others (e.g. other countries and multilateral institutions).

The G20’s development agenda and support for African countries

Note: C10 = Committee of African Finance Ministers and Central Bank Governors.

The G20 core agenda: Consider African prospects

Core G20 actions also affect African growth prospects, although so far there has been little attention to this in the G20 Development Working Group. It is important to note that Africa can play an important role in global rebalancing, e.g. by promoting capital flows from surplus countries to profitable opportunities in sustainable infrastructure and climate finance opportunities. The table below summarises the main links between possible G20 core policies and African interests.

Core G20 policies and African growth

The G20 process: A voice for Africa

Two African countries (beyond South Africa) were part of the G20 Summit in Seoul: Malawi, representing the African Union (AU), and Ethiopia, representing the New Partnership for Africa’s Development (NEPAD). Yet such consultations are on an ad hoc basis, and in the future there needs to be a discussion about how the G20 relates to African countries in a more structured way. The Seoul consensus suggested that the G20 will invite five non-members, of which at least two will be African countries. Moreover, while nearly every individual G20 country has an Africa strategy, there is no combined G20 strategy for Africa. It is the task of the G20 to build bridges among G20 countries, but also to ensure that Africa is represented permanently at the G20 table to improve the G20’s legitimacy. The G20 could initiate an Africa consultation with African leaders just ahead of the next G20 Summit in Cannes in November 2011. It could also ensure that individual policy suggestions are followed up on by including African representatives, for example in the high-level panel on sustainable infrastructure for Africa.

Specific policy suggestions for the G20

Bearing in mind the specificities of the G20, and the analysis in this paper, including in the case studies, we suggest that African development would gain from the following G20 policy actions:

Process

• Argue for permanent seats for Africa at the G20 because the inclusion of Africa fits with the G20 objectives, including the G20 framework for strong, sustainable and balanced growth, and enhances the G20’s legitimacy;
• Ask the G20 to organise an annual event in Africa involving more structured consultations between the G20 and Africa;
• Ensure that Africans are consulted in the implementation and monitoring of G20 commitments, for example in a new high-level panel on sustainable infrastructure for Africa, which could link the relevant stakeholders.

Infrastructure

• Consider looking at the financing of infrastructure in more detail. The G20 could eliminate inefficiencies in the financing of infrastructure projects to free up significant resources that would reduce the need for additional funding in the short term. Initiatives like the African Financing Partnership could be supported;
• Give greater support to infrastructure to promote new technologies and network services (which, according to our analysis, has not received much ODA in the past few years);
• Ensure the ongoing maintenance of existing infrastructure, rather than just being involved in high-profile, large infrastructure projects that support regional economic integration;
• Reflect on the type of infrastructure needed for the services sector and the uptake of newer technologies, such as mobile telecommunications;
• Enable DFIs to step up activities in African infrastructure, especially regional infrastructure, with an eye to leveraging G20 outward FDI and sovereign wealth;

Skills and knowledge sharing

• Promote sharing of knowledge in Africa on policy tools that have been successful in the G20 EMEs, for example on how to grow and innovate, use SEZs effectively, etc.;
• Focus on skills and technology development, which can help countries grow, build resilience and obtain the benefits from G20 inspired investment. This requires a more balanced approach towards the education sector, including TVET and higher education, where EMEs may gave useful suggestions for LICs;
• Take stock of G20 foreign relations with Africa: most G20 members have a specific Africa-focused strategy and the G20 could provide a platform of learning on policy coherence;
• Consider the development impact of G20 core actions related to financial regulation, rebalancing, climate financing and transparency issues;

Trade

• Even though there is no clear G20 agenda on trade policy, acknowledge that one of the underlying objectives of regional economic integration is to increase the involvement of African countries in global trade. The conclusion of the Doha Round of negotiations could make a contribution in this regard but would not be sufficient. A specific G20 focus on addressing the barriers to intra-African trade could be useful, as well as the harmonisation of existing preference schemes for African countries;
• Support measures to increase intra-African trade, not just focusing infrastructure investment around extractive industries that largely support exports to developed countries and Asia;
• Consider including new suggestions on rules of origin in preference schemes to make schemes such as DFQF more useful, and take into account specifics on services trade, such as temporary migration;

Including the private sector

• Cooperate at the level of governments but also involve the private sector in a more structured way to ensure that its contributions are taken into account and inefficiencies are reduced. It would be helpful to have such a framework for those countries that are ‘newcomers’ to funding African development initiatives, to better leverage their contributions;
• Link the business arm of the G20, the B20, with African business and promote the C10-supported Invest African Initiative. This could involve the EMEs in particular (including South African outward FDI).
• Promote the use of codes and standards among businesses to improve environmental, tax and SEZ-related standards (B20).

Details on and motivations for these and other suggestions can be found the paper.

Conclusion

Having analysed the links between G20 and African development, and provided a number of policy suggestions, we conclude with three key suggestions on how the G20 can help African development as part of the development agenda and we suggest these would be implemented, monitored and evaluated by the time of the next G20 summit in Cannes in November 2011 consistent with the Seoul consensus on development:

• G20 to support an Investment in Africa initiative (which links G20 outward FDI and skills formation) and initiate a high-level panel for African infrastructure with African participants to review financing constraints;
• G20 to kickstart knowledge exchange platforms (e.g. which involves the transfer of senior policy staff across countries and involves lessons from emerging markets on economic policy). This could build on emerging Africa think tanks and research institutes and link them with think tanks around the world. It could also promote south-south co-operation by facilitating the transfer of policy staff.
• G20 to promote a review of intra-regional trade barriers in Africa. The G20 could liaise with the regional economic communities in Africa and assist them in identifying and removing intra-regional trade barriers such as non-tariff barriers.

Notes