Can Africa and Europe jointly walk the talk on investment mobilisation?
Mobilising Investments for African Structural Transformation is one of the key areas that the African Union (AU) wants to discuss at the 5th AU-EU Summit in Côte d’Ivoire on 28-29 November. Indeed this may well underpin the other proposed focal areas of governance, peace and security and investing in people.
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The emphasis on investment is highly pertinent for several reasons
First, the purpose is not just to stimulate investment in traditional sectors (mainly natural resources, prone to rent capture) but to do so in a transformative manner. This means addressing the fundamentals of Africa’s development, making Africa work, through market development and better governance, as well as targeting key priority areas such as access to energy, in a mix of economy-wide and sector-specific approaches.
Second, the emphasis on transformative investment is a central piece of the response to the demographic boom in Africa, which will account for more than half the world population growth by 2050, and the related need to create more decent jobs. This can happen only if more investment targets productive and innovative sectors, from agriculture to light manufacturing, in services and new technologies, towards sustainable structural transformation.
Third, the focus of the investment echoes the UN 2030 Agenda for Sustainable Development and related financial needs for development to go from billions to trillions, and it is in line with Africa’s own priorities, as outlined in their Agenda 2063, and efforts to mobilise resources.
Finally, and most importantly for the forthcoming Summit, it meets European own priorities. The so-called migration crisis has made European governments and institutions more acutely aware of the interdependence of their fate with those of developing countries, not least in Africa. Prosperity and stability on the African continent could arguably reduce the flows of poor migrants desperate enough to risk their lives to come to Europe, which the EU commonly refers to as “addressing the root causes of migration”. Although empirical evidence clearly indicates that emigration first increases with development before declining, the argument has gained sufficient clout in political circles to raise European self-interest for African development beyond benevolent traditional aid perspectives. Investing in Africa’s economic transformation has become of higher economic and political interest for Europe.
The need for concrete initiatives: the EIP?
For this Summit, polite diplomacy should make way for more frank discussions, with a focus on a more limited number of concrete initiatives, to be followed by active implementation, as recently suggested by the Chairperson of the African Union Commission, Moussa Faki Mahamat. Stimulating investments for sustainable and inclusive structural transformation is a theme that offers perfect opportunities in that respect.
The EU considers itself well prepared to discuss investments for inclusive transformation, having adopted this summer its new External Investment Plan (EIP), which should be officially launched at the Summit. The EIP is meant to stimulate investment in Africa and the EU neighbourhood by leveraging private investment and development finance. Pooling together €4.1 billion of contributions from the European Commission into a newly created European Fund for Sustainable Development (EFSD), the intent is to stimulate up to €44 billion of infrastructure and productive investment. One of the main innovations is the EFSD guarantee of €1.5 billion, which aims to reduce (actual but also perceived) risk for private investors and financiers. In doing so, it is hoped to stimulate sustainable investment in poorer and more difficult countries, going beyond what development finance institutions (DFIs) have been doing so far.
The other potential innovative dimension of the EIP rests in the EU intent to bring greater coherence in its operations, more systematically building on technical assistance (the 2nd pillar of the EIP) to improve the quality of project preparations and implementations, as well as improving the regulatory environment and investment climate (the EIP’s 3rd pillar), notably through multi-stakeholder policy and political dialogue. By acting in a more coordinated manner, the EU could more effectively leverage its own initiatives and instruments, beyond the EIP, with other financing development and foreign policy instruments.
Yet, the EIP has so far been mainly a European affair. Its setup was the result of intense intra-EU negotiations (within the European Commission, and with the European External Action Service, the Council and the European Parliament, without forgetting Development Finance Institutions, and in particular the European Investment Bank). So while the EU will proudly present their EIP at the Summit, the lingering question is: what will be the African side of the partnership? Will Africa simply remain a grateful recipient?
What could the Summit and partnership deliver?
The EIP is a welcome endeavour. But it must first build on and support African initiatives, and not substitute them.
First, there are several international initiatives that resemble or complement the EIP (by the EIB, the World Bank Group, the G20 Compact with Africa, the German Marshall Plan with Africa, etc.).
It is thus imperative that Europe and Africa join forces, and actively work together, to ensure maximum synergy between various initiatives to support investment in Africa. Building on the long-awaited one-stop-shop foreseen by the EU under the Plan, a light joint coordination mechanism could be set up, providing an entry point and link to such relevant international investment initiatives.
Second, the EIP should not be a European tool for European DFIs – or not only. Europe and Africa should work together to strengthen African own financing mechanisms and institutions. Rather than focusing solely on key investment projects, the EIP could usefully contribute to supporting African financing institutions and their activities, and notably regional development banks, beyond the African Development Bank (AfDB). It can do so by supporting joint investment initiatives (as in the case of the EIB-AfDB Boost Africa initiative), but also in strengthening their capacity and governance, and effectively supporting African institutions to leverage private investment (as for instance could potentially be the case with Africa GreenCo in the sustainable energy sector – still a key impediment to more productive economic activities).
Support to stimulate transformative investment should also be strategically linked to regional economic integration dynamics in Africa, economic partnership agreements and EU trade preferences. This should be done by coordinating efforts to foster private sector (and in particular SMEs) engagement, trade finance as well as export and investment promotion, in synergy with EIP-type of endeavours.
Europe and Africa should also commit to dedicate greater effort to tax reforms, revenue mobilisation, and international cooperation on tax matters.
The Summit will be meaningful only if it initiates new concrete efforts by Africa and Europe to mobilise more effectively sustainable investment for Africa’s transformation, building on common interests, to the benefit of all.
The views expressed here are those of the author and not necessarily those of ECDPM.