G20/G7 / Private climate finance

Compact with Africa: Is the G20 investment program undermining the Paris Agreement and Agenda 2030?


German Federal Minister of Finance Wolfgang Schäuble pushes the Compact with Africa, sidestepping the Paris Climate Protection Agreement. Photo: © Federal Ministry of Finance

The G20, the group of the world’s leading industrial and emerging countries, is a central forum for shaping the conditions that govern the global economy and the financial world. For some years now, sustainable development, climate policy and green growth have also been on the Group’s agenda, which has traditionally been dominated by conventional economic sectors. During the Chinese Presidency in 2016, the G20 for the first time brought “inclusive” economic development to the fore. A separate action plan for the implementation of Agenda 2030 has also been drafted, and in the final Hangzhou Communiqué, the G20 explicitly committed itself to improving coherence in the area of sustainable development.

Yet words are cheap, especially on paper. The G20 has to be measured by the extent to which the Agenda 2030’s Sustainable Development Goals (SDGs) and the Paris Climate Agreement will indeed be guiding the G20’s discussion and activities – not least in the area of economic and investment policy and to financial market regulation.

On a positive start, the German G20 Presidency advocates (in the newly created Sustainability Working Group) for a global “Energiewende”, or energy transition, and for the implementation of the Paris Agreement, while also continuing work initiated by China on the SDGs and the work on Green Finance. The German G20 agenda also includes other relevant issues, such as education for women and girls, digital inclusion, maritime protection and better control of epidemics.  Could this represent a paradigm shift in the G20 towards sustainable and inclusive economic development and away from a pure focus on growth?

At least as far as the Compact with Africa is concerned, apparently not. As emphasized by the Federal Ministry of Finance, this initiative, led by G20 finance ministers and central bank presidents, is designed to make African countries more appealing to investors primarily through regulatory and fiscal policies, thus promoting infrastructure and economic development. A first step is currently being taken with five pilot countries: Senegal, Morocco, Ivory Coast, Rwanda and Tunisia. At the international conference on the G20 partnership to be held in Berlin in June – Investing in a Common Future – the Finance Ministry hopes that these first five “Compact” countries will be able to present themselves to the right investors, much like at a fair.

As if the Paris Agreement did not exist

The concept paper for the Compact with Africa, drafted by the World Bank, the International Monetary Fund and the African Development Bank, clearly shows how little the global sustainability agenda has penetrated into the minds of the G20 finance ministers. There is nothing in there that could remotely be seen as pursuing sustainable, ecologically-socially sound investment policies – a remarkable omission on the part of the G20 finance ministers two years after the adoption of the Agenda 2030 and the Paris Agreement. the Compact with Africa claims to be contributing to the Agenda 2030 and thus to sustainable development, but this remains a mere assertion, with no action to back it up. The Paris Agreement and its objectives and provisions are not even mentioned. It seems the finance ministers simply failed to read the Agreement properly. If they would read it, they would note that the Agreement, in its third out of three fundamental objectives (Article 2 of the Agreement), sets a rather clear task for the financial world: making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. The Compact with Africa, if designed differently, would have been a good opportunity for the G20 to push this target in co-operation with Africa.

A coherent policy would, for example, require that any type of investment program that the G20 develops with its African partners promotes the objectives of the Paris Agreement and the objectives of the Agenda 2030 – after all, these are globally agreed policy objectives of the international community, in other words including the G20 and Africa. Such a form of policy coherence would not be paternalistic, but on the contrary supportive of, and in harmony with African development goals.

Problematic reform agenda

But there is more. The Compact with Africa propagates the recipes of a neo-liberal reform agenda that did not work in the past and has been ratherdetrimental to sustainable development. These include, for instance, the privatization of basic public infrastructure such as water supply. Many will recall the catastrophic attempts in this direction made in Latin America. Rising prices for consumers coupled with infrastructure investment cutbacks in the interest of profit maximization were the hallmarks of this type of activities in the past.

The Compact also seeks better investor protection from political influence, which can quickly develop forms that considerably limit governments’ policy space to pursue sustainable development, possibly restricting public services in order to protect investors’ return expectations. In addition, the Compact with Africa does not mention how (or whether at all) its program should ensure compliance with environmental, social and human rights standards. Nor does it include anything on transparency and public participation by groups who could potentially be affected negatively by investment.

That the Germansm holding the G20 Presidency, seem so ignroant on policy coherence in this context seems bizarre – after all, the German Government was a driving force behind the adoption of the Paris Agreement and an influential actor in the development of the Agenda 2030. Perhaps the situation is due to the reluctance of the other G20 countries. But perhaps it is also because responsibility for the Compact with Africa is with the Ministry of Finance, leaving the Ministry of Development (BMZ) and the Ministry of the Environment (BMUB) rather on the sidelines, according to the motto: climate protection and sustainable development in poor countries are fine ideas, but the Compact is about investment and hard business, the BMUB and the BMZ should not interfere with with their agendas.

It remains to be hoped that the finance ministers will reconsider the matter. In its present form, the Compact with Africa should not be continued. Rather, the G20 should throughly reconsider and improve its basic approaches. There is an opportunity, as, for instance, the five individual compacts are being developed with the pilot countries. Also, the G20 communiqué should not simply welcome the Compact with Africa: in all these areas, the neo-liberal reform agenda is in need of urgent correction, and instead the necessary consistency with globally agreed policy and sustainability goals must be ensured and concretised.

Gerrit Hansen, Germanwatch
Jan Kowalzig, Oxfam