The G20’s Missed Opportunity in Africa
When it was announced three years ago that this year’s G20 summit would be held in Germany, the organizers couldn’t have known how fitting a choice it would turn out to be. Since then, the isolationist bent in the US under Donald Trump and the UK’s diminished global standing after Brexit have thrust the mantle of “leader of the free world” onto Angela Merkel’s shoulders.
While Merkel is not the kind of politician to indulge in the hubris of proclaiming a geopolitical doctrine befitting her newly aggrandized role, her outreach to African leaders and the emphasis on Africa at the recent summit point to where here priorities lie. Accordingly, the language used in the G20 Leader’s declaration suggests a new approach to the issue of the continent’s development, as the document mentions technical and humanitarian assistance—but not aid. Instead, partnerships speak of #eSkills4Girls, Rural Youth Employment, African Renewable Energy and facilitated investment compacts.
The goal is to do away with the concept of Western “donor” and African “recipient” states and replace them with an investment-led development model. The focus is on a handful of countries that have made the greatest strides towards good economic governance. While there is no indication that the poorest nations will be forgotten about in this approach – special mention is made of the need to meet the humanitarian needs of famine stricken regions in Nigeria, South Sudan, Somalia and Yemen – there is a notable emphasis on rewarding responsible governance, incentivizing governments to fight corruption and mismanagement to benefit from increased investment.
The so-called Compact with Africa comes at a time when world leaders agree that the traditional aid model has objectively failed to lift Africa out of endemic poverty. Over the past 50 years, $1 trillion have been granted to assistance and development loans, and yet many African countries are poorer now than they were in 1960 (and buried in debt). A recent World Bank report echoes this sentiment, highlighting the fact African governments invest around $12 billion annually in electricity infrastructure when more than double that is required. By 2040 Africa will need $63 billion a year for electricity investment alone.
Depending on development loans from rich countries to make up this shortfall would merely condemn the continent to another lost century. Instead, what the report recommends chimes with what the Compact proposes: increased public-private partnerships to unlock pent-up potential. Besides infrastructure, another possible engine for growth that has been stalled for decades is agriculture. It is Africa’s biggest employer and, if developed properly, would improve food security, setting off a positive chain reaction spurring further employment growth in value-adding industries like food processing and packaging.
While the G20 initiative has been broadly welcomed, not least by African leaders themselves, it still falls short on taking into account a relatively easy way to increase the prosperity of the continent without having to wait for the trickle-down effects of infrastructure investment: remittances. Money sent back to Africa by Africans living in other countries are estimated to total $160 billion a year. For many families, these remittance payments account on average for over 60 percent of the household income.
In terms of national income, the figures are enormous: remittances make up a major proportion of GDP in countries as diverse as Burundi (23 percent), Liberia (26 percent) Cape Verde (34 percent) Eritrea (38 percent) and Somalia (an estimated 40 percent). Globally, remittance flows amount to three times that of global aid. It is this largely informal source of income that keeps millions of families just above the breadline. Studies have shown that this money often goes towards education, healthcare and the upkeep of farms and business. In short, just the kind of investment in human capital and employment growth called for by the World Bank and others.
And yet, Africa’s access to this critical source of capital is being hampered by exorbitant fees charged for remittance payments by money transfer operators. Despite a commitment by the G8 back in 2009 to bring these fees down to 5 percent, the average fee currently stands at more than 8 percent. In Africa, however, fees can sometimes exceed 20 percent, making it by far the most expensive remittance market in the world.
The World Bank estimates that $16 billion are lost globally due to such excessive fees, with Africa losing around $1.8 billion annually due to what Britain’s Overseas Development Institute labels a remittance “super tax.” According to the institute, that figure could cover the cost of paying for the education of some 14 million primary school age children, improve sanitation for 8 million people or provide clean water for 21 million.
Given these numbers, the lack of attention paid the remittance market is a shame, because this sector would have immediate positive impacts on people’s lives. Unfortunately, money transfer operators Western Union and MoneyGram dominate the market and often benefit from exclusivity agreements with governments that allow only one money transfer operator in the country. Although these exclusivity clauses are in conflict with the World Bank’s General Principles for International Remittance Services, which stress the need for affordable and cost-effective money transfer systems, and despite the fact that they have been made illegal in more than 20 countries, Western Union and MoneyGram are still responsible for a $586 million loss to African households.
Insisting on greater market transparency and implementing an adequate regulatory network to impede monopoly formation needs to form an integral part in African development approaches. Given the disillusionment with aid and the newfound stress on investment as a means to jumpstart Africa’s economy, political leaders would do well to recognize that remittances between family members are just as important. In that sense, the G20’s effort, while commendable, is a missed opportunity. While remittance fees constitute a barrier to development, they are as easy to reduce as they are unfair – if only we could muster the will to do so.