G-20 Agreement

The G-20 leaders agreed to reorganize the global financial system so as to reinvigorate credit lending processes worldwide. They agreed to strengthen regulations in the financial industry, including for the first time, establishing oversight of the hedge fund industry. They also agreed to reform international financial institutions so that these organizations can proactively deal with the current economic crisis and help prevent future crisis. Protectionism was rejected as a domestic policy and pledges were made to promote global trade and investments. The leaders also promised to implement alternative, green projects and to vigorously promote sustainable economic recovery around the world. In addition, they forcefully stated that no sanctuary will exist for the operators and supporters of tax havens if financial deposit records are not promptly made available to relevant authorities upon request. A pledge was made to institute reforms in the International Monetary Fund (I.M.F.) and the World Bank, including allocating additional voting powers for developing nations and opening up the search for the future leadership of the two institutions to all countries.

A remarkable feature of the G-20 agreement is the availability of specific targets and objectives. The agreement includes a trebling of money available to the I.M.F., up to $750 billion. The leaders pledged to create a "Special Drawing Rights" facility that will provide almost "free" money to struggling economies to the tune of $250 billion. An additional $100 billion of lending money will be available to Multilateral Development Banks (M.D.B.s) to meet the needs of poorest countries. The G-20 leaders also promised $250 billion towards supporting trade financing. The I.M.F. received support to sell up to $6 billion in gold sales to provide additional low cost credit to poor nations.

In all, the G-20 participants indicated that the full implementation of the agreement will pump an additional $1.1 trillion into the global economy and help restore free flow of commerce. The infusion of financial resources will also create or preserve jobs around the world. By pledging to expand domestic job creation, it is expected that by the end of 2010, at least $5 trillion will be spent on growing the global economy, creating millions of jobs and raising global economic output by 4 percent. These measures will also spur creative entrepreneurial initiatives that will help usher in a global green economy.

Remarkably in the G-20 agreement, Sub-Sahara Africa was mentioned only once. The solitary mention was in relation to the pledge to keep faith with earlier pledges on the Millennium Development Goals, Overseas Development Assistance, debt relief and the Gleneagles G-8 conference. There is no mention in the officially released G-20 agreement on specific issues that African governments confront on a grand scale: abject poverty, unchecked communicable diseases, collapse of global prices on Africa's largely based unprocessed raw material exports and limited access to the rich markets of the West.

Will Africa Benefit from the G-20 Agreement?

As in all general agreements, details regarding implementation will be pivotal. The implementation of the G-20 agreement is at best months away. However, certain strategies discussed will have far reaching implications for Africa. I briefly discuss these strategies.

1. How much money is really available from the G-20 agreement?

In a brilliant analysis of the agreement, the BBC News indicated that virtually no money under the agreement will be "free" to the poorest countries or to countries mired in slumping economies. These monies if made available to the poorest countries must be repaid. Poor African countries that access the G-20 promised money must be prepared to repay monies received. In addition, of the $250 billion of the "Special Drawing Rights" available, only $19 billion will be available for the poorest countries in the world. The support for I.M.F. to sell up to $6 billion worth of gold will likely increase concessionary facilities available to the poorest countries. However, these poor countries are taking additional short term loans that must be repaid accordingly. Poor countries in Africa will have to compete with other poor countries around the world to access promised G-20 resources.

2. Africa can benefit from the increased trade financing.

African governments and entrepreneurs can benefit from the $250 billion in trade financing. The key question is how fast this facility becomes available to African and other developing countries and under what terms. Additionally, how much of the facility will be available to poor countries. Perhaps, no more than $50 billion will be available to poor countries since most of the promised money will come from existing export guarantees already pledged by developed nations.

3. The stalled Doha Development Round got only a tepid mention.

The Doha Development Round is focusing on how to liberalize trade rules so that countries (rich and poor) can have access to markets around the world. For the past eight months, negotiations have stalled. There is no sign of urgency regarding resumption of negotiations or moving towards resolution of sticky issues of trade protection strategies by developed nations. African countries seeking access to the lucrative markets of North America and Europe still must remain outside, looking in.

4. Africa may lose again with proposed reform of the global financing system.

It is widely known that many African countries do not have sophisticated financial and banking systems. During the derivatives-fueled expansion of the West's financial system in the 1990's and until last year, African countries were largely left out of the intricacies of the now discredited financial policies of major financial centers in rich countries. Despite being largely outside the inner workings of the derivatives-driven systems, African countries are paying dearly for the downturn in the global economy. The G-20 agreement mandates extensive regulation of financial services around the world. How will African countries with modest financial services and weak regulatory institutions cope with these proposed changes? Will African countries become by-standers once again as rich countries come up with regulatory and operational strategies that largely address structural problems in their financial system? Will African countries receive support (financial, technical, logistics and political) to reform their financial systems? Will African financial leaders have access to the same real time information available to their counterparts in rich nations upon completion of the anticipated reforms in the global financial system? The proposed Financial Stability Board will only have token African representation.

5. The proposed reform of the I.M.F. and World Bank may benefit Africa in the long-term.

The major beneficiaries of the proposed changes in I.M.F. and the World Bank, in the short term, will be China, India and Brazil. Japan will also increase its influence. These countries will likely increase their influence as their economies continue to show strong fundamentals and are better able to avoid sharp downturns. Africa will benefit indirectly in the short term by their strong relationships with China, India, Brazil and Japan. In the long term, Africa and other developing regions of the world may have more significant influence in I.M.F. and World Bank if the global economy recovers and the rich, industrialized countries refocus on domestic economic issues.

6. The G-20 missed the opportunity to directly address global poverty.

The G-20 agreement focused on expanding access to financial instruments and improved trade. The expansion of credit facilities and trading opportunities will likely improve the global economy in the short term. However, abject poverty in poor countries remains a fundamental threat to global economic stability. It is difficult to conceptualize the active and effective participation of poor countries around the world, including poor African countries, in the G-20 proposals to reform the global economy if significant segments of their population live in poverty. These poor countries are unlikely to implement economic stimulus packages or boost funding of targeted economic relief for their poor citizens. The G-20 agreement missed the chance to begin the long overdue process of addressing how to meet the needs of poor people around the world, including those living in Africa. The Agreement failed to address how employable poor people around the world can be put to work as soon as possible so that they can provide for their families and help spur sustainable economic recovery in their countries.

Conclusion

The G-20 agreement is a historic and watershed achievement in international development. Leaders from developed and developing countries got together and reaffirmed the interconnectedness of the global economy and individuals around the world. These leaders jointly agreed to tackle economic problems around the world with same strategies and expected outcomes. The Agreement is a good first step. However, Africa and other poor regions of the world still face significant economic and development challenges. The agreement falls short in addressing these challenges.