Composition Over Volume: Firm Size, FDI, and the Compact with Africa Phase 2

The Group of Twenty (G20) Compact with Africa (CwA) enters its second phase (2025–2033), supported by a new World Bank Group multi-donor fund and expanded bilateral financial commitments. This expansion has been accompanied by a recent empirical analysis (International Monetary Fund [IMF] Working Paper WP/25/189) that estimates the causal effect of CwA membership on aggregate foreign direct investment (FDI) inflows. The analysis answers the question posed within the G20 Finance Track, the finance-ministry workstream that houses the Compact: did CwA increase aggregate investment? But the development payoff of that investment—the formal jobs, supply-chain linkages, and productivity spillovers for which member countries seek it—turns on the composition of FDI, not its volume. The Leaders’ Declaration named these goals. The analysis misses whether the investment the Compact attracts delivers jobs. Firm size is the key variable the aggregate-FDI metric omits. Project-level greenfield FDI data (Lakemann et al. 2025) and original weighted tabulations from World Bank Enterprise Surveys for all 15 CwA member countries show that large firms dominate employment across the15 CwA economies. Large firms (100 or more employees) account for 61.5 percent of formal employment among surveyed firms, and foreign ownership is more than four times as prevalent among large firms as among small ones, and large firms are more likely than small firms to have foreign owners in every member country. Foreign-owned large firms account for 15.9 percent of large-firm employment across the membership, and 29.4 percent once Egypt, whose surveyed large firms are overwhelmingly domestically owned, is excluded. To align the initiative with its stated development objectives, CwA Phase 2 should adopt a decomposed monitoring framework that disaggregates FDI by firm size, sector, and employment intensity; incorporate firm-size distribution metrics into reform benchmarking; and deploy mechanism design instruments—including security-bid frameworks and competitive monopoly auctions—to address the distinct risk structures impeding large-firm investment in frontier markets.