Does Germany have an economic strategy for Africa?

Roger Peltzer comments on the results of the 5th German African Business Summit on December 3, 2024 in Nairobi: How can Germany systematically support economic development in Africa beyond investments by its companies?

In the competition for markets and political influence in Africa, Germany (and Europe/the USA) are increasingly having to contend with China, India, Brazil, Turkey etc. and, in some cases, Russia, which have gained considerably in influence. This development is undeniable and the relative influence of the West in Africa is likely to decline further in the future. Nevertheless, Germany and the EU are currently still on an equal footing with China in Africa in terms of the scope of economic and development cooperation. In this respect, the question arises as to how Germany’s current competitive position in Africa can be maintained or even expanded for the benefit of both partners despite a relative loss of importance.

The German-African Business Summit in Nairobi was an answer to this question from the perspective of the organizers. Reading the statements made at and around the summit, one gets the impression that increased investment by German companies “in the continent of opportunity” in particular is seen as the means of choice for supporting African partners in their development and expanding German influence.

As praiseworthy and worthy of support as German investments in Africa are, in fact they play a completely subordinate role in almost all African countries, with the exception of Tunisia and South Africa. In Nigeria, Africa’s third strongest country economically, there are a few dozen companies with German capital participation, in Ukraine there are over 2000 despite the state of war. German companies are – with some exceptions – not strong internationally in the sectors in which Africa offers the most investment opportunities, such as agriculture, the development of raw materials, the textile industry etc. Where German industry is strong, in automotive engineering, mechanical engineering and chemicals, Africa offers very few investment opportunities. Then there is the distance and the cultural distance. German SMEs would rather go to Poland, Slovakia or now increasingly to Ukraine.

Germany is now doing a lot to support investment and cooperation between German companies in and with Africa. This should of course be maintained. In addition, however, we need to consider how Germany can also contribute to Africa’s economic development beyond the traditional means of German direct investment and thus remain an interesting partner for Africa. Here are a few considerations that do not yet add up to an overall concept, but can contribute a few pieces of the puzzle:

1. Africa’s economic dynamism is largely driven by small and medium-sized local companies. These are financed by local commercial banks and microfinance institutions or funds, which have also been set up with the help of German/European development banks. Supporting efficient financial sectors in African countries should remain an important goal of German and European cooperation with Africa, and much has already been achieved in this respect. Future cooperation should focus on the increased development of local refinancing resources in Africa through the development of local capital markets and access to the deposits of pension funds. German cooperation can provide substantial support here with expertise, guarantees and first loss tranches. In principle, German financing instruments should be designed in such a way that local investors and partner companies from the Global South can also benefit from them.
   
   
2. Germany is home to a large community of people who come from Africa. Quite a few of them who have made their way in Germany are starting to invest in their home countries. As a rule, these are not yet very large investments, but there is a lot of potential for growth. It is significant, for example, that the German-Cameroonian business association in Douala/Cameroon consists almost exclusively of members who studied in Germany, many of whom have a German passport and are now starting to invest in Cameroon. German development cooperation (GIZ) and the German-African Business Association have already launched a number of initiatives to promote these “diaspora entrepreneurs”. This can be expanded.
   
   
3. German companies and German entrepreneurs are not only active in Africa in the form of direct investments or deliveries. There are triangular combinations, for example in the textile sector, where German companies such as Tchibo or Otto offer textile companies in Africa comprehensive purchase agreements and technical assistance, provided that they produce their textiles on the basis of sustainably certified local cotton. These collaborations have not always been successful in the past, as the development of a textile industry requires a steep learning curve, which not everyone is able to master. Nevertheless, such triangular combinations offer great potential. Another example of this is a German entrepreneur who initially set up a successful rental service for electric bicycles and cargo bikes with a non-profit organization in Uganda. These bikes come from India, with some technical know-how from the Netherlands. The business is now so successful that they are considering moving the assembly of these bikes to Uganda as a first step. Further steps in the value chain may follow.
   
   
4. The develoPP program of DEG and GIZ – fed by the BMZ title for cooperation with the private sector – has proven to be an extremely flexible and low-threshold instrument for launching innovative business concepts, education and training centers, sustainable value chains in agriculture in cooperation with private companies from Europe and the partner countries. Although these projects are relatively small in relation to Africa’s economic challenges – the volume of the develoPP program is around 20 million euros per year – they often have an exemplary pilot function. This programme definitely deserves to be continued on the current scale, especially as it also mobilizes private capital.
   
   
5. With the pharmaceutical industry sector project, German development cooperation is making a substantial contribution to the progressive development of a domestic pharmaceutical industry in Africa. The investors are largely local entrepreneurs or companies from India. With the exception of Biontech in Rwanda, German companies are not involved, but supply machinery and know-how. GIZ’s advisory role is aimed at improving regulation for investors, facilitating access for local manufacturers to major tenders from international funds such as GAVI, providing technical expertise, etc. Here, German development cooperation is doing a lot for Africa’s economic development with limited resources in a strategic sector.
   
   
6. In Africa, there are important transnational private sector actors with whom German development cooperation (DEG and GIZ) repeatedly cooperate in individual cases. These include, for example, the Aga Kahn Group, which has now become a major player in energy production in Africa, having previously been active in the manufacturing industry in West and East Africa for a long time. Another player is the Olam Group, run by Indians and listed on the Singapore stock exchange. They are involved in the agricultural sector across Africa, including cashew nuts, cocoa, coffee, cotton, palm oil, etc. and are now also very clearly committed to the goals of socially and ecologically sustainable production. German Africa policy could and should seek a strategic exchange with such actors in regular consultation forums on planned investments, possible German co-financing and also on sustainability issues, such as the guarantee of a “living income” for small farmers. Consideration should also be given to the extent to which DEG can deviate from its policy of selling investments after a few years in selected individual cases. With some strategic partners, longer-term investments could also make sense, provided they are profitable.
   
   
7. When it comes to the role of China, many people involved in Germany stare at it like rabbits at a feast. Of course China is a competitor to the system. But it cannot be denied that China, for example, has significantly advanced Africa’s infrastructure in recent decades. If the German participants at the economic conference in Nairobi are no longer stuck in endless traffic jams on the way to the airport, then this is also thanks to Chinese infrastructure investments. As much as Germany is in economic and political competition with China – from which many African countries also benefit – this does not, of course, rule out cooperation. After all, China supplies easy-to-use cell phones, solar systems, agricultural equipment etc. at unbeatably favorable conditions. And German investors who are investing in decentralized power supply networks in Africa are already taking advantage of this. Instead of persisting with defensive reflexes (exclusion of Chinese suppliers when supplying for German development cooperation projects), opportunities for cooperation with Chinese companies in Africa should be sought more proactively. Of course, this also applies to cooperation with Indian, Turkish or Brazilian investors.
   
   
8. A fundamental problem of German Africa policy is the constant change of those responsible in ministries, implementing organizations and other institutions. As a rule, African partners in government agencies as well as private companies have to deal with new people on the other side time and again. This is a major obstacle to a partnership-based dialog and to building trust. More attention should be paid here to ensuring more continuity, at least in certain key functions on the German side.

Conclusion: Germany has been fairly well positioned in the broad guidelines of its foreign policy and development cooperation with Africa for years. At the implementation level, existing forms of cooperation can be better strategically organized and expanded in a more targeted manner. This could at least be discussed more in the specialist community.

Cover picture: Employees of an institute for insect research at a weaving machine, KfW-Bildarchiv / photothek.net, December 2011, URL: https://www.kfw.de/%C3%9Cber-die-KfW/Newsroom/Pressematerial/Grafiken-und-Bilder/Bildarchiv/Bildarchiv.html?doi=kfw-dam-13539 (last accessed: 11.12.2024)