Exporters and investors demand more support and financial security from the German government in order to facilitate investments in Africa and promote business.

By Marcel Grzanna / Süddeutsche Zeitung

It should not fail at the list of sonorous designations now indeed. Compact with Africa (CwA), Marshall Plan with Africa, Pro Africa Initiative – the growing commitment of Europe and especially of the Federal Republic of Germany to closer economic ties with the neighbouring continent is revealed in ever new forums and cooperation agreements. But talking alone does not help. At the end of all efforts, it is always about money.

The German economy has some of this on its high side and could achieve a lot of good things in African countries. It could create jobs, offer prospects, make the world a little fairer and above all generate more sales. But German investments require important foundations such as planning security, access to skilled workers, energy supply and, of course, political stability. However, many of the 54 African states are often unable to offer the full range of these requirements. Chinese investors are making things much easier for themselves. If need be, they bring thousands of workers with them and provide the necessary security with a lot of money. Their state-owned companies still have the state-owned banks in tow, which finance the development of infrastructure, industrial enterprises and distribution channels at all costs. This is often done according to criteria that are not sustainable, be it environmental, social or political. However, African politicians are often not in a position to reject generous investors and hope for German daring. They like to take advantage, even if they only have short-term economic advantages.

“The economic commitment of German companies in general, and of small and medium-sized enterprises in particular, is poorly developed in sub-Saharan Africa. This applies both in comparison with German foreign trade as a whole and in comparison with the commitment of other European countries,” according to a study by the Institute for SME Research (IfM) in Bonn. Sub-Saharan Africa comprises the largest part of the continent, namely 49 states. One billion people live there. By 2050 there will be twice as many. So far, only five percent of German export companies supply less than one percent of the industry’s total exports to sub-Saharan Africa. The stock of German direct investments in the whole of Africa is roughly equivalent to that in Mexico or Norway. Of almost 38,000 German companies that invested abroad, only around 850 were active in Africa in April 2018.

What exporters and investors are demanding in order to be able to stand up to their Chinese competitors is more support from the German government. Last year, business associations described the reduction of the deductible for German companies in five African countries as an important step within the framework of the Hermes cover. As a result, the volume of cover under the export credit guarantees increased by a good two thirds to 1.8 billion euros in 2018 compared to the previous year. But more needs to be done to expand German involvement. The associations argue for greater financial security.

Another important step is the Development Investment Fund, which will be used in the course of this year to start boosting the activity of German companies in Africa. One billion euros are to be made available through three pillars by 2021. Chancellor Angela Merkel had already announced the fund in autumn 2018. The coordination of the funds via the Africa Connect channels for investments by German companies, Africa Grow for African companies and the Economic Network Africa as a consulting instrument for German companies takes time. In the German Bundestag, the fund has met with some criticism. The Greens call it “hot air”.

The Afrika-Verein der deutschen Wirtschaft, a cross-sector foreign trade association of German companies and institutions, believes that the fund will have a positive effect. Chief Executive Christoph Kannengießer assumes that “a whole series of companies that have already shown interest in African markets are now on their way. One or the other company already active in the markets will certainly expand its involvement as well.

Many other medium-sized companies are likely to follow this with interest. “If word gets around more strongly that we can operate successfully in these growing markets, then over time this can lead to a very substantial increase in our presence in Africa,” believes Kannengießer. According to the announcements, the three pillars of the fund are explicitly aimed only at European and African companies. This also distinguishes the fund from development loans granted to African states, which often lead to orders for Chinese state-owned corporations.

Even if Chinese companies receive orders, German companies can still benefit.
This doesn’t necessarily mean that German companies can’t earn money by placing orders with the Chinese because they are eligible as suppliers to the Chinese. In a study by the German business development agency GTAI, every fifth company reports successful cooperation with the Chinese in this constellation. According to the study, every fifth person in five is interested in working with the Chinese. But many companies shy away from cooperation because they have different ideas about how to draft contracts or fear that Chinese partners will not comply with standards in social and human rights issues.

The development aid fund also creates new scope for German companies to become active in Africa without the help of third parties. These are the best prerequisites for setting their own standards.