African continent equals crisis continent. This equation has stuck in many minds and is unfortunately getting new evidence from the latest headlines.
The Russian war of aggression in Ukraine has cut off the wheat supply, which is so important for many African countries. There is a risk of skyrocketing prices and starvation. This is exacerbated by the drought, which is making the country’s harvest extremely meager.
At the UN general debate, which begins on Tuesday, there is likely to be intensive discussion about billions in aid for the African continent – once again.
But anyone who only associates Africa with a crisis vastly underestimates the potential. Africa is the continent of untapped opportunities. Many of the raw material deposits that are important for the development of innovative technologies, such as cobalt or lithium for battery cell production, are located in Africa.
Without Africa’s natural resources such as hydropower, wind and solar energy, the global energy transition will not succeed and climate change cannot be stopped.
In view of the continuing aging of the population in many Western countries, but also in Japan and China, the young and rapidly growing population of Africa is becoming the focus of attention.
German companies invest particularly little in Africa.
(Photo: dpa)
From a global economic perspective, their innovative and entrepreneurial potential, which has hardly been tapped to date, but also their importance as consumers, appear as a resource that is likely to exceed the value of Africa’s natural resources such as mineral resources and raw materials in the long term.
Nevertheless, the German economy is struggling with Africa. So far, German companies have not been very well represented in Africa, and their investment volume is well behind countries such as China, France, Great Britain or the USA. Only around one percent of all German foreign investments went to Africa in 2018.
There are reasons. As before, there are major obstacles to innovation and investment that are slowing down Africa’s economic development, in particular corruption, an inadequate and overburdened infrastructure, catastrophically high youth unemployment, a shortage of skilled workers, limited financing options and the availability of foreign exchange.
Digitization offers new opportunities for business on the difficult continent
However, digital transformation is likely to change that. The digital networking with the global centers of economic activity promotes the spirit of entrepreneurship and cooperation, as well as facilitating the transfer of knowledge and technology from abroad.
The shortage of skilled workers can be reduced by e-learning offers, financing bottlenecks for local customers can be reduced by fintechs and transport and logistics problems can be reduced by using drones or blockchain technologies for transport tracking.
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In addition, the digital transformation offers new business opportunities on the African continent. Start-ups can be important partners for German companies. For example, the app for VW’s mobility concept in Rwanda was developed by a local start-up.
The spearhead of the digital transformation are the technology hubs emerging in many African countries, such as the Otigba Computer Valley in Lagos, Nigeria.
Around 3,000 small and medium-sized companies in the digital sector have settled there, making the Otigba Valley an attractive anchor for Western technology companies doing business in Africa.
In addition to unfavorable framework conditions in many African countries, domestic problems and poor management are also preventing German companies from becoming more involved in Africa.
The markets in Africa are growing rapidly
In many companies there are information deficits and thus uncertainties in relation to the African markets, which affect investment decisions. The African markets often lag behind countries from other regions of the world in the assessment due to their (still) smaller size and the difficult framework conditions.
A long-term perspective is often missing here. After all, African markets basically have one thing in common: although they are usually small, they are growing rapidly, so that in many countries and sectors it is possible for economic output to double within a few years.
In Ethiopia, economic power doubled in just seven years between 2013 and 2020, with an average real GDP growth rate of 8.7 percent.
(Photo: IMAGO/ZUMA Wire)
This can be seen in Ethiopia, for example, where economic power doubled between 2013 and 2020 with an average real GDP growth rate of 8.7 percent in just seven years.
Moreover, the “small markets” argument in some industries can be qualified by a global perspective. Products that are tailored to the African market often have good prospects of success in markets in economically similar regions such as the emerging markets in South America and South Asia.
From a company’s point of view, costs can be reduced if development and calculation are geared towards markets that are located in different regions of the world but are developing in a similarly dynamic manner.
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In the long term, the small and fast-growing markets in Africa certainly promise high returns – but it will take time to develop them. The focus, especially in small and medium-sized companies, on short-term sales and profit then prevents an African investment.
German companies therefore urgently need a reassessment and realignment of their internationalization strategy and long-term strategic investment planning with a view to Africa.
Politicians must now promote investments in Africa
Politicians have the task of improving the framework conditions for sustainable private investments in Africa. In view of the rapidly changing world situation (Ukraine war, increasing isolation from China), Germany needs new partners more urgently than ever.
A closer partnership with Africa offers the opportunity to reduce geostrategic dependencies, diversify value chains and successfully tackle the energy transition.
Instruments for promoting foreign trade and development cooperation that exist at federal level should be strengthened and better adapted to the African context. In addition, economic research on the subject of Africa, which has so far only been rudimentary in Germany, should be intensified.
The EU’s Global Gateway Initiative is of central importance to promote infrastructure investments as a counterbalance to the Chinese New Silk Road. The Global Gateway Initiative should have a strong focus on Africa and primarily promote infrastructure, energy and education projects.
This not only serves to curb the Chinese striving for hegemony, but above all creates better conditions for the urgently needed, stronger private sector commitment of German and European companies on the African continent.
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