Berlin Federal Development Minister Svenja Schulze (SPD) is certain: “Africa is growing and changing enormously. How it develops will shape the 21st century – and thus also the future of Germany and Europe.” Schulze’s ministry wants to present the new Africa strategy on Tuesday. The Handelsblatt had already reported on the new strategy in December, which is intended to replace the existing “Marshall Plan”.
Schulze’s assessment is also shared by the German economy. Because in the course of the Russian war of aggression against Ukraine and growing tensions with China, German companies are increasingly turning their attention to African countries in their search for new economic potential. So far, German companies have hardly used existing opportunities.
According to Christoph Kannengiesser, chief executive of the German-African Business Association, Schulze’s new strategy lacks a plan to facilitate relations with the African continent for German companies.
“Unfortunately, there is not much to be found for our companies in the Africa strategy,” complains Kannengiesser. The Ministry does not take enough account of the developmental potential of the German private sector. For example, there was a lack of new impulses in the support of projects in the field of renewable energies. His conclusion: “The German private sector is rather marginal.”
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The urge to go south is actually great: According to a survey by the Africa Association, 43 percent of the companies that are active on the continent want to invest in their African business in the future. Deutsche Bank boss Christian Sewing also stated last year: “Africa is a continent that is becoming enormously important in discussions with customers.”
>> Read here: how Germany wants to win the race with China with the new Africa strategy
But despite the assurances, the investment ratio of German companies on the African continent has so far looked rather meager. Only around one percent of German direct investments went to Africa in 2021. Economists see several reasons for this.
Businesses continue to harbor prejudices against Africa
On the one hand, there are the prejudices that are still widespread today, says Mirabell Mayack. She advises management consultancies and law firms on markets in francophone sub-Saharan Africa. The German with Cameroonian roots sees herself as a “cultural translator”. She notes that the German economy’s view of Africa is often still very prejudiced. “There is a great deal of skepticism because images of children with bloated stomachs, of corruption and war still prevail in people’s minds,” says Mayack. The fear of the companies is: “If I invest there, my money will be gone.”
She advises companies to take a close look at the potential of individual countries and to ask themselves: Which market is really relevant for us? “Not every business idea fits into every country,” she says. The Democratic Republic of the Congo and Senegal, for example, are very different and should be treated as such.
“The middle class on the continent is growing very quickly,” says Mayack. She compares the African countries with penny stocks, which are currently very cheap and promise enormous upside potential.
In fact, if you look closely, the continent offers some unexpected opportunities. In the technology sector, for example, the lack of financial infrastructure means that new solutions are gaining ground faster than in Europe, for example. Many African economies are seen as pioneers in mobile digital payment systems.
Of the 1.2 billion registered accounts worldwide in 2020, around 45.2 percent were on the African continent. A previously unpublished study by the FDP-affiliated Friedrich Naumann Foundation, which is available to the Handelsblatt, comes to the conclusion that central banks in Europe should learn from African experiences with mobile payments when introducing digital currencies.
Mobile payment systems are particularly widespread in many African countries.
(Photo: IMAGO/ZUMA Wire)
Digital payment methods can improve access to payment systems, for example, it says. However, the African example has shown that there is an urgent need for a clear regulatory framework for digital money.
According to a recent calculation by McKinsey, the market for electronic payments in Africa is expected to grow by around 152 percent by 2025. Similar phenomenal growth rates are also possible in other economic sectors. The World Bank is assuming strong economic growth for some countries in West Africa over the next two years. For example, the economy of Ivory Coast could grow by 6.8 percent and that of Senegal by 8.0 percent.
Record trading year for China
The fact that the German economy is hardly using this potential is partly due to the fact that the African markets are dominated by other economic players. In addition to local players, this is above all China, which according to Chinese customs increased its trade volume with Africa by 35 percent to USD 254 billion between 2020 and 2021.
According to the Kiel Institute for the World Economy, India is also an important trading partner for many African countries. US Deputy Secretary of Commerce Don Graves stressed at the US-Africa Summit in Washington in December that US investors and companies need to catch up with China.
At the end of 2022, the Federation of German Industries (BDI) published a call for a restart of German-African relations. BDI General Manager Wolfgang Niedermark states: “Africa is a must for German companies today”. For Germany, Africa is becoming increasingly important in order to diversify more and reduce dependencies, especially on China. In the paper, the BDI recommends, among other things, promoting the production of green hydrogen and relying on future technologies such as satellite internet.
More: Race for Africa – China’s influence is growing, Germany is struggling