Foreign Investment

G20 Push EU to Open Markets to Africa

  • Why it matters

    Why it matters

    Germany’s energetic G20 presidency has devised a country-partnership scheme, Compact with Africa, which it hopes will drive a new wave of investment in the continent.

  • Facts

    Facts

    • African economic growth hit two-decade lows last year, reaching a paltry 1.4 percent.
    • United Nations figures suggest Africa’s population could rise from 900 million today to 4.4 billion by the end of the century.
    • The Compact With Africa comprises individual investment plans by African countries, followed by a partnership scheme with one of the G20 countries.
  • Audio

    Audio

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To match interview COCOA-IVORYCOAST/FACTORY
Chocs away? Better that Ivory Coast processes cocoa beans rather than just exporting the raw material. Source: Reuters

Germany will push the European Union to open its markets to Africa this week, as it uses its presidency of the G20 to spearhead another push for growth on the continent.

IMF president Christine Lagarde and Jim Yong Kim, president of the World Bank  as well as executives from Bosch and Siemens, Allianz CEO Oliver Bäte, and Timotheus Höttges, chief executive of Deutsche Telekom will take part in a G20 offshoot, the B20, Monday and Tuesday in Berlin.

Each of the G20 countries have partnered with some African ones: Germany has Ghana, Tunisia and Ivory Coast.

The aim is to adopt a carrot and stick approach, offering African countries aid, investment and advice in return for pledges to cut corruption and create a secure environment for foreign investors.

Africa receives $50 billion in direct foreign investment annually, compared to $120 billion for Asia. Half of that goes to just five countries: Angola, Egypt, Mozambique, Ghana and Morocco.

The German business federations BDI has long argued that Germany’s development policies are uncoordinated and indeed last week Ms. Merkel ordered government departments to amalgamate their different development plans to form one coherent strategy.

German private investment in the 55 African countries is still  low – they accounted for just 3 percent of German foreign investment in the last decade. The UK, China, France and the United States have far more substantial investments. A B20 survey showed that more than half of German businesses regarded corruption, obscure regulations and political conflicts as hurdles to investment in Africa.

But now things are set to change. The German government has promised to give companies investing in Africa the kind of export guarantees it gives to many other parts of the world, underwriting the risk of doing business abroad. This involves reworking the guarantees that come from Hermes, the official German export credit insurance agency. At the moment companies have to supply 10 percent of financing for African guarantees, twice as much as in other emerging markets.

Africa is heavily dependent on raw material exports, and has been hit hard by recent drops in commodity prices.

Development minister Gerd Müller and Finance Minister Wolfgang Schäuble have both drawn up plans for Africa, with the same goal: to help African governments develop a program for renewed state structures and economic development.

The West has other, less altruistic reasons to look at Africa. Global capital is desperately searching for returns. And rising prosperity in Africa should slow the tide of people trying to cross into Europe. Almost all 180,000 refugees arriving in Italy in 2016 were economic migrants and this number is set to rise.

It is clear that Africa still needs help. In 2016, African economic growth fell to 1.4 percent, the lowest level in two decades. Population growth, at 2.7 percent per year, eats up any growth there is. The explosion in population means more Africans live in absolute poverty now than in 1990, although relative figures have improved. The United Nations has also changed its forecast on African population growth, retreating from forecasts of a population slowdown. By 2100, there could be 4.4 billion people living on the continent, up from 900 million today.

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Africa G20 Development

Chancellor Angela Merkel, who firmly believes the best way to deal with the issue is to create jobs and prosperity in the countries people are trying to leave,  has already got the private sector on board. Volkswagen plans to produce Polo cars in Kenya, while Daimler will open a bus and truck distribution center in that country. Agricultural production is to be ramped up, with a focus on processing raw materials, so instead of just exporting cocoa, African countries would make, package and market chocolate. The same applies to coffee, which tends to be grown in Africa but then roasted and ground elsewhere.

Africa is heavily dependent on raw material exports, and has been hit hard by recent drops in commodity prices.

Mr. Müller argued that a vital part of the strategy that the EU open up its market to African goods. “We need fair trade instead of colonial exploitation,” he said.

In return the African countries will have to focus on cutting corruption and creating greater security for investment.

 

12 p7 Time for Development 2-01
Africa G20 Development

Donata Riedel covers economic policy for Handelsblatt. To contact the author: riedel@handelsblatt.com

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