Tackling migration

German minister wants tax breaks for investments in Africa

main 0203307547 imago photothek – Gerd Mueller German development minister Africa aid tax breaks investments companies Marshall plan refugees migration
Think local. Source: Imago/photothek

Ever since a million refugees came to Germany after 2015, Chancellor Angela Merkel has been seeking to boost African economies. The more jobs there are on the continent, the fewer Africans will risk their lives to reach Europe, her thinking goes.

In 2016, Ms. Merkel’s development minister, Gerd Müller, launched his ‘Marshall plan for Africa,’ which ties aid to reform, such as fighting corruption and improving tax collection systems. Now, Mr. Müller is considering a new investment law to give tax breaks to German companies investing in Africa.

“The draft is part of a strategy to promote trade with and investment in Africa,” Mr. Müller told Handelsblatt. “The (migration) master plan clearly states that we should boost our efforts in the countries of origin, because the reasons for flight are located there.”

Of 3.5 million German companies, just 1,000 are active in Africa. Mr. Müller wants to increase this by enabling businesses to make any losses generated by African subsidiaries tax deductible, and by providing tax breaks for funds set aside for investment in the continent.

Mr. Müller suggested German companies could learn from China and its African operations. “The Chinese recognized the opportunities long ago. They’re investing massively in Africa and are securing strategic resources such as cobalt, coltan and lithium. Some of us Germans, meanwhile, are still thinking of drilling water wells,” he said.

09 p04 EU trade with Africa-01

To nudge more German companies into doing business in Africa, Mr. Müller also plans to update investment protection agreements, which secure German investments in African countries, raise the number of deals to prevent double taxation, and turn the state-owned German Investment and Development Corporation into a lender for Africa’s small- and medium-sized companies.

It remains unclear how feasible these measures are. Mr. Müller already mentioned some of these ideas when he first presented his Marshall plan. The minister, in office since December 2013, plans to draft the investment law together with the finance and economy ministries. Both departments, which each launched their own African development initiatives in 2016, declined to comment.

But a German business lobby group criticized the plans. “It would be good if the ministries coordinated their work better. And it will take time to implement the different programs,” said Christoph Kannengiesser, director at the German-African Business Association.

Mr. Müller conceded that more coordination is necessary, but then proposed some even more ambitious ideas, namely to abolish EU tariffs and quotas for African agricultural products such as tomatoes and fish; and reduce EU subsidies for European farmers, who receive billions of euros every year. These changes would strengthen African farming businesses and their economies. Unfortunately, the proposals are also highly contentious in the EU, especially in France and Poland, which traditionally have protected their farmers.

However, teaming up with the finance and economy ministries could improve the chances for an investment law for Africa. And the ministry’s civil servants are already working together with their peers in the other two ministries.

Donata Riedel covers finance and politics for Handelsblatt in Berlin. To contact the author: Riedel@handelsblatt.com

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