Handelsblatt Exclusive

Resetting African Aid

  • Why it matters

    Why it matters

    If Berlin recasts development aid to Africa to encourage governments to change their policies it could lower the flow of migrants to Germany.

  • Facts

    Facts

    • The German government has invested €2.5 billion in refugee camps abroad since 2012. Integrating refugees in Germany is costing €20 billion per year.
    • The United Nations estimates that within 35 years, Africa’s population could almost double to 2 billion.
    • More than a million refugees have entered Germany since the beginning of last year, both from war-strikken countries such as Syria and Afghanistan as well as poorer regions in Africa.
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    Audio

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Development Minister Gerd Müller wants to help Africa in a different way. Source: Hannibal Hanschke / DPA

The German government has recast its aid development plans for Africa, according to a document seen by Handelsblatt and an interview with Development Minister Gerd Müller.

Africa’s governments will need to develop their own reform programs, create tax systems, and combat corruption in exchange. In addition, Germany plans for close cooperation between foreign economic and development policy, meaning an expansion of federal guarantees on exports and investments and, possibly, tax relief to German companies investing in Africa.

Ministers are frustrated about the lack of progress seen there so far – and are keen to stem the flow of migrants. Last year, Germany saw nearly 900,000 people come to the country fleeing war and poverty in the Middle East and North Africa.

The government’s new plan ties aid more closely to the development of stable economic structures.

The underlying question for the government was outlined by Mr. Müller, of the conservative Christian Social Union, sister party to Chancellor Angela Merkel’s Christian Democrats.

He cited the example of Ghana and South Korea, which both gained independence in the 1960s. At the time, the African country had a larger GDP than the Asian country – and was on par with Spain according to prosperity indicators. Mr. Müller asked: “What has actually been going on there for the last 50 years – in a country rich with gold and minerals, and with fertile soils?”

Under the right political conditions, Mr. Müller told Handelsblatt, Ghana should be prospering.

The minister isn’t alone in his frustration. Although industrial nations now send some €50 billion, or $53 billion, in state development aid to Africa each year, economic progress has been modest.

The time is right for political change: Chancellor Angela Merkel has already announced that Africa will be the focus of next year's G20 Summit in Hamburg.

Lack of success in distributing aid to individual projects across the continent with a scattergun approach led Mr. Müller to wholly rethink development aid. He calls his concept a “Marshall Plan for Africa,” an idea he launched in September in an op-ed in Handelsblatt and he is now putting into action.

The name of the plan stands for the scale of the plan’s ambition, and not – as was the case with the U.S. Marshall Plan for rebuilding Europe after the Second World War – for more money. The main objective: Efficiency.

Reform-minded countries on a clear path to democracy, such as Rwanda, are to receive more development aid from Germany. “Conditioning” is the key word: Money will only be available when verifiable requirements are met. Ghana’s new government will have to do more than its predecessors.

Above all: Africa’s governments will need to develop their own reform programs, create tax systems, and combat corruption. Illegal financial channels funnel $50 billion out of Africa annually, the same amount that pours into the continent each year in development aid.

The time is right for political change: Chancellor Merkel has already announced that Africa will be the focus of next year’s G20 Summit in Hamburg. Vice Chancellor Sigmar Gabriel, a Social Democrat, is also looking to Africa. This Thursday, he and Mr. Müller will present their plan for close cooperation between foreign economic and development policy: Mr. Gabriel’s economics ministry says that means an expansion of federal guarantees on exports and investments.

The Hermes guarantees that the economics ministry made available for nine African countries in 2014, among them Nigeria, Tanzania, Senegal and Ruanda, were only the beginning. Mr. Gabriel told Handelsblatt that African countries are in great need of investment: “Thus, we want to further improve the conditions for investment.”

The ministers also want to convince German Finance Minister Wolfgang Schäuble, a member of Ms. Merkel’s CDU, to provide tax relief to German companies investing in Africa.

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The refugee crisis in 2015 also convinced German businesses to become more active in Africa in an effort to fight the root causes of migration at the source. The German industry association BDI has reacted favorably to Mr. Müller’s Africa plan.

“We need a fundamental reorientation of developmental cooperation,” as BDI Africa expert Matthias Wachter told Handelsblatt.

He thinks that it is right of Müller to demand more responsibility from African nations. Though Mr. Wachter added he feared little would come of such an ambitious plan so shortly before Germany’s September 2017 parliamentary elections.

That is also why the pro-business Free Democratic Party noted: “At the end of his term, Müller has arrived at the same place that his predecessor was at the beginning of his.” A focus on private investments, tough conditions, and efficiency were in fact the focus of Müller’s predecessor Dirk Niebel (FDP). However, German businesses showed little interest in Africa in 2010, and Africa was not a priority for Chancellor Merkel at the start of the euro crisis either.

In any case, Mr. Müller now wants to create development bank funds with multinational corporations, as a way to safeguard against currency risk and to greatly expand such development funds with private money. Müller intends to push African partners to create tax systems as well.

“It’s hard to explain why the tax rate in the poorest countries is below 17 percent, when it is at 35 percent in industrialized nations,” reads the Marshall Plan proposal, of which Handelsblatt has obtained a copy.

Mr. Müller is also intent on a reorientation of African education systems: Instead of educating unemployed academics, poorer countries should promote trade schooling.

Mr. Gabriel and Mr. Müller are also fully aware that the government’s new Africa strategy can only succeed if others are onboard as well. They hope to coordinate African programs with the EU, France, Great Britain, Italy, and Spain. The time is right at the E.U.-level, too. The European Commission and the African Union are already negotiating a new trade agreement, because the current Cotonou Agreement ends in 2020.

The success of the aid effort will be decided by how the E.U. structures market access for African nations. Mr. Müller has serious doubts about the new Economic Partnership Agreement, wherein the E.U. allows Africa to keep protective tariffs in place while at the same time opening the single market to African products.

The E.U. has done away with subsidies on agricultural exports, but agricultural subsidies are still in place within the E.U. “That means that we are hardly giving the Africans a fair chance in direct competition,” Mr. Müller said. At this stage, the Europeans will have to grant Africans protective mechanisms so that they can develop their own markets.

 

Donata Riedel writes about politics for Handelsblatt based in Berlin. To contact the author: riedel@handelsblatt.com

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