Linking policies on development and trade
Germany’s Federal Government has announced a Development Investment Fund. The new scheme can become an important milestone for realigning cooperation with Africa – towards dovetailing aid and trade, increasing private-sector involvement and self-sustaining economic development in African countries.
Poor infrastructure is a major obstacle to doing business in African countries – both for local and for international enterprises. But infrastructure – for transport, energy or water, for instance – costs a lot of money. It cannot be financed solely from national budgets or official development assistance (ODA). Private investment is needed for local economies to grow, livelihoods to be generated and people to lead independent lives.
Foreign direct investment does not automatically result in more local jobs, of course. Even so, it is absolutely essential. In 2017, €36 billion were invested in African countries, mostly in Egypt, Ethiopia, Nigeria and Morocco. That sum was a mere 2.9% of global foreign investment. By contrast, €434 billion flowed into Asia.
The major corporate investors in Africa are based in the US, UK and France as well as in China and South Africa. Even firms based in the city-states Singapore and Hong Kong invest more in Africa than Germany’s private sector, which still hesitates to engage with Africa. A lack of suitable financing options, risk protection and political support are bemoaned by many German companies, especially small and medium-sized ones.
Many of the thousand German companies which are active in Africa are actually very successful. Interest in Europe’s neighbouring continent certainly exists. At the end of October, the German-African Business Association (Afrika-Verein der deutschen Wirtschaft) staged an investor conference in cooperation with the Sub-Saharan Africa Initiative of German Business (SAFRI).
The event attracted a hundred companies. Between them, they plan projects worth an investment volume of €500 million. The projects will create 13,000 jobs in 11 partner countries of the G20’s Compact with Africa. They are Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia. Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) supports some of the ventures through its Special Initiative for Training and Employment.
And yet German involvement does not reflect the country’s economic weight. Smart action could increase the €1 billion worth of projects currently in the pipeline across Africa several fold. For that to happen, small and mid-sized enterprises (SMEs) need to see Africa as an attractive investment destination.
The Development Investment Fund could offer the right leverage, making a key contribution to creating more jobs for African youth. Items that have long been on the SME wish list include accessible and less expensive guarantees for exports, for project development and for investments. It is good that governmental Hermes export-credit guarantees will become available for additional countries.
To better cushion investors’ risks, it equally makes sense to reduce Hermes’ costs and client excesses. It is helpful, moreover, that the Fund will make financing available for smaller projects than in the past. This will not only benefit German companies; African enterprises will also be able to access capital and grow.
Africa needs private-sector involvement to leap out of poverty and become integrated into the global economy. We must support the continent’s catch-up process, harnessing the current momentum. Judiciously linking policies on development and foreign trade is the right way forward – for better infrastructure and more investment in African countries.
Christoph Kannengießer is the chief executive of the German-African Business Association (Afrika-Verein der deutschen Wirtschaft).
German Development Ministry expands reform partnerships
On 30 October, German Development Minister Gerd Müller launched negotiations with Ethiopia, Morocco and Senegal on reform partnerships. He announced the plans at the G20 Investment Summit in Berlin organised by the German-African Business Association and SAFRI.
Minister Müller said, “The reform partnerships illustrate the new focus of Germany’s development cooperation. We concentrate on private investment, vocational education and employment, so as to make sure that Africa’s young people have a future in Africa.
“This requires efforts by the countries of Africa to improve the general environment: good governance, development of tax authorities and supreme audit institutions, legal certainty, anti-corruption and democracy. If governments wish to join the reform partnerships, they have to take action in all these fields.
“Ethiopia, Morocco and Senegal have made progress in these areas, so that we are now able to start negotiations with them on specific reform objectives within the framework of the partnerships. Once the negotiations have been concluded, we will commit further funding in support of these objectives. What is new about the reform partnerships is that the funding will only be disbursed after the reform steps have been implemented.”
Through the reform partnerships, the German government fills the Marshall Plan with Africa and the G20 “Compact with Africa” initiative with life. The German Development Ministry (BMZ) supports particularly reform-minded countries in improving the environment for private-sector involvement so as to create more jobs. Countries chosen for reform partnerships are characterised, in particular, by good governance, compliance with human rights standards and efforts to promote private-sector development.
In June 2017, the BMZ entered into the first three reform partnerships with Tunisia, Ghana and Côte d’Ivoire, committing itself to provide increased support to the three countries. In their turn, they have committed themselves to specific milestones in the area of the rule of law and in key areas for private-sector development. For example, Tunisia has reformed and expanded its anti-corruption authority, enabling it to investigate more cases.
It has also reformed the government credit guarantee fund in order to make it possible for banks to provide finance for small and medium-sized enterprises and for start-ups. If the country continues to implement the reforms that have been agreed, Germany will likely be able to disburse the first 100 million euros at the end of this year.
In Ghana, the reform partnership focuses on the energy sector. The share of renewable energy is to be brought from less than one per cent to ten per cent. To that end, Ghana is undertaking various efforts, including the revision of its renewable energy act by the end of this year. If it implements this and other reforms, Germany will provide 100 million euros in support of the energy sector.