Germany's fresh approach to Africa appears poised to create a mutually beneficial scenario, holding the potential for positive impacts on the global economy.

As the Russia-Ukraine war unfolded in February 2022, Germany’s staunch support for Ukraine came with significant consequences. The nation, heavily reliant on Russia for its energy requirements, faced severe supply disruptions due to Moscow’s actions. This compelled Germany to swiftly seek costly alternative sources. Determined not to encounter a similar vulnerability with China, Germany sought to limit investment guarantees for Beijing to €3 billion, despite China being its largest trading partner. In a strategic move to diversify trade and ensure a stable supply of essential raw materials, Africa emerged as a crucial component of Germany’s supply chain.

In August last year, the president of Germany’s Federal Trade Associations (BGA), Dirk Jandura told the DPA press agency that “The African continent is the continent of opportunities. It is developing faster and more dynamically in parts than all other world regions. … Its importance as a reliable and long-term trading partner for Germany and Europe is growing.”

President of the German Institute for Economic Research Marcel Fratzscher in an interview with the Rheinische Post newspaper in February this year that the ongoing conflict already bled around €100 billion from the German economy which is equivalent to about 2.5 per cent of the country’s GDP. The root cause was of course reliance on Russian energy.

Investieren Sie in Afrika

That’s the German for ‘Invest in Africa’, a country whose businesses have an impressive global presence, but its investments in Africa account for less than 1 per cent of the German FDI. In a study How effectively do Germany’s foreign trade and investment promotion schemes support investment in Africa? conducted by KfW Research major industrialised nations such as France, UK and US invest four to seven times more in Africa compared to Germany.

The paper, which was published in September 2020 further, said, “… investment portfolios of German companies in Africa have stagnated for almost 20 years. Over the same period, investment by French firms has nearly quadrupled, while UK and US direct investment portfolios also grew significantly, although they have recently declined again. Chinese investment, however, showed the fastest growth, expanding by a factor of 40. Accordingly, the significance of German enterprises for African economies is shrinking.”

The Russia-Ukraine war has served as a wake-up call for Germany, prompting a realisation of the imperative to diversify its trade relationships instead of relying on a limited group of nations.

In the just concluded G20 Compact with Africa Summit in Berlin on Monday German Chancellor Olaf Scholz said that African countries should benefit more from their wealth of raw materials and the country also pledged to invest €4 billion in African green energy projects until 2030.

The Compact with Africa, which was launched under the German G20 presidency to promote private investment in Africa in 2017, includes Egypt, Ethiopia, Benin, Burkina Faso, Ivory Coast, Ghana, Guinea, the Democratic Republic of Congo, Morocco, Rwanda, Senegal, Togo and Tunisia.

Despite the presence of over 800 German companies in Africa, their presence was predominantly limited to South Africa. Surprisingly, their overall investment in the continent remains minimal. In 2014, out of the nearly €1 trillion in global investments by the German economy, only a meagre €7 billion found its way into Africa.

At the heart of Germany’s “Marshall Plan with Africa” lies a fundamental principle: enhancing the prominence of the private sector. This strategic proposal advocates for a shift away from traditional developmental aid, instead proposing a noteworthy surge in private investment. The goal is clear — to drive continuous economic development throughout the African continent.

Outlining Germany’s vision for the future, Chancellor Scholz emphasized the necessity of importing significant volumes of green hydrogen. This strategic move is essential for Germany to achieve its net-zero emissions goal by 2045, and Africa is envisioned as a key source for this crucial element. Notably, the importance Chancellor Scholz has given to Africa can be gauged from the fact that the German chancellor has already undertaken five official trips to Africa since assuming office in late 2021.

A Reuters report said that German trade with Africa was €60 billion last year, which is a fraction of its trade with Asia but up 21.7 per cent in 2021.

Chinese footprint in Africa

China’s impact on African investments is profound. Over time, China has consistently deepened its commitment to the African continent, solidifying and expanding its influence. The China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies sheds light on a notable surge in Chinese FDI annual flows to Africa. Commencing at a humble $75 million in 2003, this amount skyrocketed to a remarkable $5 billion in 2021, highlighting the substantial expansion of China’s economic influence in the region.

Since 2013, as per a study from China-Africa Research Initiative, Chinese FDI flows to Africa have surpassed those from US. In 2021, the top five African destinations for Chinese FDI were the Democratic Republic of Congo, Zambia, Guinea, South Africa and Kenya while American investment was concentrated in different nations including South Africa, Egypt, Nigeria, Ethiopia, and the Republic of the Congo.

“Perhaps China was more audacious, perhaps they have more vision and perhaps they trusted the potential in Africa,” Moussa Faki, the chairperson of the African Union Commission, said as per a Euronews report.

COVID-19 hit African economy

Like in any other continent in the world, Africa was badly affected by the COVID-19 pandemic not just its people but also its economy. In November 2021, an EY Attractiveness Report on Africa, Reset for growth: fast forward rightly analysed the impact: “Africa, along with the rest of the world, was significantly impacted by the COVID-19 pandemic in 2020 and witnessed one of its worst economic recessions in 50 years, heightened by weak health care systems and infrastructure. Overall GDP contracted by 2.4% in 2020, less than the
3.6% contraction in global GDP, 6.7% in the Eurozone and 4.3% in the Americas. Few countries were able to avoid the pandemic’s impact. Across Africa, East Africa was most robust, with Tanzania and Ethiopia growing fastest in 2020. Southern Africa was greatly affected, with South Africa registering the highest number of COVID-19 cases in 2020, pushing the economy into deep recession.”

The COVID-19 pandemic dealt a severe blow to FDI in Africa, leading to a substantial contraction in 2020. The region experienced a sharp decline, with FDI decreasing by half, marking it as the most severely impacted area on a global scale.

Germany means business in Africa

The recent G20 Compact with Africa summit in Berlin, held this month, witnessed active engagement from African leaders, German businesses, and top German officials. Germany’s fresh approach to Africa appears poised to create a mutually beneficial scenario, holding the potential for positive impacts on the global economy.

Source: First Post

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