Government guarantees

New strategy for Africa

A politically stable and peaceful environment is essential for economic development. Conversely, a thriving economy is a major factor in securing political stability. International exchange also promotes the transfer of skills and technology. Germany and Europe need to shift their focus from poverty reduction to the promotion of private business involvement.
Africa’s metropolitan middle class has similar consumer demand as its counterpart in industrial countries: fashion show in Lagos. Alamba/AP Photo/picture-alliance Africa’s metropolitan middle class has similar consumer demand as its counterpart in industrial countries: fashion show in Lagos.

Botswana is more politically stable than Germany. This is indicated by a comparison of countries by the World Bank. Namibia and Mauritius come below Germany in the ranking but are still ahead of the USA, Britain and France. And they are not the only countries in Africa that score high marks.

Across nearly the whole of Sub-Saharan Africa, political stability has improved significantly in the past ten years. There are fewer conflicts, more democratic elections and more peaceful changes of government. Africa no longer deserves the image of a continent of crisis and conflict.

Nevertheless, Africa is all too often perceived as too insecure and chaotic a place to do business. But many who think so forget that the continent consists of 54 countries – with very different forms of government and different resources. There are civil wars, corruption and poor governance; there are also, however, many governments doing a great deal to improve the investment climate. Accordingly, development differs from one country to another.

Many African countries are not just politically stable; they are also comparatively prosperous. In South Africa, Namibia and Algeria, for instance, per capita income is higher than in China. Cities like Lagos and Nairobi long ago saw the development of a middle class with consumer needs similar to those in industrial countries. Development in Africa is very strong where private actors and enterprises play a defining role.

Africa currently has a population of more than a billion. By 2050, it will have doubled. Population growth is one of the drivers of economic growth. At the same time, it presents a massive challenge for individual countries. Senegal will be home to nearly 200,000 more people this year, Egypt 900,000, Nigeria 2 million and Africa as a whole 30 million. In 2050, Nigeria will be the world’s third most populous country after India and China. By then, the EU Commission calculates that Africa will need 400 million jobs.

To create more jobs, Africa’s natural resources need to be processed in the future within the continent itself. This is essential to increase value creation and reduce dependence on imports. At present, manufacturing industries account for only 13 % of GDP in Sub-Saharan Africa. That is more than in Britain or France but far less than in China and other emerging markets. Industrial export performance is also poor: industrial products make up only a quarter of African exports. In many East and South Asian countries, they generate three-quarters of export earnings.

Demand for industrial goods, too, is still low. The value of German machinery supplied to Sub-Saharan Africa recently rose to € 4.4 billion. But exports to Asia were worth nearly ten times that figure, and deliveries to Europe almost twenty times more. To make manufacturing in Africa a viable proposition or even to permit local maintenance of imported machinery, shortages of infrastructure, energy and human resources need to be addressed and overcome.

After decades of development aid has failed to carry the continent significantly forward – critics even consider it partly to blame for Africa’s underdevelopment – there is now a growing belief that private-sector involvement offers the only hope of raising Africa out of poverty and stopping it falling behind the global economy. The continent needs investment by local and international companies.

Germany and Europe need to switch their focus from poverty reduction to promotion of business community involvement. If it is more attractive and less risky for companies to invest and earn money in Africa, the catch-up process will be significantly faster.

Instruments exist that are easy to implement and meet the needs of companies wishing to operate in Africa. At the very top of the wish list are less costly and more accessible export, project development and investment guarantees. The German government remains hesitant on this front. And that needs to change. At the same time, investment in infrastructure and energy supply must be stepped up and opportunities for practical skill development created in conjunction with the private sector.

In the wake of its plan to forge “migration partnerships”, the European Commission intends to do more than at present on the issue of guarantees. That is a step in the right direction. It will motivate European industry to invest money and expertise in Africa and thus also contribute to countries’ development. However, restricting guarantees to the main countries of origin and transit of refugees is short-sighted and interventionist and will create totally wrong incentives for African governments.

It would be better to be guided by companies’ needs and African countries’ economic policies. The main beneficiaries should be those that create a good climate for investment, diversify their economy and create prospects for their people. So, instead of predominantly supporting the poorest countries, development aid efforts should also focus on countries that may help drive modernisation across the continent.

Well over half of Africa’s population is under 25. Most young people have smartphones and get news from the internet. They know exactly how people live in other parts of the world. Unless effective action is taken to help this young generation find work, there is an imminent risk of impoverishment and civil unrest. Many will turn their backs on their country. German and European companies can make a valuable contribution towards creating prospects at local level. Policymakers need to remove obstacles and help them do it.

Christoph Kannengießer is CEO of the German-African business association.

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