Germany In Africa: Time To Play Catch-Up?

Although Germany is Europe’s economic powerhouse and Africa is the fastest growing region in the world, Germany lags far behind other major economic powers in terms of presence on the continent. Sherelle Jacobs argues that lack of knowledge about the continent’s potential is the biggest impediment to a rapid expansion of German investment in Africa.

Africa’s ties with emerging economies such as formidable China or fast-growing Brazil, striking because they highlight just how much the world order is changing, command far more attention. Equally the continent’s economic relations with European powers with deeper links, such as Britain and France, are much more closely followed.

But overlooking the relationship between Germany and Africa is a mistake. Germany’s economic interactions with Africa are important and dynamic. But Germany’s links with the continent are also underdeveloped and complex, raising important questions about how strong European economies with less profound historic ties perceive and will interact with the continent in the future.

German interest in the continent is significant and has spiked dramatically in recent years. That is partly due to the fact that Germany is interested in diversifying its energy sources, including Liquid Natural Gas (LNG), particularly from Nigeria, Angola and the Democratic Republic of Congo. Europe’s biggest economy is also keen to boost its own exports in the sector, by offering its machinery to technology-hungry energy firms on the continent. Moreover, Germany has been very active in selling its expertise in alternative energy on a continent where 80% of inhabitants lack satisfactory access to electricity despite the abundance of potential resources for non-renewable energy. Most famously, in March 2012, Germany signed a renewable energy deal with the Nigerian government to promote close cooperation between the two countries, in a deal worth €9m.

The energy partnership is ultimately traceable back to the Memorandum of Understanding that Germany and Nigeria signed in 2008 in order to help Nigeria increase its energy efficiency by 6,500MW. Fast forward four years and Nigeria is now keen to explore new means of generating energy, making use of German know-how and technology and with direct help from German companies as part of its energy diversification plans.

Back in March, the German Head of Division for Central and Western Africa and Madagascar, Ute Heinbuch, who signed the 2012 deal, was upbeat about the prospects for the energy partnership: “The bi-national commission with Nigeria will be kick started in earnest. It will enhance cooperation between the two countries that will create a win-win situation,” Heinbuch said.

Crucially, the energy relationship between the two sides is not merely restricted to ambitious but yet unfulfilled agreements; German firms are already extremely active in the sector. One large firm in particular, which is at the forefront of German business activity in the energy sector is Siemens.

“The company’s special focus, at present, is on solutions for sustainable urban infrastructure development, renewable energy and environmentally friendly products and services,” says a representative at Siemens to African Business.

“The company has already made great strides in this area; for example, the Siemens Wind Power Centre of Competence for Africa and the Middle East was recently established in South Africa. This will support the country’s mission to create jobs in the ‘green’ industry,” they add.

“Siemens has the technologies that many of Africa’s key industries need. Many African countries have set ambitious targets for renewable energy – and Siemens is a perfect partner. We do not only produce the world’s largest and most efficient, clean gas turbines, but we’re also a technology leader in wind energy and in solar power.”

Wide range of activities

The German economic relationship with Africa is not just confined to the energy sector. As wealth on the continent expands and populations boom, large German firms are making inroads into Africa in numerous other arenas, from consumer goods to logistics, and the attitude to Africa amongst these firms is equally positive.

“We are very positive about the entire continent,” says Thomas Nieszner, CEO of DHL Global Forwarding Europe, Middle East and Africa.

“If you look ahead in time, to 2015, there are going to be 200m more people who can afford a television, a washing machine, so the future looks very positive. Our big country is South Africa, but we are also working in Nigeria, Angola and Ghana.”

German interest in Africa is not only confined to large multinational firms. There are now around 700 German businesses operating in Africa, employing more than 46,000 Africans, according to the German African Business Association, Afrika-Verein, and many of these are SMEs.

The fact that Africa is experiencing double-digit growth and throws up unprecedented opportunities for Western firms has not escaped the attention of outward-looking German smaller companies.

The German Mittelstand (small and medium-sized enterprises – SMEs) famous for their export-oriented approach to business and their ability to exploit mind-bogglingly specific niches, are also increasingly interested in plugging their technical, manufactured goods to Africa. The range of German SMEs of this type in Africa is extremely vibrant, ranging from Hansgrohe AG, which sells tap fittings to corporate clients, to wires and cables manufacturer Leoni.

And German construction and building materials firms are also thriving on the continent as fast-growing countries with new windfalls from natural resources booms endeavour to bring their underdeveloped infrastructure in urban areas up to scratch. One example is Schwenk Group, a building materials company that has recently successfully set up a cement plant in Namibia, directly creating around 300 jobs.

That German activity is buzzing on the continent is also strongly reflected in the large number of business conferences and conventions for German firms operating or interested in Africa. They include several annual country-specific business forums, such as for Nigeria and Angola, and the German-African Energy Forum.

Moreover, some analysts argue that German companies, although traditionally seen as risk-averse, are demonstrating some, albeit limited, willingness to engage in higher risk African countries, including the Congo, Equatorial Guinea and Zimbabwe in order reap larger rewards, a sentiment which is shared by the German Federal Foreign Office.

“The oil boom offers business opportunities for German companies, too, but doing business there involves considerable risks,” says the German foreign office on German business activities in Equatorial Guinea, for example.

Its comments on German inroads into Congo are similarly framed. “Only a few German companies are active in Congo but German products have an excellent reputation there and are valued for their quality and durability.”

And even the most ambitious and optimistic of German firms, such as Siemens, admit that Africa as a whole, throws up significant challenges for them.

“In some places we face challenges like shortages of highly skilled labour or issues which are influencing the climate for investments and entrepreneurial activities. Engineering is a scarce skill, not only in Africa but in most countries around the world. Nevertheless it would be good to have an even bigger pool of talents to tap into.”

Wrong perceptions harm trade

The wariness of German companies in less stable African countries is, of course, not unique, as most multinational firms are still concentrating most of their efforts in Africa’s larger, more advanced economies. But German perceptions of Africa in general can also be worryingly negative, something which could, in particular, be affecting the enthusiasm that German SMEs have for working in the region.

A relatively recent 22-nation poll by the BBC found that Germans are far more sceptical about Africa’s business potential than their European counterparts. Of surveyed Germans, 56% said that they felt foreign investment would be bad for Africa overall. And a staggering seven out of 10 said that they were pessimistic about whether Africa would experience major economic growth over the next 20 years.

It is difficult to shake off concerns that such negativity about Africa amongst ordinary Germans may be ultimately preventing many potential business owners from investigating opportunities available to them on the continent. The notorious aversion to risk that the German Mittelstand often are accused of being constrained by may also, in some cases, compound the problem.

“German companies’ trade relations often go back to certain factors … these include, in particular, the degree of development of the private sector in a country and its freedom from government intervention,” says Afrika-Verein in a recent report on the potential for German SMEs operating in Africa.

“The overall quality of life in a given country or whether it has a close bilateral relationship with Germany [can also play a role],” they add.

Equally, there is circumstantial evidence pointing to the idea that German companies may, somewhat arbitrarily and without good cause, perceive Africa as a more risky region to operate in than other places.

Africa only represents 2% of Germany’s total trade. Moreover, a quick comparison of Germany’s interest in Africa compared with its activities in other risky, virgin territory is, in this way, revealing. For example, Germany is the leading Western business actor in rapidly-developing Mongolia, which overtook Qatar as the world’s fastest-growing economy near the end of last year. Merkel became the first statesperson within the advanced industrial world to visit Mongolia in six years in October, which powerfully demonstrates how seriously Berlin takes its economic relationship with Ulaanbaatar. Mongolia now sees Germany as its central trade partner in Europe.

Equally, Kazakhstan, another risk-laden but rapidly growing Central Asian country, has higher than average economic interaction with Germany – the latter’s total bilateral trade with Kazakhstan reached over €5bn in 2010, which makes the UK’s total trade with the country, a mere €460,000, look insignificant.

In contrast, Germany has shown far less willingness to set the trend for investment and trade in Africa. Despite the relative strength of its exports and SMEs, trade with Africa is consistently equal or less than trade between other European countries like France and the UK and the same African countries.

German bilateral trade with Nigeria, at €4.7bn in 2011, is a little less than the £4bn (€5bn) trade figure between Nigeria and the UK. Germany’s bilateral trade with Angola was worth just under €500m in 2010. In contrast, the UK’s bilateral trade with Angola at the same time was £600m (€758). The average trade volume between Germany and Kenya is €340m. In contrast, trade between Kenya and the UK has reached more than £1bn (€1.3bn) per year.

Although the ruthlessly practical may argue that history is irrelevant in 21st century international business, Germany’s lack the same deep historical ties to Africa as the UK and France may be significant. It is true that some large multinational firms, such as Siemens, have been operating on the continent for a very long time already (in the case of Siemens, 150 years.) But others, such as DHL, have arrived relatively recently.

“DHL has been in Africa for the last 30 to 40 years. And we’ve really invested over the last five to 10 years,” says Nieszner of DHL.

Germany does have a colonial past in Africa. It had several protectorates across the continent, including German East Africa and German South-West Africa (present-day Namibia). But Germany’s colonial role in Africa was relatively short-lived. Perhaps the brevity of German historic ties to the region could in part help to explain, to some extent, why the economic relationship between the two fronts is still, in some ways, underdeveloped; many of the big French, and British firms on the continent, such as Diageo, have been in Africa since the 19º century and have a deep knowledge of Africa’s dynamics and potential.

Nonetheless, as the African continent continues to grow, and German businesses wake up to the opportunities it holds, this is sure to be one economic international relationship to watch in coming years.