Germany in Africa: Last but not least

As Africa’s importance as a trade and investment partner for rising Asian economies grows, those already familiar with the continent look to deepen their ties while those who are not begin to establish links.

Germany’s presence on the continent – while greater than one might think – is not yet reflective of its position as the world’s fifth largest economy. As the German public and private sector start to take notice, this could be about to change. Germany’s operations in Africa are more than imagined but there remains significant room for growth.

Europe’s largest economy leverages and exports its expertise in machinery, automobiles, chemical products and electrical equipment to the continent while it imports raw materials, particularly metal ore. In 2016 German–African export trade increased by 35% from the five previous years to reach €42.8bn ($49.5bn) and the figure is rising.

Around 800 German companies are active in Africa with combined investments worth €10bn. Household names like Siemens, Volkswagen, Bosch and Commerzbank are all included with a great range of smaller and more specialised companies too.

Yet out of Africa’s 54 countries Germany is only meaningfully active in a select few markets. South Africa overwhelmingly dominates the portfolio.

By itself, 800 companies and €10bn worth of investment is not insignificant, yet it pails in comparison to Germany’s overall output. In 2014, the German economy made direct investments of nearly €1 trillion globally, yet only €7bn was channelled into Africa – less than 1%. Africa is currently responsible for only 2% of Germany’s overall external trade volume.

Attention elsewhere

German companies, often cautious, have traditionally held back from Africa, looking instead to Asia to cash in on emerging market growth. Stefan Liebing, chairman of Germany’s Africa business association, Afrika Verein, argues in the association’s Made in Germany report that Germany’s private sector is yet to seriously consider Africa as somewhere to do business.

“The problem is primarily the perception of Africa in Germany,” he says. “The message that many African markets now have equal or even more promising growth stories to offer has not yet reached all those concerned.

Many small and medium sized enterprises are likely to consider activity in Africa to be too risky, not least because the continent is often still associated with a lack of political stability. Poor infrastructure is also sometimes seen as a further deterrent – even though its improvement and expansion offer fascinating opportunities for German industry.”

Associations like Afrika Verein along with public bodies like Germany’s Ministry for Economic Cooperation and Development are pushing to bring Africa into view.

Public nod for private push

Much like Japan’s growing foray into Africa, Germany’s private sector is being led by a drive from the public sector. German chancellor Angela Merkel has stressed a need to tackle Africa’s migration crisis as well transition from a relationship of aid into investment.

Last year, Merkel, during Germany’s G20’s presidency, oversaw the establishment of the G20 Africa partnership, which will work towards sustainable development goals in line with the African Union’s Agenda 2063 – with particular attention paid to improving conditions for private investment.

This push towards the private sector is a key principle of Germany’s “Marshall Plan with Africa”, which proposes reducing developmental assistance while boosting private investment. Germany, in fact, spent the third most on development assistance in 2015 at €16bn, behind the US and UK. The Ministry for Economic Cooperation and Development, which developed the plan, would like greater emphasis placed on expanding commercial enterprise. Speaking at the second German–African Business Summit in Nairobi last year, development minister Gerd Müller, stressed that the plan is “with Africa, not for Africa”.

However, while high-level endorsements and policy recommendations came thick and fast in 2017 much is yet to materialise. The Africa momentum was lost when international affairs took a backseat to federal elections late last year.

The plan was never fully implemented and although the German government maintains it’s on track, the continent is more frequently discussed in the context of an intensifying debate over refugees than any deepening of economic ties. Merkel is embroiled in a European row over how to deal with arriving African and Middle Eastern migrants and is expected to take a tougher stance due to pressure from within her party. Looking to boost relations with Africa then looks unlikely in this context.

A sign that Africa is still in the pipeline, however, came when newly appointed foreign minister Heiko Maas made his first visit to Africa only six weeks after assuming office. The minister visited Ethiopia and Tanzania and discussed a range of issues including boosting multilateralism. The trip, while mostly symbolic, reaffirmed that Africa has not been forgotten by the German government. That said, until the Bundestag can agree on a clear and coherent policy vis-à-vis the continent any meaningful implementation of policy remains elusive. 

Areas of growth

Nonetheless the private sector seem to have got the message – especially automobile manufacturers. Africa’s capacity to support manufacturing plants and function as a cheap and reliable manufacturing hub is increasing yearly. German car manufacturers, like Volkswagen, are beginning to expand beyond South Africa and look to other key markets to assemble vehicles.

Volkswagen returned to Kenya in 2016 more than four decades after the auto giant stopped production in the country and the first “made in Rwanda” Volkswagen is due to be built this summer. Thomas Schäfer, Volkswagen’s South Africa chairman and managing executive, lauds East Africa’s automotive industry potential. Speaking at the opening in Kenya he said: “The East African Community has got the potential, and today is the first step in this direction that we want to take our passenger cars.”

Indeed, signs are emerging that German companies are making a push out of South Africa into Africa’s multitude of quickly developing markets. The Association of German Chambers of Commerce and Industry has been steadily opening up new branches in Africa, most recently in Tanzania. The intentions are clear. “Germany and Tanzania have been close friends and partners for a long time,” commented Jennifer Schwarz, the head of the regional office, at the opening. “Tanzania is a rapidly growing emerging market and offers tremendous opportunities for German businesses. Several German companies have already established business links with Tanzania, but we want to attract more companies from Germany by offering them the services they need in order to start their business in Tanzania.” Nigeria, Ghana, Angola, Ethiopia, Kenya and Rwanda –among others – are all coming under the spotlight.

Although Germany’s Africa policy is yet to be resolutely defined, indications from the government have made it clear that Germany wants to expand its commercial operations on the continent. As its companies start to take the hint, both Africa and Germany look set to gain.   

Tom Collins