London starts to take Africa seriously

The UK-Africa Investment Summit strengthens Anglo-African economic ties by mobilising new and substantial investment to create jobs and boost mutual prosperity. Neil Ford examines the prospects

The UK has perhaps the widest range of economic, political, cultural and historical ties with Sub-Saharan Africa of any non-African state. Yet successive British governments have to some extent taken these relationships for granted. While France sought to cultivate its ties with Francophone Africa and China has rapidly increased its influence on the continent, London has taken a more laid back attitude.

However, the prospect of Brexit triggered a re-evaluation of the UK’s African connections under first Prime Minister Teresa May and now Boris Johnson. With the country’s exit from the European Union seemingly done and dusted, the new Johnson government needs to tie up trade agreements with nations across the world, prompting it to take a more pro-active view of sub-Saharan Africa in the process.

In order to promote economic ties, prime minister Johnson is backing the UK-Africa Investment Summit in London on 20 January. The Summit is designed to strengthen Anglo-African economic ties by mobilising new and substantial investment to create jobs and boost mutual prosperity.

Many big British businesses are already very active in Africa, including banks HSBS, Barclays and Standard Chartered; oil companies BP, Shell and Tullow; British Airways, Unilever, Vodafone, Diageo and GlaxoSmithKline. However, the government hopes to encourage more small and medium sized enterprises to take advantage of the opportunities on offer. London has identified technology, finance, renewables and agriculture as particularly attractive sectors for UK investment.

In early January, International Development Secretary Alok Sharma said: “I want the UK to be the investment partner of choice for African nations, by creating new and lasting partnerships that benefit businesses and people in Africa and the UK alike. UK businesses are already leading the way in investing in Africa.” He cited Diageo’s new hi-tech, environmentally friendly brewery in Kenya, which supports tens of thousands of jobs; and solar power company Azuri Technologies’ pay-as-you go solar energy systems, which are being installed in thousands of off-grid homes, particularly in East Africa.

African attractions

Africa’s growing economic relevance is certainly part of the attraction. Although the continent has not achieved the same levels of growth as Asia over the past couple of decades, average annual growth of 4.6% since the turn of the millennium has made it a more attractive destination for investment. Eight of the 15 fastest growing economies in the world are in Africa.

There is the potential for quicker growth over the next 20 years, with fewer conflicts than ever on the continent, technology offering the potential to revolutionise many sectors and international companies eager to secure alternative centres for manufacturing outsourcing as wage rates soar in China. Above all else, a quarter of the world’s population is expected to be in Africa by 2050.

In August 2018, Theresa May led a delegation of investors to Kenya, South Africa and Nigeria, making her the first British prime minister to visit Sub-Saharan Africa since 2013. It was on this trip that the trade deal between the UK and the Southern African Customs Union (SACU) plus Mozambique was announced. Trade between the UK and the six countries stood at £9.7bn ($12.6bn) last year.

The global director of government affairs at Diageo, Wilson Del Socorro, said: “Diageo warmly welcomes the news of a UK-Southern African Customs Union and Mozambique agreement in principle. International trade is vital to Diageo as it gives us the opportunity to reach more consumers and markets around the world. Africa is an important growth region for Diageo, including export markets like South Africa for Scotch whisky.”

Some African governments, including the Seychelles, Mauritius, Madagascar and Zimbabwe, have already agreed to give the UK the same trade arrangements as it had as a member of the EU. However, it is possible that Brexit could enable African states to negotiate better trade deals with both the EU and the UK. The EU is due to negotiate a new aid and trade deal with the African, Caribbean and Pacific (ACP) countries and so Brussels and London may compete to offer the best agreements.

The UK’s Trade Commissioner for Africa, Emma Wade Smith, has highlighted the benefits of British businesses investing, including generating profits to benefit their shareholders and the UK’s finances through taxes. The average productivity of UK companies that invest abroad and receive overseas investment is about £88,000 per worker per year, in comparison with just £44,000 for those that do neither. She added: “Evidence shows that UK companies that invest overseas become more competitive and productive. They pick up new technologies and local business know-how, which are then brought back to the UK.”

There are also huge benefits to Africa and Africans, as the UK joins other large economies in competing for influence on the continent, promoting trade and helping to finance infrastructure in the process. The bigger the pool of interested parties, the better the deals on offer for African economies. There could be more opportunities to export goods to the UK post-Brexit, including agricultural produce and textiles. African leaders seem positive about stronger economic ties. Following Johnson’s December election victory, Ghana’s President Nana Akufo-Addo said: “We have an opportunity, together, to renew and strengthen the relations between our two countries, focusing on enhancing trade and investment, and scaling up prosperity for our peoples”.

FDI more than trade

It is odd that the importance of African trade to the UK has actually declined; as recently as 1997, 7% of all African imports came from the UK. Today, just 2% of UK imports in goods and services come from Africa, with oil and gas, gemstones and fresh fruit the three most important commodities at present. Exports to Africa are just a little higher at 3%; by contrast, European trade accounts for 54% of British trade. However, the volume of Anglo-African trade has begun to pick up, increasing 7% in 2018 to £33.1bn, according to the Office for National Statistics (ONS).

There is general acceptance that the UK has been too passive in its relations with Africa. Lord Paul Boateng, the chair of the Africa Enterprise Challenge Fund, told the BBC that “the Chinese, the French, the Indians, indeed Korea, Japan, Germany even, tend to have had a much more proactive response to business in Africa than we traditionally have had. We have a lot of catching up to do if we are to make the most of what is an historic opportunity to recast the relationship between Africa and the UK away from it being seen solely as a philanthropic exercise… to an opportunity that requires investment, that requires risk taking and support by government for British companies.”

The UK is also much more important in terms of foreign direct investment (FDI) and London has set the ambitious goal of becoming the biggest G7 investor in Africa by 2022. British FDI in Africa reached £42.7bn in 2016, ahead of France with £38bn and China with £31bn, but just behind the United States on £44.3bn. Trade Commissioner Wade Smith, said: “The type of quality investment that UK firms bring to Africa is vital to drive growth, create jobs and boost infrastructure.” Yet Africa could secure a bigger proportion of UK FDI than the 4% share it currently attracts.

Soft power advantages

The British government will not be able to commit the same level of financial support to Africa as China or the US. but it can make the most of its cultural ties and provide support in key areas, including governance and institution-building. The UK’s big strength is in soft power, including its diplomatic presence across the continent.

Many African heads of state and other senior politicians were educated in the UK at some point, whether at school or university. Many return to the country when they require medical treatment and have second homes in London. Hundreds of thousands of Africans live in the UK and many more have spent time working or studying there before returning to their home countries. British universities attract tens of thousands of African students every year, while the British Council provides a wide network of educational centres across the continent.

English is either an official language or lingua franca over the much of Africa, largely as a result of the UK having the biggest colonial African empire but also because of the global importance of the language. It is used in the two biggest economies in sub-Saharan Africa, Nigeria and South Africa; in some of the most innovative economies, such as Kenya; and in some of the fastest growing, including Ghana. At the same time, most Anglophone African countries have legal systems based on the common law employed in England and Wales.

In addition, the BBC opened its biggest office outside the UK in Nairobi in November 2018 with £289m in UK government funding and it has another big centre in Lagos. An incredible 600 BBC journalists work in or on Africa, half of them in Nairobi, where many African journalists will be trained. The BBC World Service broadcasts in 12 African languages, in addition to English, including Amharic, Yoruba and Tigrinya. The World Service aims to reach 500m people with its programmes by 2022, up from 250m in 2018.

The UK has the second highest aid budget in the world after the United States, at £13.9bn in 2017, with much of that money focused on Africa. Prime Minister Johnson has revealed that the Department for International Development (DfID) will not face the reduced budgets being imposed on other departments over this term of parliament.

Since 2018, DfID’s focus in Africa has switched from short term poverty relief to long term economic development and promoting security. In September, DfID announced £90m of UK aid to support more than £500m of private sector investment in financial markets to help small African financial services businesses and start-ups grow. It is hoped that the investment will create 50,000 new jobs and give 12.5m people, half of them women, better access to financial services.