Africa is back in the limelight as a continent of opportunity, with German Economy Minister Robert Habeck heading to Kenya to open the next two-day German African Business Summit (GABS).
The conference, which takes place in various African countries every two years, is Germany’s largest business event focusing on the continent, bringing together businessmen and officials from Germany and Africa .
Perspectives on Africa’s investment climate
Serwah Prempeh, senior fellow at the Africa Policy Research Institute’s Economics (APRI) said, “The outlook in Africa is one of extreme political, policy and economic risk: political instability, corruption , weak infrastructure, governance barriers and a dangerous environment.” and community events.
“This, of course, prevents German investors, especially those in small companies and small enterprises (SMEs), who tend to take risks,” Prempeh told DW.
In her recently published autobiography “Freedom. Memories 1954-2021” the former German Chancellor Angela Merkel spoke about the difficulties of getting executives from large German companies to follow her travel to African countries.
“Many of them saw few opportunities for themselves in the African market,” he wrote.
Efforts to promote investment
The previous German government has made several efforts to encourage German SMEs to increase investment in Africa. Initiatives such as the Compact with Africa – which was established during Germany’s 2017 G20 presidency – aim to generate more private investment in African countries to boost their economies.
Overall, however, Germany has been less powerful politically and economically in Africa in recent decades, according to APRI.
Foreign investment data reflects this. Germany ranked nine of the ten countries with the most investment in Africa in 2022 with $13 billion (€12.3 billion) – only 2 billion more than 2018, according to the International Organization for Trade and Development (UNCTAD).
Prempeh told DW that German investors are generally risk-averse.
“Many expect government support before investing in Africa,” Prempeh said.
“This support may not come considering the tight budget situation of the German government and the increasing pressure of citizens to focus on investing more in internal development problems.”
Challenges for German investment
In 2022, Habeck called for a “restart” and a new approach to relations between Germany, Europe and Africa before his first trip to Africa, in which he visited South Africa and Namibia.
In Kenya, Germany is working as a financial partner for the expansion of Africa’s largest geothermal power plant in Olkaria.
In May 2023, Chancellor Olaf Scholz himself announced a new €45 million loan for the site in Olkaria.
Habeck also plans to visit the power plant, whose capacity will double to 2,000 megawatts by the end of the decade.
According to Kenyan economist James Shikwati, German investment in Africa and Kenya are facing two problems.
Shikwati said, “When it comes to Africa, German investment is likely to face competition from China and other developing economies that are aggressive in their investment approach to Africa, ” Shikwati said.
Shikwati suggested that the Germans often have “an idea of how things should work,” and should be reluctant to think that “they are experts in creating opportunities where they can cooperate with Kenyan and African groups.”
A continent of opportunity
Africa offers great opportunities for German companies looking to diversify and reduce dependence, especially from China. Green energy, infrastructure and IT sectors are attractive for investment projects.
But since the COVID epidemic and the new conflict in the continent, many African economies have been badly damaged, the financial budget has become volatile.
Many experts warn that reducing those risks will be important for future investments.
Christoph Kannengiesser, CEO of the German African Business Association, pointed out that although there is a lot of talk about risks, Africa can actually help protect business models against risks and make them more resilient.
“The continent does not share many global risks and chains that bring it to the same extent and nothing is more dangerous than other regions of the world,” he told DW.
Misconceptions and defenses by companies that list the risk classes of the Organization for Economic Co-operation and Development (OECD) make it more expensive for companies that want to start operations in Africa to raise debt capital, Kannengiesser argued.
Companies are becoming increasingly aware of the need for diversity and of the tremendous potential that neighboring continents offer, Kannengiesser said. But the recession, the need for change in the market sector is absorbing a lot of resources.
Africa is ready to do business
Before the current economic crisis and the consequences of the war between Russia and Ukraine, Germany had a very active trade system and investments in China, Western Europe, and the USA.
“Many German companies have the opinion that the markets on the African continent, which are considered complex and unknown to many, are not important for business success.”
Prempeh said that African governments are open and ready to do business. Many have investment promotion companies in special economic zones that work to bring investors various incentive packages, he emphasized.
“German business is expected to talk to these state agencies,” Prempeh said, adding that The German banking sector, including public banks, must quickly come up with new forms of finance for investing in Africa.
“The current system is not working,” he concluded.
Written by: Keith Walker
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