The Scramble for Africa

Minimal Market Share

In 2012, foreign direct investments in Africa valued a total of 50 billion US dollars. However, German capital flow to the continent is minimal. While the market share of German firms is approaching about eight percent on the global scale, in Africa it is only two percent. "This means a gap must be closed. Other countries already have a much greater presence," concludes Christoph Kannengießer, Chief Executive of the "German-African Business Association (AV)."[1] German companies are particularly left out of large infrastructure projects, according to Kannengießer. In 2012, the "Federation of the German Construction Industry" (HDB) complained about a 30 percent decrease - down to 460 million Euros. "The scramble for Africa has largely been lost to China," remarked HDB President Thomas Bauer.[2]

Stronger Political Support

Interest groups are therefore demanding that the German government get more involved. "Stronger political support for German industry in Africa would have a positive effect on bi-lateral economic relations," according to the Federation of German Industries (BDI).[3] Criticism has been raised particularly of the habit of not granting Hermes trade credit insurances for direct business deals with countries such as Nigeria, because of a high risk of default - countries, which in the past could only be saved from state bankruptcy through debt-cuts. Without these insurances, German companies will hesitate before participating in bids for large infrastructure projects, for example road construction. Since companies have to establish local subsidiaries to obtain orders, they are also demanding to include "local costs" in the calculation of payment default. "Therefore, the federal government's future Hermes guarantee grants should be subject to 'German interests', which extend beyond the criteria of 'supplied from Germany' and 'German share in the supply,'" according to the "BDI Demands for the 18th Legislature."[4] The "Federation of the German Construction Industry" (HDB) is also demanding that obligatory environmental standards not be upgraded on companies taking credit default insurances. The HDB warns that such a step - due to restrictions - would aggravate the already existing disadvantaged in competition with China and other BRICS countries.[5]

More Shuttle Diplomacy

However, there are other items on the agenda. The HDB, for example, is demanding that development policy be placed under service obligations. It demands a stipulation that, in the future, certain funds will be entrusted to German or European companies for the realization of projects. To tap the "continent of opportunity, Africa" the BDI is pushing for more double taxation treaties, to enable a nearly tax-free repatriation of profits to the homeland. The German-African Business Association would like to see German politicians making more state visits to the continent. This sort of shuttle diplomacy is necessary for politically reinforcing the credibility of German business interests in Africa, underlined its chief executive, Kannengießer to the Deutsche Welle.[6]

Tap the Potentials of African Markets

The Grand Coalition has indicated its willingness to act. The new "German Government Africa Policy Guidelines" recognize that the Hermes credit insurances need to be reformed. In the "Tap the Potentials of African Markets for German Business" subchapter, it also recommends providing guarantees for businesses dealing with "Heavily Indebted Poor Countries" (HIPC). Since some time, the German ministries of foreign affairs, economy, finance and development aid have been discussing a revision of "country cover policies." The guidelines also admit that development aid policy should have a stronger focus toward the interests of the exporting companies. "Through better mutual networking, we seek to increase the effects of development cooperation measures and foreign trade promotion in Africa."[7]

Innovative Forms of Financing

Efforts are being made for expanding the possibilities for financing business with Africa. The KfW Development Bank has significantly increased its credit volume for such transactions through the International Project and Export Finance Bank (IPEX) and the German Investment and Development Association (DEG). "Until now, the DEG has been granting only ten percent of its credits to German companies. We would like to triple or quadruple this proportion," explained Ulrich Schröder, KfW CEO.[8] DEG spokesperson Bruno Wenn sees a certain urgency, "if German businesses continue to wait, these markets will be taken over by emerging countries."[9]

Doubling the Trade Volume

The European Investment Bank (EIB), chaired by the FDP politician Werner Hoyer, is increasing its engagement in this area. At the "Africa Finance Conference," organized by the "German-African Business Association" (AV), he suggested the possibility of a larger financial leeway for the financing period 2014 to 2020. Content with the outcome of the conference, Stefan Liebing, AV Chair declared, "we are convinced that innovative forms of financing could double the amount of German trade and German direct investments in Africa over the next five years."[10]

Other reports and background information on Germany's Africa policy can be found here: Risk in Africa and African Interventions.

[1] Deutsche Wirtschaft: Angst vor Investitionen in Afrika. www.dw.de.
[2] Deutsche Bauherren abgeschnitten vom Abenteuer. Frankfurter Allgemeine Zeitung 19.04.2014.
[3], [4] BDI-Forderungen zur 18. Legislaturperiode. www.bdi.de.
[5] Petita des Hauptverbandes zur Exportkredit-Versicherung. www.bauindustrie.de.
[6] Deutsche Wirtschaft: Angst vor Investitionen in Afrika. www.dw.de.
[7] Afrikapolitische Leitlinien der Bundesregierung. www.bundesregierung.de.
[8] Förderbank KfW forciert ihr Auslandsgeschäft. Frankfurter Allgemeine Zeitung 16.05.2014.
[9] Die Welt sucht neue Ziele im Kampf gegen die Armut. Frankfurter Allgemeine Zeitung 24.04.2014.
[10] Afrikageschäfte finanzierbar machen. www.afrikaverein.de.