Suppliers for the Energy Transition

The Economic Interests

The German economy’s interest in doing business on the African continent is not overwhelming, but has evidently increased, according to a study presented last week by the KPMG auditing and consulting firm together with the German-African Business Association. According to the study, only 22 percent of all the German companies interviewed stated that they were satisfied with their activities in Africa. Another 29 percent were very satisfied. The relatively low level of satisfaction corresponds to the fact that only 17 percent expect significant growth in the current fiscal year, while 39 percent expect slight growth. However, 78% expect a slight or significant increase in sales over the next five years.[1] Particularly in view of the size and growth of the pan-African market, but also in light of the politically motivated, growing threat to business with China, 30% of all German companies surveyed are currently planning a slight expansion of their investments in Africa and 15% a significant expansion. Regarding the next five years, up to 38% are planning a slight, and 28% a significant expansion of investments.

Falling Behind

Trade and investment statistics indicate that, over the past few years, German business in Africa has been falling ever further behind that of its rivals. In the first semester of 2023, German trade with Africa had increased by 9.2 percent to reach €31.8 billion. However, it lags far behind China’s as well as India’s trade with Africa. In 2022, the former reached a volume of US $282 billion, while the latter, is predicted to cross the US $100 billion mark in the course of this fiscal year.[2] Due primarily to inflation, the value of goods being traded has also increased, whereas “the sales volumes have suffered at times a double-digit decline,” as the foreign trade agency, Germany Trade and Invest (gtai) reports.[3] Over the past two decades, German investments in African countries have increased by a factor of 2.6 percent. France’s investments on the African continent have, however, increased during the same period, by six, and China’ by even ninety times as much. With a total investment stock of only €11.5 billion, Germany ranks far behind France and the Netherlands (with €49 billion each), Great Britain (€45 billion), as well as China and the USA (€40 billion each).

Lecture rather than Support

The Compact with Africa (CwA), launched in 2017 on German initiative, is now supposed to bring progress, especially in terms of investments. In essence, it is a project wherein the G20 cooperates with selected African countries. The African countries involved – 13 in the meantime [4] – are supposed to transform their national economies, to offer the most attractive framework conditions for foreign investors. The participating G20 countries, for their part, promise to motivate investors and help win support from the global finance institutions such as the IMF and the World Bank. Since changing the name shortly prior to its founding in 2017, from Compact “for” Africa, to Compact “with” Africa, the German government has attached great importance to the claim that it is meeting the participating African countries today(!) “on an equal footing.” In government circles this claim has also been emphasized immediately prior to yesterday’s conference. However, the claim does not necessarily coincide with the perceptions in African countries. For example, Nigerian-born Ngozi Okonjo-lweala, General Director of the World Trade Organization (WTO), recently observed: “When we speak with China, we get an airport; when we speak with Germany, we get a lecture.”[5]

“Fossil of Financial Globalism”

Six years after the launching of the Compact with Africa, experts draw sobering assessments. They find, for example, that there “no tangible increase in foreign investments has taken place (...) across the [Compact] countries.” It is true that, last year, investments increased. But it is also true that “this is largely due to the green energy mega-projects in Egypt and Moracco. “[6] Critics of Compact, such as the economist and specialist on Africa, Robert Kappel, recently observed that “the approach,” at best, promotes investments in the low-wage sectors, that can easily be dropped again, when (...) the Compact community designates a new favorized country.”[7] Important “long-term investments,” however, “that include training programs and transfers of technology, worthy of the name” fall “by the wayside.” In any case, Compact with Africa should “simply be understood as an international compromise solution put forth by offices in the West’s ministries of finance” offering “no inclusive model for more employment, local added value and a greater role for African enterprises.” Earlier Kappel had already called for the disbanding of Compact with Africa, which he called “a fossil of ageing financial globalism.”[8]

Who Pays the Costs

At yesterday’s Berlin investment conference, held in the context of Compact with Africa, German Chancellor Olaf Scholz urged the African heads of states and governments to concentrate more than ever on the production of green hydrogen. In the future, Germany will need an “enormous amount of green hydrogen” rather than oil and gas to implement its energy transition, underlined Scholz.[9] In addition, Germany is prepared to support African countries in “establishing local hydrogen economies and their value chains.” A project in Namibia was named as an example, where iron is to be produced with green hydrogen, also as an inexpensive preliminary product for German industry.[10] The German company Enertrag is participating in the project. Critics are warning that this is contributing to the destruction of “important ecosystems and the biodiversity” in Namibia. Namibia is thus paying the costs of Germany’s energy transition. (german-foreign-policy.com reported.[11])

[1] Afrika: Ein Kontinent im Aufbruch. Afrika-Studie 2023. KPMG in Deutschland, Afrika-Verein der deutschen Wirtschaft. Berlin 2023.

[2] Shashank Mattoo: Confident that India-Africa trade will cross $100 billion: EAM Jaishankar. livemint.com 14.06.2023.

[3] Michael Monnerjahn: Deutscher Außenhandel mit Afrika wächst. gtai.de 06.09.2023.

[4] So far, Egypt, Ethiopia, Benin, Burkina Faso, Côte d’Ivoire, Democratic Republic of the Congo, Ghana, Guinea, Marocco, Rwanda, Senegal, Togo, and Tunesia have joined the Compact with Africa

[5] Luisa von Richthofen: Germany adopts a new, humble Africa policy. dw.com 15.09.2023.

[6] Marina Zapf: „Compact with Africa”: Scholz will Investitionen in Afrika ankurbeln. capital.de 19.11.2023.

[7] Thomas Bonschab, Robert Kappel, Theo Rauch: Beschäftigungsorientierte Industriepolitik in Afrika und die Rolle der deutschen Privatwirtschaft. weltneuvermessung.wordpress.org 30.08.2023.

[8] Robert Kappel: Wo die Zukunft Afrikas liegt. weltneuvermessung.wordpress.org 06.12.2022.

[9], [10] Scholz: Nehmen grünen Wasserstoff in großen Mengen. Frankfurter Allgemeine Zeitung 21.11.2023.

[11] See also „Grüner Energie-Imperialismus”.