The best development assistance for African countries is to intensify trade and investment relations with German and European companies, specifically in areas where the German Mittelstand (the small and medium enterprises comprising the manufacturing backbone of the German economy) have the capacity to address Africa’s economic development needs.
Currently Africa faces rather disappointing growth prospects, which raises the question: how can foreign aid positively affect African development? This was one of the issues raised in the World Economic Forum on Africa in Kigali, Rwanda, May 2016.
Innovative topics such as the future of production, digitization of manufacturing processes and the innovation potential of African entrepreneurs and universities were at the heart of the forum discussions. This reflects the change in the perception of Africa from within and from without. Adding to the change in perception is the positive trend of a growing and fairly robust middle class in Africa, which is likely to attract the attention of the European private sector.
Although development in sub-Saharan Africa over the last decade has been positive, there are still numerous impediments to growth, individually representing enormous challenges that in total seem almost insurmountable. According to the World Economic Forum on Africa the most pressing challenges lie in healthcare, shortcomings in education policy, water, sanitation and energy policy. In addition, weaknesses in infrastructure – relating to transport, energy, communications – and the financial markets were raised as concerns for Africa’s development.
These problems can be regarded as typical ‘development problems’, alleviation or even elimination of which is the responsibility of development actors. This view, however, regularly causes confusion as policy development gets muddled with charity. The aim is not to build a well or give away a generator; it comes down to supporting sustainable development. In the meantime, the development community in Germany and elsewhere should have, and widely has, recognised that development processes follow a bottom-up logic. This implies that development in Africa can only be initiated by Africans themselves – for instance through institutional reforms and educational efforts. That does not render development cooperation useless, but it puts the focus on the need for ‘ownership’ in developing countries and mutual benefits of cooperation.
Strengthen economic relations
The adjusted view of ‘development cooperation’ can make a significant contribution to the German economy, by interacting as a buyer, investor and/or seller in economic relationships with African companies and customers. It should follow that partners in developing countries see the benefit of development cooperation with relations at eye-level rather than receiving charity at a unilateral level.
Maintaining limited engagement
Commitment of German companies in Africa is still limited. Where German companies see the opportunity to expand into African markets, they rarely seize those opportunities, perhaps due to inadequate policy support. This reluctance from German companies seems to be based mainly on cultural differences and the high risk of commitment in the sometimes corruption-prone continent.
However, the German economy, in particular the German Mittelstand, is innovative and flexible. The companies can offer compelling solutions that are both economically efficient and environmentally effective. Consider the following three examples regarding Africa infrastructure:
- In energy supply, notably access to electricity, German companies are very resourceful and innovative. Demand in Africa appears to be huge, especially in sparsely populated areas. Together with African partners and target groups relatively low-cost, market-driven and decentralized solutions can be offered. Examples can be found on the website of the Africa Association; nevertheless, German companies are rarely involved in more prominent projects.
- The same applies to water supply. About forty percent of fresh water resources in Southern Africa reside in Zambia; however only five percent of it is being used. German companies have developed numerous solutions to produce drinking water, even in small quantities, for remote villages.
- Finally, the pressing issue of healthcare. Even though the markets operate in different manners German medical device manufacturers should be able to offer appropriate equipment to meet African healthcare demands. Demands are likely to require mobile diagnostic facilities. Pilot projects could shed light on the feasibility of supplying modified medical equipment to the African market.
This is just a small list of lucrative sectors in Africa, yet it still has enormous potential; just think of the population growth and the potential demographic dividend. In addition, African partners regularly call for German engagement, since they are convinced of the high quality that German Mittelstand companies have to offer. When considering the disintegrative trends in Europe, actively looking to enter these alternative markets seems a sensible course of action. However, simultaneously considering the circumstances in some African countries – corruption, inefficient administration and the like- it is understandable that companies are reluctant or at least very careful to invest in Africa.
Policy should support the business community in its efforts to enter African markets, in addition, one may think of the use of development cooperation tools. The export and investment promotion toolkit of the German government is not yet fully employed as the government is currently rethinking its strategy of this – quite well funded – arsenal. Since competitors of the German business community – from France to China – have access to a variety of policies in their home countries, repositioning the export and investment strategy is an urgent matter.
In this regard both set of actors are encouraged to act: The business community should show courage and grasp at opportunities presented in the African market, as time is not on their side. And the German government should actively and directly support companies on their way to Africa. All parties at the table stand to gain, awaiting the adjustment.
This article was originally published in Wirtschafts Woche | Freytags-Frage on 13 May 2016