Two years of "Compact with Africa": What are the results?

German Chancellor Angela Merkel © BDI

In 2018, the German Chancellor Angela Merkel promised one billion Euros for companies investing in Africa. A lot has happened since then: The Development Investment Fund provides 800 million euros for German and African companies. The Ministry of Economic Affairs is expanding foreign trade promotion for companies doing business in Africa. But there is still room for improvement.

Lighthouse projects in Africa

At the G20 Investment Summit of the Sub-Saharan Initiative of German Business (SAFRI) and the German African Business Association, which is taking place for the second time, companies will present their largest investment and training projects in Africa. In the presence of ten African heads of government as well as high-ranking delegations from the "Compact with Africa" (CwA) partner countries and German Chancellor Angela Merkel, lighthouse projects will be presented. These include, for example, a chocolate factory planned by the start-up company Fairafrique in Ghana. The company is particularly distinguished by the high prices of 80 cents per bar of chocolate that it pays its Ghanaian partners - more than three times as much as usual on the market.

Major projects such as the VW plant in Rwanda or the new production facility of the automotive supplier Dräxlmeyer in Tunisia are also among the success stories of German companies in Africa.

Potential for investments not exhausted

So far, the net direct investments of German companies in Africa amount to only about nine billion euros. SAFRI Chairman Heinz Walter Große says: "We have to do more. Our African friends keep telling me that they are hoping for more from the German economy in particular - especially against the background of China's increasing involvement in Africa.

To this end, the German government must continue to expand its support for German companies. "More private investment is the key to sustainable economic development in Africa. However, African markets are in particular associated with political risks. The German government can support companies in reducing these hurdles", explains Stefan Mair, member of the BDI's Executive Board.

In the past two years, the German government has launched several initiatives such as "Compact with Africa" or the "Marshall Plan" to promote investments in Africa. However, "only about 1.5 percent of the funds of the Federal Ministry for Economic Cooperation and Development are actually spent on cooperation with industry", says Mair. "There is still plenty of room for improvement here."

Challenges for investors in Africa

The choice of the CwA countries is not ideal for the companies: The large and dynamic markets of the continent such as South Africa, Kenya or Nigeria have not been considered so far. In addition, the project seems to be more of a G7 initiative: only Germany, France, Great Britain, Japan, Canada, the Netherlands (as a non-member of the G7) and the USA are involved. China, for example, has its own Africa policy and has no interest in participating in the CwA process.

The commitment of the African partners could also be bigger. According to a report by Rob Floyd, Kapil Kapoor and Laura Sennett, 101 commitments had already been made by March 2019 by nine participating African economies, of which 43 percent related to macroeconomic stability, 37 percent to companies and 21 percent to financial conditions. While 33 percent and 22 percent of macroeconomic and business environment commitments were met, only five percent of financial environment commitments were met. While there has been some progress in the reform process in the CwA countries, further steps need to be taken to attract long-term investment.

Background: G20 investment summit 

The CwA was initiated two years ago under the German G20 Presidency. So far, twelve countries have joined the CwA to initiate far-reaching reforms to facilitate investment: Benin, Burkina Faso, Côte d'Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia. In return, the governments of the G20 countries have committed themselves to supporting the countries in their search for investors.

The BDI supports the paradigm shift from traditional development cooperation to sustainable investment promotion. It is one of the organizations constituting SAFRI which organized the G20 Investment Summit together with the Afrika-Verein der deutschen Wirtschaft. The Investment Summit brings German investors together with representatives of the governments of the CwA countries to promote cooperation. In this way, long-term jobs and prospects can be created in Africa.