The German-African economic relations
Africa is regarded as a continent of great opportunity, yet German business is still often hesitant to act. That could change soon. We present ten facts which you should know.
1. Strength in numbers
In the World Bank’s Ease of Doing Business index, Mauritius – the best African country – ranks 49th, while Rwanda – the second-best – ranks 56th. Germany is 17th on the list. In the past, German companies were often left to their own devices in Africa, but now representatives of business, chambers of commerce and governments are joining forces. To this end, the German African Business Summit will be held in Kenya from 8 to 10 February 2017. Around 400 business and political representatives are expected to attend with a view to getting to know new markets, finding business partners and discussing opportunities and risks.
2. Continent of great opportunity
By 2050, Africa’s population is expected to more than double to 2.1 billion. Companies believe this will give rise to new market opportunities, especially since a middle class is emerging for the first time in some countries. Providers of renewable energies envisage great potential: two thirds of Africans still have no electricity, yet there is no shortage of sun or wind. There is also a need for modernisation in the healthcare sector, in environmental technology, in infrastructure and in agriculture. Despite covering large territories and having fertile soils, many countries are net importers of food. Widespread mobile phone usage – 386 million people had a contract in 2015 – is giving all kinds of companies access to customer groups that were almost impossible to reach in the past. For many, however, Africa is a continent not only of great opportunity, but also of risk. German companies are often concerned about political stability despite an increasing number of democratic elections, and about planning reliability and protection of private property. Business is frequently hampered by the arbitrariness of official authorities.
3. Investment protection and tax agreements
To protect investors, Germany has signed investment protection treaties with five countries: Nigeria, Ghana, Ivory Coast, Kenya and Angola. South Africa unexpectedly terminated its treaty in 2013. It is to be replaced by a national investment protection law. Among other things, this means that investors can no longer take their disputes to international courts. Dual taxation agreements exist with Ghana, Ivory Coast, Kenya and South Africa. Negotiations for a business partnership agreement with the EU have been ongoing for many years, but not all countries have signed as yet.
4. Automotive industry leads the way
Germany’s automotive manufacturers are among the pioneers in Africa. The first car came to South Africa in 1896: the Benz Velo motor car patented by Carl Benz. Cars have been produced in the Cape since the 1940s and 1950s. Volkswagen opened a plant employing 320 people in 1949, Daimler-Benz following in the 1950s. The BMW factory near Pretoria was the Munich-based manufacturer’s first production facility abroad. Thanks to subsidies, South Africa remains an important production site in emerging economies to this day. Countries like Nigeria and Kenya are keen to follow this example. Production is primarily destined for export to countries such as the USA, which facilitates trade with sub-Saharan Africa under the AGOA programme. When Nelson Mandela was released in 1990 after spending 27 years in prison, workers at the Mercedes Benz plant in East London specially built a red S Class for their national hero.
5. Outside South Africa
German companies long concentrated only on South Africa, but this is changing. Over the past eight years, the Association of German Chambers of Commerce and Industry (DIHK) has opened no fewer than five new branch offices. Apart from South Africa, top investment destinations currently include Nigeria, Ghana, Angola, Tanzania and Mozambique. Volkswagen recently returned to Kenya. BASF has branches not only in South Africa, but also in Kenya, Nigeria and Morocco. Rwanda, Zambia and Ivory Coast are also attracting growing interest. Despite political problems, Ethiopia may soon overtake Kenya as the most important market in East Africa.
6. Mutual benefit
Alongside their primary business, German companies are also involved in numerous initiatives aimed at supporting the African economy and combating poverty. Germany’s Mechanical Engineering Industry Association (VDMA) has founded the “Skilled Workers for Africa” initiative in Botswana, Kenya and Nigeria. Germany’s successful dual vocational training model is also to serve as an example in Africa. At the same time, Germans benefit from collaboration with local partners, who enable them to access new markets. Local shareholders are essential in some countries.
7. Potential for expanding trade
Goods worth a total of 25.6 billion euros were exchanged between Germany and Southern Africa in 2015. This equates to 1.2 percent of Germany’s entire foreign trade. The exchange of goods suffered considerably in the first half of 2016 due to the fall in commodity prices, with the crisis in Nigeria having a particular impact. Germany especially imports metal ore from sub-Saharan Africa, while vehicles, vehicle parts, machines, chemical products and electrical equipment are exported from Germany to Africa.
8. German-made products in demand, but expensive
Germany ranks fifth in the list of top five supplier countries to sub-Saharan Africa, behind China, South Africa, India and the USA. Exports are concentrated particularly on South Africa and Nigeria, with more than two thirds of products being exported there. Although German-made products are highly regarded, they are often unable to compete with their Asian competitors in terms of price. As a sales market for African products, Germany lags behind India, China, the Netherlands, the USA and Spain.
9. Active manufacturing sector
Companies in the manufacturing sector are the most active investors in sub-Saharan Africa, followed by financial service providers and insurance companies.
Generally speaking, however, German companies exercise comparative restraint when it comes to investing in Africa. In 2014, the German economy made direct investments of nearly a trillion euros in the world as a whole, yet only seven billion euros of this was channelled into Africa – less than one percent. Direct investment is concentrated in South Africa to an even greater extent than trade. According to the Association of German Chambers of Commerce and Industry (DIHK), 614 German companies are represented in sub-Saharan Africa, and 411 in South Africa. These include the leading DAX companies such as Siemens, Bayer and car manufacturers.
10. African business in Germany
African companies are also active in Germany, especially major firms from South Africa. Steinhoff, a furniture company originally founded by a German, has been listed on the Frankfurt Stock Exchange for more than a year, for instance. Among others, the Poco furniture stores are part of its wide-ranging business empire. The petrochemicals company Sasol, the paper manufacturer Sappi and generics manufacturer Aspen produce at various sites in Germany. Family-owned businesses are less common: one exception is the construction machinery manufacturer Bell Equipment that has been building dump trucks for the European market in Eisenach since 2003. With its nearly 100 employees, the company achieves sales of 100 million euros in Germany and recently opened a new headquarters in the town of Alsfeld in Hesse.