Germany’s SMEs discover Africa
German SMEs are discovering Africa. We look at the opportunities offered by their activities and the challenges they face.
For a long time German small and medium-sized enterprises (SMEs) found it difficult to gain access to Africa. The prevailing market conditions on the African continent are different; they require specific cross-cultural skills, legal knowledge, a considerable financial cushion – and a lot of patience and perseverance. This has often involved too much effort for SMEs.
For several years now, however, there has been positive development in German industry’s activities in Africa. Now that all (or at least most) major corporations operate on the continent, German SMEs are beginning to follow. In some cases they are simply moving in the wake of the big companies, like the automotive suppliers who have followed their customers to South Africa. Bosch and Benteler are among the better known examples. But in many other sectors, too, more and more success stories are being told involving German SMEs right across the continent. This development is partly tracking the growth of African middle classes, who are generating new market potential in the consumer goods sector – particularly for consumer durables.
The German Donauer company, for example, has made a name for itself with its D:Hybrid System Solutions, especially in Kenya and Ghana. Their products combine abundant African solar power with diesel generators. This technology reduces electricity costs by approximately 40%. Solar systems for commercial and private use are an interesting area of investment in general, and German manufacturers have a lot of technological know-how in this field.
However, German firms are also active on the African continent in the field of high-end consumer durables. One successful example is Hansgrohe, the German manufacturer of bathroom fittings. This privately owned company has operated in Africa for 20 years and meanwhile claims to be the number-one importer on the South African market. It currently hopes to expand to other emerging sub-Saharan countries, such as Tanzania, Ghana and Botswana.
Schwenk, a family-owned cement manufacturing business from Ulm, has set up a subsidiary in Namibia with an investment of 250 million euros. The investment climate is particularly favourable for German SMEs in this country, which was once a German colony. Roughly 20,000 Germans still live and work here, and the comparatively good infrastructure is also an advantage. Another building materials manufacturer with ambitions south of the Sahara is Monier, a floor-tile manufacturer that set up an operation in South Africa many years ago and now also has its sights set on Kenya and Ghana.
Herrenknecht AG from Schwanau in the Black Forest, which produces tunnel-drilling equipment, is also expanding in Africa. After the company initially focused only on South Africa, it is now targeting other countries, such as Nigeria. However, as the company’s CEO has said in an interview, the question of security has to be addressed before any project is approved in sub-Saharan Africa. Company surveys, like those conducted by the Association of German Chambers of Commerce and Industry (DIHK) on the ambitions of German businesses in Africa, regularly show the great importance attached to democracy and legal security in the target countries. After all, high security standards and a functioning legal system reduce production costs and business risks.
Conditions such as these are crucial when companies are deciding where to build manufacturing operations in Africa. So far German companies have only built production facilities to any significant extent in South Africa. Otherwise, there are individual examples like Beiersdorf’s production plant in Nairobi, with its popular Nivea brand products for the East African, specifically Kenyan market. One important consumer-goods sector in all African countries is the beverage industry, since demand is stable across all segments of the population. In this sector, the German Krones bottling company has made a name for itself as a contractor for the South African SABMiller brewery in projects in Angola, Tanzania and Mozambique.
Many German SMEs have been “at home” in Africa for decades, often since the colonial period. Examples include the Woehrmann trading firm in West Africa, Jos. Hansen from Hamburg, Achelis from Bremen, and Lahmeyer in the energy sector.
In all business enterprises in Africa, investors must adjust to the fact that competitors from China will try to thwart their plans. This happened, for example, to a Schwenk cement project in Namibia (Ohorongo Cement), which was rescued by the government there through the introduction of import protection against cheap imports. To be successful in Africa, German companies have to win over customers with their strengths – in products, know-how transfer, service, maintenance, employment and training of local staff as well as reputable business methods in general – in other words, in all the areas where Chinese companies have not been able to score well in Africa until now. ▪
Inge Hackenbroch
The author is a consultant on Africa at Germany Trade and Invest.
Overview of the most important growth markets
The new edition of the brochure “Africa im Focus 2013/14”, which is published by Germany Trade & Invest, contains analyses of the most important growth markets in Africa and profiles of countries that are attracting particular interest for international economic relations. It also presents a description of the growing African middle classes as a new market factor and an analysis of international investment flows to sub-Saharan Africa. The country profiles cover Angola, Ghana, Kenya, Nigeria and South Africa.
