On Niebel’s Autobahn to Africa, potholes

When Germany’s current development minister, Dirk Niebel, assumed leadership of the Federal Ministry for Economic Cooperation and Development in late 2009, the development community in Germany and beyond braced for a shock. After all, during the election campaign, Niebel, a member of the outspokenly pro-business Free Democrat Party, had said that the prestigious ministry with a €6 billion ($7.94 billion) budget should be abolished. Germany is Europe’s biggest aid donor, if you count debt relief, second worldwide only to the United States. His rationale reflected his party’s free-market philosophy in a nutshell: Handouts paid for by German taxpayers don’t help anyone, not the struggling poor in the developing world and certainly not Germany’s overtaxed citizenry. But two-and-a-half years later, BMZ is still standing and Niebel has even won plaudits for streamlining the ministry’s implementation agencies. Yet, at the same time, his tenure has marked an emphatic shift in the ministry’s orientation, making its priority the engagement of German businesses in the developing and emerging world: as investors in the overseas private sector and as partners in BMZ co-financed development projects. Germany’s sharpened focus on private sector engagement is in line with a broader trend among donors such as the United States, United Kingdom, Japan and the European Union. In a world where public-private partnerships are on the rise, the case of Germany could be a cautionary tale: PPPs are no silver bullet, and traditional aid will likely remain the norm. This is a case study in how times of fiscal austerity have led one aid agency to embrace more business-oriented, “sustainable” delivery models like PPPs. But the question remains: Is this reform more a sign of the political times than a fundamental shift in development thinking? Economic cooperation, according to Niebel and many of his colleagues, is the key to sustainable development around the globe. “Aid is a word I don’t like,” Niebel has said. “We’re involving German businesses closely in our efforts because they have valuable know-how to offer,” he said last year, expressing BMZ’s mantra since he took it over. “Everyone benefits: People in our developing partner countries have the opportunity to improve their incomes and level of development, German businesses get access to commodities and new markets, and the burden on the German taxpayer is reduced. We want to realize such multiple-win situations on the broadest basis possible.” The engagement of the private sector in development is not new to the ministry. But the intensity with which Niebel and his deputies push it, and the new structures and policies that support it, definitely reflect his signature. Critics claim that Niebel has turned the office into a lobby for German traders and, perhaps even more indicting, that the policy shift has yet to yield the promised results, either in Germany or on-the-ground in developing nations. This shift has had significant implications for the German – and the wider – development community. It began with the consolidation of three German aid institutions, including BMZ’s main implementing agency, GTZ, into one organization now called the German Society for International Cooperation, or GIZ. It was a feat many politicians before Niebel had tried and failed to accomplish. Beyond that, new structures have been devised to facilitate private sector engagement, including special offices at BMZ, GIZ as well as in other agencies, such as the Cologne-based investment bank DEG. In addition, service centers, hotlines, road shows, investment “scouts” and new pots of financing have all been created to lure businessmen large and small to venture into emerging markets in Africa, Asia, South America and elsewhere. And, at first glance, there appear to be some successes, even though there has been no internal or external evaluation of the new policies. One plaudit: The number of public-private partnerships, a ministry priority, doubled from 2008 to 2010, from 73 to 151. And BMZ regularly touts the success stories of recent German investments and partnerships as best practices for future work. Niebel’s EZ-Scouts BMZ’s outreach to the businesses community has a distinctly new tone. “Before [2009], the ministry would say, please invest, as it’s a good thing for these countries. But now we say, invest because it’s a good thing for your business – and by the way, it will create jobs and tax revenue for those countries,” explains Hans-Peter Baur, BMZ’s chief private sector liaison. “Smaller firms in particular don’t have the means for philanthropy. They invest to make a profit and grow.” The ministry is concentrating on small and medium-sized enterprises in a way previous administrations never dared. BMZ now regularly approaches German SMEs about investing in emerging private sectors and in PPPs. Part of the government’s new tool box is smaller-scale loans – 2 million to 5 million euros each – that modestly sized businesses can handle. “This-size firm would never have gotten involved before because the loans were too big and the risk was just too high,” explains Baur before reiterating the new BMZ rallying cry: “What we’re doing is bringing international development to Germany’s Mittelstand” – a reference to the country’s middle class and mid-size businesses. BMZ, for example, now funds up to 50 percent of feasibility studies, and it helps cover overhead costs, transaction costs, and on-the-ground assistance from BMZ development professionals. Never before has the helping hand of BMZ been so open and generous to medium-sized businesses, though not to the exclusion of larger companies. BMZ’s outreach has two faces: “EZ-Scouts” in the field, and traveling BMZ road shows. There are currently 14 (and soon to be 20) investment scouts across Germany who work hand-in-hand with regional chambers of commerce and other government-sponsored industrial associations. Since January this year, the 37-year-old Almuth Dörre, for example, has been working at the Foreign Trade Center Bavaria, an initiative of the chambers of crafts as well as commerce and industry. Dörre, based in Nuremberg, has experience in the private sector and in international development assistance, with GIZ’s private sector development program in Kosovo. She is the contact person for Bavaria’s entrepreneurs who might be interested in cooperating with BMZ. Dörre hasn’t yet lured any Bavarian businesses into the development field, but she says she’s “impressed by the outpouring of interest.” “We’re trying to dismantle the biases against investing in these kinds of countries,” she says. “Smaller businesses are interested but they’re wary, too.” A good chunk of her work week, she says, is out in the field, visiting potential investors. The road shows, like one in Munich in March, have attracted as many as 160 interested parties. These functions are essentially panel discussions introduced by a short speech by either Niebel or one of his deputies explaining BMZ’s new philosophy and its investment and PPP tools. Then follow shorter statements from a GIZ representative or DEG financing expert, and testimonials from German businessmen who have invested in developing and emerging markets. In Munich, two businesses presented best practices: a mining and environmental technology firm investing in Jordan, and an electronics company involved in western Africa. The audience was encouraged to ask questions and engage the panelists in discussion. BMZ personnel stressed opportunities in Africa, especially in countries like Ghana, Rwanda and Botswana, where newly liberalized markets have become particularly investment-friendly. In terms of PPPs, the ministry’s flagship program is called develoPPP, which is being energetically pushed at all levels of BMZ. Launched 13 years ago to promote cooperation between business and development agencies, its logic is right up the Niebel-led BMZ’s alley: Development partnerships combine the innovative power of business with the resources, knowledge and experience of development work. BMZ has implemented more than 3,000 such PPPs in 70 developing countries since 1999. PPPs get off the ground through regular “ideas competitions.” German and European companies submit proposals for projects on energy and climate protection, raw materials and rural development, vocational training and education, and other challenges. The chosen company finances the project and ensures its sustainability: at least ten employees, three years on the market, minimum 1 million euros in turnover. BMZ’s implementing partners, like GIZ, advise the companies, provide support in process management, arrange contacts on the ground, and negotiate contracts. The company then assumes responsibility for realizing the project within three years; after that it is owned and run by the company alone as a private enterprise. Projects completed in recent years range from solar energy farms in Madagascar to training centers for Serb auto mechanics. In 2010, the public sector, namely BMZ, contributed 42.5 million euros to develoPPP partnerships and the private sector invested 52.6 million euros. It was nearly double the total amount invested jointly in PPPs the previous year. In other words, there was more private sector money than ever before – but also more BMZ cash to attract it. No silver bullet So, have Germany’s pro-market, “anti-aid” minister and like-minded investors around the globe located the silver bullet to bringing sustainable prosperity and better life quality to the developing world? From the German perspective, it’s still too early to tell, since no internal or external evaluations of private sector investments or PPPs have been conducted since late 2009. But interviews on and off the record with ministry officials, development experts, NGO representatives and aid workers in the field present a mixed scorecard. In terms of German private sector investments, it is not the case that SME owners are flocking to the world’s most dire corners to set up businesses. “There’s a lot going on in terms of raising awareness,” says Cornelius Thor, DEG’s director of the German businesses unit. As for concrete investments, for example in Africa, he’s optimistic that “it’s starting now.” Bente Scheller, currently head of the Heinrich Böll Foundation’s Middle East office in Beirut, recently returned from Afghanistan, where she had worked for the German foundation in the field for three years. “This kind of policy doesn’t get you very far in Afghanistan,” she says, “because there is no private sector in large parts of the country.” Also, in Afghanistan, BMZ implemented development projects mostly in the territories where the German military, the Bundeswehr, was stationed, not in the rest of the country. Moreover, a closer look at some of BMZ’s success stories reveal the difficulties that lurk beneath the enthusiastic rhetoric. One of the stories BMZ touts most highly – and regularly – is of a German cement maker’s investment in a factory in Namibia. The Ohorongo facility, Africa’s most modern cement plant, was built with 250 million euros in seed funding from the Bavarian firm Schwenk Group (40 percent of the project’s total capital), plus support from DEG and the Development Bank of Southern Africa. The Ohorongo plant was supposed to provide more than 300 direct jobs and indirect employment for more than 2,000 people in the Tsumeb area, a rural district. A third of the factory’s energy demand is fueled by local bush, giving it an environmental wrinkle, too. But for all the hype, the Ohorongo plant has got off to a tough start. For one, imported Chinese cement has flooded the African market, causing the plant to reduce production. Gerhard Hirth, Schwenk’s chief executive, says: “It is impossible to compensate for such a difference simply by selling more. We invested 250 million euros and were suddenly confronted with Chinese dumping prices.” Moreover, the border to Angola has been sealed because of political turbulence there, thus shutting off exports to much of the African market. Obstacles like these are not mentioned in BMZ’s public presentations. Another project, a biogas factory in India’s Punjab region, was showcased at the front of BMZ’s 2009 annual report. Yet, three years later, it is still not in operation, held up by issues surrounding the pricing of biogas in India. In fact, unsurprisingly, it appears that the countries in which German businesses elect to invest are not necessarily those that are worst off. DEG figures show that the highest share of new investment in 2011 was in India, followed by Turkey and China. In 2010, the top three were Brazil, China and India. None of these countries are listed by the International Monetary Fund as developing nations, although they are the home of a large and growing number of poor people. In both years, 19 percent of DEG financing went into projects in Africa. “It’s true that the majority of German companies focus on the more secure markets,” explains the DEG’s Thor. “We can’t force anyone to invest in Ethiopia because politicians want it. But, just as certain is that if all we used was soft funding without a market mechanism, then the projects wouldn’t be sustainable. When the funds dry up, the project disappears. The best we can do is to optimize the financing structure to make it easier to invest in sustainable projects in problem countries.” More broadly, there may be a limit to how much government can engage business in development cooperation through PPPs. The Organization for Economic Cooperation and Development, whose Development Assistance Committee functions as an ODA scorekeeper of sorts, stipulates that financial cooperation projects require competitive international bidding; German companies already win a large share. Technical cooperation projects involve only in-kind contributions, such as the support of GIZ personnel. Only special PPP funds involve some financing for corporate partners. Reform with staying power? The ministry’s emphasis on the entrepreneurial sector has its roots in Niebel’s party’s free-market ideology, and has been deepened since 2009 by an extremely controversial personnel policy at BMZ. To the consternation of long-time BMZ professionals, external experts and even members of the Free Democrats’ senior coalition partner, the Christian Democrats, Niebel has promoted party members into senior positions, often bypassing established BMZ veterans. FDP staffers push the Niebel line with vigor, often riding roughshod over established aid and development practice. This favoritism – and the pro-business stance – has only been accelerated as the Free Democrats’ political fortunes dimmed; the party has suffered badly in opinion polls and regional elections since coming to power. Development is one field where it has faithfully represented its constituency’s interests and turned classic liberalism into practice on the ground – and turned Germany into somewhat of a laboratory for other donors interested in pursuing similar policies. “This FDP team has turned the BMZ into a vehicle to promote German business, to create German jobs,” says Ute Koczy, a parliamentarian of the Greens and development expert. “The private sector’s engagement is a tool that we can and should use, but it shouldn’t be the only one. We have to be realistic about what German business can and can’t do in the development field. Development isn’t just measured by GDP anymore.” In the same vein, journalist Gordon Repinski, who writes about development for the daily Die Tageszeitung, says, “These policies are good for the economy, both ours and theirs, but is this really the job that the BMZ is supposed to do? We already have a very powerful ministry for economic issues and trade.” In the field, practitioners like Peter Lanzet, the Protestant Development Agency’s senior policy adviser on development finance, says the extremely favorable conditions for German investment created by BMZ tends to skew the logic of the market in the field. “Private sector actors in developing countries tend to get crowded out by publicly funded German firms,” he says. “Local companies aren’t subsidized in this way.” If Niebel and his staff really wanted to help in Africa and elsewhere, he says, they should stop capital flight by doing away with banking secrecy. But this is taboo in the pro-business party. How long-lasting Germany’s newfound focus of PPPs will be may be determined by the next general elections in 2013, when Niebel’s party is expected to lose votes and perhaps even drop out of the CDU/CSU-led governing coalition led by Chancellor Angela Merkel. Until then, the promotion of party loyalists continues. Earlier this year, a scandal-damaged FDP mayor of a small town in western Germany was named as head of Engagement Global, a BMZ partner in Bonn. German media report that Niebel plans to create an additional 182 posts this year alone in the very ministry he originally swore to abolish altogether. Germany’s official development assistance rose in 2012 by 164 million euros to total 6.4 billion euros. “Dirk Niebel sees the writing on the wall,” wrote the Frankfurter Rundschau’s Timot Szent-Ivanyi in an analysis earlier this year. “So now it’s all about stocking the ministry for the future: New departments are being created and party friends brought into office that his successor won’t be able to get rid of so easily.” Julia Steets, a development analyst at the Berlin-based Global Public Policy Institute, says there is considerable resistance at BMZ to the Niebel policies, which she believes won’t stand the test of time. “Everybody knows that the FDP will be out of power in 2013,” she says. “There will most likely be a return to a development policy where the promotion of German business interests are not quite that key.” In the long run, Steets says, the biggest loss may be “Germany’s credibility in the broader aid and development community.” That outlook may be a bit pessimistic. But as other donors continue to beef up their private sector engagement, Germany’s case may serve as a cautionary tale. Read more: - In sweeping aid reform, merged German agency becomes operational - German development aid: What you need to know - German aid reform: What’s next?