Germany's €1B push into Africa

BERLIN ­— Five years ago, Europe’s “migration crisis” vaulted German policy toward Africa to the top of Chancellor Angela Merkel's development agenda. While her coalition government agreed Germany needed a development policy that would help stem the flow of people from African countries to Europe, her cabinet struggled to agree on what that policy might look like.

This year, as the government began rolling out programs under its €1 billion ($1.1 billion) Development Investment Fund for Africa, Germany's development strategy for the continent is finally coming into focus — and it looks a lot like private sector growth. Most of the fund is dedicated to easing the entrance of German businesses into African markets or helping African businesses grow.

In announcing the launch of the first of the fund’s programs in June — the €400 million "AfricaConnect" initiative, which will provide loans to German businesses looking to expand to African markets — development minister Gerd Müller explained: "The demand for good governance, a strengthening of private investment, and fair trade — these are the three pillars of the new development cooperation with African countries."

This approach had not crystallized as recently as three years ago. Ahead of the G-20 Summit in 2017 — the annual meeting of advanced and emerging economies, which was hosted that year in Hamburg — Merkel was eager to prioritize Germany's relationship with Africa, which had not previously been high on the country's development or foreign policy agenda. The prompt, it appeared, was the mass arrival of migrants and refugees to Europe, which included significant numbers from African nations.

Three German ministries offered three different policies, reflecting different approaches to engaging with the continent. While the Federal Ministry for Economic Affairs and Energy's Pro-Africa! initiative faded quickly, programs tabled by the Federal Ministry for Economic Cooperation and Development, or BMZ, and the Ministry of Finance gained traction.

BMZ's approach — the Marshall Plan with Africa — prioritized job creation and youth entrepreneurship, but also called for a rethinking of German cooperation in areas such as agriculture and the environment and a continued emphasis on anti-corruption activities.  

The Finance Ministry proposed a Compact with Africa, which set a clear objective of improving the attractiveness of private investment on the continent. It aims to coordinate a variety of actors, including international organizations, to improve the business climate in individual countries. So far 12 African nations, primarily in the north and west, have signed up.

"The Marshall Plan with Africa is certainly the most complete concept," said Arndt Hopfmann, a senior advisor on economic and trade policy for the Rosa Luxemburg Foundation. "But the Ministry of Development is traditionally in a weak position on the cabinet table. Thus, the concept never really took off." Instead, the Compact with Africa ultimately took the lead.

This was underscored by the March release of the government's Africa Policy guidelines, which looked to finally clarify its engagement with Africa. Sustainable development was among the five core objectives, alongside promoting peace and security, strengthening a rules-based global order, managing and shaping migration, and deepening civil society partnerships. The guidelines clarified that the sustainable development strategy would, "gear our cooperation with Africa even more closely to trade, private sector investment and innovation... and focus on employment and economic participation."

The introduction of AfricaConnect and the pending creation of "AfricaGrow" — which will invest €400 million in African venture capital and private equity funds to promote small- and medium-sized enterprises primarily in Compact with Africa countries — fits neatly within this strategy. Both programs emerged from a pledge Merkel made at a meeting with African leaders last October to spend €1 billion boosting private investment on the continent.

Details are still scant on AfricaGrow, which will be administered by Germany's flagship development bank, Kreditanstalt für Wiederaufbau. A BMZ spokesperson told Devex it will launch before the end of November with a focus on funding initiatives with high-growth potential and an export focus, and that there will be no prioritized industries.

AfricaConnect is much further along. It is operated by the Deutsche Investitions und Entwicklungsgesellschaft, or DEG, a development finance institution also under the broader KfW umbrella that has focused on assisting medium-sized German companies to move into the African market. Administrators will make loans to entrepreneurial investors ranging between €750,000 and €4 million for periods between three and seven years. DEG told Devex that more than 100 companies had reached out to the bank with ideas and an initial funding round will be announced before the end of the year.

Stefan Liebing, who heads the German-African Business Association, told Devex that while he did not know the individual applicants, he was aware of a surge in applications from three sectors: classic industrial investors, companies active in renewable energy and energy efficiency technology, and firms working in vocational training, including health care. "In many cases, these are accompanying existing investment or big infrastructure projects," Liebing said.

He applauded the launch of AfricaConnect and the promise of AfricaGrow but faulted the delay in delivering the third pillar of the investment fund — a €200 million "Business Network Africa," which is supposed to bundle advisory and support services for German businesses as they enter African markets. The German government has not offered a timeline on its introduction.

But as Germany's policy toward Africa has solidified, some have offered caution. Hopfmann said that if Germany wants to help support the development of private enterprise on the continent, it should focus on areas that require infrastructural upgrades that will make it easier for businesses to flourish.

Ottmar von Holtz, a Green Party politician who sits on parliament’s development committee, described efforts like AfricaGrow and AfricaConnect as "good steps. To have more European companies invest in Africa and start cooperation with African enterprises is a good thing to look at, but we also need to establish African markets."

He also worried about the lack of focus on other traditional development activities — promoting peace and stability, improving educational opportunities or pushing for gender equality — and the discounting of the context in the poorest countries, where the opportunities for small- and medium-sized enterprises are scarce, even when foreign assistance is available.

Hopfmann said the Compact with Africa, particularly, “has some clear neo-colonial threads to it.” Germany’s development money is increasingly being used to guarantee investors purchasing power parity if they move into African markets, rather than prioritizing investments that might deliver sustainable growth in those countries.

In an email, a BMZ spokesperson said that Germany was not overlooking more traditional development aid or least-developed countries, pointing to the €3.6 billion in official development assistance Germany funneled into LDCs in 2017 out of a total of around €22 billion in spending on ODA that year.

“In order to achieve lasting and inclusive development, ODA alone is not enough,” the spokesperson wrote. “All relevant stakeholders need to be brought to the table, which includes, among others, private companies.”