Macroeconomic reforms to boost Africa-Germany trade relations.
- Africa’s investment is a drop in the bucket of US$30-50 billion needed per year by 2030
- Africa’s resource potential has spurred political engagement by several European countries, most notably GermanyGermany imports metal ore from sub-Saharan
- Africa, while vehicles, vehicle parts, machines, chemical products, and electrical equipment are exported from Germany to Africa
Wide-ranging macroeconomic reforms have improved competitiveness and boosted African economies, thus playing a substantial role in the global market.
According to International Monetary Fund (IMF), Africa’s investment is a drop in the bucket of $30-50 billion needed per year by 2030.
The continent launched the African Continental Free Trade Area (AfCFTA) in 2021. Elevated commodity prices, a recovery in global trade, and the easing of stringent pandemic measures and low rates of vaccination signal a trajectory of slow economic recovery and bodes well for corporate revenue and share price among African energy, metals, materials, and food producers.
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According to Chatham House, the digital transformation of African goods and services and supply chains will also continue in 2022. Africa’s resource potential has spurred political engagement by several European countries, most notably Germany.
Germany imports metal ore from sub-Saharan Africa, while vehicles, vehicle parts, machines, chemical products, and electrical equipment are exported from Germany to Africa.
According to Deutschland, Germany ranks fifth in the list of top five supplier countries to sub-Saharan Africa, behind China, South Africa, India, and the USA. Although German-made products are often unable to compete with their Asian competitors in terms of price. Germany lags behind India, China, the Netherlands, the USA, and Spain.
German companies used to exercise comparative restraint when investing in Africa. In 2014, the German economy made direct investments of nearly a trillion euros globally, yet only seven billion euros in Africa. Comparatively, less than one per cent. 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.
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Climate Home News said Germany’s new government has an opportunity to design, implement, and lead a different kind of engagement with African countries. They also argued that piecemeal approaches are no longer enough.
Investment protection and tax agreements
According to European Commission, African and European representatives of the private and public sectors concluded major deals to support Africa’s sustainable growth and create decent jobs at the 7th EU-Africa Business Forum (EABF). The Forum took place on 16-17 February in a hybrid format, as part of the Africa-Europe Week and in the margins of the African Union-European Union Summit. Financial institutions, business organizations, and other actors signed or announced more than 20 agreements to support areas like health, agriculture, clean energy, youth and entrepreneurship, digital, automotive, and others to improve bilateral cooperation.
European Commissioner for International Partnerships Jutta Urpilainen said: “I am pleased to see the EU-Africa Business Forum yields tangible trade and investment results. These commitments will benefit businesses and people on both continents. We will only achieve our common goal of a strong, inclusive, green, and digital recovery by joining forces with our partner organizations and the private sector. Supporting young entrepreneurs is particularly close to my heart. Youth’s energy and creativity are crucial to Africa’s booming economy.”
The Commission added that stakeholders made the biggest commitments in health, totaling 312 million pounds. One of two partnerships of particular importance was signed by Afreximbank with German development bank KFW, to develop local production capacities for vaccines and medical products and strengthen African countries’ response to the pandemic totalling an overall 250 million pounds.
Prof. Benedict Oramah, President of Afreximbank, commented: “Our relationship with the German Development Bank (KFW) and the Federal Ministry for Economic Cooperation and Development (BMZ) has been extremely productive over the years. We are delighted to have expanded and deepened it with this loan. Afreximbank has worked tirelessly to support member states as they work to collectively attain the African Union’s goal of vaccinating at least 70% of the continent’s population by the end of 2022. Today’s announcement serves as a validation of the Bank’s Covid-19 response strategy and its extension to develop pharmaceutical capacity in Africa.”
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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. Dual taxation agreements exist with Ghana, Ivory Coast, Kenya, and South Africa.
According to Deutschland, 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 not less than five new branch offices. Apart from South Africa, top investment destinations include Nigeria, Ghana, Angola, Tanzania, and Mozambique.
Alongside their primary business, German companies are also involved in numerous initiatives to support the African economy and combat 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 serves 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.
To strengthen their cross-continental network and promote a value and interest-based exchange, Konrad-Adenauer-Stiftung (KAS) and the Hanns-Seidel-Stiftung (HSS) supported by the Africa CDU/CSU group in the German Bundestag, held a conference in May 2022.
In an article published on February 10, 2022, Climate Home News said Germany should strategically partner with African countries in creating big, well-designed, whole economy solutions. The Just Energy Transition Partnership with South Africa, announced during COP26 in Glasgow last year, was worth $8.5 billion over five years, which is a start. However, similar to the South African partnership, solutions must be based on African countries’ priorities.
They added that the International Climate Initiative, a German funding vehicle that supports the achievement of the Paris Agreement goals, can be deployed to develop such strategic partnerships and whole economy solutions.
The entire continent of Africa, home to more than 1.2 billion people, has contributed a mere 2.73% of global cumulative emissions. Germany, with less than 85 million inhabitants, has contributed 4%.
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Trade record between Germany and South Africa
According to statistics by OEC World, in November 2021 Germany exported 530 million pounds and imported 831 million pounds from South Africa, resulting in a negative trade balance of 301 million pounds. Between November 2020 and November 2021, the exports of Germany increased by 7.82 per cent from 491 million pounds to 530 million pounds, while imports decreased by 22.9 per cent from 1.08 billion pounds to 831 million pounds.
Further, the top exports of Germany to South Africa were motor car parts, other prefabricated chemicals, Motor cars, and motor caravans, Pharmaceutical products, and machinery for electricity generation and distribution. The top imports of Germany from South Africa for the same period were Motor cars and motor caravans, other ores and ashes of metals, other end products, other semi-finished products, and other machinery.
In November 2021, the increase in Germany’s year-by-year exports to South Africa was primarily due to increasing product exports in other semi-finished products, Pharmaceutical products, and Aircraft.
