Germany is turning its attention to Africa as a continent of untapped opportunities, with Economy Minister Robert Habeck visiting Kenya to kick off the German African Business Summit (GABS).
The two-day event, Germany’s largest business gathering focused on Africa, will bring together business leaders and government officials to explore mutual economic opportunities.
This year’s summit highlights Africa’s potential in green energy, IT, and infrastructure — sectors pivotal for Germany’s economic diversification goals.
Despite Africa’s potential, perceptions of instability and high risk still deter many German investors, particularly small and medium-sized enterprises (SMEs).
“The perspective on Africa is one of exaggerated political, policy, and economic risks: politically unstable, corrupt, weak infrastructure, bureaucratic hurdles, and high-risk environment.”
Serwah Prempeh fellow at the Africa Policy Research Institute (APRI).
This caution is reflected in Germany’s modest foreign direct investment (FDI) in Africa. In 2022, Germany ranked ninth among Africa’s top investor nations, with $13 billion in investments — just $2 billion more than in 2018.
Comparatively, China and other emerging economies have taken a more aggressive approach, rapidly expanding their influence across the continent.
Germany has made notable attempts to encourage investment in Africa, including initiatives like the 2017 G20 Compact with Africa, aimed at driving private-sector engagement. However, these efforts have yet to yield significant outcomes.
Former Chancellor Angela Merkel acknowledged the challenges of engaging German businesses in Africa in her autobiography, Freedom. Memories 1954-2021. “Most of them saw few opportunities for themselves on the African markets,” she wrote, highlighting a persistent lack of enthusiasm among executives.
Current Chancellor Olaf Scholz is taking a more proactive stance. During a 2023 visit to Kenya’s Olkaria geothermal power plant, Scholz announced a €45 million loan to support its expansion. By the end of the decade, the facility’s capacity is expected to double, reflecting Germany’s growing interest in renewable energy partnerships.
Competing With Emerging Economies
Kenyan economist James Shikwati noted that Germany faces stiff competition in Africa from countries like China and Turkey, whose investment strategies are often more aggressive.
He also suggested that German investors need to adopt a more collaborative mindset. “When it comes to Africa, Germans often come with a mindset of how things should work,” Shikwati said. “They should step back and create possibilities to co-create with Kenyan and African counterparts.“
Africa’s economic volatility, exacerbated by the COVID-19 pandemic and regional conflicts, has heightened perceived risks. However, Christoph Kannengiesser, CEO of the German African Business Association, argues that such fears are overblown. “Africa does not share many of the global risks and supply chains to the same extent and is objectively no more risky than other regions of the world,” Kannengiesser said.
He criticized rating agencies and the Organisation for Economic Co-operation and Development (OECD) for perpetuating a defensive perception of Africa, making it costlier for companies to secure capital for investments on the continent.
Kannengiesser also highlighted the growing recognition among businesses of the need to diversify and reduce dependencies on traditional markets, particularly China. “Africa offers incredible potential for businesses looking to diversify and future-proof their models,” he noted.
Despite challenges, Africa holds immense promise for investors willing to look beyond traditional markets. Its burgeoning green energy sector, coupled with untapped opportunities in IT and infrastructure, makes it an attractive destination for German companies.
However, experts warn that mitigating risks through strategic partnerships and financial safeguards will be critical. As Habeck’s visit underscores, the key lies in fostering collaborations that are both equitable and innovative, allowing African and German stakeholders to co-create sustainable solutions.
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