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German investment in Africa stalls despite government push

December 8, 2022

Germany's potential to invest in Africa was trumpeted at the 2022 German-Africa business summit in Johannesburg. But German foreign direct investment on the continent is stagnant.

Workers open the bonnet of a new VW car to inspect it at a plant
Workers inspect a car at the plant of German automotive company VW in South AfricaImage: Michael Sheehan/dpa/picture alliance

German Economy Minister Robert Habeck opened the two-day German-Africa business summit in Johannesburg with positive words.

"The government will provide additional incentives for investment in regions like southern Africa where it wants to encourage more German investment," Habeck said on Wednesday.

Habeck noted that in 2021, German companies invested around $1.6 billion (€1.68 billion) in Africa, which was "encouraging but still far from enough."

The summit, which is held every two years in a different African country, brings together business and government leaders from Germany and Africa. It is Germany's biggest business event on the continent.

The day before the summit kicked off, Habeck had called for a "restart" and a new approach to relations between Germany, Europe and Africa. The economy minister is on a five-day trip to Namibia and South Africa.

German Economy Minister Rober Habeck sits at a desk and speaks with Ebrahim Patel, South Africa's Energy Minister. Behind them are many men wearning suits.
German Economy Minister Rober Habeck (left) and Ebrahim Patel, South Africa's Energy Minister, both want increased German investment in AfricaImage: Bernd von Jutrczenka/dpa/picture alliance

'More to be done'

South Africa's trade minister, Ebrahim Patel, stressed that a nation's development and prosperity increasingly depend on partnerships with other countries. He said he saw an opportunity to increase trade between Germany and Africa but much more needed to be done.

"There has been some progress with deepening manufacturing exports to Germany, and we can build on the successes and be more ambitious," he said at the summit.

DW correspondent Adrian Kriesch said it was promising to see so many German business leaders present in Johannesburg. Also encouraging was their interest in African nations apart from South Africa, which attracts the lion's share of Germany's direct foreign investment.

"It is good for both sides if German companies are prepared to take more risks and seize the opportunities Africa offers," he said.

Little German investment in Africa

Between 2016 and 2020, $9.7 billion flowed from Germany to Africa in foreign direct investment. This makes Germany one of the continent's biggest investors. However, compared to other European nations, it still only spent half as much as France and three-fifths as much as the UK, according to an analysis by EY consulting.

But in terms of Germany's total direct foreign investment around the globe, only around 1% ends up in Africa. Not only is this sum tiny, but it has also been at the same level for years while other countries have increased their African portfolios.

According to an analysis of data from 2005 to 2017 by Germany's  KfW investment bank, while German investment stagnated in this period, investment by French firms nearly quadrupled.

Chinese investment showed the fastest growth, expanding by a factor of 40. "Accordingly, the significance of German enterprises for African economies is shrinking," the analysis found.

German focus on South Africa

More than half of Germany's direct investment flows into South Africa, where more than 400 German companies employ some 65,000 people.

One of them is the German multinational KSB, a leading supplier of pumps and valves. The company's only African production facility is in South Africa, but it has established sales and service companies in other parts of the continent.

German companies attracted to South Africa

KSB's managing director, Peter Weber, said that firms wanting to enter the African market face a "lot of challenges," such as poor infrastructure, which makes it difficult to export products, or complicated bureaucracy, which slows the setting up of companies.

"We have done some direct investments in Angola, Nigeria, Kenya and Zambia over the last years," he told DW. "And now we have lot of experience how to do it. ... But in the beginning, it's quite challenging."

KSB's experience is backed up by a survey conducted by the Federation of German Industry (BDI). According to the survey, companies named corruption, political instability, bureaucratic hurdles and the lack of skilled workers as the main problems they face in doing business on the continent.

The average ranking of sub-Saharan nations in the World Bank's Doing Business 2020 survey was 140 among 190 countries.

Crisis pushes Germany towards Africa

But given the disruption to supply chains worldwide and the slowing of the global economy, the BDI, one of the summit organizers, said Germany needs Africa as a strategic partner.

"Africa is a 'must' for German companies in terms of greater diversification and reduction of dependencies — especially on China," the BDI said in a press statement.

The president of Germany's Federal Trade Associations (BGA), Dirk Jandura, also stressed Africa's possibilities.

"The African continent is the continent of opportunities," he told Germany's dpa press agency earlier this week. "It is developing faster and more dynamically in parts than all other world regions. ... Its importance as a reliable and long-term trading partner for Germany and Europe is growing."

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Edited by: Chrispin Mwashagha Mwakideu

Kate Hairsine Australian-born journalist and senior editor who mainly focuses on Africa.