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Raw materials in focus at German-Africa summit

Falling oil prices, empty state coffers - the raw materials boom has slowed in a number of African countries. But the continent still regards itself as a place of opportunity, and wants German investors.

In Berlin this week, Germany's black, red and gold national flag has been flying alongside the green, yellow and gold of Ghana. The West African country's president, John Dramani Mahama, is in town. His mission: to whet German companies' appetite for investment in Africa.

Mahama has come with a wealth of arguments. "You're looking for a place that's conducive to doing business - and I think Ghana offers that," he said, listing democracy, transparency, freedom of speech, a good natural resource base, and a fast-growing middle class.

Eight years ago, the Jubilee oilfield - one of the biggest on the continent - was discovered in Ghana. Investment in the infrastructure needed for oil extraction brought economic growth rates of more than ten percent.

More recently, the euphoria has diminished and the economy is expected to grow by just five percent. That's a pace of growth that far outpaces Germany's - though fast growth is easier when it's happening on a low base: Germany's economic output is about 37 times the size of Ghana's.

But as a result of falling prices for raw materials, Ghana no longer belongs to Africa's fast-rising economies. A barrel of oil costs well under 50 US dollars (45 euros) on the world market. Two years ago, the price was more than twice as high.

German Foreign Minister Frank-Walter Steinmeier addressing the summit

An address by German Foreign Minister Frank-Walter Steinmeier attracted a large crowd at the summit

Less money for roads and power grids

"The falling prices for raw materials are hitting many African countries hard. This leads to budgets no longer being balanced, and less money being available for investment in infrastructure. German businesses are also becoming aware of this," said Matthias Wachter who heads the department of security and raw materials at the Federation of German Industries (BDI).

The BDI is a member of the German business sector's initiative for sub-Saharan Africa, SAFRI. Its goal is to boost business with Africa.

Ghana has only been a member of the club of oil-exporting nations for five years. But that short time was enough to make it dependent on income from the oil business. In 2014, almost 940 million dollars flowed into state coffers, and the government's draft budgets were based on the assumption that this flow would continue.

The falling oil market prices have led to Ghana's finance planning collapsing like a house of cards. The effects can already be seen: Ghana's currency, the cedi, has plummeted in value. National debt has risen to 67 percent of the country's gross domestic product. The World Bank has warned that dependence on raw material exports is one of the main risk factors for Ghana's development.

"Africa has much to offer," says Chiara-Felicitas Otto, who works for the financial advisory company Exficon in Ghana. Customers include a wide variety of German corporations, including technology companies, automobile makers and mining companies. She says uncertainty about currency fluctuations and raw material prices "doesn't make it any easier."

Ghana's President John Dramani Mahama

Ghana's President Mahama was in Berlin to boost investment in Africa

In 2013 the Ghanaian government created an infrastructure fund into which oil and gas income was meant to flow. "Now that the oil price has fallen so low, the money going into this fund is, of course, much less than originally envisaged," Otto says. That means less money for roads, power grids or public transport.

Renewable energy rather than oil

Nigeria, the largest oil producer in sub-Saharan Africa, has been hit even harder. The government finances 70 percent of its budget with money from oil exports. The country failed to look for other sources of income - petrodollars were considered by many to be a blessing that would continue forever.

Now it's time to pay for that mistake. The Nigerian newspaper This Day has calculated that the fall in oil prices cost the government in Abuja almost 12 billion US dollars in the first half of 2014. Since then, the price has fallen further.

"These countries need to think how they can diversify their economies," says Matthias Wachter. In other words, how they can become less dependent on raw materials and develop new industries and business sectors.

"Here, there are big chances for German companies, as we have know-how in many areas, such as renewable energy, medical techology, infrastructure."

But the figures so far tell a different story. Germany does just 1.2 percent of its foreign trade with sub-Saharan Africa, according to the economics ministry. That's about as much as with Slovakia in Central Europe.

Less than one percent of Germany's direct investments worldwide flow to Africa. Of Germany's 500,000 businesses, about 1,000 do business with Africa. Fear remains strong - fear of political instability, corruption, administrative chaos.

Raw materials in the fields

Eckard Dauck is a German businessman who has not shied away from doing business with Africa. He also deals in a raw material - but in a sustainable one. With his company Strawtec, he specializes in building wall systems with a core made of grain straw.

In Rwanda he is now involved in social housing projects. He originally wanted to start in Ethiopia, but Prime Minister Meles Zenawi died unexpectedly in 2012.

Richard Sezibera talking to former German president Horst Köhler at the summit

Richard Sezibera (right) of the EAC talking to former German president Horst Köhler

Dauck considered the risks to be too high and looked for alternatives.

In Rwanda he found a secure investment climate and little corruption "and since Rwanda is in the East African Community (EAC), we also had access to a much larger market." Dauck invested ten million dollars and now also does business in Ethiopia and Nigeria. He says he has taught 1,500 farmers how to harvest, bale and store straw.

Six of the world's ten fastest-growing economies African. Some are growing fast without relying on raw materials as their economic base.

New opportunities

"Our growth is not based on raw materials, not on oil or minerals," says Richard Sezibera, EAC general secretary. Instead it is based on "tourism, ICT, energy and technology and that's what makes our region so exciting."

Ghana's President Mahama also no longer wants to rely on oil, gold or cocoa. "We want to rebuild our energy sector," he says. The new focus would be on renewable energy sources. "We have 12 months of sunshine in Africa," he said. "If we could export sunlight, we would be the richest continent in this world."

With German technologies like power-to-gas, that just might become possible.

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