A new basis for the cooperation with Africa

Seldom is the African market discussed in terms of an opportunity for international cooperation. As long as Europe and the USA subsidise their agriculture, African farmers have no place within the European markets. A stable middle class struggles to develop in consequence. Germany and Europe could help trigger a turnaround if processes of endogenous development were supported by economic measures and technological and research collaborations.

 

„The missing middle“

It would be good to introduce a little more economics into the debate around the cooperation with Africa. Only those who produce on an industrial scale can also create jobs; only those who create a modern agriculture linked to the food industry can kick-start the necessary endogenous dynamic. This is the first point to note.

A second aspect is also of relevance. Many analyses demonstrate that large and medium-sized formal enterprises are the exception rather than the rule in Africa. A mid-tier sector is virtually non-existent, which is why „the missing middle“ is a frequently-heard phrase. The number of medium-sized businesses is very low.

No mid-tier sector without market integration

A third point is that industrialisers lagging behind the main pack – as is the case with the majority of sub-Saharan countries – face a problem. Industrialisation can no longer be viewed as a panacea for growth and employment. Poorer countries now have great difficulty in becoming industrialised successfully in the face of global competition, rapid technological change and global demand shifts towards services. These hurdles can only be overcome with a growing, competitive mid-tier sector. The political economy of favouring large companies, practised by state elites, constitutes an obstacle to economic growth.

A fourth aggravating factor is the lack of market integration. State and market failure (depending on ideological classification) is frequently observed. However, the problem lies in the poor market integration of the economic entities. Above all, these are farmers and rural companies which are, to a large extent, forced to operate in a small-scale manner. They lack connections to urban consumers, as well as integration among the competition.

No chance: African countries as „industrial hubs“

The significance of the link between production, trade and market opening is repeatedly underestimated. This is a fifth aspect. Although trade within Africa has developed, comprising a share of 15% of overall trade, high customs barriers and the poor level of road and communications links between the countries impede inter-state exchange. The customs barriers to Europe are lower, but here, non-tariff trade barriers obstruct access to the European markets. Additionally, the European Union’s highly-subsidised agriculture distorts competition to Africa’s disadvantage. As a result, African food producers have little chance of exporting their goods. In the event that African companies wish to avail themselves of their export opportunities, they must work to become more competitive on their own, and align themselves to the global technological standard.

A sixth point is that the majority of African producers have virtually no chance against the global product cycle of simple consumer goods. Today, t-shirts are hardly ever manufactured in Europe any more, as production relocated first to Taiwan, and subsequently to China before ending up in Bangladesh and Vietnam. Africa will remain marginalised for several reasons. Not only because African companies are too small and unproductive, and their manufacturing processes too costly –  but also because they simply lack trained staff to perform such basic tasks. As a result, the hope that investors will now develop a host of African countries into „industrial hubs“ due to increasing unit labour costs in China and Turkey, among other countries, is deceptive.

And yet…

There are signs that a shift away from an agricultural society towards market societies with industrialisation and modern agriculture may be looming on Africa’s horizon. Africa is becoming increasingly urbanised. Growing consumer markets are emerging in the cities. Cities with burgeoning middle classes are becoming „urban hubs“ with an expanding mid-tier sector and modern industry.

Compact with Africa

In the light of these major challenges, one asks oneself what a new German Africa policy should take as its starting point.

1. In Africa, security constitutes a prerequisite for development. People will only stay at home and see their future there if the fight against terrorism is successful and if the conflicts between countries and the social, political and economic crises within the countries are contained and citizens can feel safer. For German politics this primarily means extending support to the African security institutions and agendas
2. Germany would be advised to rethink European trade cooperation and view this in close conjunction with European agricultural policy. It is correct to advocate fair trade relations, as in the example of Gerd Müller, Federal Minister of Economic Cooperation and Development. As long as Europe and the USA subsidise their agriculture to the extent they do at present, African farmers have no opportunity to find a firm footing on the European markets, this barring the products not manufactured in Europe.
3. Deliberations surrounding a “Compact with Africa” make sense. Policies that deepen the complementarities between foreign direct investment and domestic investment should be promoted to ensure sustainable growth (amongst others integration in value chains, and industrial clusters). Regional economic integration is essential for Africa to utilize its full growth potential.
4. Germany’s companies do not require any subsidies in return for investing in Africa. All they need are improved conditions as far as German Hermes export credit guarantees are concerned. German industry is strong, with large enterprises and the German mid-tier sector manufacturing on a global scale, and this successfully. Convincing reasons why German companies (800 of them, after all) keep a low profile in Africa exist. The African market is small, and political unrest is frequent. If German companies see opportunities for growth, they will invest.
5. Germany could contribute to a turnaround if German initiatives provided more support for the expansion of infrastructure (roads, ports) and access to electricity and water for all than they have to date. African governments have many plans related to the development of infrastructure. Its expansion creates professional opportunities for the growing populations, furthers information exchange and competition, is an integral part of progressive urbanisation and promotes peaceful, regional exchange. Furthermore, a functional infrastructure is a prerequisite for the creation of intra-African value chains and for the inclusion of African companies within global value chains.

Cooperation, but how?

It is the task of the African states and their ruling elites to bring about development. Europe can support processes of endogenous development via the above-mentioned measures, as well as technological and research collaborations, taking leave of the old, neo-post-colonial model in the process.

This post was first published in German language on the Blog „Zukunft der EZ“.