The EU-Africa Summit: Why Germany should take center stage

This week, over 40 African heads of states have made the trip to the European capital of Brussels—the city that embodies the dream of what regional integration could deliver to Africa—for the EU-Africa Summit. Germany and Angela Merkel will be part of the European heads of states attending the meeting. Unlike the African heads of states meeting in China where the main objective is to raise additional resources for much needed infrastructure; in Japan for help on institutional development; and in France to redefine and strengthen the historical ties that bind or build new ties—the relationship between Germany and Africa, an old relationship, is one that should take center stage. Germany has increasingly more to share with Africa.

Germany is the fastest growing country in Europe. It is projected by the International Monetary Fund to grow at 1.6 percent in 2014, compared to only 1 percent on average for the euro area. And while in 2012 and 2013 average EU area growth averaged -0.5 percent, Germany’s average growth was 0.7 percent.   Germany, like Africa, has weathered the financial crisis well.   Sub-Saharan Africa is the second fastest growth region after East Asia, with a growth rate of 4.8 percent in 2012 and 5.1 percent in 2013. Like Germany with the Marshall Plan, Africa has benefitted from substantial amounts of aid. Post-World War II Germany was the first global fragile state that succeeded in making an impressive turn. Germany has been at the center of two processes of integration: first, the EU, and then the merging of East Germany with West Germany. Throughout this period, Germany has led the way in the industrial revolution—as a leader in the manufacturing sector—and is one of the textbook examples of the power of cluster and value chain development.

There is much in its history, culture and economy that can be shared with Africa. From collaboration on issues of industrialization, regional integration and energy efficiency, this partnership will benefit from increased attention.

How Africa Can Build on German Markets for Industrialization

Industrialization is a priority for many African governments, and over the last decade its exponential population growth has accelerated the need for countries to put in place sustainable policies for job creation. Just last week, African finance ministers met in Abuja to discuss job creation and share experiences. In Europe, Germany has led the way forward in the industrial revolution: She is a leader in the manufacturing sector and is one of the textbook examples of the power of cluster and value chain development. Germany is currently the world’s second-largest exporter in value-added terms. For decades, Africans have trusted German industry and its products, such as household products like blenders to cars to computers.

In addition, trade between Africa and Germany has accelerated over the last decade. Imports from Germany to sub-Saharan Africa increased by over 133 percent between 2002 and 2012, going from $100 billion (2005 constant USD) to over $350 billion. Exports from the region to Germany have also risen by the similar magnitude. The top three export categories from Germany to Africa are machinery, manufactured goods and chemicals. Germany has, over time, increased its imports of fuel-based commodities from Africa, and imports of food and other commodities have decreased as a share of total imports: The top three imports from Africa are fuel, agriculture commodities and some manufacturing—but over 75 percent of all imports are fuel.

With German exports to other emerging markets dropping, Africa is becoming an important export market for Germany. As Africa’s middle class grows, the demand for manufactured goods from Europe and Germany in particular stands to increase. Germany can benefit from rising demand for its exports from Africa at a time when its exports to the rest of Europe are dropping. Increasing its exports not just to emerging markets but to all of Africa could help Germany accelerate its growth. Africa should use its growing market size and incomes to pull greater foreign direct investment from Germany and build supply chain linkages with German companies—a credible path to long lasting industrialization. Today, Germany is a major exporter of intermediate goods used in the manufacturing supply chain. Therefore, as German automotive factories and parts manufacturing seek cheaper labor out of Europe, Africa can position itself to compete for some parts of this industry.  South Africa, Nigeria, Angola, Ghana and Kenya are the top five countries that account for over 80 percent of all German exports to Africa. These countries also have the skills mix to host German FDI locally.  The increase of imports of passenger cars from Germany to Africa, for example, has increased from about $700 billion in 2002 (2005 constant USD) to $1.8 trillion billion in 2012. Over 80 percent of German imports from Africa come from South Africa (37.2 percent), Nigeria (35.8 percent), Côte d’Ivoire (7.8 percent) and Angola (2.1 percent). As noted above, Africa’s exports to Germany, however, are concentrated largely in the fuel sector—implying Africa is not competitive on other fronts. Thus, the ongoing EU-Africa summit should provide a launching pad for discussing the terms of a strong trade partnership with Germany as part of the overall EU-Africa trade discussions.

In addition, while FDI from Germany can help improve Africa’s competitiveness, a number of factors continue to stand in the way, including labor market reform—another policy area from which African can learn some lessons from Germany.  Labor market reforms will be crucial for Africa to benefit from its demographic dividend, especially as the population in Germany ages.

Building Regional Markets—A Strategic Element of German Aid

Germany remains an important bilateral donor for sub-Saharan Africa.  Germany is the fifth-largest overseas official development assistance (ODA) donor in terms of disbursements. In 2011, it gave as much ODA as the African Development Bank. However, as a share of total official development assistance from Germany, Africa only receives 35 percent, putting Germany well behind countries like Sweden, Luxembourg and the Netherlands from which over 50 percent of each country’s ODA goes to Africa. Germany lost its position as the third-largest bilateral donor to Africa in 2005 to the U.K.

A sizeable share of German ODA today is directed towards supporting regional integration and capacity building. Their experience with regional integration is invaluable to Africa.  Over the last five years, as the effects of the worst financial crisis since the great depression raged on, the debate on the future of the eurozone and European economic integration took center stage. Germany’s consistent leadership helped steer the European Union away from the brink. Today, as Africa contemplates regional integration, first via sub-regional economic blocks and then as a continent, the experience of Germany is pertinent. Through its development cooperation arm GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit), Germany began providing support to the African Union and its affiliated institutions in 2003. The cooperation framework between Germany and the African Union seeks to build and strengthen the African Union and, as such, all agreements are anchored within the regional body. A flagship of the cooperation between Germany and the African Union is through Germany’s support of New Partnership for Africa’s Development (NEPAD), the Programme for Infrastructure Development in Africa (PIDA) and Institutional Architecture for Infrastructure Development for Africa (IAIDA). This cooperation agreement, which began in 2006, has helped the African Union identify and develop of a number of key regional infrastructure programs as well as forge consensus on a number of priority programs to be presented at the NEPAD-Dakar Financing conference in May of this year.

Vera Songwe