Two years ago, Germany’s Chancellor Merkel launched the “Compact with Africa” program during Germany’s G20 presidency. The program had two goals in particular: African statesmen promised to create better conditions for trade and investment while the Chancellor promised economic development and private investment from Germany. A development investment fund was supposed to support German companies with up to one billion euros in their business on the African continent – a plan the government called the “core element of new cooperation with Africa”.
The previous week, leaders from twelve African countries met with Merkel in Berlin again. The project’s record so far? Subpar. In 2019, the German government has provided only €255 million. Still a significant amount of money, but far from the “up to one billion” pledge. Even worse, the project has already been gridlocked. German companies have submitted 220 inquiries regarding the fund and the option of facilitating a partial relocation of their operations to Africa. The amount of monetary support that has been distributed to these companies by now? Zero.
According to the Ministry of Economy, it has invested €5.3 million in 2019 for the so-called “Economic Network Africa”, a component of the investment fund. For 2020 “a significant increase” is considered, namely just under €18 million. However, it is still working with other foreign trade promotion programs in Africa and plans, as well as the Ministry of Development, to spend more money in the coming years.
So far, the “Compact for Africa” project has therefore been rather unimpressive, despite all good intentions. The reasons are as plentiful as obvious. First, a significant increase in private investment and jobs has been lacking so far. Second, Africa, despite being a protagonist, is being treated as a sideshow in the project, namely due to lack of inclusion of the African representatives. Third, fundamental developments such as poverty or unemployment, especially among young people, may have been underestimated in the participating countries, with the strong population growth in many African countries potentially aggravating these issues in the coming decades. Hence, utilizing foreign companies to establish new industrial centres in capitals may not be a sustainable solution, but rather results in increased inequality in African societies.
The latter becomes evident in the example of Senegal, which is a member of the “Compact with Africa”. Senegal is considered a positive example and has been called a “reform champion” by the German government. However, despite solid economic growth, structural barriers such as inadequate power supply have limited private investment in the country, while also struggling to offer young people promising job perspectives. Other participating states are facing even more serious issues. Burkina Faso, for example, has been facing severe terrorism that causes many casualties even amongst foreigners and with no end in sight.
Another participant, Egypt, is one of the largest economies of the African continent and one of Germany’s most important trading partners. At the same time, President al-Sisi governs the state increasingly authoritarian, which, in addition to the crippling bureaucracy, could scare off foreign companies in the future.
“Compact for Africa” was Germany’s approach to become a player on the continent. Just like most other nations, Germany has realized the economic potential of Africa also. However, the commitment so far has simply been unsatisfactory, and much more than promises will be needed to provide momentum to the African economies, overcome the aforementioned issues the countries are facing and make the collaboration a winner for all sides involved.