In February 2022, the EU and the African Union hosted a joint summit, the sixth in a series since 2000. Billed as a “reset” of Europe–Africa relations, it had been postponed from 2020 due to Covid-19. Much fanfare accompanied it, especially the announcement from the European side that half of the Global Gateway finance, a 2021 commitment to spend €300bn on global development between 2021 and 2027, would be spent in Africa, in a blend of both public finance and private investment.
European investors, given their colonial legacies in African countries, already have significant in-roads on the continent. In 2018, foreign direct investment (FDI) from Europe accounted for close to 50% of total stocks in Africa. But growth of European FDI has been slow — barely keeping up with African economic growth, which has quadrupled since 2000. European FDI has also been primarily focused on oil and gas and other extractive sectors, and in generally low value-added, low-tech activities.
Africans have therefore looked to many other players across the globe to invest in other sectors — from vehicle manufacturing to agricultural value-addition, to textiles, fintech and pharmaceuticals. Indeed, it could be argued that due to the lock-in of old extractive supply chains, Europe is a laggard compared to investors when it comes to realising that these are the crucial future economic growth engines for the African continent.
Europe is a laggard compared to investors when it comes to realising that these are the crucial future economic growth engines for the African continent.
So, while government initiatives are just that — initiatives — they have the potential to set the tone for investors. The big question is, have European investors made any new in-roads into African countries since the Global Gateway announcement?
Unfortunately, the Global Gateway has come under fire for being a ‘labelling’ exercise, rather than stimulating truly additional new finance. In addition, new forays into energy financing, for example investment into natural gas in Senegal and interest from investors in solar and green hydrogen in northern and southern Africa, have been accused of simply furthering European interests, especially to reduce reliance on Russia.
Many of these projects are essentially designed to export energy across the Mediterranean, rather than, for instance, power African manufacturing capacity or even African residential pools. For example, a 2022 survey representing 85% of German companies active in Africa found that 43% want to boost their activities in Africa next year, especially in areas such as green hydrogen and liquefied natural gas. However, to put this in context, only around 1% of Germany’s total FDI goes to Africa.
On the other hand, in 2022 there has been some positive new interest from European investors, indicating interest in diversifying and experimenting with new business models in Africa. In February 2022, for instance, a memorandum of understanding was signed between 12 European and African Automotive Associations with a view to grow the African new vehicle industrial capacity. BioNtech, the German start-up behind Pfizer’s Covid-19 vaccine, has announced that it will establish vaccine manufacturing facilities in Senegal, Rwanda and Ghana.
That said, a major issue going forward is whether European investors will have much appetite for outbound investment in general, given increasing inflation and interest rates — especially for greenfield FDI, which is the greatest need in Africa right now. At the same time, these features also create incentives to diversify, and Africa has improving pull factors, including the African Continental Free Trade Area (AfCFTA), going into its second year of operation.
The European investor gateway to Africa is certainly littered with legacy challenges. But bright spots are slowly emerging.
Hannah Wanjie Ryder is the CEO of consultancy Development Reimagined and senior associate at the Center for Strategic International Studies Africa Program.
Hannah previous columns:
- Africa has more to offer in 2023 than meets the eye
- Tackling Africa’s logistic gap is key to global supply chain resilience.
- The power of remote working is underutilised.
- Why it is time for innovation to go beyond IP.
This article first appeared in the February/March 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.