Germany views Africa as a potential trade partner in the wake of global trade forced realignment amid Russia’s war with Ukraine and concerns about supply chain reliance on China.
According to an article published by The Africa Report, the CEO of Afrika-Verein— a Berlin-based German-African Business Association, Christoph Kannengiesser, stated that African countries have recently emerged as attractive partners due to the tensions with Moscow and Beijing.
Kannengiesser says that German politicians are becoming increasingly aware that the German private sector is an important partner in cooperation with African countries as Germany leads the charge in engaging with Africa at the multilateral level.
With its members working in various sectors, including financial services, energy, and manufacturing, and including giants such as Allianz, Airbus Defence and Space, BASF South Africa, and Bayer, the Afrika-Verein has 550 members, making up 85% of German business interests in Africa.
In 2021, German direct investment in Africa amounted to $1.7bn, with approximately $1.2bn going into sub-Saharan Africa, representing less than 1% of Germany’s foreign direct investment, a figure the government wants to change as Approximately 600 German companies currently do business in South Africa, with a combined trade value of $14.7bn a year. And according to official figures, South Africa exports value-added goods to Germany worth $8.6bn annually.
The conflict in Ukraine has made Germany seek new energy suppliers overnight after Russia cut its energy supplies to EU countries and suspected sabotage on the Nord Stream pipelines. The Nord Stream pipelines, which had been transporting Russian gas to Germany and the rest of Europe for more than a decade, were projected to guarantee Europe’s energy supply for the next 50 years.
However, Russia’s invasion of Ukraine in February 2022 shattered that illusion. According to the Afrika-Verein, Africa is well-positioned to become an alternative source of energy for Germany, with Senegal’s gas fields capable of easing Germany’s energy bottleneck and Namibia offering the potential to produce commercial green hydrogen.
Germany recognizes Africa’s potential as a market for German products and partner in the global economy, with several ministries in Chancellor Olaf Scholtz’s administration updating their Africa strategies to align with the shifting international dynamics.
In May 2022, Chancellor Scholtz, accompanied by a German business delegation eager to deepen trade, investment, and energy cooperation, visited Senegal, Niger, and South Africa to strengthen cooperation between the countries.
In December, barely six months after Scholtz’s trip, Vice-Chancellor Robert Habeck, who doubles as the German Federal Minister for Economic Affairs and Climate Action, visited Namibia and South Africa.
According to Kannengiesser, German politicians are increasingly aware that the German private sector is an important partner in cooperation with African countries, citing the German Ministry for Economic Cooperation and Development’s new Africa Strategy and reforms to the instruments of foreign trade promotion by Habeck’s ministry as evidence of a new German approach to Africa.
“The fact that ministers are increasingly visiting countries like South Africa, Namibia, Senegal, Niger, Ethiopia, Nigeria or Mali [means that] African countries are gaining importance for the German administration,” Kannengiesser said.
Martina Biene, Managing Director and Chairperson for the Volkswagen Group South Africa (VWSA), said that Volkswagen is determined not to miss out on the growth wave coming to Africa, home to the world’s fastest-growing middle class.
Biene, the first woman to lead VWSA since the world’s largest automaker began operating in South Africa in 1946, added that economic indicators point to the continent as the next significant growth region globally.
In a bid to boost the auto industry in Africa, Volkswagen South Africa (VWSA) is calling for support from the German government and African states. The German auto giant operates the biggest car factory on the continent, located in Kariega, Eastern Cape, where it builds several models from its Polo line of cars, employing around 4,000 people.
According to Biene, the company believes in the region’s potential and has already begun its journey toward venturing into Africa. The CEO listed items that could assist in boosting the auto industry on the continent, including support in vehicle production, supplier investment, and bringing the right skills.
She believes that Europe can support the industry by encouraging suppliers to come to Africa, alongside OEMs, to manufacture or do more than just vehicle assembly. Biene added that Africa needs to tighten its regional auto policy, look into the development of cleaner fuels, and curb the sizeable second-hand car market to lay the groundwork for future investment.
VWSA’s approach aligns with that of the African Association of Automotive Manufacturers, which calls for automotive policies to increase new car demand and reach the needed vehicle threshold. And the same applies to South Africa, according to Biene.
However, she noted that the need for more volume has limited investment in local content. The Kariega plant can produce about 165,000 car units a year, which lags behind the threshold for many suppliers, emphasizing the need for more volume to grow the industry to the level and standards that European heritage manufacturers would be happy with.
Biene added she asked German Automotive Association President Hildegard Mueller to support clean fuel during Mueller’s recent visit to the region, noting that poor fuel quality limits the car models the company can supply since they lack engines to supply for such bad fuel quality.
“Better fuel quality would enable better technology in the engines to reduce CO2 emissions and the CO2 footprint of African countries,” she added.
According to Kannengiesser, Germany is taking the lead in multilateral engagement with Africa, highlighting the G20 Compact with Africa, initiated by Germany in 2017 to encourage private investment on the continent, and the European Global Gateway Initiative, which provides a framework for EU external investment, as examples of Germany’s commitment to the continent.
Last June, President Cyril Ramaphosa was invited to attend the G7 Summit in Munich as a guest of German Chancellor Angela Merkel, who called South Africa a key partner country. Despite these efforts, Kannengiesser believes more needs to be done to support German companies in Africa, particularly in the energy sector.
He also noted that East Africa is experiencing a circular economy boom, while South Africa is becoming an attractive market for German electric cars.
Germany’s new strategy for Africa has stemmed from a crumbling traditional trading relationship with Russia and a growing concern over supply chain reliance on China. With Africa viewed as the fastest-growing middle economy in the world, increased cooperation between Germany and African countries is a win-win.