It takes more than just potential

Berlin/Flensburg, 31/01/2024: Prof. Dr. Stefan Liebing, Prof. Dr. Kay Pfaffenberger and Prof. Dr. Thomas Schmidt have written an article on German investments in Africa for the yearbook 2022/2023 of the German Africa Foundation. The article in the Economy and Development section analyses the hesitant attitude of German companies when it comes to investing in Africa. There is a saying among entrepreneurs and economists that although Africa is seen as the continent of the future, it may remain in this role for the next hundred years due to various hurdles. The low level of investment from Germany in Africa, despite the obvious potential, is attributed to two main reasons.

Firstly, it is pointed out that the German SME sector, which is often export-orientated and less internationally active, is risk-averse and less experienced in global business relations. In contrast, large corporations, which dominate the economies of neighbouring countries, are more experienced internationally. To attract a family business to invest in Africa, these companies would need to understand and experience the continent better. In addition, the support of banks and the provision of debt capital would be crucial, which is often difficult without state risk protection.

Secondly, it is emphasised that German business models often do not match the requirements in Africa. The existence of “great potential” alone is no guarantee of investment success. An example is given in the area of agriculture and mining: Although there are theoretically many opportunities, German companies have so far hardly invested in these sectors in Africa, not because of the framework conditions on the ground, but due to a lack of business models on the German side.

The authors suggest carrying out a detailed analysis for each African country in order to identify the overlaps between local opportunities and German business models. Focussing on areas such as production and information technology is considered realistic. Finally, it is emphasised that development policy should aim to distinguish feasible projects from daydreams and use resources efficiently. It is emphasised that a clear “investment story” should be developed for each African country in order to invest specifically in promising approaches and avoid disappointment.