European governments need to tackle the Chinese government over its trade policy in Africa, as Chinese companies are not playing by international rules, Christoph Kannengiesser, the CEO of the German-African Business Association, has warned.
Africa is the second-fastest growing region in the world and Germany has a considerable stake there. Almost 200,000 people are employed by German companies in Africa, with trade reaching €44.9 billion in 2013.
However, there are many fears that Chinese investment is crowding out other investors. China’s President Xi Jinping last year pledged $60 billion to African states – a considerable sum when you consider that UNCTAD reported that total FDI to Africa was $54 billion in 2015 (even though most of the $60 billion will take the form of loans and export credits).
This signals a significant change over a very short time: UNCTAD’s World Investment Report said Chinese FDI to Africa during 2013-2014 was only 4.4 per cent of the total to the continent, with EU countries, led by France and the UK, the overwhelmingly largest investors in Africa. However, the association is nevertheless concerned – primarily because Chinese engagement on the African continent is state-driven.
“Medium-sized south Chinese companies find good conditions for financing and they are sometimes subsidised by the Chinese government in a way which is not allowed in the OECD framework,” Dr Kannengiesser said.
This is an international trade policy issue which should be addressed by European governments
“Competition on the African continent is no longer OECD countries competing among themselves for emerging markets but OECD countries competing with the BRIC countries, and they are playing by completely different internal rules without international rules… And this makes competition complicated.
“This is an international trade policy issue which should be addressed by European governments when they talk to the Chinese,” he said. His association colleague Klaus-Peter Brandes – a former ambassador to Malta but also to various African states – believes, however, that African states are realising that cheaper is not necessarily better. “Governments there have become more and more critical of the seemingly cheap offer from the Chinese side as it is not economical in the long term. That is why German industry stands a good chance.”
Dr Kannengiesser believes that Germany and other European countries have no choice but to take part in this competition. “It is not about China bashing but about doing our homework. Often African governments tell us that they have no choice except the Chinese because no Europeans bid against them. There should also be a political debate among the governments on how to deal with business opportunities in Africa but also how to promote the economic development of the continent.”
There are, unfortunately, institutional bottlenecks relating to financing with some banks reluctant to deal with entire countries and even export credit agencies imposing numerous conditions to be fulfilled by a country in order to be eligible for an export guarantee.
“In Germany, we have homework to do to make it easier for German companies to be competitive in the African context,” Dr Kannengiesser said.
“This is a political problem and on the international scene it is important that more people are aware that at the end of the day, we are all sitting in the same boat when it comes to Africa. The continent has a population growth of two billion by 2050 and these young people will demand jobs and will have life expectations.
“I do not think we are doing enough to promote private capital from all over the world to speed up the integration of Africa in the global economy – and it has to happen over the next 10-20 years if we are to avoid huge problems.”