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“We want to make it easier for German companies to enter the African market”

 

Interview with Vice Chancellor and Federal Minister of Finance Olaf Scholz

 

Minister Scholz, you were recently in China. Together with Bundesbank President Jens Weidmann, you wanted to discuss issues such as how Chinese infrastructure investments abroad – including in Africa – can be better coordinated with German projects. What were the results of this visit?

The main objective of the second German-Chinese financial dialogue in Beijing in mid-January was the deepening of cooperation between China and Germany in matters of finance. We made good progress, particularly towards the goal of the reciprocal opening-up of markets. We also discussed the topic of international indebtedness. Large infrastructure projects have to be solidly financed in order to avoid new debt crises and not jeopardise development successes, especially in emerging and newly industrialised countries with their prevailing low incomes. China is now one of the largest lenders in these regions. As such, fair standards and greater debt transparency are important. German projects will benefit from this as well.

 

While China is launching one megaproject after another in Africa, German companies, especially SMEs, are still holding back. Why do you think this is?

Chinese companies are indeed making an enormous contribution to the development of infrastructure on the African continent. However, questions regarding the sustainability and financing of these megaprojects frequently arise – and justifiably so. Generally speaking, German companies operate quite differently in Africa, especially with regards to the scale, business area and risk assessment of investment projects. It’s good that increasing numbers of German companies are showing interest in Africa as a market and a production location. This shows that the partner countries are on the right track with their structural reforms.

 

There is increasing criticism of China’s lending practises in Africa.  You think that China should disclose its financing. How can this be achieved?

The most important creditor countries have joined forces in the Paris Club. Although China regularly attends selected meetings of the Club, it is still not a member. I think it would be good if China took on a more active role in the group, and became a member of the Paris Club in the medium term. The G20 countries also play an important role with respect to this issue. In 2017, they agreed on guidelines for borrowing from and lending to low-income countries, although these still need to be implemented. We’re working on this in the G20, together with the World Bank and the IMF, and China is an important partner here.

 

At the G20 Investment Summit, Chancellor Merkel announced a development investment fund for small and medium-sized enterprises. Can you tell us about this, and what is the current state of affairs?

With this fund, we want to use the billion euros to promote trade and investment over a period of three years, primarily in those countries that are taking part in the Compact with Africa. The project consists of three components, and will be launched in the course of this year. With the AfricaConnect investment fund, we want to make it easier for German companies to enter the African market despite the existing risks. We do this, for example, by promoting the financing of loans and investments by small and medium-sized enterprises in Africa. Secondly, we want to expand the Wirtschaftsnetzwerk Afrika (Africa Business Network) for small and medium-sized enterprises and thus support companies more effectively if they want to enter the African market. I’m aware of many reports from your members, who describe how much effort is required to enter the market due to the difficult conditions, particularly for small and medium-sized enterprises. Thirdly, the AfricaGrow investment fund aims to support African companies with high growth potential through equity financing, primarily in countries that are members of the Compact with Africa. This should also be supplemented with business consultancy. Here too, partnerships with German companies can develop via intra-African value chains.

 

What would you recommend small and medium-sized enterprises that have not ventured the step to Africa?

Africa is certainly not a continent without its complications, however many countries there offer great opportunities today. Strong momentum for reform can be seen in a number of countries. Within the framework of the Compact with Africa, the G20 wants to help create the conditions on the ground to make it easier for small and mediums-sized enterprises in particular to gain a foothold. In addition to the development investment fund, there are a number of measures that aim at reducing business risk. These include halving the standard deductible amount of five percent for investment guarantees for eligible projects.

 

What concrete steps can the German federal government take to promote German investment in African countries and create jobs for the growing population?

The goal of the AfricaConnect investment fund is to promote investment and create jobs. In addition, we support regional business locations and industries of the future by strengthening clusters that could also be interesting for small and medium-sized enterprises from Germany. As the German federal government, we also promote new job and training partnerships with companies and training institutions on the continent. In addition, we provide targeted support to funds that reduce currency and financing risks.

 

The population of Africa is forecast to double by 2050. Do you think this is a cause for celebration or concern?

Both. Africa’s young population presents an opportunity to stimulate great economic dynamism. However, the development of the population also poses us enormous challenges in terms of development, migration, and, increasingly, the environment. 

 

In recent years, the German federal government has provided impetus for a more modern Africa policy on a number of occasions, such as the Marshall Plan and the Compact with Africa. What do you want to achieve in the current legislative period?

Together, the G20 countries and their African partners have successfully established the Compact with Africa at an international level as a brand and signal for reforms. We can see that foreign investors are paying close attention to this signal. Under the Marshal Plan, Germany is making its bilateral contribution to the Compact with Africa. Now, concrete steps for implementation need to be taken for these initiatives. The development investment fund is an important step. We expect it to bring more investment from Europe to Africa, and more African companies will grow and prosper, creating more jobs, especially for young people.