Tuesday, 15 February 2022 07:37

Europe’s winning formula for spending €150 billion in Africa

The EU’s Global Gateway can help create tools to foster Africa-Europe manufacturing value chains that can outcompete China, Michaël Tanchum writes.

In a headline-catching, 10 February announcement, the European Union declared its intention to invest €150 billion in Africa. The massive investment package is intended to jumpstart the troubled Europe-Africa relationship in the run-up to the 17 February European Union-African Union summit.

For Europe, which has been losing ground to China in Africa for a decade, the announcement and summit are the first tests for the EU’s Global Gateway connectivity grand strategy to counter China’s $1 trillion Belt and Road Initiative, which has been reorienting global commerce around Beijing’s strategic needs.

But can Europe’s new stand in Africa succeed? Dissatisfaction with the quality of Chinese products and China’s business practices have created an opportunity. While improving the continent’s infrastructure, China’s $47.4 billion investments in Africa have not created a China-style economic boom in any African country.

Europe can turn the tables by filling the investment gap in value-added production in sub-Saharan Africa. To do that, Europe will have to move beyond its old patron-client relationship patterns to create joint venture partnerships with African stakeholders in local manufacturing that employs Africans and adds to African GDP.

Africa’s green energy innovation ecosystems allow Europe to engage in such win-win partnerships in a manner consistent with European standards and priorities. Profitable, digital, and climate-friendly, these green energy innovation ecosystems interweave telecoms, digital financing and solar power to create a nexus of new services and industries that have spurred the growth of consumer markets across sub-Saharan Africa.

And African markets matter. While demography may not always be destiny, demographics make Africa the global economy’s next destination for labour and consumer markets. By 2025, Africa will have over 100 cities with more than one million inhabitants – more than three times the number in the European Union.

By 2030, 42 per cent of the world’s young people will live on the continent, making Africa home to the world’s largest supply of affordable labour. With rapid urbanisation creating large yet underserved consumer markets, Africa is the fastest-growing end market for a widening range of products. No country can secure its position in the future global economic order without constructive engagement with Africa.

The time to engage is now. Countries that invest in African production will have a first-mover advantage entering Africa’s burgeoning consumer markets.

Europe’s way forward is through the continent’s green energy innovation ecosystems – Africa’s home-grown, 21st Century development model unleashed by Africa’s early adoption of mobile banking. Africa’s leapfrog into mobile banking has given many African consumers their first access to banking services and credit, leading to the rapid growth of consumer markets.

In 2019, mobile technologies and services in sub-Saharan Africa gave rise to $155 billion of economic value. This growth in economic productivity occurred with only a 45% mobile subscriber rate in the region. By 2025, sub-Saharan Africa’s subscription rate will reach 65% and near 100% relatively soon thereafter.

In Kenya, a mobile banking pioneer, $400 million in financing has been extended to consumers, enabling 1 million mobile subscribers to purchase off-grid solar power systems and refrigerators, TVs, and lighting systems powered by these systems. Notably, the solar panels used in these systems are manufactured in Kenya by SOLINC, a joint venture formed by the Netherland’s Ubbink and a local Kenyan company. SOLINC has sold over three-quarters of a million solar panels and has increased its production capacity by 400% to keep up with demand.

With Kenya’s solar power boom, the Finnish firm EkoRent Oy formed a joint venture with local partners called Nopea Ride to create a taxi fleet in Kenya of solar-charged EVs using the company’s ride-hailing app to operate on Kenya’s mobile networks. Starting in 2018, the Kenyan-Finnish joint venture has scaled up to 100 electric vehicles. Now Nopea Ride is creating a solar charging hub in Nairobi as a prototype for deployment across Kenya to service a nationwide electric vehicle fleet.

Volkswagen believes that Africa can leapfrog into EVs with this same approach as it leapfrogged into mobile banking. The company sees its pilot program to produce its e-Golf model in Rwanda as “a blueprint for electric mobility in Africa.” VW is conducting its African EV rollout in partnership with German conglomerate Siemens, which provides the EV charging infrastructure and a Rwandan start-up company, which created the mobile application to enable car-sharing and ride-hailing services.

Cooperation among the German and Rwandan firms and the Rwandan authorities benefited from the coordinating role played by Germany’s Federal Ministry for Economic Cooperation and Development in facilitating public, private partnerships. Volkswagen is now eyeing similar integrated mobility services in Ghana, making the West African country the likely next market for Volkswagen’s African EV rollout. The company believes it can develop a pan-African, automotive end market.

And it is more than solar panels and electric vehicles. With mobile networks enabling the Internet of Things (IoT), the approach is being used across a broad spectrum of economic and social needs – from boosting Africa’s farmers’ crop yields and livelihoods to creating market-based access to affordable clean drinking water purified by solar power. These hidden success stories show that Europe already has a winning formula for success in Africa.

Through the EU’s Global Gateway, that formula can now be implemented on a scale sufficiently large to create Africa-Europe manufacturing value chains that can outcompete China. Public-private partnerships should be embraced, and EU programming instruments need to facilitate European firms’ cooperation across economic sectors and member state boundaries.

In this way, Europe can level the field against government-backed Chinese enterprises. Currently, individual European firms compete piecemeal against Beijing’s ability to bundle Chinese firms from different sectors to form a single investment package to complete all aspects of any project. Europe can offer competitive consortiums by deploying EU coordinating platforms through the Global Gateway initiative.

Europe will also have to prioritise joint venture investments instead of solely imposing its standards on Africa through measures such as the Carbon Border Adjustment Mechanism, which are regarded as punitive and hindering Africa’s economic growth. Europe needs to lead by example. Working shoulder-to-shoulder with Africans through joint venture partnerships that abide by European standards while employing Africans and contributing to African GDP, Europe will convincingly demonstrate that its way of doing business is superior.

Those countries that make such smart joint venture investments in Africa, resulting in African-based manufacturing value chains, will be the winners in Africa and the agenda-setters in the global economy. Europe’s Global Gateway initiative has the winning formula to achieve that outcome.