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Reciprocal investment model will be key to winning Africa’s hand

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China’s latest play for greater influence in Africa involves advancing $60 billion in aid and loans to African nations without political conditionality. Announced at the just-concluded Forum on China-Africa Cooperation (FOCAC) in Beijing, which drew the attendance of more than 40 African Heads of State, this move comes hot on the heels of high-profile state visits to Africa by key Western leaders, including the UK’s Theresa May, Germany’s Angela Merkel and France’s Emmanuel Macron. For most observers, these developments are clear signals that competition for influence in Africa is intensifying. However, to truly understand Africa’s place in today’s global geopolitics, it is important to look beyond the East vs West dichotomy and first to consider Africa’s needs and ambitions.

 

Most African countries have a clear development and growth strategy but face complex political and operational challenges in executing their plans. What is less well understood is the array of options they have in addressing these challenges as Africa’s engagements on the world stage extend far beyond China and its traditional western partners. Between 2010 and 2017, more than 65 countries increased their overall trade with sub-Saharan Africa, according to data from the International Trade Centre. Over the past few months, Africa has played host to Heads of State and senior diplomats from Brazil, Argentina, Russia, India and Turkey, to name just a few.

 

All these countries, despite their divergent interests, seem to understand one thing: the future of their nations is linked to the partnerships they forge in Africa today. This is a continent where 60% of the population is below 25 years of age and expected to double from 1.2 billion in 2017 to 2.4 billion in 2050 (representing a quarter of the world’s population), with 60% of the world’s uncultivated arable land and which is growing robustly against the backdrop of tepid global economic growth – six of the ten fastest growing economies in 2018 will be African, according to forecasts from the IMF. There are obvious challenges to overcome, which require proper policy and planning to address the urgency of job creation, climate change mitigation and adaptation and dismantling systemic inequality. But the fundamentals are compelling, particularly when looked at with a long-term view.

 

Amidst the surge in foreign interest in Africa, traditional partners such as the UK, France and even the US are finding it harder to protect and expand their sphere of influence on the continent amid increased competition. Aggressive nationalism within the current US administration has shaped a more inward-looking policy agenda which can appear indifferent – often even hostile – to interests outside US borders.

 

The UK represents a very different state of affairs, with the complex negotiations around Brexit also being accompanied by a concerted push to lay the foundations of stronger trade and investment relations outside Europe, even linking this more concertedly with UK aid initiatives. While Europe still tops the agenda and we are unlikely to see a wholesale pivot away from the UK’s main trading partner, the reinvigorated focus on partnerships with other parts of the globe – including Africa – presents enormous medium and long-term opportunities. This is reflected both in greater engagement with many African countries and a more joined-up approach across Whitehall to leverage DFID’s development track record, CDC’s patient capital and the FCO’s diplomatic expertise to support DIT’s drive to seek and grow new export markets for the UK.

 

Nevertheless, the UK still faces strong competition in its strongest sectors – extractives and energy, financial and professional services, engineering and construction, health and education. In such a crowded landscape, competitive edge will not be determined purely by capital or favourable trading terms but also by meaningful commitment to reciprocity. The UK and others need to think beyond what they want to export and access and seek to truly understand the priorities of their African partners so together, they can explore models and solutions which deliver meaningful mutual benefits.

 

Though Africa is diverse and dynamic, there are some common considerations that foreign partners keen on gaining traction on the continent should bear in mind. Where international companies or governments can align their strategy with that of their African partners, they will generally find themselves experiencing less friction, opening the door to more constructive dialogue on policy and operational issues. Companies’ ability to design and promote strategies that recognise the need for developmental impact and long-term commitment over quick-wins and fast-bucks will likely also perform better in the long run. Such an approach moves relationships from transaction to transformation. Investors and senior management teams should therefore include actors who are not purely focused on commercial terms and outcomes, but who understand how to communicate impact and create buy-in from the right stakeholders, from governments to communities on the ground. The whole process must put people, not just numbers, at the heart of decision-making.

 

As an example, manufacturing is a sector with great potential for transformation, provided the right approach is taken. Several African countries and investors – Dangote most notably – are adopting an increasingly ambitious approach to import substitution and backward integration, creating new value chains and unlocking new opportunity in adjacent sectors in the process. The continued rollout of infrastructure in energy and transport across the continent is making investments in manufacturing increasingly feasible, as are the more attractive commercial incentives being offered in free-trade zones and industrial parks being set up across the continent – most notably in Ethiopia. The re-emergence of African manufacturing as a government priority remains at a relatively nascent stage and the performance picture has been mixed. But the alignment of private sector and government interests is clear and while China is becoming an increasingly active player in this space, Western firms are also becoming increasingly prominent as Africa is seen as a viable - and indeed attractive – location for the next generation of manufacturing hubs, both for export and to service growing domestic demand in some instances.

 

Much of this opportunity is being created by shifts in the economies of India and China. China’s evolution from an investment-led economy to a consumption-led economy has led to domestic wage growth, resulting in manufacturers leaving the country for other low-cost destinations. China is expected to lose between 85 million and 100 million low-cost labour-intensive manufacturing jobs by 2030, according to the World Economic Forum. Some of the Chinese companies leaving the country are resetting operations in Africa, where the Chinese government has already rolled out infrastructure projects that make it easier for Chinese companies to do business and price their products competitively in global markets.

 

The quest for jobs in Africa is matched by a deep desire to play a more direct role in driving the continent’s agenda and for people to feel free to shape their own destiny. This is where the Chinese approach sometimes has its limits. Although China readily builds badly-needed infrastructure, they use their own financing, contractor firms, technology and even labour in some instances from end-to-end. This doesn’t give Africans meaningful ownership of the process and can fuel resentment and mistrust, which has been evident around some of the larger more politicised Chinese infrastructure projects being delivered on the continent.

 

Western companies generally have a better track record of working with local staff, including integrating them in key management positions. They can make a real difference by being purposeful about skills, knowledge and technology transfer. Asking African Governments and companies what they need, listening carefully and creating business models, products and services designed to achieve their goals will become a pre-condition when negotiating access to African resources and markets for foreign goods and services. The trade and investment model for Africa must be truly reciprocal in action, not just in rhetoric, in order for the continent to take up its position as a globally important trading partner, consumer market and talent base.

 

 

About the authors:

Lennox Yieke, an Associate Consultant at the africapractice Nairobi office focuses on the financial services sector, technology, trade, investment and economics.

 

Natalie Maule is the Managing Director, africapractice UK and International and specialises in designing and delivering effective communications and engagement strategies to support major investment and change programmes across the continent.

 

Roddy Barclay is the Head of Intelligence and Analysis at africapractice. He has advised clients across diverse sectors on managing political, reputational and security risks for over seven years, and has developed particular expertise in extractives and financial sector advisory. 

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