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Is Europe missing the opportunity to invest in Africa?

Last Wednesday, South African President Cyril Ramaphosa added some impassioned impromptu remarks while addressing the European Parliament. Ramaphosa insisted that lasting peace in Africa, and a durable partnership with the European Union, depends on investment flowing from Brussels: “Without opportunity, without investment, without thriving economies that enable us all to enjoy our place in the sun, we cannot hope to have political and social stability on the African continent”.

It’s a message that at least one European leader apparently agrees with. A few weeks ago, as she hosted a summit of African leaders, German Chancellor Angela Merkel announced a new €1bn development fund aimed at Africa. Given that the pronouncement came just a day after Merkel stated that she will retire from politics in 2021, the new fund is likely at least partially motivated by the desire to change the narrative around what has become one of the defining moments of Merkel’s 13 years in power: her decision in 2015 to open German borders to more than a million asylum seekers.

Regardless of Merkel’s motivations, the new fund hopefully signals a long overdue sea change in how Europe views Africa. Rather than being stuck in a donor-beneficiary mentality, Europe must start to consider Africa an economic peer and a strong trade partner. It’s a shift that other nations such as Qatar and China have already made, leaving Europe to play catch-up.

Baby steps for European investors

European countries have been tentatively exploring how they can tap into Africa’s economic opportunity. Britain has outlined its desire to become “the number one investor in Africa”, even if this is motivated in no small part by the need to find new trade partners as Brexit approaches. Yet the U.K. has struggled to break free of its old colonial mindset, as some commentators noted that British policymakers’ idea of the UK-Africa trade relationship remains overly focused on boosting British GDP to the detriment of the creation of sustainable African economies.

In contrast, the EU appears to be shifting to a more positive model of engagement with Africa. In September, European Commission President Jean-Claude Juncker suggested that the EU should deepen its economic and trade relations with the continent via investment and job creation, with an increased emphasis on private sector involvement. The EU’s newfound interest, of course, is also motivated in no small part by its own welfare: the refugee crisis has shown Europe that it can no longer, as one commentator put it, allow its Africa policy to be a “graveyard of big words, good intentions and unfulfilled promises.”

Europe lagging behind

And Europe has a lot of catching up to do. Nations such as tiny but incredibly wealthy Qatar are already ahead of the game in forging investment links with Africa: the emirate’s diplomatic and business representatives have been wending their way around the continent for years, identifying opportunities and allocating funding.

The Middle Eastern country has already acquired almost a quarter (23.5%) of pan-African Ecobank, making it the largest shareholder in the Sub-Saharan African bank, while Qatar’s Katara Hospitality has joined forces with hotel giant AccorHotels to create a $1 billion fund to invest in sub-Saharan Africa.

The Gulf state has also handpicked individual African countries to invest in. Uganda, for example, is seeking Qatar’s help to support its ambitions to become a global tourist destination. Trade between Qatar and South Africa has already increased by 70% over the last year, a partnership slated to be strengthened by further cooperation in areas such as gas infrastructure and agriculture. Qatar signed a $4 billion agreement with Sudan – where Qatar is already the largest foreign investor –to develop the Red Sea port of Suakin off Sudan’s coast, and plans to invest another $500 million in Sudan's agricultural sector over the next three years.

Ample Chinese cash, at a cost

While Qatar has made a big splash in Africa despite its small size, no country is making its presence known in Africa more than China. Beijing has been funding everything from railways to airports to river dams, and in September, Chinese President Xi Jinping pledged another $60 billion in financing for projects in Africa.

The $86 billion of cash China has already handed Africa between 2000 and 2014 made it the continent’s single-largest creditor. This influx of Chinese money has transformed the continent, bankrolling everything from the African Union headquarters complex to a railway that is Kenya’s largest infrastructure project since independence.

There are nevertheless worried whispers in the international community about what, exactly, China’s game is when it comes to Africa. Many fear that Beijing’s intensive investment is the first phase of a neocolonial landgrab, aimed at securing political influence despite Xi Jinping’s assurance that "China's investment in Africa comes with no political strings attached".

Critics particularly highlight certain issues, such as China’s resistance to employing local labour on its African projects, or the fact that in a region with a significant number of countries in or at high risk for debt distress according to the International Monetary Fund, cheap Chinese loans risk pushing African countries into further economic distress and dependency.

A European alternative

Despite these drawbacks, Beijing’s cash is a valuable resource for a continent which needs as much as $170 million of investment in new infrastructure a year. As climate change ravages Africa, this figure will only increase.

For Europe to offer an alternative source of funding for the innumerable bridges, dams and railways which Africa needs would be a win for both continents. A greater choice of lenders could enable African leaders to negotiate better loan terms, such as ensuring that local personnel work on projects. Meanwhile, European firms could get their foot in the door on highly lucrative projects. The Sudanese port Qatar is developing, for example, promises to become a major regional shipping centre—and the Gulf state will receive 49% of the rents. Given these advantages, Europe would do well to heed Ramaphosa’s call for investment.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes

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